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Government and People
|Transmittal Letter [not released with audit]
Results in Brief
Objectives, Scope and Methodology
During Fiscal Year 1997, approximately one-third of the District of Columbia's public schools was closed as the result of fire code violations. Corrective measures were hindered by uncertainty about the availability of capital improvement funds, a construction industry reluctant to do business with DCPS because of its history of late bill-paying, and reluctance by contractors to send workers into high crime areas. Efforts to resolve the crisis were complicated further by an ongoing lawsuit under which the Court's intervention and constant pressure exacerbated what was already viewed as an emergency situation. DCPS was faced with the significant challenge of awarding contracts and repairing or replacing roofs on 50 schools in less than 2 months. By operating in an emergency procurement mode, DCPS came close to meeting this substantial challenge and succeeded in replacing roofs and rebuilding adjoining and supporting structures in time to open nearly all of the schools by mid-September 1997.
We conducted an audit of the contracting and procurement Process used for the DCPS CIP contracts awarded during Fiscal Year 1997. Except as indicated in this report, our audit was conducted in accordance with Government Auditing Standards, 1994 Revision, applicable to performance audits.
The primary audit objectives were to determine if (1) DCPS had an effective procurement system in place during Fiscal Year 1997 for the CIP projects, and (2) the procurement system met the statutory, regulatory, and program needs of DCPS.
We concluded that DCPS did not have an effective procurement system in place during Fiscal Year 1997 for the CIP contracts, and the procurement system did not meet the statutory and regulatory needs of DCPS. DCPS's contracting process met its program needs to the extent that the school-closing crisis was substantially abated by mid-September 1997.
The Fiscal Year 1997 CIP projects were initiated and carried out under what DCPS officials referred to as emergency procedures. In the view of DCPS officials, they followed emergency procurement procedures deemed necessary under the circumstances. The emergency procedures followed did not comply with any established procurement policies, rules, or regulations. We concluded that the statute authorizing the CIP and the Authority's Resolution and Order establishing the DCPS Board of Trustees required DCPS to follow Federal procurement rules and regulations until the Authority prescribed some other procurement rules and guidelines (or until DCPS itself adopted such policies and guidelines).
DCPS did not maintain complete and organized records of procurement decisions and actions. Contract files were incomplete and disorganized. DCPS personnel stated that this was due, in part, to the fact that none of the contracts had been closed out. They indicated that they plan to assure that essential documents are eventually filed.
DCPS personnel indicated that they knew that the emergency circumstances under which they were operating would result in higher costs. We could not determine the extent of higher costs, but DCPS officials estimated that the extra costs were about 30 percent. Based on these officials' estimates, the extra costs may have been $7.2 million or more. DCPS personnel believe that many reasons existed for these higher costs and that the need to re-open schools and keep schools open justified the procurement methods used.
Although our limited-scope audit found no direct evidence of fraud, DCPS's emergency procedures were a departure from sound procurement practices, policies, and procedures and created conditions conducive to fraud, waste, and abuse. At a minimum, these conditions place honest personnel in compromised positions where their actions and decisions become suspect.
Because DCPS did not adopt or consistently follow generally recognized procurement policies and procedures, we concluded that management controls were not adequate to protect against misappropriation of assets, errors, waste, or abuse. During contract performance, DCPS did not monitor contractor compliance with applicable laws, rules, and regulations incorporated into the contracts, but DCPS officials said that they intend to ensure that all compliance requirements will have been met before contracts are closed.
DCPS officials expressed strong views that audit results need to be considered from the perspective that they were forced to carry out the Fiscal Year 1997 CIP procurements under extraordinary circumstances. We think our report properly reflects that perspective. The findings in this report are criticisms of the emergency procurement process. This report does not dispute the well-known fact that DCPS was in a state of emergency.
DCPS officials also believe that, despite high costs, efforts should be considered to have been remarkably successful, because they succeeded in opening and reopening many schools on time or close to on time in September 1997. DCPS officials also believe that our conclusions regarding procurement policies were incorrect, and that DCPS operated pursuant to the authority granted to it. We continue to consider our conclusions correct and in conformance with the Authority's intention regarding procurement policies and procedures.
This report provides further details about these audit results and presents objectives, scope, methodology, noteworthy accomplishments, conclusions, recommendations, issues needing further study, and views of responsible officials.
The DCPS system has about 150 schools. Most are old and in a worsening state of deterioration as evidenced by hundreds of fire code violations that caused many school closings. Conditions had deteriorated to the point that many schools were feared unsafe. This precipitated a civil action brought in DC Superior Court in June 1994 against the District government by Pare nts United for the District of Columbia Public Schools. Over the course of the next 41 months (June 1994 to November 1997) the Court was relentless in requiring the Fire Department to make regular and intensive fire code inspections, often resulting in school closings.
On November 15, 1996, the Financial Responsibility and Management Assistance Authority declared a state of emergency in the DC public school system and established a 9-member Emergency Transitional Educational Board of Trustees and created the position of Chief Executive Officer (CEO)-Superintendent. General J.W. Becton, Jr. (U.S. Army, retired) was appointed to this CEO position. This action effectively removed all authority for managing DCPS from the existing DC Board of Education and the incumbent Superintendent of Schools.
In late December 1996, General Charles E. Williams (U.S. Army, retired) was hired as Chief Operating Officer (COO) and Director of Facilities for DCPS andordered to establish and direct a Facilities Management organization. General Williams' primary mandate was to develop a long-range plan that would show the magnitude of capital improvements needed and place priorities on capital improvements. Another critical mandate was to clear all public schools of fire code violations and have them back in service by the beginning of the 1997-98 school year. A major hurdle facing the COO was building an in-house organization capable of preparing, or overseeing the preparation of, statements of work, specifications and drawings, and government cost estimates. In addition, a capability was needed to perform the procurement and contracting functions.
A Long Range Facilities Master Plan was drafted by February 1997 and finalized on July 17, 1997.1 It called for an estimated $86 million of work to be done during Fiscal Year 1997 and completed by the date of school opening, September 2, 1997. To have achieved this magnitude and complexity of contract work following normal, sound, fully-competitive procurement and contracting procedures would have required, conservatively, 12 months.
By February, with 20 schools already closed, the window for executing a normal and sound contracting process had begun to close. In addition, staffing for Facilities Management's in-house capability was not in place and did not become operational until April 1997. By this time, the window of opportunity to conduct procurement and contracting following normal and sound practices was essentially shut.
Consequently, the contracts awarded by DCPS during Fiscal Year 1997 were awarded under emergency procurement procedures, which were inherently high risk and high cost.
Our primary audit objectives were to determine if:
These overall objectives were further broken down into specific objectives covering the following procurement process phases:
These specific objectives are in Appendix I.
Scope and Scope Limitations
The scope of our audit was limited to CIP contracts thought to have been awarded during Fiscal Year 1997. These encompassed 69 separate projects. The General Services Administration (GSA) managed ten of these projects under existing GSA contracts. These GSA-managed projects had a total initial contract value of approximately $10 million. Two of the 69 projects were not placed under contract during Fiscal Year 1997. The remaining 57 projects were carried our through 31 DCPS-managed contracts with an initial contract value of approximately $30 million. Appendix II summarizes Fiscal Year 1997 contracts
To assure the completeness and accuracy of information provided to us, we asked DCPS management personnel to confirm in writing representations made to us during the audit. The following DCPS officials declined to provide these requested representations: Chief Executive Officer, Operating Officer, Chief Financial Officer, General Counsel, Chief of Capital Projects, and Former Chief of Contract Administration. The DCPS CFO stated that the General Counsel advised them to not provide these written representations. The representations requested but not provided are in Appendixes V through X. This noncooperation by DCPS management severely limited the scope of the audit.
The scope of our audit regarding the GSA-managed contracts was limited to determining the extent to which DCPS exercised appropriate oversight to ensure that contract objectives were met via these inter-agency arrangements. DCPS representatives told us that they had no contract files for these GSA-managed contracts. Without contract files to review, we could draw no definitive conclusions regarding the extent to which DCPS exercised appropriate oversight.
Our audit scope was further limited by the relatively short amount of time allotted for fieldwork and data gathering. Time allotted from commencement of the audit until the draft report due date was 39 days (October 23 to December 1, 1997). Fieldwork was later extended to December 15, 1997.
Our audit scope was also limited by DCPS's difficulty in locating contract files and the incomplete condition of the files once they were all located. All contract files were finally provided to us on the 22nd day of the audit. The incomplete condition of the files is described in the Audit Results section of this report.
Finally, our audit scope was limited, because none of the contracts had been closed as of the date of this report.
Because of these scope limitations, we were unable to reach detailed conclusions regarding most of the specific audit objectives. The incomplete condition of the files and the open status of projects precluded detailed conclusions regarding planning, staffing, specifications; procurement requests; the solicitation process; evaluation and source selection; pricing; negotiations; the award, review, and approval process; performance monitoring and measurement; and contract modifications. These scope limitations also precluded us from full development or resolution of some potential findings and conclusions. As stated in our report section titled Issues Needing Further Study, we were unable to fully evaluate and resolve certain matters noted during the audit. These matters have been conveyed to the Authority via a separate communication with our recommendations for follow-up actions.
Our methodology included reviews of contract files and project management files made available to us. We also interviewed appropriate DCPS and GSA personnel. Our audit scope did not include interviews with DCPS contractors or subcontractors or a technical evaluation of the CIP work performed.
DCPS officials strong views that audit results need to be considered from the perspective that DCPS had an extraordinarily difficult task, and that they consider this task successfully accomplished. DCPS's general counsel provided a narrative statement in this regard This statement is included in Appendix III.
Following are the major findings identified during the audit. These findings are subject to the effects, if any, of matters that would have come to our attention had the audit scope not been limited, as described earlier in this report.
Public Law 104-208, Title V--Additional Appropriations, Sec. 5201, dated September 10, 1996, was the legislation that mandated the DCPS facilities improvement initiative and authorized its initial funding. It states that:
On November 15, 1996, the Authority issued a Resolution, Order and Recommendation establishing the DCPS Board of Trustees. The Order stated that:
This provision established the Board of Trustees of trustees general requirements with respect to adopting procurement policies, procedures, rules, and regulations. Another provision of the Order addressed the CIP specifically:
Hence, although DCPS was not required to follow Federal procurement rules and regulations in general, it was required to follow Federal procurement rules and regulations with respect to CIP procurements until other guidelines were prescribed by the Authority (or adopted by DCPS itself).
Both the Authority's Executive Director and the Authority's General Counsel stated that it was their expectation and intent that DCPS would promptly establish and formally adopt its own procurement policies, rules, and regulations after the November 15, 1996, order was issued.2
The COO (General Williams) told us that he accepted his position only on the conditions that he (1) would not be constrained by existing procurement rules and regulations and (2) would be allowed to operate under emergency conditions.3 He stated that the CEO (General Becton) assured him that he could operate under emergency conditions, because an emergency did in fact exist, and was well known by the Congress, Authority, and Board of Trustees. He said that the CEO told him that new DCPS procurement policies and procedures were being formulated by the Board of Trustees. The DCPS General Counsel stated that she believed that the DCPS Procurement Procedures Manual (1987) used by the former Board of Education was followed.
The DCPS Chief of Contract Administration stated that "there are no procurement procedures which DCPS had to follow in awarding Capital Contracts." He indicated that, in his view, "the [Authority] resolution requires only that the CEO enter into contracts which he deems appropriate and in the best interests of the School System. He also stated that there "is no provision in the resolution which requires DCPS to follow previously approved procedures until such time as new procedures are adopted." In terms of the procedures that, in his view, were followed, he stated that the "process generally followed the procedures outlined in the DCPS procurement manual and Chapter 37 of Title 5 of the DCMR. Further guidance was obtained by reviewing applicable provisions of the [FAR] and Title 27 of the DCMR (D.C. government procurement regulations). Generally recognized procurement practices were followed ensuring competition and the award of contracts in the best interests of the school systems"
The DCPS Chief of Capital Projects stated that "[a]ll of the work done by DCPS in FY 97 was done under emergency conditions as declared by the Control Board. We were thereby exempted from procurement policies and procedures. We sought competition for most of our contracts, even though it was not open competition. We utilized source selection procedures informally on almost all of our contracts. We estimated the cost of each of the contracts independently, and managed the work performed to the best of our abilities, seeking the highest quality possible within the shortest possible time." [Emphasis in original] He added that "[I]t is my belief that the success of this program resulted in the dismissal of the long- standing lawsuit against the district, and improved the quality of the educational environment for many of our children."
Recognition that the urgency of the situation called for a reduced processing and approval time is evidenced by a July 18, 1997, letter from the Authority to the COO that instituted a "post issuance review policy" under which DCPS was allowed to execute contracts without the usual advance Authority approval. This letter also stated that "contracts awarded under this policy of post issuance review will comply with applicable procurement regulations" but did not specify what the applicable regulations were.
The author of the July 18, 1997, letter, John Hill, the Authority's Executive Director, stated that it was his intent and understanding that in return for the Authority allowing DCPS to operate under the "post issuance review policy," DCPS was agreeing to create a higher standard for contracting and documentation with respect to these procurements.
We found no evidence that the Board of Trustees (1) formulated and adopted its own policies, procedures, rules and regulations as the Authority's Order directed, (2) adopted the Board of Education's policies, procedures, rules, and regulations, or (3) was aware of the Public Law 104-208 requirement to follow or intended to follow Federal procurement rules. We agree with the Chief of Contract Administration's literal interpretation of the November 15, 1996, Resolution that, in general, until the Board adopted its own procurement policies and procedures, none applied. In our opinion, with respect to CIP procurements, however, Public Law 104-208 required Federal procurement rules and regulations to be used until the Authority prescribed (or DCPS adopted) new rules and regulations.
We found no indication that any internal guidance was issued by the DCPS CEO articulating what procedures were in effect. Because of the emergency situation, the DCPS COO had insisted that he be allowed to bypass both the FAR and the District of Columbia Municipal Regulations (DCMR) and follow emergency procedures. During Fiscal Year 1997, the DCPS contract administration office was under the COO's organizational control. Consequently, he was, in our opinion, primarily responsible for articulating what he intended as emergency procurement procedures to guide his organization's procurement operations.
We found no formal documentation detailing the emergency procurement procedures that General Williams intended would be followed. Two undated, informal, handwritten memorandums appear to outline his intentions. Both are addressed to the DCPS Chief of Contract Administration, the Deputy Facilities Management Director, and the Chief of Capital Projects. One states: "Guidance [on] our capital procurement--I want to eliminate the old notion of low bid and substitute it with the most responsive offer. We do not want any more IFB but responsive to our request for proposal ... the low bid issue has gotten us in trouble." The other states: "I want to emphasize once again that the administrative procedures [are]: 1. Technical Evaluation; 2. Cost Evaluation; 3. Source Selection; 4. COO/Approval; 5. Chris (contracting officer) for process."
We concluded that the lack of clear and detailed guidance on emergency procurement procedures was the underlying cause of other findings related to the lack of management or internal controls.
Our review of 31 contract files covering 57 DCPS-managed
projects showed that the contracting process was poorly documented and files
were poorly maintained. Even though none of the contracts has been closed, much of the
information necessary to document the observance of sound procurement and contract
The failure to maintain consistent, complete, and up-to-date contract files appears to have been caused by the emergency atmosphere in which DCPS personnel were operating and exacerbated by the lack of clear or detailed policy guidance, as described above.
The DCPS Chief of Contract Administration stated that the primary reasons forthe lack of complete documentation were that (1) contracts have not been closed out, and more documents will be forthcoming; (2) the emergency environment in which his office had to operate to react to the Court's decisions precluded complete documentation; (3) his staff had to manage the simultaneous requirements of procuring roofing contracts and procuring other services (in a matter of hours) for displaced students such as moving vans and additional food delivery vehicles; (4) the delivery or re-routing of normal goods and services, such as text books and supplies, at the closed schools had to be ensured; and (5) additional time was required to perform added responsibilities assumed by the procurement office (previously performed by finance) in processing the substantial backlog of purchase orders and other contractual obligations.
Sound management principles dictate that clear and complete records be maintained of contractual actions and decisions surrounding selection, award, and administration of contracts. FAR Subparts 4.801, 4.802, and 4.803 establish the requirement for maintaining complete contract files and stipulate the contents of contract files.
The disorganized and incomplete files precluded a determination that proper procedures were followed in the selection and award process. Further, incomplete files may result in confusion about contractual actions such as change order approvals and funds availability and obligation. Finally, the disorganized files will make it difficult to review and resolve disputes (if they occur), make contractor payments on a timely basis, and close out contracts in an orderly manner.
General Williams said that it was premature to expect contract files to contain complete information. He said he has directed the Capital Projects. staff to assure that all files will have the required contractor certifications, contractor and manufacturer warranties, and as-built drawings.
It is difficult to measure precisely the cost impact of the emergency mode in which DCPS implemented the Fiscal Year 1997 CIP contracts. Based on estimates by DCPS officials, however, the additional costs may have been $7.2 million or more.
DCPS pursued several alternative emergency procurement strategies for the Fiscal Year 1997 CIP projects. Each successive strategy created additional conditions and pressures that increased resulting costs.
Initially, the Authority enlisted the support of GSA for 5 roof replacement projects in October 1996. By January 31, 1997, 20 additional schools were closed for fire code violations DCPS requested GSA's assistance in March and April 1997 for roof replacements at 2 schools and in June 1997 for roof replacements at 3 schools. This work was performed by contractors already under contract to GSA.
DCPS issued a Request for Qualifications (RFQ) on May 19, 1997, for projects it intended to manage. This resulted in the apparent pre-qualification of 26 potential contractors. On July 1, 1997, already well into the limited school construction season, an Invitation for Bids (IFS) was issued for an anticipated single contract for roof replacement at 15 schools and boiler and chiller replacements at 5 schools. Because work needed to be done by the beginning of September, bidders were only given 14 days to respond. When this strategy failed, because contractors informed DCPS that they were unwilling to bid on this large total "package," DCPS issued an addendum to the IFB on July 11, breaking the procurement down into eight separate, smaller packages for roof replacements on 48 schools. Bidders were then given until July 21, or 10 days, to respond.
Responses to this revised strategy were disappointing and resulted in contracts for only two of the eight packages roof replacements at 15 schools. With the time available to complete the work rapidly diminishing, DCPS changed its strategy once again. On July 25, 1997, the prequalified bidders were requested to submit bids within 3 days for any of 23 schools on which they wanted to bid. Bidders were told that the work still needed to be completed by September 11, 1997. Few bids were received, and those received were generally high. Four contracts were awarded for roof replacements on 9 schools based on bids received. Five contracts for roof replacements on 10 schools were awarded based on undocumented negotiations. Plans for work on four schools were either dropped or changed. Contracts for work on three other schools not previously included in any solicitations were awarded, but the contract files did not document the basis for these awards.
Following the unsuccessful initial DCPS-managed work strategy and the limited success of the revised strategies, DCPS project managers began contacting small groups of contractors (without public advertisements) and, according to DCPS's Chief of Contract Administration, urging them to bid. Project managers would invite three to five contractors (some pre-qualified and others not) to inspect a site, provide them with site specifications, and ask them to provide bids within hours. This final strategy resulted in contracts for work at 20 schools.
It is difficult to accurately measure the cost impact of DCPS's emergency mode of operations. Comparing contract prices to government estimates is of limited value in this regard, because government estimates were higher than normal. According to DCPS's architectural engineering contractor that prepared some estimates, the estimates were higher than would otherwise have been the case for the following reasons:
Actual contract costs identified to date4 for the 57 DCPS-managed projects have been more than 11 percent higher than the already-high government estimates. DCPS's Chief of Contract Administration estimated that prices paid might have been 25 to 30 percent lower if contractors had been allowed at least 30 days to prepare bids and 90 days to complete the work. If this official's estimate is accurate, the extra cost of the 57 projects managed by DCPS was at least $7.8 million and could be as high as $9.4 million. General Williams stated that he informed the Authority in August that DCPS would have to pay a 30- percent premium. That estimate translates into additional costs of at least $7.2 million. (These estimates of additional costs will increase as additional change orders are processed.)
The COO said that he expected high costs from the outset, and that he had briefed the Authority and Board of Trustees to this effect from the beginning. He said that with so many schools closed and others subject to closure at any time, his primary objective was to get schools free of fire code violations and back into service. He said he knew before accepting the position that if required to follow the FAR or DC procurement procedures, he simply could not achieve the primary objective. That is why he insisted on being able to follow emergency procurement procedures as a condition of his appointment.
The COO cited several reasons for higher costs. One, of course, was the emergency condition that flooded the local construction market during its busiest season and with short performance periods, reinforcing factors cited by the architectural engineering contractor that developed some of the estimates. He also stated that a pervasive cause was what he termed the "massive stabilization problem" that had to be corrected. This meant that simply replacing roofs would not work. Because of the state of deterioration and neglect, much of the adjoining and supporting structures also had to be torn out and rebuilt, such as parapets, masonry structures, drains, underlying decking, and so forth. When he personally inspected roofs on 50 schools, he concluded that if a roof leaked it would be replaced, and replacement would include the related stabilization work. Additional factors that he cited were (1) the construction industry's negative attitude about working for the DC government as the result of its poor-payment history, (2) reluctance by contractors to work in high-crime areas, and (3) confined working spaces within which contractors would need to operate at many locations.
The COO emphasized that his primary concern was getting the work done while still protecting the government's interest by getting the work done properly. He is confident that DCPS is protected. His first control to assure this protection was his insistence that each contractor was required to be fully bonded. Second, each contractor was required to provide a 2-year warranty on workmanship and obtain a manufacturer's 20-year warranty on materials and installation. He said contractors will neither be released from their bonds nor paid in full until those two warranties are produced. (As noted in Table 1, however, contract files do not contain documentation that the required performance bonds were obtained on five contracts. FAR Subpart 28.103-1(b) states that "[t]he contractor shall furnish all bonds before receiving a notice to proceed with the work.") As of December 11, 1997, DCPS stated it had received manufacturer warranties covering between 30 to 35 school roof replacements and two construction contractor warranties covering roof replacements on 15 schools.
In response to questions regarding the late initiation of the procurement process, General Williams indicated that unavailability of funds precluded being able to get the work started sooner.5 Although DCPS provided a "funding history," we did not gain access to records needed to verify when funds became available to DCPS and the Authority; consequently, we did not determine to what extent, if at all, this factor was an underlying cause of the emergency mode of operations.
Not Following Sound Procurement Practices, Policies, Procedures, and Controls Created Conditions Conducive to Fraud, Waste, and Abuse
Although we found no direct evidence of fraud within the limited scope of our audit, in our opinion, the combination of (1) not following any documented procurement policies or procedures, (2) operating in an emergency mode with compressed timeframes, and (3) not maintaining accurate and complete documentation of procurement decisions and actions created conditions conducive to fraud, waste, and abuse. Following are brief descriptions of the major concerns resulting from the way that the Fiscal Year 1997 CIP procurements were carried out and documented. These conditions are conducive to collusive bidding and create opportunities for bribes, kickbacks, and illegal gratuities. At a minimum, these conditions place honest personnel in compromised positions where their actions and decisions become suspect.
Insufficient segregation of duties. Based on documentation in the contract files, no advertised procurement process was followed for 20 of 31 procurements, and technical personnel took the lead role in the contracting process. For these "informal price solicitation" procurements, Capital Projects Office (CPO) personnel performed not only their own functions, such as preparing work specifications and developing estimates, but also performed essential contracting office functions, such as soliciting potential contractors, opening and evaluating responses to price requests, negotiating with potential contractors, and selecting contractors. For these informal price solicitation procurements, bidders were given very little time to study the requirements before bids were due. Many potential bidders told the project managers that they could not prepare bids on such short notice and consequently did not bid. Even under emergency conditions, sound management principles dictate that only the contracting office should have been allowed to solicit contractors, open price proposals, negotiate with potential contractors, and make the contractor selection decision. Although the Chief of Contract Administration stated that he maintained on-going dialogues with CPO personnel, these dialogues were not documented in the contract files. The Chief of Contract Administration also stated that "there was only one formal bid opening which was conducted by procurement staff" and that "all other contracts were awarded based on requests for pricing through competitive negotiation. "
In its response to our draft report, DCPS stated that "[a]s permitted under emergency procurement procedures, informal price solicitation was utilized with prices being submitted to the procurement office." Documents in the contract files, however, show that these informal price solicitation" proposals were addressed to the project managers, not to the procurement office. In addition, a memorandum by a contract specialist stated:
Use of non-prequalified contractors. A significant element of DCPS's original contracting strategy was to prequalify companies capable of performing the work that would later be advertised. Prequalifying companies in advance would reduce the amount of time required in the award process. DCPS appears to have prequalified 26 companies or joint ventures. In 20 of the 31 DCPS-managed contracts, however, documents in the contract files indicate that project managers decided which firms to invite to bid. Some contract files contain project manager memorandums stating that a specific number of "prequalified" bidders was invited for a site tour. Of the 45 firms that submitted price proposals for these 20 contracts, 38 firms (or 84 percent) were not on the prequalified contractor list. Based on the prequalified contractor list obtained from the DCPS procurement office, only 7 of 31 DCPS-managed contracts were awarded to "prequalified" contractors. Uncertainty appears to have existed regarding the prequalification process. Information obtained from the CPO indicates that some contractors may have been prequalified without a determination that they met all of the prequalification requirements.
General Williams stated that if a contractor was on a roofing material manufacturer's list of certified installers, had previously done satisfactory work for the District, or was on GSA's list of approved contractors, the contractor was deemed to have achieved prequalified status. We found no documentation, however, that these qualifications had been verified.
Notices to proceed without executed contracts. Most (if not all) of the 31 DCPS-managed contracts were finalized after notices to proceed had been issued to the contractors and work had begun. Contract files do not contain signed contracts in three of 31 cases. None of the remaining 28 contracts was executed prior to issuance of the notice to proceed. For these 28 contracts, the delay from the notice to proceed date to the contract execution date ranged from one to 76 days and averaged 35.5 days. Not only was this risky for DCPS, but the rush to get contractors started quickly caused confusion about contract terms. For example, we noted one instance in which the contractor apparently did not discover that it was required to pay Davis-Bacon Act labor rates until asked to sign the contract, after work was completed.
While the urgency to get contractors on site quickly was real, these short-cuts in procurement procedures could have placed DCPS at considerable financial risk. In our opinion, because none of the contracts has been completed or closed, the risk of additional disputes continues to exist.
DCPS stated that both the DCPS procurement rules and the FAR authorize issuance of a notice to proceed prior to execution of the formal contract document." We found no such provision in either the DCPS procurement rules or the FAR. DCPS procurement rules (at 10-304) state that "[w]hen a notice of acceptance is issued, it shall....specify the date of commencement of work, or advise that a notice to proceed will be issued." Similarly, FAR Subpart 6.213-4 states that "[w]hen a notice of award is issued, it shall....specify the date of commencement of work, or advise that a notice to proceed will be issued."
DCPS specifically cited 48 CFR 14.408-1(c)(2) as "authoriz[ing] the issuance of an award notice to proceed and allow[ing] the execution of the formal contract to follow as soon as possible." 48 CFR 14.408-l(c)(2) states only that "[w]hen a notice of award is issued, it shall be followed as soon as possible by the formal award." To the extent that DCPS is arguing that the notice to proceed was a legally binding document, we agree. As noted above, however, delaying "'execution' of the formal contract document" until well after the contractor begins work creates opportunities for misunderstandings and disputes about contract terms and requirements.
Questionable estimates. In some instances, individual project managers selected potential contractors, received their price proposals, and determined the winning contractors, and these same project managers may also have prepared at least some of the cost estimates. The identity of individuals who performed each of these procurement functions was not always clearly documented. We noted one instance in which the government estimate was prepared by a project manager after bids had been received. We also noted four instances in which no government estimate was documented. In 11 cases, an estimate was stated, but its source was not documented.
Commencement or continuation of work without evidence of required bonds. We noted 17 instances (out of 24 contracts requiring bonds) in which, according to documentation in the contract files, bids were accepted without bid bonds and 21 instances (out of 24 contracts requiring bonds) in which contractors were instructed to proceed with work before they had obtained the required performance and payment bonds, potentially placing DCPS at considerable financial risk. The files show that 5 of the 24 contractors did not produce the required performance and payment bonds. (Two other files contained undated bond documents, and one file indicated that bonds were obtained prior to authorizing, the contractor to proceed.)
DCPS stated that "[b]id bonds were required only for the formal July 21st bid submissions...[and] thereafter, were not required...." This assertion is inconsistent with DCPS's position that it followed the DCPS Procurement Procedures Manual, which states that "[b]id bonds are required when: (a) A performance bond or payment bond is required." All 24 contracts at issue required performance and payment bonds.
Questionable change order procedures and incomplete change order documentation. We found an October 10, 1997, request for a $287,000 change order for roof repair work at a school. The contract for which this change order was being requested specified work at six other schools, but not at this particular school. No government estimate was documented in the change order request or the contract file; and no evidence of competitive bids accompanied the request. Further, it appears that this work was actually completed 25 days before the CPO approved the change order request. According to the Chief of Contract Administration, this change order was not approved by his office; a separate contract was subsequently awarded to ratify the work that had already been performed. No documentation of these decisions and actions was in the contract file.
In another instance, the CPO requested approval on October 1, 1997, for a $193,750 change order for work at a school that was to have been done during mid-October. The contract file contains no evidence that this change order request was received or acted upon. This change order, if approved, would have been 179 percent of the basic contract amount. According to the Chief of Contract Administration, this change order request was not approved by his office; instead, a separate contract was awarded to this same contractor for $224,000 for work at this school. No documentation of these decisions and actions was in the contract file.
Contract files evidenced $1,196,454 in change orders on 14 of the 31 DCPS- managed contracts. The files contained no evidence that funds availability was ascertained and certified prior to change order approval. Evidence of an additional $916,460 in requested change orders (documents indicated approval by the CPO but not by the contracting officer) was found at the CPO. These additional change order requests were not in the contract files. Because all work on all DCPS-managed projects was (according to the Chief of Capital Projects) substantially complete by September 18, 1997, this additional change order work may have been done without contracting officer approval or certification of funds availability.
The Chief of Capital Projects stated that this change order work was "directed by the project manager in the field ... to prosecute the work in a timely manner. Negotiations to ratify these directed extras are ongoing. based on labor and material records, and [documentation] will be added to the file when complete."
We understand that the need sometimes arises to authorize a contractor to proceed with work prior to final change order approval. We do not understand, however, why or how change order requests can be forwarded to the contracting officer if negotiations are still being conducted to determine change order amounts. The Chief of Capital Projects' statement may indicate that additional, as yet unidentified, change orders may be processed for work already completed. DCPS does not have a control to ensure funds availability to cover the cost of these project-manager-directed changes. The CFO stated that he is confident that sufficient funds remain uncommitted and available for use. This practice, left uncorrected, could result in the over-commitment of available funds, violation of the Anti-Deficiency Act, and prolonged disputes between DCPS and contractors.
Certification of funds after instructing contractors to proceed with work. In addition to concerns described above regarding change order approvals, we noted a consistent pattern of contractors being instructed to proceed with the basic contract work prior to DCPS obtaining a certification that funds were available.
Of $30,011,738 of initial contract awards by DCPS, $23,151,460 [or 77.14%] was attributed to contracts under which the contractor was issued a notice to proceed prior to the certification of funds availability. The range was from 1 to 63 days after notice to proceed until funds availability was certified; the average delay was 13 days.
This absence of adequate procedures to ensure that funds certification and obligation occur in a timely manner shows a lack of management control and accountability and creates the possibility for DCPS to commit more funds than it has available.
Even under emergency conditions, any recognized body of procurement policies, rules, and regulations requires an organization to follow sound processing procedures and the maintenance of basic management controls over or within those processing procedures. The Anti-Deficiency Act, 31 USC 1341, prohibits a government employee from making or authorizing an expenditure or obligation exceeding an amount available in an appropriation.
The DCPS CFO stated that he is confident that sufficient funds were uncommitted and available for use for the Fiscal Year 1997 CIP contracts. In a December 11, 1997, memorandum to the CEO, the CFO stated:
This memorandum also pointed out a technical problem with certifying availability of capital funds, because the Authority maintains capital funds for DCPS, and the Authority has not provided either the exact amount of funds available or documentation supporting the funds available. In the interim, DCPS has entered "available" funds into the FMS based on verbal information and press releases. As a result, the CFO said that he could not technically certify that capital funds are available.
Although the Fiscal Year 1997 contract work should now be complete, contract files do not indicate that any of the projects has been completed. (Our several requests for evidence of substantial project completion failed to yield this documentation.) According to the Chief of Capital Projects, all of the DCPS managed contracts were substantially complete as of September 18, 1997. Contract files indicated that $7,521,147 (25 percent of the obligated amount) remained unpaid on these contracts as of December 15, 1997. The status of punch list work was not documented in contract files. We obtained punch lists for all projects from the DCPS architectural engineering contractor on November 28, 1997. These indicated that none of the projects had been completed at that time. The contract files do not indicate what plans are being considered for assessing liquidated damages or obtaining credits for items not delivered.
The COO stated that when all contractual requirements have been met, contractors will be paid, or credits or liquidated damages will be assessed, as appropriate.
Sound contracting and management procedures dictate that projects be completed as expeditiously as possible. Delays in completing contracts and making final contract payments may result in prolonged disputes with contractors and may make it more difficult for DCPS to contract with qualified contractors at reasonable prices in the future.
DCPS personnel pointed out that punch list work was delayed because the Court's July 11, 1997, order did not allow roofs to be repaired while the school buildings were occupied. This reduced the time available for the work to be completed until the settlement of the lawsuit in early November.
Contractors were required to comply with the following:
Contract files lack evidence that DCPS assured that these compliance requirements have been met. In one instance, the contract file indicates that the contractor failed to pay Davis-Bacon Act wages, and DCPS "set aside the $13,604.41 wage difference in an escrow account for a period of one year to accommodate any employee claim under [the] Davis-Bacon Act ...."
The Chief of Contract Administration stated that his office was unable to monitor contractor compliance with the statutory requirements during contract performance, because his office operated in a crisis mode daily.
The impact of not monitoring compliance with these requirements is difficult to assess. This impact is exemplified, however, by the situation involving the Davis-Bacon Act, noted previously. The contractor was ordered to proceed and, in fact, completed the work before a contract was executed. The contractor was unaware of the Davis-Bacon Act wage requirements, and DCPS had to take extraordinary steps to resolve the resulting dispute.
As described in the Objectives, Scope, and Methodology section of this report, one of this audit's primary objectives was to determine if DCPS had an effective procurement system in place during Fiscal Year 1997 for the CIP projects. To meet this objective we attempted to obtain an understanding of the management controls placed in operation, and we assessed control risk.
Because DCPS did not adhere to a single set of established procurement policies and procedures in carrying out the Fiscal Year 1997 CIP procurements, no system of management controls was placed in operation. Consequently, we concluded that controls were inadequate to protect assets and prevent errors and irregularities.
As described elsewhere in this report, DCPS did not follow any established procurement policies and procedures in carrying out the Fiscal Year 1997 CIP procurements, in violation of Public Law 104-208; and DCPS did not monitor contractor compliance with applicable laws, rules, and regulations incorporated into the contracts.
Based on our audit, we concluded that DCPS did not have an effective procurement system in place during Fiscal Year 1997 for the CIP projects, and the procurement system did not meet the statutory or regulatory needs of DCPS. DCPS's contracting process met its program needs to the extent that the school-closing crisis was substantially abated by mid-September 1997.
Because of the scope limitations described in the Objectives, Scope, and Methodology section of this report, we were unable to fully evaluate and resolve certain matters noted during the audit. These matters have been conveyed to the Authority via a separate communication.
The DCPS Chief Procurement Officer stated that, since assuming her new position on
November 24, 1997, she has taken several steps to resolve some of the concerns noted in
this report. She stated that she has hired a contractor who is in the process of preparing
a desk guide for all contract specialists which will
She stated that basic procurement courses have been identified and all junior staff will be required to attend and satisfactorily complete an FAI-certified basic procurement course.
She also stated that she has reorganized the procurement staff and appointed a senior-level individual to oversee all CIP projects. She plans to recruit three highly-qualified individuals to support the senior-level individual who will oversee all CIP projects. These individuals will complete a design-build construction class.
Finally, she indicated that a member of her staff is developing a syllabus to train program personnel on their roles and responsibilities. This training is planned for early next year.
DCPS provided written comments to a draft of this report (see Appendix IV). Where DCPS provided additional information or clarification, we changed the report accordingly.
1. In its response to our draft report, DCPS stated that the Long Range Facilities Master Plan was finalized on April 25, 1997, we could not document the April 25 date. In his July 17, 1997, cover letter addressed to The Citizens of the District of Columbia, the COO referred to "our Draft Long Range Facilities Master Plan released on February 28, 1997." The plan itself contained no issue date, other than the COO's July 17 cover letter.
2. The Authority's General Counsel stated that it was the Authority's expectation that the DCPS Board of Trustees would promptly and formally adopt procurement policies and procedures via a Board resolution, similar to the process that the Authority itself had followed and that culminated in the Authority's "Resolution Adopting Regulations Concerning Procurements by the Authority" in March 1996.
3. The Federal Acquisition Regulation (FAR) does not have provisions for emergency procurements, but allows "other than full and open competition" in situations referred to as "unusual and compelling urgency" in which the Government would be seriously injured unless the agency is permitted to limit the number of sources from which it solicits bids or proposals. These FAR procedures contain significant require ments for justification and documentation. DCPS did not comply with these requirements. As defined in the DCPS Procurement Procedures Manual, emergencies are unforeseen conditions that threaten the health. welfare, and safety of the public, such as by floods, fire, epidemics, equipment failure, or strikes, among others. These procedures are brief and nonspecific. They do not, however, waive requirements found elsewhere tor segregation of duties or written determinafions.
4. According to the DCPS Chief of Capital Projects, additional change orders are still being negotiated.
5. We discussed with General Williams the feasibility of procuring term contractors early in his tenure, similar to GSA s term contracting arrangements. He said that he had wanted to do that, but felt that he would not gain industry support unless he could assure industry that he had the necessary funds, and that he would make no such representation to industry until he knew he had control of the funds.
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