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High Risk Series 1992 [4 of 4]
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High Risk Series 1992 [4 of 4]
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Records of the White House Office of Science and Technology Policy (George H. W. Bush Administration)
Michelle K. Van Cleave General Accounting Office Files
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Originally Processed With FOIA(s):
FOIA Number:
2005-0336-F
2005-0336-F
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This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
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George H.W. Bush Presidential Records
Collection/Office of Origin:
Science and Technology Policy, Office of (OSTP)
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Van Cleave, Michelle, Files
Subseries:
General Accounting Office Files
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62118
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62118-004
Folder Title:
High Risk Series 1992 [4 of 4]
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United States General Accounting Office
GAO
High-Risk Series
December 1992
NASA Contract
Management
UNITED STATES
INTERNATIONAL OFFICE CENERAL
GAO/HR-93-11
GAO
United States
General Accounting Office
Washington, D.C. 20548
Comptroller General
of the United States
December 1992
The President of the Senate
The Speaker of the House of Representatives
In January 1990, in the aftermath of scandals at the
Departments of Defense and Housing and Urban
Development, the General Accounting Office began a
special effort to review and report on federal government
program areas that we considered "high risk."
After consulting with congressional leaders, GAO sought,
first, to identify areas that are especially vulnerable to
waste, fraud, abuse, and mismanagement. We then began
work to see whether we could find the fundamental
causes of problems in these high-risk areas and
recommend solutions to the Congress and executive
branch administrators.
We identified 17 federal program areas as the focus of our
project. These program areas were selected because they
had weaknesses in internal controls (procedures
necessary to guard against fraud and abuse) or in
financial management systems (which are essential to
promoting good management, preventing waste, and
ensuring accountability). Correcting these problems is
essential to safeguarding scarce resources and ensuring
their efficient and effective use on behalf of the American
taxpayer.
This report is one of the high-risk series reports, which
summarize our findings and recommendations. It
describes our concerns over the National Aeronautics
and Space Administration's (NASA) lack of adequate
controls over a variety of contract management and
related activities. NASA has implemented or begun to
implement most of the recommendations we have made
for improving these activities. NASA has also implemented
other contract management improvement initiatives.
Copies of this report are being sent to the President-elect,
the Democratic and Republican leadership of the
Congress, congressional committee and subcommittee
chairs and ranking minority members, the
Director-designate of the Office of Management and
Budget, and the Administrator of the National
Aeronautics and Space Administration.
Charles A. Bowsher
Charles A. Bowsher
Page 2
GAO/HR-93-11 NASA Contract Management
Page 3
GAO/HR-93-11 NASA Contract Management
Contents
Overview
6
Lack of Realism
10
in Planning
Ineffective
15
Oversight of
Some Contractors
Some Centers
22
Not Fully
Complying With
Procurement
Requirements
NASA's Efforts to
31
Improve Contract
Management and
Related Areas
Conclusions and
35
Action Needed
Related GAO
38
Products
High-Risk Series
41
Page 4
GAO/HR-93-11 NASA Contract Management
Page 5
GAO/HR-93-11 NASA Contract Management
Overview
The National Aeronautics and Space
Administration's (NASA) procurement budget
is one of the largest of all civilian agencies'
in the federal government. Each year, NASA
spends about 90 percent of its funds on
contracts. In the last decade, the value of
NASA procurements measured in 1990 dollars
has risen dramatically from about
$8.5 billion to almost $13 billion annually.
Throughout the procurement cycle-from
the development of procurement plans,
through the award and performance of
contracts, to their final settlement-NASA
must act to protect the government's rights
and interests. An important part of this
process involves overseeing contracts after
their award in order to help ensure that
contractors are acting in accordance with
their obligations and are performing as
efficiently and effectively as possible.
The Problem
Since the late 1980s, NASA has acknowledged
that its contract management is vulnerable
to waste and mismanagement, based on its
own internal management reviews and
audits by the NASA Inspector General. We
also have reviewed specific activities in a
variety of areas related to contract
management in recent years and have
Page 6
GAO/HR-93-11 NASA Contract Management
Overview
reported that NASA has had problems in
effectively managing its contracts.
Without effective management of its
contracts, NASA cannot reasonably ensure
that the funds provided to its contractors
will be spent effectively and accounted for
properly. In some cases, inadequate
contractor oversight has contributed to cost
increases, schedule delays, and development
problems with expensive space equipment.
For example, the GOES-next weather satellite
project is now at least 3 years behind
schedule, and its estimated cost has more
than doubled to over $1.7 billion. Also, the
$1.5 billion Hubble Space Telescope had
critical technical flaws that were not
detected until after it was launched.
The Causes
NASA'S difficulties in contract management
were largely linked to three major internal
problems. First, NASA'S planning was not
realistic; it was based on a much higher level
of funding than was likely to be made
available. For example, NASA'S program plans
for fiscal years 1993 through 1997 called for
up to about $20 billion more than was likely
to be provided. To adjust plans to actual
budgets, NASA'S projects and programs often
have to be slowed down, thereby extending
Page 7
GAO/HR-93-11 NASA Contract Management
Overview
schedules and increasing total contract
costs.
Second, NASA sometimes used ineffective
procedures and systems to oversee and
manage contractors. The lack of uniform
testing policies and the inability to
adequately oversee contractors' activities
contributed to problems such as those
affecting the GOES-next weather satellites.
Further, problems with cost reporting,
property management, accounting, and
information systems impaired NASA'S ability
to monitor contracts.
Third, some of NASA'S field centers were not
fully complying with governmentwide,
agency, or field center contract management
requirements, primarily because they were
operating with ineffective guidance and
oversight from NASA headquarters.
GAO's
We have offered numerous observations and
Suggestions for
recommendations on a variety of issues
Improvement
related to contract management. NASA has
taken, or is planning to take, steps to address
these issues, including modifying plans to
reflect realistic budget projections;
establishing project priorities; developing
overall testing policies; tracking contract
Page 8
GAO/HR-93-11 NASA Contract Management
Overview
cost and schedule changes agencywide;
improving training for procurement
personnel; and correcting specific problems
relating to awarding, modifying, and
administering contracts.
Beyond the matters we have raised, NASA has
identified the need for, and has
implemented, numerous other improvement
initiatives, including increasing procurement
staffing and taking a variety of steps to help
better identify and reward efficient and
effective performance by its contractors.
The nature, scope, and variety of efforts
underway to improve contract management
and related areas throughout the agency
illustrate the extent of the commitment by
NASA management to effectively resolving the
problems in these areas. Although this
commitment is promising, these problems
will require time and sustained effort to
correct. NASA'S problems in contract
management and related areas were many
years in the making. They will not be
corrected quickly. NASA management faces a
formidable challenge that will demand
continuing vision, perseverance, and strong
leadership.
Page 9
GAO/HR-93-11 NASA Contract Management
Lack of Realism in Planning
An overarching concern that can ultimately
affect NASA'S ability to manage its contracts
is the agency's failure to plan realistically for
the budgetary resources that are likely to be
available to fund its programs. Unless
strategic and program plans are reasonably
consistent with likely budgets, there is an
increased risk of significant adverse impact
on NASA'S programs. When planning
expectations are followed by substantially
lower funding levels, NASA is forced to make
program changes, including adjustments to
the planned content and pace of work. Since
most of NASA'S work is done by contractors,
such program adjustments can contribute to
contract cost increases and schedule delays.
From the late 1980s through the early 1990s,
NASA received large increases in its budget.
However, NASA'S budget for fiscal year 1993
is essentially unchanged from the previous
year, and Congress has told the agency that
its future budget growth may be severely
limited. Unfortunately, NASA is currently
overcommitted, with its program planning
estimates for 1993 through 1997 up to about
$20 billion higher than the amounts likely to
be appropriated under current federal
budget constraints, as shown in figure 1.
Page 10
GAO/HR-93-11 NASA Contract Management
Lack of Realism in Planning
Figure 1: NASA Is Pursuing More Programs Than Can Be Funded With Projected
Budget Resources
25
Dollars in billions
20
15
10
5
0
1992
1993
1994
1995
1996
1997
Fiscal year
NASA's program plan for fiscal years 1992-97
Congressional Budget Office baseline
President's fiscal year 1993 submission
Level budgets from fiscal year 1992 base
(Figure notes on next page)
Page 11
GAO/HR-93-11 NASA Contract Management
Lack of Realism in Planning
Notes: Preliminary NASA program planning estimates for fiscal
years 1993 through 1997 total over $90 billion.
Congressional Budget Office baseline estimates include
adjustments for inflation only and total $79.5 billion for fiscal
years 1993 through 1997.
The executive branch's fiscal year 1993 budget submission
projected flat funding levels of about $15 billion annually for
NASA through 1997, or a 5-year total of about $75 billion.
Level budgets from the fiscal year 1992-enacted NASA budget
of $14.3 billion would provide total funding of $71.5 billion for
fiscal years 1993 through 1997.
In addition, NASA'S largest programs, if
carried out as currently planned, will
consume an increasing share of NASA'S future
budgets. For example, if NASA received about
$15 billion for each of the next 5 years, as
anticipated in the President's fiscal year 1993
budget submission, NASA'S 11 largest
programs in that submission would have
required over 75 percent of the 5-year
funding total in the President's budget.
Figure 2 shows each year's increasing share
of NASA'S likely funding that these large
programs would have required.
Page 12
GAO/HR-93-11 NASA Contract Management
Lack of Realism in Planning
Figure 2: Increased Funding for NASA's Largest Programs May Reduce Budget
Resources for Other Programs
20
Dollars in billions
18
16
14
12
10
8
6
4
2
0
1993
1994
1995
1996
1997
Fiscal year
Funding available for other NASA programs
Total for NASA's largest programs
Unplanned program cost increases would, of
course, further exacerbate potential funding
shortfalls. In addition, there are several
support areas in which future funding
demands may emerge, including hazardous
waste cleanup and maintenance of facilities.
Page 13
GAO/HR-93-11 NASA Contract Management
Lack of Realism in Planning
NASA'S overcommitment, plus potential
additional funding demands, mean the
agency's programs may not be able to
proceed as planned. However, NASA does not
clearly differentiate between the programs it
"must do" and the programs it "should do."
For example, NASA'S first agencywide
strategic plan, Vision 21, failed to recognize
the budget/planning mismatch and to set
relative priorities should the agency be
forced to stretch out or cancel programs
because of lower-than-planned funding.
Without a set of priorities or contingency
plans, NASA will have no orderly method of
choosing between or among programs
should it be faced with making such
decisions. Unless it starts to plan
realistically, NASA will continue to perpetuate
resource shortages that limit its ability to
effectively manage contracts by subjecting
its programs to a recurring annual cycle of
cutbacks, restructurings, schedule
extensions, and potential terminations.
Page 14
GAO/HR-93-11 NASA Contract Management
Ineffective Oversight of Some
Contractors
NASA'S technical oversight procedures and its
cost reporting, property management,
accounting, and information systems did not
adequately ensure that the money paid each
year to contractors and the government-
owned property they held were managed
effectively or accounted for accurately.
Technical
Weaknesses in NASA'S technical oversight
Activities Not
procedures included the lack of uniform
Properly
testing policies and the inability to
Monitored
adequately oversee contractors' activities. In
some cases, these weaknesses contributed
to increased contract costs, schedule delays,
and impaired performance.
Because equipment cannot be readily
repaired in orbit, it must be thoroughly
tested before launch. But deciding on
appropriate test programs is not a simple
matter. Systems are not mass-produced-
most, in fact, are one of a kind. As a result,
testing programs must be tailored
specifically for each project, but there
should be a general framework within which
to plan, conduct, and interpret tests. NASA,
however, has no agencywide testing policies,
and project testing requirements can vary
from center to center. In some cases,
hardware designed for the same mission may
Page 15
GAO/HR-93-11 NASA Contract Management
Ineffective Oversight of Some
Contractors
be tested to different standards. For
example, each of the centers developing
space station hardware had planned to use
its own testing criteria for the program.
Consequently, different parts of the space
station would have been tested to different
tolerances for environmental extremes of
heat and cold, under different durations of
exposure. After a review team expressed
concern, environmental testing criteria that
would be applied to all space station
hardware were drafted.
Contractor oversight has occasionally failed
to detect critical problems at all or early
enough to prevent costly schedule slippages.
For example, in April 1990, NASA deployed
the $1.5 billion Hubble Space Telescope to
an orbit 380 miles above the earth. Soon
after, the agency discovered that the primary
mirror had been manufactured in the wrong
shape, severely degrading some of the
telescope's scientific capabilities.
NASA'S work on the next generation of
weather satellites, called GOES-next, also
illustrates the impact of inadequate
contractor oversight. The launch of the first
GOES-next satellite is at least 3 years behind
schedule, and the program's estimated cost
has more than doubled to over $1.7 billion.
Page 16
GAO/HR-93-11 NASA Contract Management
Ineffective Oversight of Some
Contractors
Development delays have been caused, in
part, by NASA'S failure to initially assign
enough qualified staff to oversee the
contractor developing GOES-next
instruments. Although NASA increased its
technical involvement, much of the
damage-such as the use of improper
materials and other contractor errors-had
already been done. Consequently, if the only
remaining operational geostationary U.S.
weather satellite fails anytime soon, the
National Weather Service's ability to predict
and track hurricanes, like Hugo and Andrew,
as well as other severe weather patterns,
may be degraded.
Adequate
NASA managers use contractor-provided cost
Contractor Cost
data to help gauge progress on individual
Reporting Not
projects and to forecast future funding
Ensured
needs. On the basis of these cost reports,
NASA managers may adjust program
schedules, the scope of work, and funding
requirements. However, contractor cost
information was not always accurate, timely,
or properly recorded. The contractors'
reports were sometimes late, insufficiently
detailed, or not received at all. Poor
reporting was often due to NASA personnel
not including appropriate reporting
requirements in contracts.
Page 17
GAO/HR-93-11 NASA Contract Management
Ineffective Oversight of Some
Contractors
Our visits to NASA'S four largest centers
revealed that they did not always receive
contractor-reported cost and performance
data, and program analysts sometimes
inappropriately adjusted contractor cost
data without supporting documentation. In
some cases, these actions concealed
overruns, underruns, or instances where
costs exceeded obligations or budget plans.
Internal reviews by NASA'S Comptroller
personnel had also identified similar
problems with centers' adjustments to
contractor reports; however, effective
corrective actions were not taken.
Government-
Contractors hold more than $13 billion in
Owned,
property provided or acquired under NASA
Contractor-Held
contracts. Various centers were not properly
Property Not
accounting for some of this property. For
Accounted for
example, at two of NASA'S largest centers,
Properly
some contractors' annual property reports
were received too late to be used to update
NASA'S year-end financial statements and
reports. In addition, various types of errors
were associated with contractor property
reports and related documentation at three
NASA centers.
NASA relies extensively on other agencies'
surveys of contractor property systems to
Page 18
GAO/HR-93-11 NASA Contract Management
Ineffective Oversight of Some
Contractors
provide reasonable assurance that the
contractors' property reports are reliable.
However, the required survey reports were
not always provided to NASA. For example, in
fiscal year 1990, survey reports were not
provided to one center for 13 contractors
who held $3 million in NASA property. NASA
internal reviews have also documented
problems with the delinquent reporting of
the results of property systems surveys at
three other centers.
Adequate
NASA has a long-standing and well recognized
Agencywide
need to develop an adequate agencywide
Accounting
accounting system to help improve financial
System Not
oversight of contractors by providing more
Available
timely and accurate information. NASA'S
current costly, outdated, and nonintegrated
reporting systems require multiple data entry
and lengthy reconciliations. Deficiencies in
these systems have resulted in improper
account balances and unreliable financial
reports.
NASA'S efforts to develop an improved
accounting system have been slow, and its
planning for the project has been inadequate.
Implementation of the new system is not
scheduled to begin at the first center until
March 1995, and there was no target date for
Page 19
GAO/HR-93-11 NASA Contract Management
Ineffective Oversight of Some
Contractors
full agencywide implementation, as of
September 1992.
Data on Extent of
There were notable differences in contracts'
Contract Changes
cost and schedule growth rates at NASA'S four
Not Provided
largest centers. On the basis of a sample
drawn from more than 1,800 contracts, we
estimated that about one in every three
contracts at NASA'S four largest centers
experienced cost increases, and more than
two of every five contracts experienced
schedule changes. Contract costs were
increasing at an estimated annual rate
ranging from less than half of one percent at
one center to over 6.5 percent at another-a
16-fold rate difference. The estimated
average rate of schedule delay was almost
9 percent annually, ranging from 4.5 percent
at one center to 16 percent at another.
NASA did not know the extent of cost
increases and time extensions because its
procurement information system did not
routinely provide this data. Thus, NASA
procurement managers did not have useful
information for targeting specific centers
and contracts or types of contracts for
further review to help determine the extent
to which cost increases or schedule changes
Page 20
GAO/HR-93-11 NASA Contract Management
Ineffective Oversight of Some
Contractors
were related to contract management
problems.
Page 21
GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
NASA field centers did not always fully
comply with governmentwide, agency, or
center requirements when awarding and
modifying contracts. For example, in some
instances at one or more of NASA'S four
largest centers, (1) proposed contract
changes were not adequately evaluated by
technical personnel, (2) negotiations of
contract changes were not completed in a
timely manner, (3) unauthorized personnel
directed contractors to perform additional
work, and (4) sole-source procurements
were not properly justified. The first two
problems were the most prevalent, while the
last two problems existed to a much lesser
extent. Some centers were also frequently
not complying with requirements or
following good management practices in the
delegation of contract administration
functions.
Proposed
Ensuring the reasonableness of contract
Contract Changes
changes requires NASA personnel to
Not Adequately
technically evaluate contractors' proposals.
Evaluated
Such evaluations are performed by the
contracting officers' technical
representatives, who are engineers or
scientists from the program office being
supported by the contract. At three of NASA'S
four largest centers, some of the required
Page 22
GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
four largest centers, some of the required
evaluations were not done or were done
poorly. In many instances, technical
representatives did not evaluate all the
necessary technical elements of the
contractors' change proposals or explain
how they had reached their conclusions.
Without adequate technical evaluations,
procurement personnel lacked important
information for thoroughly evaluating
contractors' proposals and obtaining the
best prices.
NASA'S management reviews have also
frequently identified problems with the
quality of technical evaluations. For
example, inadequate technical evaluations
have been cited as a continuing problem at
one center since the mid-1980s. In response,
center management developed a training
course addressing the preparation of
technical evaluations. However, the course
had been slowly implemented, and none of
the technical representatives we spoke with
had attended it.
Contract Changes
Unpriced contract changes allow a
Not Negotiated in
contractor to start work and incur costs
a Timely Manner
before NASA and the contractor agree on
terms and conditions, including price. Until
Page 23
GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
firm prices are negotiated, contractors have
limited incentive to control costs. If work is
completed before the change has been
priced, the government will have lost the
opportunity to review the contractor's
proposed cost and to identify opportunities
to do the work more efficiently.
Despite the advantages of pricing contract
changes in a timely manner, NASA frequently
did not negotiate contract changes within
the 180-day period generally used as a
guideline for completing such negotiations.
For example, in July 1991, the four largest
centers reported that there were 234 changes
valued at approximately $2.2 billion
outstanding for more than 180 days.
Because they were concerned about
unpriced changes, NASA headquarters
procurement officials began tracking the
time required by the centers to negotiate
such changes and comparing their
performances. Since then, centers have
shown progress in reducing the number and
value of unpriced contract changes.
However, the monitoring is continuing
because as of August 31, 1992, NASA'S four
largest centers still had 175 unpriced
contract changes, valued at about
$1.9 billion, that were over 6 months old.
Page 24
GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
Moreover, almost three-quarters of this
dollar amount was related to 56 unpriced
changes over a year old.
Unauthorized
Only the contracting officer can authorize
Personnel
contract changes. However, in four instances
Directed
at one of NASA'S four largest centers, other
Contractors'
personnel directed contractors to perform
Work
additional work. For example, after a
contractor had informed the technical
representative that additional materials were
needed, the technical representative
authorized the use of the materials without
consulting the contracting officer. This
contract's schedule was also extended by
about 7 months due to another improperly
authorized change.
In 1989, a NASA management review noted
many instances in which the actions of
technical representatives at this same center
seemed to be eroding the authority of
contracting officers. In response, center
management prepared guidelines for
technical representatives and developed a
related training course. However, most of
the technical representatives we contacted
at the center did not have the guidelines, and
the training course was voluntary and had
been offered only a few times.
Page 25
GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
Sole-Source
NASA personnel at two centers did not follow
Procurements
the requirements of the Competition in
Not Properly
Contracting Act (CICA) of 1984 in justifying
Justified
sole-source procurements. Under CICA,
contracting officers must promote and
provide for full and open competition when
soliciting offers and awarding contracts.
Contracting officers may proceed with
procurements without full and open
competition only after proper justification
and approval. When contracts are not
awarded competitively, the government may
have less assurance that it is paying fair and
reasonable prices for goods and services,
and it may lose the opportunity to obtain
lower prices and increase the efficiency of
its programs.
In late 1988, we reported that a contracting
officer had not properly followed the
requirements of CICA in a noncompetitive
procurement of almost $3 billion worth of
parts and fabrication services for the space
shuttle's external tanks. Three years later,
we reported that personnel at another center
had improperly extended one contract and
had noncompetitively added new work to
another without justifying them as
sole-source procurements.
Page 26
GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
Contract
NASA procurement officials often rely on
Administration
other government agencies to perform many
Functions Not
contract administration functions. Currently,
Properly
NASA pays over $40 million a year for such
Delegated
services. However, there were widespread
and significant deficiencies in some centers'
management of delegated contract
administration activities that could seriously
hamper contractor oversight. For example,
the four centers we visited frequently did not
make delegations in a timely manner and did
not routinely inform the delegatees about
major contract changes, including
modifications that extended the life of the
contract. In addition, some NASA contracting
officers were unaware that contract
administration activities had been delegated
on contracts for which they were
responsible.
Contract administration planning at the four
centers did not comply with NASA'S own
guidelines. In most cases we reviewed, NASA
personnel did not hold required conferences
with the delegatees to plan the nature and
extent of contract administration functions.
In one case, a conference was not held on a
contract valued at over $500 million
because the contracting officer incorrectly
believed that one was not required since the
contract was for support services. In
Page 27
GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
contrast, all of the required contract
administration and quality assurance
planning conferences were held on the three
major work package contracts for Space
Station Freedom.
Factors
The NASA centers we reviewed failed to
Contributing to
comply with requirements or to effectively
Compliance
correct contract management problems for a
Problems
number of reasons. First, NASA operates
largely in a decentralized fashion under
which its field centers have considerable
operating latitude. For this approach to be
effective, headquarters must establish clear
expectations and carefully monitor the
performance of centers. Ineffective guidance
and oversight have resulted in substandard
contract management practices at some field
centers.
Other factors contributing to compliance
problems included (1) a primary emphasis
on awarding contracts to the detriment of
oversight activities occurring after contract
award; (2) a lack of minimum agencywide
standards for training personnel who plan,
monitor, and evaluate contractors' technical
performance; (3) corrective actions for
contract management problems that were
not effectively implemented; (4) center
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GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
personnel who were not familiar with
requirements or did not consider them to be
critical; and (5) procurement management
surveys that had limited effectiveness
because they generally did not assess the
causes of problems identified.
In addition, NASA officials believe that the
erosion of the agency's contract
management capabilities is also partially due
to a shortage of procurement personnel. In
the last decade, the value of NASA'S
procurement obligations increased about
51 percent, from $8.4 billion to $12.7 billion
in fiscal year 1990 dollars. Also, the number
of contracts valued at over $1 million more
than doubled, and the percentage of
procurement dollars NASA awarded
competitively grew steadily from
45 percent to 82 percent. Generally, the
award and administration of larger or
competitive contracts require more time and
effort than for smaller or noncompetitive
ones. Despite the increased value and
complexity of contracts, the number of
procurement personnel awarding and
administering contracts grew only about
19 percent-from 907 to 1,082. The relative
growth in procurement personnel and
procurement obligations is shown in
figure 3.
Page 29
GAO/HR-93-11 NASA Contract Management
Some Centers Not Fully Complying
With Procurement Requirements
Figure 3: Percentage Increases in NASA Procurement Personnel and
Procurement Obligations in Fiscal Year 1990 Constant Dollars
60 Percent
55
50
45
40
35
30
25
20
15
10
5
0
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
Fiscal year
Personnel
Obligations
Page 30
GAO/HR-93-11 NASA Contract Management
NASA's Efforts to Improve Contract
Management and Related Areas
NASA has been working to improve many
areas of contract management. Its
headquarters' staff have become increasingly
active over the last few years-proposing,
implementing, or completing numerous
initiatives. Some of these are related to our
recommendations on the need for improved
oversight of contractors and procurement
centers. For example, we recommended that
the NASA Administrator
develop testing policies that define NASA'S
testing goals and establish agencywide
minimum standards for space systems' test
programs;
direct contracting officers to enforce
requirements that their technical
representatives perform and document
adequate evaluations;
establish and enforce minimum training
requirements for contracting officers'
technical representatives that emphasize
their roles and responsibilities, scope of
authority, and relationship to other members
of the procurement management team;
ensure that procurement centers develop
and implement adequate procedures for
complying with requirements for delegating
Page 31
GAO/HR-93-11 NASA Contract Management
NASA's Efforts to Improve Contract
Management and Related Areas
contract administration functions; and
improve the reliability of contractors' cost
data and the controls over government
property held by contractors.
Consistent with some of these and other
recommendations and observations we have
made, NASA created an organization to focus
on contract management within its
headquarters' procurement office and has
been working on known contract
management issues, such as improved
training for members of the procurement
team and the timely negotiation of contract
changes. In working on this last matter, one
NASA center recently evaluated the causes of
delays in its pricing of contract changes and
recommended ways to streamline the
process.
NASA also modified its procurement
information system to enable cost and time
changes on its contracts to be summarized
routinely and comprehensively, and the
agency has been using this information to
improve the targeting of its procurement
management oversight activities. Due to
rising concerns about the management of
delegated activities, NASA has been improving
oversight and coordination of delegated
Page 32
GAO/HR-93-11 NASA Contract Management
NASA's Efforts to Improve Contract
Management and Related Areas
contract administration services. For
example, it developed a new procedure
requiring that procurement supervisors
ensure appropriate contract administration
planning conferences are held.
NASA is also addressing other issues we
raised that may ultimately affect the quality
of its contract management. For example,
the agency is developing overall testing
policies and related procedural guidelines. It
has also begun to deal with the lack of
realism in planning-that is, to bring the
planning of the content and pace of its
programs reasonably in line with likely
future budgets. NASA has been reviewing the
costs of all major programs, and it plans to
make appropriate adjustments to ensure a
balanced overall space and aeronautics
program within budget realities. Senior NASA
managers have also agreed to develop
priorities in conjunction with the agency's
fiscal year 1994 budget request.
Apart from our work on contract
management and related areas, NASA-based
on the results of assessments by its
headquarters' staff and others-has
identified the need for or implemented other
contract management improvements related
to additional procurement staff; a special
Page 33
GAO/HR-93-11 NASA Contract Management
NASA's Efforts to Improve Contract
Management and Related Areas
focus for dealing with nonproductive
contractor employees; the use, management,
and structure of award fees; the purchasing
practices of major contractors; and
subcontract pricing.
Other procurement improvement initiatives
underway would focus on streamlining the
contracting process for procurements
ranging from $25,000 to $500,000; promote
better use of certain types of contracts; hold
contractors more accountable for their
work; systematically measure contractors'
performance; and consider companies' past
performance when awarding contracts.
Page 34
GAO/HR-93-11 NASA Contract Management
Conclusions and Action Needed
NASA'S contract management weaknesses
were many years in the making and will
require time and sustained effort to correct
effectively. A vital step related to that effort
is to do agency planning that clearly states
NASA'S vision for the future and the steps to
realize that future in an affordable manner.
Failure to deal aggressively with the
mismatch between program plans and likely
budgets will impair NASA'S ability to
effectively manage its contracts and will
dampen the effects of the contract
management improvements that may result
from actions currently underway or recently
completed.
The commitment of NASA management to
correcting the plans/budgets mismatch and
resolving the agency's contract management
difficulties increases the likelihood of, but
does not guarantee, eventual success. In
principle, we support NASA'S initiatives.
Based on the work we have done over the
last 2 years, efforts such as those currently
underway throughout the agency are
necessary to the thorough consideration of
actions that could, over time, accomplish
effective change. We have seen numerous
corrective actions fail time and time again to
effectively correct existing problems. It is
time for bolder action.
Page 35
GAO/HR-93-11 NASA Contract Management
Conclusions and Action Needed
A potential obstacle that may prevent or
slow these efforts is the agency's
organizational culture.¹ For many years,
NASA'S culture has been characterized by a
"can-do" attitude and a strong
esprit-de-corps, and it has been a major
factor contributing to the agency's
hard-earned reputation for technical
brilliance and monumental achievements.
However, these positive aspects of NASA'S
culture are accompanied by negative ones,
including strong, center-based loyalty and
resistance to change.
Eliminating resistance to change may be the
more formidable challenge to the agency's
improvement efforts. For example, until
recently, NASA traditionally accepted all of
the cost risk under its research and
development contracts. When NASA
headquarters procurement officials began
advocating that cost risk be shared with
contractors, sharp differences surfaced
within NASA on how best to apportion it, with
some NASA field centers resisting any change
to the traditional approach.
NASA management faces the daunting task of
changing fervent views held for many years
"Organizational culture" refers to the underlying assumptions,
beliefs, values, attitudes, and expectations shared by an
organization's members.
Page 36
GAO/HR-93-11 NASA Contract Management
Conclusions and Action Needed
and injecting into NASA'S culture a more
open-minded approach to evaluating the old
ways of doing business while simultaneously
preserving the culture's positive features. To
effectively do SO will take time. The NASA
Administrator has noted that changing an
organization's basic way of doing business is
a long and difficult process-a process NASA
is just beginning.
Page 37
GAO/HR-93-11 NASA Contract Management
Related GAO Products
Financial Management: NASA'S Financial
Reports Are Based on Unreliable Data
(GAO/AFMD-93-3, Oct. 29, 1992).
NASA: Large Programs May Consume
Increasing Share of Limited Future Budgets
(GAO/NSIAD-92-278, Sept. 4, 1992).
NASA Procurement: Opportunities to Improve
Contract Management (GAO/T-NSIAD-92-33,
May 7, 1992).
Space Station: Contract Oversight and
Performance Provisions for Major Work
Packages (GAO/NSIAD-92-171BR, Apr. 14, 1992).
NASA Procurement: Improving the
Management of Delegated Contract
Functions (GAO/NSIAD-92-75, Mar. 27, 1992).
NASA Procurement: Approach to Sharing Risk
Under Certain Research and Development
Contracts Is Starting to Change
(GAO/T-NSIAD-92-12, Mar. 18, 1992).
NASA Budget: Potential Shortfalls in Funding
NASA'S 5-Year Plan (GAO/T-NSIAD-92-18, Mar. 17,
1992).
Page 38
GAO/HR-93-11 NASA Contract Management
Related GAO Products
NASA Procurement: Agencywide Action
Needed to Improve Management of Contract
Modifications (GAO/NSIAD-92-87, Mar. 2, 1992).
NASA Procurement: Management Oversight of
Contract Cost and Time Changes Could Be
Enhanced (GAO/NSIAD-91-259, Sept. 30, 1991).
Space Project Testing: Uniform Policies and
Added Controls Would Strengthen Testing
Activities (GAO/NSIAD-91-248, Sept. 16, 1991).
Financial Management: Actions Needed to
Ensure Effective Implementation of NASA'S
Accounting System (GAO/AFMD-91-74, Aug. 21,
1991).
Weather Satellites: Action Needed to Resolve
Status of the U.S. Geostationary Satellite
Program (GAO/NSIAD-91-252, July 24, 1991).
Environmental Protection: Solving NASA'S
Current Problems Requires Agencywide
Emphasis (GAO/NSIAD-91-146, Apr. 5, 1991).
NASA Maintenance: Stronger Commitment
Needed to Curb Facility Deterioration
(GAO/NSIAD-91-34, Dec. 14, 1990).
Space Shuttle: External Tank Procurement
Does Not Comply With Competition in
Page 39
GAO/HR-93-11 NASA Contract Management
Related GAO Products
Contracting Act (GAO/NSIAD-89-62, Dec. 28,
1988).
Page 40
GAO/HR-93-11 NASA Contract Management
High-Risk Series
Lending and
Farmers Home Administration's Farm Loan
Insuring Issues
Programs (GAO/HR-93-1).
Guaranteed Student Loans (GAO/HR-93-2).
Bank Insurance Fund (GAO/HR-93-3).
Resolution Trust Corporation (GAO/HR-934).
Pension Benefit Guaranty Corporation
(GAO/HR-93-5).
Medicare Claims (GAO/HR-93-6).
Contracting
Defense Weapons Systems Acquisition
Issues
(GAO/HR-93-7).
Defense Contract Pricing (GAO/HR-93-8).
Department of Energy Contract Management
(GAO/HR-93-9).
Superfund Program Management
(GAO/HR-93-10).
NASA Contract Management (GAO/HR-93-11).
Page 41
GAO/HR-93-11 NASA Contract Management
High-Risk Series
Accountability
Defense Inventory Management
Issues
(GAO/HR-93-12).
Internal Revenue Service Receivables
(GAO/HR-93-13).
Managing the Customs Service (GAO/HR-93-14).
Management of Overseas Real Property
(GAO/HR-93-15).
Federal Transit Administration Grant
Management (GAO/HR-93-16).
Asset Forfeiture Programs (GAO/HR-93-17).
Page 42
GAO/HR-93-11 NASA Contract Management
Ordering Information
The first copy of each GAO report and testimony
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United States General Accounting Office
GAO
High-Risk Series
December 1992
Superfund Program
Management
UNITED STATES
OFFICE CENERAL
GAO/HR-93-10
GAO
United States
General Accounting Office
Washington, D.C. 20548
Comptroller General
of the United States
December 1992
The President of the Senate
The Speaker of the House of Representatives
In January 1990, in the aftermath of scandals at the
Departments of Defense and Housing and Urban
Development, the General Accounting Office began a
special effort to review and report on federal government
program areas that we considered "high risk."
After consulting with congressional leaders, GAO sought,
first, to identify areas that are especially vulnerable to
waste, fraud, abuse, and mismanagement. We then began
work to see whether we could find the fundamental
causes of problems in these high-risk areas and
recommend solutions to the Congress and executive
branch administrators.
We identified 17 federal program areas as the focus of our
project. These program areas were selected because they
had weaknesses in internal controls (procedures
necessary to guard against fraud and abuse) or in
financial management systems (which are essential to
promoting good management, preventing waste, and
ensuring accountability). Correcting these problems is
essential to safeguarding scarce resources and ensuring
their efficient and effective use on behalf of the American
taxpayer.
This report is one of the high-risk series reports, which
summarize our findings and recommendations It
describes our concerns over the Environmental
Protection Agency's (EPA) management of the Superfund
program. In view of the escalating costs of hazardous
waste cleanups and the growing constraints on federal
resources, it focuses on the need for informed judgments
to allocate resources among competing environmental
protection needs. It also discusses EPA'S limited recovery
of Superfund cleanup costs from private parties and
inadequate attention to contract management.
Copies of this report are being sent to the President-elect,
the Democratic and Republican leadership of the
Congress, congressional committee and subcommittee
chairs and ranking minority members, the
Director-designate of the Office of Management and
Budget, and the Administrator of the Environmental
Protection Agency.
Chades A. Boweher
Charles A. Bowsher
Page 2
GAO/HR-93-10 Superfund Program Management
Page 3
GAO/HR-93-10 Superfund Program Management
Contents
Overview
6
Superfund
11
Setting Priorities
16
and Allocating
Limited
Resources
Increasing
21
Recovery of
Superfund Costs
Inadequate
29
Attention to
Contract
Management
Conclusions and
35
Action Needed
Related GAO
38
Products
High-Risk Series
40
Page 4
GAO/HR-93-10 Superfund Program Management
Page 5
GAO/HR-93-10 Superfund Program Management
Overview
The Superfund program was created in 1980
as a short-term project to clean up the
nation's worst hazardous waste sites. At that
time, the extent and severity of the country's
hazardous waste problems were thought to
be limited. Although a definitive cost
estimate for completing the cleanup effort
has yet to be determined, it is clear that in
the coming decades, cleanup of thousands of
Superfund sites, hundreds of which are
owned by the federal government, could cost
hundreds of billions of dollars.
The actual level of future funding will
depend on federal budget constraints and
the priority assigned to the cleanup effort
relative to other national needs. Since fully
funding the cleanup will be difficult at best,
efficient use of whatever funds are made
available for cleanup is vital. The better the
effort is managed by the Environmental
Protection Agency (EPA), the greater the
likelihood that more cleanups will be
completed, resulting in better protection of
human health and the environment.
The Superfund law requires the parties that
are responsible for contaminated sites to
clean them up or to reimburse EPA for the
cleanups it performs. To pay for EPA
cleanups, the law established a trust fund
Page 6
GAO/HR-93-10 Superfund Program Management
Overview
(Superfund), which is primarily financed by
a tax on crude oil and certain chemicals and
by an environmental tax on corporations.
Federal agencies cannot use the Superfund
to finance their cleanups but instead must
rely on the agencies' annual appropriations.
The Problem
An effort as costly as our nation's hazardous
waste cleanup problem should be justified
on evidence that expenditures will result in
commensurate benefits to human health and
the environment. However, Superfund
expenditures have not been based on an
adequate comparison of the sites' risks with
other environmental problems.
Superfund's enormous projected costs also
underscore the need for efficient program
administration. We have frequently reported,
however, that deficiencies in EPA'S efforts to
recover costs from responsible parties and in
its management of contractors have
increased expenses unnecessarily.
The Causes
Some experts think hazardous waste sites
are a lesser concern than other
environmental threats, such as global
atmospheric changes. But today, the federal
government lacks an adequate system for
Page 7
GAO/HR-93-10 Superfund Program Management
Overview
assessing the health and environmental risks
posed by Superfund sites relative to other
environmental problems. Without this
information, priorities cannot be set or
resources allocated effectively.
With regard to how efficiently the Superfund
is being used, EPA has recovered only a small
fraction of the Superfund resources that it
has spent. As of September 30, 1992, EPA had
collected just 10 percent of the $5.7 billion
that it had classified as recoverable from
responsible parties. Because it lacks
complete data on its past recovery efforts,
EPA cannot explain this low rate of
repayment, but we have reported that EPA
has failed to control collection efforts
sufficiently or to seek full recovery of its
costs. For example, although EPA has
recently proposed regulations to change its
approach to recovering indirect costs, SO far
it has excluded from its recovery efforts over
$1 billion in such costs. In addition, potential
recoveries have been reduced by the
Superfund law's restrictions on charging
interest.
Although it relies heavily on contractors to
perform much of its cleanup work, EPA until
this year ignored long-standing deficiencies
in the management of its contracts. More
Page 8
GAO/HR-93-10 Superfund Program Management
Overview
specifically, EPA failed to properly control
contractors' costs or reduce Superfund's
vulnerability to excessive damage claims
resulting from contractors' negligence.
GAO's
EPA has taken positive steps to address some
Suggestions for
of these problems. For example, it has begun
Improvement
to develop a risk-based planning approach
that would give priority to problems posing
the greatest danger. Also, EPA has worked
harder to compel responsible parties to
perform cleanups themselves and has
recently proposed new regulations for
recovering more of its costs. The agency has
also placed new emphasis on monitoring
contract costs.
These actions alone, however, are unlikely to
solve Superfund's problems. We have
recommended additional steps, among them
that EPA work with the Congress to reorder
its budget priorities to reflect the relative
risks of environmental problems. We also
said that EPA should place more emphasis on
recovering program costs-for instance, by
working to recover more of its costs and by
keeping better records of negotiations—
and that the Congress should permit EPA to
charge greater interest on its costs. We have
also recommended additional changes in
Page 9
GAO/HR-93-10 Superfund Program Management
Overview
EPA'S contract management, particularly in
limiting Superfund's liability for damage
claims.
Page 10
GAO/HR-93-10 Superfund Program Management
Superfund
Disposal of hazardous waste at thousands of
landfills, industrial plants and other
locations across the country has
contaminated these sites and endangered
nearby communities. The Comprehensive
Environmental Response, Compensation,
and Liability Act of 1980 (CERCLA) created the
Superfund program to clean up the most
dangerous of these sites. Originally given
$1.6 billion and a 5-year life, the program has
twice been reauthorized and now has a
spending cap of $15.2 billion; it is expected
to run indefinitely. As of September 30, 1992,
EPA had identified 1,275 Superfund sites. (See
fig. 1.)
Page 11
GAO/HR-93-10 Superfund Program Management
Superfund
Figure 1: Number of Superfund Sites by State
1-15 Sites
16-30 Sites
31-45 Sites
46 Sites
Source: GAO presentation of EPA data.
CERCLA authorizes EPA to compel parties
responsible for contaminated Superfund
sites, such as waste generators, waste
haulers, and site owners or operators, to
Page 12
GAO/HR-93-10 Superfund Program Management
Superfund
clean them up. If responsible parties cannot
be located, are unable, or are unwilling to
perform the cleanup, EPA is authorized to
clean up the sites itself and seek recovery of
its costs from the parties. To pay for EPA
cleanups, CERCLA established a trust fund
(Superfund) to be financed primarily by a
tax on crude oil and certain chemicals, such
as arsenic and mercury, and by an
environmental tax on corporations.
The estimated costs of cleaning up
Superfund sites have grown rapidly over the
past 12 years. At the end of fiscal year 1992,
EPA had obligated about $11.4 billion but had
completed cleanups at fewer than 12 percent
of the current Superfund sites. (See fig. 2.)
EPA has estimated that the fund's share of the
costs to clean up current sites will be
$40 billion and recognizes that many more
sites will be added to Superfund over time. A
1991 University of Tennessee study
estimated that if Superfund grew to 6,000
sites, cleanup costs for EPA and the private
sector, excluding costs for federal facilities
and Superfund's administration, could
amount to $300 billion in 1990 dollars over
the next 30 years.
Page 13
GAO/HR-93-10 Superfund Program Management
Superfund
Figure 2: Status of 1,275 Superfund Sites in Cleanup Pipeline, as of
September 30, 1992
696 Sites
56 Sites
in
With Action Not
Study or
374 Sites
Begun
Design
in Cleanup
149 Sites
Cleaned
Source: GAO presentation of EPA data.
Current cost estimates for cleaning up the
federal government's hazardous waste
legacy are also staggering. Estimates for the
Page 14
GAO/HR-93-10 Superfund Program Management
Superfund
Department of Defense (DOD) and the
Department of Energy (DOE) total close to
$200 billion. Although these estimates
represent a large portion of the potential
federal costs, the full picture is not yet
known. Federal agencies cannot pay for
their cleanups through Superfund's trust
fund but must obtain funds from other
appropriations.
Page 15
GAO/HR-93-10 Superfund Program Management
Setting Priorities and Allocating
Limited Resources
As constraints on the federal budget grow,
environmental needs are increasingly
competing for federal funds. Although funds
should be allocated to the programs that
most effectively reduce health and
environmental risks, the government has not
assessed the comparative risks of the
nation's environmental problems, in part
because it does not have the necessary data
or methodologies. The huge sums needed to
clean up Superfund sites and disagreements
about the dangers posed by these sites make
risk-based funding decisions especially
important. EPA has begun to develop a
strategic plan for responding to
environmental problems on the basis of
estimated risks, but full implementation is a
long way off.
Differing Views
Opinions on the relative risks of hazardous
on Dangers of
waste sites and other environmental
Hazardous Waste
problems differ considerably. Scientific
Sites
assessments have generally suggested that
contamination from hazardous waste sites
poses a lesser risk than other environmental
problems. However, public opinion,
according to 1988 and 1990 Roper polls,
considers hazardous waste sites to be a high
risk. Federal funding appears to be more
closely aligned with the public's perception
Page 16
GAO/HR-93-10 Superfund Program Management
Setting Priorities and Allocating
Limited Resources
of environmental risk: Superfund accounts
for about one-fourth of EPA'S budget. In
contrast, global atmospheric changes and
indoor air pollution, which some experts
rank as higher risks than Superfund sites,
have received less public attention and fewer
resources.
Insufficient
One reason for disagreements over the
Information to
danger posed by Superfund sites may be the
Define Risks
limited information that the government has
for assessing these sites' risks and for
comparing them with other environmental
risks. (See fig. 3.) In 1991, we reported that
the U.S. Public Health Service's Agency for
Toxic Substances and Disease Registry had
not adequately assessed the health risks of
many Superfund sites. The National
Research Council also recently concluded
that critical information on the health effects
associated with these sites was lacking
because limited resources had been devoted
to studying this subject.¹ Furthermore,
existing data are inadequate to characterize
the extent of some of the nation's other
environmental risks, such as the threats
posed by toxic air emissions and coastal
water pollution, according to EPA.
Environmental Epidemiology: Public Health and Hazardous
Wastes, U.S. National Research Council, Committee on
Environmental Epidemiology (Washington, D.C.: 1991).
Page 17
GAO/HR-93-10 Superfund Program Management
Setting Priorities and Allocating
Limited Resources
Figure 3: Types of Environmental and Public Health Risks Addressed at
Superfund Sites
Contaminated Air
Direct Contact With
Contaminated Drinking Water
Hazardous Waste
Ecological Damage
Fire and Explosion Hazard
Exposure Through Food Chain
Contaminated Groundwater
Contaminated Soil
Contaiminated Surface Water
Source: EPA and GAO.
Page 18
GAO/HR-93-10 Superfund Program Management
Setting Priorities and Allocating
Limited Resources
Better System
In addition to inadequate information, the
Needed to
government does not have a good system for
Allocate Limited
allocating funding to environmental
Funding
problems in accordance with risk. We have
recommended that EPA work with the
Congress to shift resources from
environmental problems whose risks are less
severe to problems whose risks are greater
and to educate the public about relative
environmental risks. EPA'S Science Advisory
Board has also recommended that EPA
improve the data and analytical
methodologies that support the assessment,
comparison, and reduction of different
environmental risks and that EPA better align
program priorities with health and
environmental risks. 2
One area that illustrates the need for
risk-based priority setting is the funding of
the federal government's hazardous waste
cleanups. The federal government does not
have an effective way to measure the relative
risk of these sites across agency lines or to
assign priorities to these cleanups, which
could cost hundreds of billions of dollars.
Although federal agencies submit annual
cleanup plans to EPA for review, this review
is not suitable for rank ordering federal
²Reducing Risk: Setting Priorities and Strategies for Environmental
Protection, Relative Risk Reduction Strategies Committee, EPA
Science Advisory Board (Sept. 1990).
Page 19
GAO/HR-93-10 Superfund Program Management
Setting Priorities and Allocating
Limited Resources
cleanups because EPA assumes that all
cleanups will be funded. EPA acknowledges
that a comprehensive approach to setting
cleanup priorities across agency lines will be
needed when the cost of federal cleanups
exceeds available funding.
EPA has begun to develop a new
comprehensive risk-based strategic planning
approach within the agency. This approach
would position EPA to assess the risks
associated with environmental problems and
to give priority to the greatest risks. EPA
faces some constraints in adopting this
approach, such as the agency's statutory
authorities that limit its flexibility to shift
priorities on the basis of risk assessments.
Nevertheless, the agency is currently
identifying what data on environmental
conditions and risks are available for
implementing this process.
Page 20
GAO/HR-93-10 Superfund Program Management
Increasing Recovery of Superfund
Costs
Parties responsible for contaminating
Superfund sites are required by CERCLA to
clean them up or to reimburse EPA for a
government-funded cleanup. In recent years,
EPA has compelled many responsible parties
to perform cleanups directly but has
recovered only a small part of the program's
costs. While we are currently reviewing the
reasons for the low reimbursement rate, our
past work has identified some of the causes.
First, EPA lacks information to adequately
manage the recovery effort. Because its data
are SO poor, EPA cannot explain why SO few
costs have been recovered. In addition, as
we have reported, indirect costs and interest
are not being fully recovered. As a result, the
federal government has been left footing
much of the bill for remediating
environmental problems created by
responsible parties.
Increasing
Beginning in 1989, EPA strengthened its
Privately Funded
efforts to get responsible parties to meet
Cleanups
their cleanup obligations in an initiative
called "Enforcement First." This approach
gave clear preference to privately financed
cleanups over Superfund-financed cleanups
and increased Superfund's enforcement
resources and activities. This new emphasis
worked. EPA increased the annual value of
Page 21
GAO/HR-93-10 Superfund Program Management
Increasing Recovery of Superfund
Costs
privately funded cleanups from
$207.5 million in fiscal year 1987 to more
than $1.5 billion in fiscal year 1992. (See fig.
4.)
Figure 4: Estimated Value of Responsible Parties' Cleanup Work, Fiscal Years
1987-92
1800.0
Dollars in millions
1600.0
1609.8
1514.4
1400.0
1307.4
1200.0
1000.0
939.7
800.0
600.0
578.6
400.0
207.5
200.0
0
1987
1988
1989
1990
1991
1992
Fiscal year
Source: GAO presentation of EPA data.
Low Recovery of
EPA'S improved record for compelling
Cleanup Costs
privately funded cleanups contrasts sharply
Page 22
GAO/HR-93-10 Superfund Program Management
Increasing Recovery of Superfund
Costs
with its low recovery of Superfund
expenditures. At the end of fiscal year 1992,
EPA had disbursed $7.3 billion in federal
funds for the Superfund program and had
classified about $5.7 billion of this amount as
recoverable from responsible parties. 3 Yet
EPA had agreements with responsible parties
or court orders to recover only about
$795 million-just 14 percent of the
$5.7 billion-and actually collected
$546 million-10 percent of the total
recoverable.
In its efforts to recover costs, EPA faces
certain limitations, such as sites-referred to
as "orphan sites"-that have no identified
responsible parties to reimburse the agency.
In addition, EPA has waived recovery of some
costs as an incentive for parties to take over
cleanup responsibilities at sites. The agency
has not quantified the costs that cannot be
recovered at orphan sites or the costs that
have been waived in settlement negotiations.
Previously Reported
Our past reports identified the following
Weaknesses
deficiencies in EPA'S cost recovery effort:
Cost recovery records are incomplete and
unreliable. National figures on costs
³Additional amounts will be classified as recoverable as ongoing
cleanup projects are completed.
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Increasing Recovery of Superfund
Costs
expended and recovered are only
approximations. Field offices have not
documented realistic bottom-line positions
in advance of negotiations, and negotiators
have not kept records of what costs they
have and have not sought to recover.
Therefore, the success of the negotiations
cannot be measured.
The cost recovery effort has been
understaffed and assigned a low priority,
creating backlogs in cost recovery cases.
Full costs, including indirect costs and
interest charges, have not always been
sought in cost recovery negotiations.
CERCLA restricts interest charges on unpaid
costs.
To address these deficiencies, our past
reports have recommended that EPA
(1) improve its record-keeping to permit
meaningful evaluations of its performance in
recovering costs; (2) strengthen its strategic
planning for managing this program,
including determining its staffing needs; and
(3) seek fuller recovery of its program costs.
As described below, EPA has proposed a rule
to seek reimbursement of more of its
indirect costs. However, cost recovery
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Increasing Recovery of Superfund
Costs
records continue to be inadequate, and,
according to an EPA cost recovery program
official, understaffing is still a problem.
Furthermore, we recommended in 1991 that
the Congress amend CERCLA to remove
interest accrual restrictions, but no action
has yet been taken.
The losses attributable to inadequate
program information and to understaffing
are unknown. However, we can estimate the
value of the indirect costs and some of the
interest charges that have not been
recovered.
Indirect Costs
EPA'S current policy has excluded over
$1 billion in indirect costs from recovery. In
1989, we reported that EPA had not sought to
fully recover its indirect costs for two
reasons. First, the agency had narrowly
defined "recoverable" indirect costs to
exclude certain categories of costs, such as
research and development. Second, the
agency's formula for allocating indirect costs
to Superfund sites had effectively excluded
from recovery a large portion of the indirect
costs that had not been categorically
excluded.
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Increasing Recovery of Superfund
Costs
In August 1992, EPA proposed regulations to
change its approach to recovering indirect
costs. Under this proposal, the agency would
seek to recover the previously excluded
categories of indirect costs and would revise
its method for distributing indirect costs so
that almost all indirect costs would be
recoverable. This proposal, if adopted,
would almost triple the indirect costs
recoverable from responsible parties,
according to agency estimates, and allow EPA
to seek recovery of some of the over
$1 billion now excluded.
Interest Costs
EPA has also missed the opportunity to
recover hundreds of millions of dollars in
interest costs because (1) CERCLA limits the
interest that EPA can charge and (2) agency
personnel have not always tried to claim
interest. We estimated that in 1990 alone EPA
could have accrued $105 million in interest
on its fiscal year 1989 expenditures if
statutory limits on EPA'S collection of interest
costs had been changed.
CERCLA restricts interest charges on amounts
due from responsible parties in two ways.
First, it can significantly delay the date from
which interest begins to accrue. CERCLA
permits interest accrual from the date that
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Increasing Recovery of Superfund
Costs
funds are spent or the date that payment is
demanded, whichever is later. As authorized
by CERCLA, EPA sometimes waits several years
after funds are expended to demand
repayment. In a fiscal year 1989 settlement,
for example, EPA Region V sought to recover
$81,287 in interest that had accrued from the
date that it had demanded payment.
However, it could have sought $322,414-or
almost four times as much-if accrual had
begun from the date that funds were
expended. On a broader basis, we estimated
that EPA could have accrued in 1990 about
$80 million in interest on its fiscal year 1989
expenditures.
Second, CERCLA allows EPA to accrue interest
on program costs only at the government's
borrowing rate, which is lower than
commercial lending rates. We estimate that
this limit reduced the interest accrued in
1990 on fiscal year 1989 settlements by about
$25 million. Furthermore, this amount, in
effect, represents a subsidy to the
responsible parties that leave their cleanups
to the government. Whereas the responsible
parties that borrow money for cleanups have
to obtain financing from lenders at
commercial rates, the parties that reimburse
EPA are charged the government's lower
borrowing rate. Precedents for charging
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Increasing Recovery of Superfund
Costs
more than the government's rate exist in
other programs. The Internal Revenue
Service, for example, charges an additional
3 percent on late tax payments. Therefore,
we recommended that the Congress amend
CERCLA to eliminate this subsidy.
Besides statutory restrictions on charging
interest, failure to consistently seek recovery
of some interest costs has limited EPA'S
collection of interest. EPA sought interest
from responsible parties on only 22 of the 89
fiscal year 1989 settlements that we
surveyed-making no attempt to recover
about $4.5 million out of $10.5 million in
interest-primarily because agency
personnel were unfamiliar with procedures
for calculating these costs. The amount of
interest not sought nationally is unknown,
however, because EPA does not regularly
collect data on how often its negotiators try
to recover interest. Although EPA has issued
guidance identifying where assistance in
calculating interest is available and has
adopted an automated system that can
calculate interest costs, it has not
determined whether its personnel are now
consistently seeking to recover interest.
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GAO/HR-93-10 Superfund Program Management
Inadequate Attention to Contract
Management
Billions of dollars are at stake in EPA'S
management of Superfund contracts. But for
years the agency tolerated deficiencies in
contract management-including
uncontrolled costs and excessive exposure
to damage claims stemming from
contractors' negligence-and failed to follow
through on planned corrective measures.
Recently, under pressure from the Congress
and others, EPA has taken steps to remedy
these long-standing contract management
problems. EPA will need to sustain this effort
to correct these problems.
Controlling
EPA makes extensive use of
Contractors'
cost-reimbursable contracts to clean up
Costs
hazardous waste sites. (See fig. 5.) These
contracts require special agency oversight
because they reimburse the contractor for all
allowable costs and therefore give the
contractor little incentive to control costs.
However, we have repeatedly reported that
EPA has not overseen its cost-reimbursable
contracts as necessary to prevent
contractors from overcharging the
government. For example, EPA has not
satisfactorily estimated the cost of work
before approving contractors' budgets or
reviewed contractors' charges either before
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GAO/HR-93-10 Superfund Program Management
Inadequate Attention to Contract
Management
payment or afterwards in postpayment
audits.
Figure 5: EPA's Obligations for Superfund Contracts and the Total Program,
Fiscal Years 1981-91
1800
Dollars In millions
1600
1400
1200
1000
800
600
400
200
0
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
Fiscal year
Total Obligations
Contractor Obligations
Note: These figures do not include obligations for Superfund
contracts awarded by the U.S. Army Corps of Engineers, which
handles the more expensive construction cleanup contracts.
Source: GAO presentation of EPA data.
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GAO/HR-93-10 Superfund Program Management
Inadequate Attention to Contract
Management
We reported in 1988 and 1991 that EPA had
not protected itself against potentially
wasteful contract spending by preparing
independent government cost
estimates-that is, the government's own
projection of what contract work should
cost. These estimates protect the agency
from depending too heavily on the
contractor's cost proposal for judging what
contract work should cost.
EPA regional staff had prepared independent
government cost estimates for only 4 of 30
cleanup studies that we reviewed in 1991.
Although used infrequently, these estimates
proved to be effective in reducing
contractors' proposed budgets-in one case,
from $3 million to $1.6 million.
In addition, EPA had not effectively used two
other basic cost control techniques-invoice
reviews and audits. In 1988 and 1991, we
reported that EPA was not adequately
reviewing contractors' monthly invoices, or
bills, to ensure that contractors' charges
were reasonable. We also reported in 1990
that audit backlogs had hampered the
agency's timely review of the accuracy of
contractors' direct and indirect cost charges
and increased the vulnerability of Superfund
contract dollars to waste, fraud, and abuse.
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GAO/HR-93-10 Superfund Program Management
Inadequate Attention to Contract
Management
Without controls over contractors' costs,
Superfund resources can be wasted. For
example, we reported in March 1992 that one
of Superfund's largest contractors had
included $2.3 million of expenses not
allowable under the Federal Acquisition
Regulations in its indirect cost pool, a
portion of which is charged to EPA. The
expenses were for things such as tickets to
professional sporting events, alcohol at
company parties, and travel by nonemployee
spouses of company employees.
Additionally, we identified indirect costs of
$266,500 that, while not specifically
unallowable, appeared questionable for
allocation to federally sponsored contracts.
Reducing
Together with inadequate controls over
Excessive
cost-reimbursable contracts, overly liberal
Indemnification
indemnification policies and practices
threaten to seriously drain Superfund
resources.
In 1986, amendments to CERCLA authorized
EPA to indemnify contractors-that is, to pay
for any damages caused by their negligence
at Superfund sites-because pollution
insurance was not available at that time. This
indemnification was, however, to be granted
only up to a limit to be specified by EPA.
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GAO/HR-93-10 Superfund Program Management
Inadequate Attention to Contract
Management
However, as we first reported in 1989, EPA
has been granting almost all of its
contractors unlimited indemnification,
despite the law's requirements and
considerable evidence that contractors
would work at lower levels of protection.
Under EPA'S current approach, each
indemnification agreement is backed by the
entire unobligated balance of Superfund,
which was $1.75 billion at the beginning of
fiscal year 1991. Therefore, we
recommended that EPA limit Superfund's
potential exposure to indemnification losses
by implementing CERCLA'S requirements to
establish dollar limits on indemnification
agreements and by determining the lowest
level of indemnification that would ensure
the availability of an adequate number of
contractors.
Increasing
After years of inattention to these repeatedly
Management's
reported deficiencies, EPA-under mounting
Attention to
pressure from the Congress, EPA'S Inspector
Contract
General, and GAO-began this past year to
Management
address its contract management problems,
including the root causes. EPA has elevated
the procurement function in the
organization, designating senior officials in
headquarters and field units to be
accountable for procurement efforts;
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Inadequate Attention to Contract
Management
developed an implementation plan to correct
problems; and reported Superfund contract
management as a material weakness in its
December 1991 Federal Managers' Financial
Integrity Act report.
In addition, EPA has recently initiated efforts
to exercise greater financial control over its
Superfund contracts. For example, since
early this year, it has required its staff to
develop independent government cost
estimates for Superfund contracts. It is also
working to develop cost-estimating expertise
by, for example, providing additional cost
information guidance to its staff. To reduce
its audit backlog, EPA has requested funding
to increase the number of auditors in its
Office of Inspector General. Although these
steps promise to improve contract
management, they will require more
complete follow-through on the part of EPA'S
managers than has been evident in the past
to ensure lasting change.
Although EPA has also taken some steps to
control contractors' indemnification, it has
made limited progress. For example, the
agency has drafted new indemnification
guidelines; however, as of November 1992,
these guidelines still had to be approved by
the Office of Management and Budget.
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GAO/HR-93-10 Superfund Program Management
Conclusions and Action Needed
The cleanup of hazardous waste disposed of
for generations without adequate safeguards
will require a decades-long, major
commitment of national resources. Because
potential costs are so great, funding
decisions need to be based on solid
information about the risks posed by
disposal sites and the benefits of cleanups.
In addition, whatever funds are devoted to
the effort must be managed to bring the
greatest possible return. Our work has
disclosed a need to better justify the budget
priority assigned to the cleanup effort and
improve program management.
The federal government cannot afford to
spend the hundreds of billions of dollars
expected to be needed to clean up
Superfund sites without good assurance that
this level of funding is appropriate. Finding
the right funding level requires comparing
the relative risks to human health and the
environment of Superfund sites and of other
environmental problems and the relative risk
reduction that spending on Superfund
cleanups and other environmental programs
will achieve. Currently, decisions about
funding are being made without adequate
assessments of risks. If steps are taken to
assess the relative risks posed by
environmental problems, the Congress and
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GAO/HR-93-10 Superfund Program Management
Conclusions and Action Needed
EPA will have a more rational basis upon
which to debate the allocation of limited
federal resources.
Although EPA has increased privately funded
cleanups, it has not improved its chronically
low recovery of Superfund costs. Our
reports have identified the following causes
of this low recovery: inadequate records to
evaluate recovery efforts, understaffing,
failure to pursue many costs, and statutory
restrictions on interest charges. EPA has
proposed a rule to enlarge the definition of
recoverable indirect costs, but other changes
are needed. For example, EPA needs to
develop the necessary information to assess
the adequacy of its efforts to return past
expenditures to the trust fund. In addition,
amendments to CERCLA'S interest provisions
would increase the costs that EPA could seek
to recover and eliminate the current subsidy
to responsible parties that leave cleanup
work to the government. Given Superfund's
potentially enormous costs, failure to make
these changes could be very expensive.
Until this year, EPA had not given high
priority to managing Superfund contracts
even though it contracts out work worth
billions of dollars. Our reviews have
disclosed the results of EPA'S neglect: poorly
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GAO/HR-93-10 Superfund Program Management
Conclusions and Action Needed
controlled contractors' costs and excessive
vulnerability to indemnification losses. In the
face of rising criticism over contract abuses,
EPA'S management has made a commitment
to improve cost controls and has begun
organizational and procedural changes.
However, a sustained effort is essential if
permanent improvements are to be achieved.
Moreover, indemnification deficiencies still
have not been corrected and remain a threat
to the program's resources.
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GAO/HR-93-10 Superfund Program Management
Related GAO Products
Superfund: EPA Cost Estimates Are Not
Reliable or Timely (GAO/AFMD-92-40,
July 1, 1992).
Federally Sponsored Contracts: Unallowable
and Questionable Indirect Costs Claimed by
CH2M Hill (GAO/T-RCED-92-37, Mar. 19, 1992).
Superfund: EPA Has Not Corrected
Long-standing Contract Management
Problems (GAO/RCED-92-45, Oct. 24, 1991).
Superfund: Public Health Assessments
Incomplete and of Questionable Value
(GAO/RCED-91-178, Aug. 1, 1991).
Superfund: More Settlement Authority and
EPA Controls Could Increase Cost Recovery
(GAO/RCED-91-144, July 18, 1991).
Environmental Protection: Meeting Public
Expectations With Limited Resources
(GAO/RCED-91-97, June 18, 1991).
EPA'S Contract Management: Audit Backlogs
and Audit Follow-up Problems Undermine
EPA'S Contract Management (GAO/T-RCED-91-5,
Dec. 11, 1990).
Page 38
GAO/HR-93-10 Superfund Program Management
Related GAO Products
Superfund: A More Vigorous and Better
Managed Enforcement Program Is Needed
(GAO/RCED-90-22, Dec. 14, 1989).
Superfund: Contractors Are Being Too
Liberally Indemnified by the Government
(GAO/RCED-89-160, Sept. 26, 1989).
Making Superfund Work Better: A Challenge
for the New Administration (GAO/T-RCED-89-48,
June 15, 1989).
Superfund Contracts: EPA'S Procedures for
Preventing Conflicts of Interest Need
Strengthening (GAO/RCED-89-57, Feb. 17, 1989).
Environmental Protection Agency:
Protecting Human Health and the
Environment Through Improved
Management (GAO/RCED-88-101, Aug. 16, 1988).
Superfund Contracts: EPA Needs to Control
Contractor Costs (GAO/RCED-88-182, July 29,
1988).
Page 39
GAO/HR-93-10 Superfund Program Management
High-Risk Series
Lending and
Farmers Home Administration's Farm Loan
Insuring Issues
Programs (GAO/HR-93-1).
Guaranteed Student Loans (GAO/HR-93-2).
Bank Insurance Fund (GAO/HR-93-3).
Resolution Trust Corporation (GAO/HR-934).
Pension Benefit Guaranty Corporation
(GAO/HR-93-5).
Medicare Claims (GAO/HR-93-6).
Contracting
Defense Weapons Systems Acquisition
Issues
(GAO/HR-93-7).
Defense Contract Pricing (GAO/HR-93-8).
Department of Energy Contract Management
(GAO/HR-93-9).
Superfund Program Management
(GAO/HR-93-10).
NASA Contract Management (GAO/HR-93-11).
Page 40
GAO/HR-93-10 Superfund Program Management
High-Risk Series
Accountability
Defense Inventory Management
Issues
(GAO/HR-93-12).
Internal Revenue Service Receivables
(GAO/HR-93-13).
Managing the Customs Service (GAO/HR-93-14).
Management of Overseas Real Property
(GAO/HR-93-15).
Federal Transit Administration Grant
Management (GAO/HR-93-16).
Asset Forfeiture Programs (GAO/HR-93-17).
Page 41
GAO/HR-93-10 Superfund Program Management
Ord
The
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United States
General Accounting Office
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Washington, D.C. 20548
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United States General Accounting Office
GAO
High-Risk Series
December 1992
Department of Energy
Contract Management
UNITED STATES
ACCOUNTING OFFICE CENERAL
GAO/HR-93-9
GAO
United States
General Accounting Office
Washington, D.C. 20548
Comptroller General
of the United States
December 1992
The President of the Senate
The Speaker of the House of Representatives
In January 1990, in the aftermath of scandals at the
Departments of Defense and Housing and Urban
Development, the General Accounting Office began a
special effort to review and report on federal government
program areas that we considered "high risk."
After consulting with congressional leaders, GAO sought,
first, to identify areas that are especially vulnerable to
waste, fraud, abuse, and mismanagement. We then began
work to see whether we could find the fundamental
causes of problems in these high-risk areas and
recommend solutions to the Congress and executive
branch administrators.
We identified 17 federal program areas as the focus of our
project. These program areas were selected because they
had weaknesses in internal controls (procedures
necessary to guard against fraud and abuse) or in
financial management systems (which are essential to
promoting good management, preventing waste, and
ensuring accountability). Correcting these problems is
essential to safeguarding scarce resources and ensuring
their efficient and effective use on behalf of the American
taxpayer.
This report is one of the high-risk series reports, which
summarize our findings and recommendations. It
describes our concerns over systemic contract
management weaknesses in the Department of Energy. It
focuses on the Department's failure to adequately oversee
the contractors that it relies on to manage and operate
the nuclear weapons complex and national laboratory
network. The report delineates the consequences of an
approach to contract management based on
noninterference in contractors' activities. It also
discusses GAO'S suggestions to the Secretary of Energy for
improving contract management and reducing risk.
Copies of this report are being sent to the President-elect,
the Democratic and Republican leadership of the
Congress, congressional committee and subcommittee
chairs and ranking minority members, the
Director-designate of the Office of Management and
Budget, and the Secretary-designate of Energy.
Charles A. Bowsher
Page 2
GAO/HR-93-9 DOE Contract Management
Page 3
GAO/HR-93-9 DOE Contract Management
Contents
Overview
6
DOE Contracting
11
DOE's Oversight
14
of Contractors Is
Weak
Contract
24
Provisions
Weaken DOE's
Control
DOE's
29
Contracting
Changes Will
Take Time and
Commitment
Conclusions and
35
Action Needed
Related GAO
37
Products
High-Risk Series
40
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GAO/HR-93-9 DOE Contract Management
Page 5
GAO/HR-93-9 DOE Contract Management
Overview
Fundamental contract management
weaknesses in the Department of Energy
(DOE) have led to widespread
mismanagement of federal property and
funds. In response to calls from us and
others for increased oversight, DOE has taken
positive steps toward reforming its contract
management. In particular, the Department's
leadership has begun to instill a new
organizational culture that acknowledges
management shortcomings.
DOE'S approach to contract management
dates back to the Manhattan Project of
World War II, when the federal government
sought to obtain private industry's
participation in dangerous and uncertain
activities by giving contractors wide latitude
in operating the government's weapons
research and production facilities. Under the
veil of national security, contractors
operated largely without oversight or
financial risk.
DOE recognizes that this lenient approach to
contract management has placed at risk the
government's multibillion-dollar annual
investment in contractors' services. The
Department's recent reforms are designed to
give contractors more incentive to act
responsibly and at the same time to increase
Page 6
GAO/HR-93-9 DOE Contract Management
Overview
DOE'S oversight of contractors' activities.
Changing an approach to contract
management that has led to so many
problems will, however, take time and
leadership.
The Problem
DOE is the largest civilian contracting agency
in the federal government, providing
employment to about 140,000 contractor
personnel. About $15.6 billion of DOE'S
$19 billion procurement budget for fiscal
year 1991 went to 35 contractors working
under 52 contracts for management and
operations. These contractors design, test,
develop, and produce the nation's nuclear
weapons; manage DOE'S national
laboratories; and conduct research in energy
and science.
DOE'S contracting approach has led to
contracts that have virtually tied DOE'S
hands, requiring DOE to reimburse
contractors for money and materials that the
contractors' own employees have stolen and
for fines that the contractors have incurred
by violating environmental laws. We have
identified substantial evidence of the
systemic nature of DOE'S contract
management problems, finding, for example,
that 10,000 secret documents were missing
Page 7
GAO/HR-93-9 DOE Contract Management
Overview
from a nuclear weapons facility and that
subcontracting costs for nuclear waste
containers had tripled. Similarly, DOE'S
Inspector General (IG) found that
requirements for congressional approval had
been circumvented to obtain funding for an
unauthorized construction project. In
addition to these costs, the long-term effects
of DOE'S contract mismanagement and
emphasis on production-the
environmental, safety, and health problems
at DOE'S nuclear weapons complex-are now
estimated to cost at least $160 billion to
restore and correct. Since DOE will have to
rely heavily on contractors for the cleanup
effort, the need for wholesale improvements
in DOE'S contract management remains
urgent.
The Causes
Because DOE'S management and operating
contracts provide few incentives for
contractors to operate cost-effectively, DOE
needs to control costs carefully. However,
weak oversight remains one of the
Department's fundamental contracting
problems. DOE has not provided the staff and
other resources needed to monitor
contractors' operations, and it does not have
the management and financial information
necessary for effective oversight. For
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GAO/HR-93-9 DOE Contract Management
Overview
decades, the secrecy surrounding contracted
activities has discouraged oversight.
Furthermore, until recently, the international
competition for weapons supremacy led DOE
to emphasize production over
environmental, safety, and health
considerations.
Compounding DOE'S contract management
problems are contracts that limit the
Department's control over contractors'
operations. Nearly 70 percent of DOE'S
management and operating contracts do not
contain standard clauses that other federal
agencies commonly use to protect the
government's interests. DOE'S contracts give
contractors excessive latitude, increase the
government's financial risk, and restrict the
Department's ability to control costs. In
addition, DOE does not provide objective
criteria for the award or management fees
that it pays contractors, leaving open the
possibility of abuse in fee determinations.
GAO's
DOE has made significant changes to
Suggestions for
strengthen contract management. New
Improvement
contract provisions will require contractors
to perform work only when specifically
authorized and will make contractors liable
for improper performance and accountable
Page 9
GAO/HR-93-9 DOE Contract Management
Overview
for improper behavior. DOE is also using
award fees to motivate improvements in
contractors' environmental, safety, and
health performance.
Although DOE'S progress is noteworthy, new
reforms will require DOE to substantially
upgrade its oversight capabilities. Existing
staff must be given the right skills to
administer new provisions, and information
systems must be developed and
implemented to provide the kinds of data
needed for the more intensive oversight
brought about by reforms. Changing a
contract management approach that has
developed over half a century is certainly not
easy. Implementing reforms such as those
DOE has begun will take years and will
require commitment from DOE'S managers,
employees, and contractors.
Page 10
GAO/HR-93-9 DOE Contract Management
DOE Contracting
During World War II, the Manhattan
Engineer District of the U.S. Army Corps of
Engineers-a predecessor to DOE-Was
responsible for developing and producing
the first atomic bomb. More commonly
known as the Manhattan Project, the
enterprise was based on contractual
arrangements among the War Department,
industry, and academic organizations and
created an unprecedented approach to
contract management in response to the
exigencies of war.
After the war, the newly created Atomic
Energy Commission decided that special
incentives were needed to retain the
participation of its management and
operating contractors. Under a "philosophy
of least interference," the Commission gave
its contractors virtual independence in
managing and operating the sprawling
12-state network of weapons facilities.
External oversight of the contractors'
activities was limited by national security
concerns. The Commission's lack of
involvement in the operations of its own
facilities was reflected in contract clauses
that relieved the contractors of virtually all
financial risk and exempted them from most
federal and state environmental laws. DOE
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GAO/HR-93-9 DOE Contract Management
DOE Contracting
carried over this contract management
approach intact.
Today, DOE is the only cabinet-level office to
contract out its major missions. Providing
employment to about 140,000 contractor and
20,000 federal personnel, DOE is also the
largest civilian contracting agency in the
federal government. In fiscal year 1991,
about $15.6 billion of DOE'S $19 billion
procurement budget went to management
and operating contractors who not only
design, test, develop, and produce the
nation's nuclear arsenal but also manage the
country's national laboratories and conduct
basic research in science and energy.
To manage and operate its facilities, DOE has
entered into 52 fully cost-reimbursable
contracts with 35 contractors. These include
multinational firms and academic
organizations, such as Westinghouse,
General Electric, AT&T, and the University of
California. The University of California and
AT&T have operated some of DOE'S facilities
continuously since 1943 and 1949,
respectively.
DOE'S contracts are generally cost
reimbursable because of the difficulties in
estimating production and research work
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GAO/HR-93-9 DOE Contract Management
DOE Contracting
loads and costs in advance. DOE uses
primarily two types of contracts—
cost-plus-award-fee and
cost-plus-management-fee. The majority of
DOE'S contracts-28 out of 52-are held by
profit-making firms and are
cost-plus-award-fee contracts. Fiscal year
1991 award fees ranged from $673,000 to
$18 million. A cost-plus-award-fee contract
compensates a firm for costs incurred and
provides an additional fee on the basis of
DOE'S evaluation of the company's
performance. Most of the remaining 24
contracts are with nonprofit organizations
and are cost-plus-management-fee contracts
that, in addition to reimbursing all costs,
provide a supplemental fee agreed upon
during contract negotiations.
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DOE's Oversight of Contractors Is
Weak
Fundamental weaknesses in DOE'S contract
management include insufficient oversight of
contractors and their subcontractors and
lack of essential management and financial
information. Although cost-reimbursable
contracts require extensive monitoring and
DOE relies heavily on them, DOE has not
provided the necessary oversight to hold
contractors accountable and protect
taxpayers' funds. Furthermore, because DOE
does not have essential management and
financial information, it does not have the
complete picture of its contractors' activities
required for adequate oversight. Over time,
these weaknesses have contributed in no
small measure to the deterioration of the
weapons complex as well as to the more
insidious environmental, safety, and health
problems brought on by working for half a
century with the radioactive elements used
to produce nuclear weapons.
Controls Over
Much of DOE'S vulnerability to waste, fraud,
Contractors'
abuse, and mismanagement stems from
Operations and
long-standing inadequacies in the
Activities Are
Department's oversight of contractors'
Weak
operations and activities. Although DOE'S
"least interference" management approach
may have been appropriate at the end of
World War II, it has led over time to
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DOE's Oversight of Contractors Is
Weak
negligible DOE control and limited contractor
accountability. The following examples
demonstrate the systemic nature of the
problem.
Although DOE'S contracting approach was
established partly in the interests of national
security, DOE'S limited oversight has not
produced that security. For example, the
management and operating contractor at
Lawrence Livermore National Laboratory
could not account for 10,000 of 600,000
secret documents concerning nuclear
weapons and laser technology. DOE'S reviews
of the contractor's controls were inadequate
to identify this breach of security.
DOE'S weak oversight has also led to
inefficient nuclear production decisions.
According to an August 1991 DOE IG report,¹
reports of on-hand quantities of nuclear
materials from DOE'S nuclear weapons
laboratories contained inaccuracies ranging
from 52 percent to 88 percent. The
management and operating contractor for
Sandia National Laboratory, for instance,
had requested about $500,000 worth of
uranium for its research needs when, in fact,
the uranium was already in inventory and
had been declared excess. However, DOE'S
Departmentwide Audit of the Visibility Over the Status of Nuclear
Materials (DOE/IG-0296, Aug. 30, 1991).
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DOE's Oversight of Contractors Is
Weak
field offices had delegated the preparation of
inventory assessments to the management
and operating contractors with little or no
guidance, involvement, or oversight and had
generally accepted the reports without
question.
The subcontracting area provides further
evidence of the systemic nature of DOE'S
contract management problem. DOE has
inadequately overseen its prime contractors'
subcontracting activities, which represented
an expenditure of about $5.7 billion in fiscal
year 1991. DOE'S failure to oversee a
subcontractor's quality control procedures
and fabrication methods cost
taxpayers millions of dollars. Instead of
monitoring the subcontractor's operations
from the start, DOE remained uninvolved
while the subcontractor designed, tested,
and produced containers for transporting
nuclear waste. Consequently, DOE did not
detect problems that led the Nuclear
Regulatory Commission to reject 24 of the
containers after the prime contractor had
paid the subcontractor more than $8 million
to develop and produce them. Ultimately,
DOE paid the prime contractor about
$14 million for 15 containers that met the
Commission's design criteria-or about the
same amount that the prime contractor had
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DOE's Oversight of Contractors Is
Weak
originally agreed to pay the subcontractor
for 52 containers. This tripling of per-unit
costs could have been avoided if DOE had
monitored the subcontractor's activities
from the start.
Furthermore, DOE'S internal program for
examining prime contractors' subcontracting
practices has identified numerous
weaknesses, including insufficient
competition for subcontracts and
circumvention of DOE'S approval of
subcontracts. More than half of the reviews
have identified questionable sole-source
procurement problems. Yet lack of
competition in obtaining subcontracts can
limit the government's ability to obtain the
best terms. For example, at one management
and operating contractor, about 19 percent
of the purchases that DOE reviewed did not
contain adequate justification for sole-source
procurement. These subcontracts totaled
about $445,000. Similarly, at DOE'S Waste
Isolation Pilot Plant, all but one support
service subcontract that DOE examined were
sole source. Each subcontract started as an
agreement to purchase goods or services at a
relatively small dollar value for a limited
period and then grew into a long-term
subcontract with a high dollar value. Thus,
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DOE's Oversight of Contractors Is
Weak
none of these contracts was put out to bid to
obtain the best price for the government.
DOE Has Not
Because DOE'S contracts are primarily cost
Provided Needed
reimbursable, extensive government
Contract
oversight is required to preclude
Administration
unnecessary contract costs. However, DOE
historically has not provided the needed
oversight under its "philosophy of least
interference" in contractors' activities.
DOE now acknowledges the limited oversight
it has provided in the past and the effects of
its inattention. The Secretary of Energy's
1991 Federal Managers' Financial Integrity
Act report cites inadequate staffing
resources as a material weakness,
demonstrating DOE'S belief that its mission is
being significantly affected by the shortages.
At the DOE Albuquerque field office, only four
staff members are responsible for financial
management oversight of seven management
and operating contractors that received
about $4.1 billion in fiscal year 1991
obligations. These same staff members are
also responsible for providing limited
oversight of several other contractors. DOE
has recognized the inadequacy and has
begun hiring additional staff to improve its
contract oversight.
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DOE's Oversight of Contractors Is
Weak
Furthermore, as the DOE IG reported in 1990,2
staffing problems-including vacant
positions, turnover, and recruiting
difficulties-have limited the ability of DOE'S
San Francisco field office to oversee key
management and operating contracts for
national laboratory operations. However, the
IG itself cannot ensure that contractors' costs
are accurate, allowable, and reasonable.
Staffing and resource limitations have
prevented the IG from completing the audits
required under the 5-year cyclical audit plan
that the IG considers necessary to evaluate
contractors' costs.
DOE Lacks
Another fundamental weakness in DOE'S
Essential
contracting is lack of management
Information to
information. DOE spends about $1.6 billion
Make Decisions
annually to provide its executives, managers,
and staff with information to help them
accomplish DOE'S mission. Yet DOE'S
managers still do not have management and
financial information essential for contract
management. The following cases illustrate
this weakness.
Our ongoing work has found problems in
DOE'S financial reporting systems. At the time
that DOE'S financial systems were designed,
²General Management Inspection of the San Francisco Operations
Office (DOE/IG-0290, Sept. 20, 1990).
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DOE's Oversight of Contractors Is
Weak
program managers were focusing primarily
on producing weapons rather than on
overseeing contractors. Now that DOE is
attempting to strengthen oversight, these
systems cannot reliably produce the
information needed in such areas as
functional and overhead costs. Thus, DOE
lacks the information systems to gauge
either the status or the costs of its
contractors' activities.
DOE'S failure to systematically monitor
contractors' financial reporting practices has
created an atmosphere conducive to
financial irregularities. For example, as the
DOE IG reported in March 1991,³ the operating
contractors at DOE'S Savannah River
production facility improperly charged a
construction account (1) $13 million to fund
a warehouse complex, directly
circumventing congressional funding
authorization, (2) $33 million to purchase
unauthorized capital equipment, and
(3) $13 million to cover a shortfall in
operating funds. According to the IG, these
practices enabled the facility to avoid
reporting potential funding problems. At the
time of the IG'S audit, a Savannah River plant
contractor was conducting a wall-to-wall
inventory of the capital equipment acquired
³DOE IG Report on "Construction Carrying Account at the
Savannah River Site" (ER-B-91-14, Mar. 15, 1991).
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DOE's Oversight of Contractors Is
Weak
through these improper procedures.
Contractor officials estimated that as much
as 25 percent of this equipment might be
missing.
DOE also lacks adequate systems to budget
for certain types of financial commitments to
contractors, called "uncosted obligations."
These are obligations that DOE has made to
contractors for goods and services that have
not yet been provided and for which no costs
have been incurred. Although DOE ended
fiscal year 1991 with approximately
$9.7 billion in uncosted obligations, it had
not established a system for ensuring the
analysis of these obligations during its
budget preparation. Without adequate
information on uncosted obligations and
systematic reviews of its financial
commitments, DOE cannot guarantee that its
budget requests represent the minimum
amount needed for annual operations.
Improving
DOE'S fundamental contracting weaknesses
Contract
have contributed to significant
Management Is
environmental, safety, and health problems
Critical for
at DOE'S nuclear weapons plants. Because
Future
contractors will have a significant role in
Environmental
correcting these problems, improvements in
DOE'S contract management will be critical.
Cleanup
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DOE's Oversight of Contractors Is
Weak
As DOE itself has admitted, its contractors
have released radioactive contaminants at
many, if not all, of its weapons production
sites. In addition, years of neglect have made
the complex obsolete and unsafe. We
identified the effects of such behavior years
ago and began projecting a more than
$100 billion price tag for the cleanup.
Resolving safety issues at DOE facilities
continues to be a significant problem for
DOE. Safety concerns led to DOE'S closing
much of the complex and are an important
reason why many key facilities remain
closed. On the environmental side, DOE'S
efforts to clean up the legacy of weapons
production have been hampered by
technological, compliance, and management
problems that have led, in turn, to missed
milestones and escalating budgets. In the
quest for weapons supremacy, DOE and its
contractors placed an overriding emphasis
on weapons production and relegated
environmental, safety, and health issues to a
minor role.
Over the years, contractors' concerns with
meeting production quotas and DOE'S
inattention to oversight compounded DOE'S
environmental problems. Today, it is
estimated that it will cost as much as
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DOE's Oversight of Contractors Is
Weak
$160 billion to clean up the nuclear weapons
complex and restore it to a safe condition.
Given that contractors will be receiving
much of this money, correcting DOE'S
contract management problems remains
urgent.
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Contract Provisions Weaken DOE's
Control
The systemic weakness in DOE'S contract
management is also exhibited in the
contracts themselves. About 70 percent of
DOE'S management and operating contracts
do not employ standard contract clauses
typically used by other federal agencies.
Thus, from the outset, DOE is contractually
precluded from exercising any authority it
may have had to control contractors'
activities. In addition, DOE does not provide
adequate criteria or justification for the
award and management fees that it pays
contractors. Deviations in contract clauses
expose the government to greater financial
risk, and inadequate criteria or support for
fees paid does not ensure that contractors
are objectively compensated.
Nonstandard
DOE'S extensive use of nonstandard contract
Contract Clauses
clauses has restricted the agency's ability to
Increase Costs
control costs. This fundamental weakness
dates back to the use by DOE'S predecessor
agencies of special incentives that they
believed were necessary to attract and retain
contractors. Since then, DOE'S contractors
have been reluctant to negotiate contracts
with more stringent clauses. Consequently,
DOE'S contracts with the University of
California for operating three national
laboratories did not include the standard
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Contract Provisions Weaken DOE's
Control
procurement clause that would require the
contractor to obtain DOE'S approval of
vehicle leases. Thus, the Lawrence
Livermore Laboratory was able to lease 58
vehicles from the university at commercial
rates without obtaining DOE'S approval.
Under the university's rates, DOE paid about
$600,000 more for the vehicles than it would
have paid under government rates. When DOE
directed the laboratory to terminate some
commercial leases to reduce its fleet size,
the laboratory did not comply, citing a
contract clause requiring that DOE and the
university mutually agree on property
management issues. Thus, the contract that
DOE had negotiated with the university
prevented DOE from correcting this waste of
funds.
Nonstandard indemnification clauses in
some of DOE'S contracts have grown out of
DOE'S historical practice of indemnifying, or
reimbursing, almost all contractors' costs to
compensate for the unique risks inherent in
producing weapons. These clauses could
require DOE to reimburse contractors for all
costs, even those that it considered
unreasonable, unless DOE could demonstrate
that the costs had been incurred through the
willful misconduct or bad faith of corporate
management. Consequently, as we reported
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GAO/HR-93-9 DOE Contract Management
Contract Provisions Weaken DOE's
Control
in October 1989, a contract clause required
DOE to reimburse a contractor for $420,000 in
money and materials that a contractor's
employee had stolen. Such payments reflect
an irresponsible use of government funds.
DOE's
Another weakness in DOE'S overall contract
Administration of
management is that DOE cannot always
Award and
support the millions of dollars in award or
Management Fees
management fees that it pays to contractors.
Is Problematic
Thus, contractors are sometimes rewarded
for questionable performance. This is
because DOE'S performance evaluations of
contractors are poor and, in some cases, DOE
has no criteria for determining its fees. In
1989, we pointed out problems in DOE'S
award fee process and recommended that
DOE restructure the process to reduce the
level of discretion exercised in making a
final award determination. The same
problems we identified still exist.
We found that the DOE Albuquerque field
office did not tell its contractors specifically
what was expected of them or what
significance would be attached to specific
accomplishments or failures. Without
specific criteria, DOE had no sound basis for
assessing performance and determining the
contractors' award fees.
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Contract Provisions Weaken DOE's
Control
We also found that a fee of nearly $2 million
was awarded to the Rocky Flats
management and operating contractor even
though a DOE review board's initial rating of
the contractor's performance had
recommended no award at all on the basis of
established evaluation criteria. The review
board raised 30 significant deficiencies, chief
of which was the contractor's poor
environmental, safety, and health
performance. However, a subsequent
management review discounted the review
board's recommendation and significantly
increased the rating score to award a fee of
$1.7 million. In addition, the final
determination did not explain what weight
had been assigned to environmental criteria,
on which at least 51 percent of the award fee
should have been based. These examples
demonstrate that DOE still exercises
considerable discretion in making final
award fee determinations even when
specific criteria exist.
Management fees paid to nonprofit
organizations reflect similar problems. As
the DOE IG reported in September 1990,4 DOE
lacks written criteria for establishing
management fees. According to the report,
DOE and the University of California
⁴General Management Inspection of the San Francisco Operations
Office (DOE/IG-0290, Sept. 20, 1990).
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Contract Provisions Weaken DOE's
Control
negotiated a management fee of $12 million
for the university to operate three weapons
laboratories. This fee was to be increased
automatically each year by $250,000 for
fiscal years 1987 through 1992. Although DOE
did not provide detailed justifications for
these increases, DOE'S contracts indicated
that $8 million of the management fee was in
lieu of reimbursing the university for indirect
costs. The university was required to spend
"a significant portion" of the remaining fee
(which was about $4.75 million in fiscal year
1991) on "complementary and beneficial
activities." DOE was unable to identify these
"activities," yet it paid the $4.75 million fee.
Because DOE has no guidelines for these fees,
it is virtually impossible to evaluate their
reasonableness.
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GAO/HR-93-9 DOE Contract Management
DOE's Contracting Changes Will Take
Time and Commitment
DOE acknowledges its contract management
problems and has undertaken wholesale
changes in its relationship with its
contractors. These changes include a new
management approach toward contractors
and efforts to negotiate contract terms and
conditions that are more consistent with the
government's interests. We believe that DOE'S
actions are a step in the right direction but
that it will take years to effect a cultural
change in a 50-year-old business philosophy.
Change in DOE's
One of the major changes is the Secretary of
Culture
Energy's overall objective to instill a new
Acknowledges
culture within DOE. This cultural change
Fundamental
acknowledges the systemic nature of DOE'S
Problems
contract management problems and
institutes reforms in oversight and
contractor liability.
According to the Secretary, the new culture
embraces the development of (1)
compatibility between DOE'S mission to
produce materials for nuclear weapons and
to protect the environment-intended to
replace almost 50 years of production at
environmental expense, (2) a workplace
culture that demands excellence and
personal accountability-intended to replace
DOE'S ambiguous lines of authority, and
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DOE's Contracting Changes Will Take
Time and Commitment
(3) an atmosphere that welcomes openness
and constructive criticism-intended to
replace DOE'S practice of making decisions
under extreme secrecy.
Furthermore, DOE identified contract
management as a material weakness in its
three most recent Federal Managers'
Financial Integrity Act reports to the
President and the Congress on internal
control weaknesses. Thus, DOE has
acknowledged that its contract management
significantly impairs the fulfillment of its
mission. In fiscal year 1992, DOE increased its
staff, including staff for contract oversight.
DOE believes that these changes will help
address weaknesses in its contract oversight.
Initiatives Are
To direct contractors' activities more
Designed to
effectively and gain more control over costs,
Increase
DOE is attempting to change contract terms
Contractor
and conditions and create new types of
Oversight and
contracts. First, DOE is incorporating a new
Accountability
accountability rule into its contracts with
profit-making organizations. Under this rule,
DOE will (1) hold contractors liable for costs
that could have been avoided by proper
contract performance and (2) increase
contractors' potential award fees to offset
the increase in their financial risk. Second,
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DOE's Contracting Changes Will Take
Time and Commitment
DOE is attempting to delete as many
nonstandard contract clauses as possible,
such as the mutuality clause with the
University of California. Finally, DOE is
introducing "task order contracting," a
practice that will require specific DOE
authorization for each task before money
can be obligated or work can begin.
To increase contractors' compliance with
environmental, safety, and health standards,
DOE now requires that at least 51 percent of
the award fee be based on these important
measures of performance. Furthermore, DOE
will deny the entire award fee if performance
in any of these areas is unacceptable. DOE
has also proposed a new contracting
approach for cleaning up contamination at
the nation's nuclear weapons sites. This new
approach would transfer cleanup
responsibilities at each DOE facility from an
existing management and operating
contractor to an environmental restoration
management contractor. Goals include
improving contractors' performance,
lowering costs, achieving more timely
restoration, and increasing accountability.
DOE intends to pilot test this approach for at
least 5 years at DOE'S Fernald, Ohio, and
Hanford, Washington, sites beginning in late
1992 and early 1993.
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DOE's Contracting Changes Will Take
Time and Commitment
Initiatives Raise
We believe that DOE'S efforts to address these
New Challenges
contract management problems are
significant positive actions. However, the
systemic nature of these weaknesses—
insufficient oversight, lack of essential
information, nonstandard contracts, and
questionable fees-requires wholesale
changes within DOE, including commitment
not only from DOE but also from its
contractors, and will take years to
implement. Meanwhile, several problems
whose solutions are crucial to achieving
improved accountability and performance
are not being fully addressed.
DOE'S new rule to make contractors more
accountable, for example, requires that DOE
(1) incorporate accountability provisions
into all existing cost-plus-award-fee
contracts, (2) develop operational
procedures to identify all avoidable costs,
and (3) train staff to implement the rule in a
timely manner. Until DOE completes all of
these actions, however, the management and
operating contractors may receive increased
award fees without incurring any additional
liability.
Although DOE now requires that 51 percent of
a contractor's award fee be based on
environmental, safety, and health
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GAO/HR-93-9 DOE Contract Management
DOE's Contracting Changes Will Take
Time and Commitment
performance, the fee determination process
is still largely subjective-as we found at
Rocky Flats. DOE needs to show and
document clearly the relationship between a
contractor's performance and the amount of
the award fee. The more DOE reduces the
level of discretion in the award fee ratings,
the more DOE will ensure that contractors are
compensated objectively.
To improve oversight, task order contracting
requires increased resources for
administering contracts and estimating
costs. Although DOE is increasing its staff, it
is still unknown whether DOE will allocate
sufficient resources to this area. In addition,
neither DOE nor its contractors have
developed adequate cost-estimating systems.
Furthermore, DOE has not yet developed its
own cost estimates for task orders and will
therefore need to rely on estimates
developed by contractors to negotiate cost,
schedule, and performance milestones.
The environmental restoration management
contractor approach carries over many
problems from existing management and
operating contracts. For example, the new
contractor proposals state that site labor
costs will not change. That is primarily
because the new contractors will be required
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DOE's Contracting Changes Will Take
Time and Commitment
to hire as many of the existing management
and operating contractors' staff as they can
effectively employ, at their present salary
and benefit levels. Moreover, proposals do
not specify how responsibility will be
divided between DOE and the new
contractors or how it will be shared with the
existing management and operating
contractors. Overseeing new contractors will
also require more and better trained staff.
Thus far, DOE has largely ignored training
because it has focused on selecting the new
contractors.
Given these concerns and the systemic
nature of DOE'S contract management
problems, we plan to continue monitoring
DOE'S contracting through a variety of
assignments over the next several years. We
will (1) assess the adequacy of DOE'S
corrective actions in addressing specific
problems as well as DOE'S overall contract
management approach and (2) identify
additional actions that may be needed to
correct these and other deficiencies in DOE'S
contracting practices.
Page 34
GAO/HR-93-9 DOE Contract Management
Conclusions and Action Needed
DOE'S contract management philosophy has
put at risk billions of dollars in yearly
contractors' services. Spurred by strong
congressional oversight and
recommendations from GAO, the DOE IG, and
others, DOE has begun to make wholesale
contract management reforms. Increased
audit oversight, new award fee criteria, task
order contracting, and strengthened contract
clauses are steps in the right direction.
These reforms are directed at giving
contractors more incentive to act
responsibly while at the same time
increasing DOE'S oversight of contractors'
activities. Changing a contract management
approach that has become SO ingrained,
however, will not be easy. It will take a
significant leadership effort, as well as years
to implement.
As we change leadership, the new
administration has an opportunity to build
on the positive directions of the previous
administration. Specifically, the new
administration needs to continue the
increased accountability required of
contractors. Also, improved information
management systems and technical staff will
be necessary to ensure such accountability.
Finally, the new administration should
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GAO/HR-93-9 DOE Contract Management
Conclusions and Action Needed
recognize that changes of this magnitude will
take long-term commitment and, therefore,
sustained leadership to realize. These
changes will also require the concerted
efforts of DOE'S managers, employees, and
contractors, as well as continued
congressional oversight.
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GAO/HR-93-9 DOE Contract Management
Related GAO Products
Federal Contracting: Cost-Effective Contract
Management Requires Sustained
Commitment (GAO/T-RCED-93-2, Dec. 3, 1992).
Department of Energy: Better Information
Resources Management Needed to
Accomplish Mission (GAO/IMTEC-92-53, Sept. 29,
1992).
DOE Management: Impediments to
Environmental Restoration Management
Contracting (GAO/RCED-92-244, Aug. 14, 1992).
Nuclear Health and Safety: More Can Be
Done to Better Control Environmental
Restoration Costs (GAO/RCED-92-71, Apr. 20,
1992).
Energy Management: Vulnerability of DOE'S
Contracting to Waste, Fraud, Abuse, and
Mismanagement (GAO/RCED-92-101, Apr. 10,
1992).
Nuclear Health and Safety: Increased Rating
Results in Award Fee to Rocky Flats
Contractor (GAO/RCED-92-162, Mar. 24, 1992).
Energy Management: Systematic Analysis of
DOE'S Uncosted Obligations Is Needed
(GAO/T-RCED-92-41, Mar. 24, 1992).
Page 37
GAO/HR-93-9 DOE Contract Management
Related GAO Products
Nuclear Weapons Complex: Major Safety,
Environmental, and Reconfiguration Issues
Facing DOE (GAO/T-RCED-92-31, Feb. 25, 1992).
Nuclear Waste: Weak DOE Contract
Management Invited TRUPACT-II Setbacks
(GAO/RCED-92-26, Jan. 14, 1992).
Energy Management: DOE Has an
Opportunity to Improve Its University of
California Contracts (GAO/RCED-92-75, Dec. 26,
1991).
Energy Management: Tightening Fee Process
and Contractor Accountability Will
Challenge DOE (GAO/RCED-92-9, Oct. 30, 1991).
Energy Management: Contract Audit
Problems Create the Potential for Fraud,
Waste, and Abuse (GAO/RCED-92-41, Oct. 11,
1991).
Energy Management: DOE Actions to Improve
Oversight of Contractors' Subcontracting
Practices (GAO/RCED-92-28, Oct. 7, 1991).
DOE Management: Improvements Needed in
Oversight of Procurement and Property
Management Practices at the Lawrence
Livermore National Laboratory
(GAO/T-RCED-91-88, Aug. 20, 1991).
Page 38
GAO/HR-93-9 DOE Contract Management
Related GAO Products
DOE Management: DOE Needs to Improve
Oversight of Subcontracting Practices of
Management and Operating Contractors
(GAO/T-RCED-91-79, Aug. 1, 1991).
DOE Management: Management Problems at
the Three DOE Laboratories Operated by the
University of California (GAO/T-RCED-91-86,
July 31, 1991).
Nuclear Security: Property Control Problems
at DOE'S Livermore Laboratory Continue
(GAO/RCED-91-141, May 16, 1991).
Nuclear Nonproliferation: DOE Needs Better
Controls to Identify Contractors Having
Foreign Interests (GAO/RCED-91-83, Mar. 25,
1991).
Nuclear Security: Accountability for
Livermore's Secret Classified Documents Is
Inadequate (GAO/RCED-91-65, Feb. 8, 1991).
Nuclear Security: DOE Oversight of
Livermore's Property Management System Is
Inadequate (GAO/RCED-90-122, Apr. 18, 1990).
Hazardous Waste: Contractors Should Be
Accountable for Environmental Performance
(GAO/RCED-90-23, Oct. 30, 1989).
Page 39
GAO/HR-93-9 DOE Contract Management
High-Risk Series
Lending and
Farmers Home Administration's Farm Loan
Insuring Issues
Programs (GAO/HR-93-1).
Guaranteed Student Loans (GAO/HR-93-2).
Bank Insurance Fund (GAO/HR-93-3).
Resolution Trust Corporation (GAO/HR-93-4).
Pension Benefit Guaranty Corporation
(GAO/HR-93-5).
Medicare Claims (GAO/HR-93-6).
Contracting
Defense Weapons Systems Acquisition
Issues
(GAO/HR-93-7).
Defense Contract Pricing (GAO/HR-93-8).
Department of Energy Contract Management
(GAO/HR-93-9).
Superfund Program Management
(GAO/HR-93-10).
NASA Contract Management (GAO/HR-93-11).
Page 40
GAO/HR-93-9 DOE Contract Management
High-Risk Series
Accountability
Defense Inventory Management
Issues
(GAO/HR-93-12).
Internal Revenue Service Receivables
(GAO/HR-93-13).
Managing the Customs Service (GAO/HR-93-14).
Management of Overseas Real Property
(GAO/HR-93-15).
Federal Transit Administration Grant
Management (GAO/HR-93-16).
Asset Forfeiture Programs (GAO/HR-93-17).
Page 41
GAO/HR-93-9 DOE Contract Management
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United States General Accounting Office
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High-Risk Series
December 1992
Asset Forfeiture
Programs
UNITED STATES
GENERAL ACCOUNTING OFFICE
GAO/HR-93-17
GAO
United States
General Accounting Office
Washington, D.C. 20548
Comptroller General
of the United States
December 1992
The President of the Senate
The Speaker of the House of Representatives
In January 1990, in the aftermath of scandals at the
Departments of Defense and Housing and Urban
Development, the General Accounting Office began a
special effort to review and report on federal government
program areas that we considered "high risk."
After consulting with congressional leaders, GAO sought,
first, to identify areas that are especially vulnerable to
waste, fraud, abuse, and mismanagement. We then began
work to see whether we could find the fundamental
causes of problems in these high-risk areas and
recommend solutions to the Congress and executive
branch administrators.
We identified 17 federal program areas as the focus of our
project. These program areas were selected because they
had weaknesses in internal controls (procedures
necessary to guard against fraud and abuse) or in
financial management systems (which are essential to
promoting good management, preventing waste, and
ensuring accountability). Correcting these problems is
essential to safeguarding scarce resources and ensuring
their efficient and effective use on behalf of the American
taxpayer.
This report is one of the high-risk series reports, which
summarize our findings and recommendations. It
describes the substantial progress that has been made in
the management and disposition of seized and forfeited
assets by the Department of Justice and the U.S. Customs
Service. In a period of about 10 years, Justice and
Customs have transformed their problem-ridden seized
property programs into more businesslike operations that
generate revenues totaling about $900 million annually.
This report focuses on the program changes made and
highlights those areas where sustained management
attention is needed.
Copies of this report are being sent to the President-elect,
the Democratic and Republican leadership of the
Congress, congressional committee and subcommittee
chairs and ranking minority members, the
Director-designate of the Office of Management and
Budget, the Attorney General-designate, and the
Secretary-designate of the Treasury.
Chades A A. Boweher
Charles A. Bowsher
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GAO/HR-93-17 Asset Forfeiture Programs
Page 3
GAO/HR-93-17 Asset Forfeiture Programs
Contents
Overview
6
Seized and
10
Forfeited Assets
Conclusions and
26
Action Needed
Related GAO
28
Products
High-Risk Series
32
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GAO/HR-93-17 Asset Forfeiture Programs
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GAO/HR-93-17 Asset Forfeiture Programs
Overview
The federal government has had the
authority to take property through forfeiture
for more than 200 years. It was not until
about 1980, however, that it began to apply
the asset forfeiture laws as powerful
weapons against drug traffickers and other
organized crime figures. The number and
value of seizures soon grew dramatically. In
1979, the total value of seized property
inventories at the Department of Justice and
the U.S. Customs Service was $33 million. By
1992, the inventories were valued at
$1.9 billion. They now include 16,000 cars;
5,200 real properties; other property (such as
planes, boats, jewelry, and antiques) valued
at about $360 million; and $550 million in
cash.
Initially, Justice and Customs focused more
on taking the property away from the
criminal and less on managing the property
that was taken. But today, property
management is an integral part of these
agencies' total program operations, and
while sustained management attention is still
needed and further system modifications
may eventually be appropriate, the two
agencies now have systems in place to help
ensure that their property management
programs are run in a businesslike manner.
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GAO/HR-93-17 Asset Forfeiture Programs
Overview
Problems and
Following are three examples of major
Remedies
problem areas in which Justice and Customs
have made improvements in the past several
years.
In July 1982, we reported that seized
property was improperly cared for, resulting
in a loss of revenue for the United States.
The agencies had to pay expenses related to
seizure and forfeiture out of money
appropriated for salaries and expenses,
which gave them little incentive to make use
of asset forfeiture laws or properly manage
and maintain seized property. Following our
recommendation, however, Congress
established asset forfeiture funds at Justice
and Customs. Proceeds from seizure
activities are deposited in these funds and
are used to finance program expenses. The
funds are self-supporting; in fiscal year 1991,
receipts exceeded expenses by more than
$715 million.
Beginning in the mid-1980s, we reported
that millions of dollars in seized cash was
being held unnecessarily in agency vaults
and safe deposit boxes before being
deposited in designated U.S. Treasury
accounts. This prevented the federal
government from obtaining economic
benefits from the money and increased the
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GAO/HR-93-17 Asset Forfeiture Programs
Overview
administrative costs and risks of holding the
cash. In 1987, Justice and Customs
established policies to minimize the delay
and have since established systems for
overseeing seized cash operations.
We first reported in 1977 that the asset
forfeiture programs were operating without
sufficient program information to make
informed management decisions.
Congressional oversight was also hampered
by the lack of reliable information. Justice
and Customs have since made considerable
progress in establishing systems to produce
reliable inventory data.
Open or
Now that major operational problems
Emerging Issues
relating to the management and disposition
of seized and forfeited assets have been
identified and corrective actions have been
initiated, sustained oversight is needed to
see these problems through to resolution.
In addition, the incoming Attorney General
and Secretary of the Treasury should
continue to pursue a recent initiative
involving consolidation. In 1991, we reported
that the two agencies could reduce their
program administration costs by about
11 percent annually by consolidating the
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GAO/HR-93-17 Asset Forfeiture Programs
Overview
management and disposition of their
noncash seized property inventories. The
recommended consolidation has not yet
taken place, but the two agencies have
agreed to a pilot program.
Interest in the asset forfeiture programs is
now broadening to include the question of
whether the agencies are applying the asset
forfeiture laws appropriately and effectively.
Adequate safeguards are needed to ensure
that federal agencies do not become
overzealous in their use of the asset
forfeiture laws or too dependent on the
funds derived from seizures. The system
must include appropriate checks and
balances; otherwise, asset forfeiture
programs run the risk of being seriously
curtailed. The first in a series of
congressional hearings on this issue took
place in September 1992. We expect to do
considerable work on it in the future.
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
The government seizes property for
violations of law and regulation and takes
title to that property through either an
administrative or judicial process, depending
on the type and value of the property, the
violation for which it was seized, and
whether a bond has been posted. Posting a
bond automatically requires that the
forfeiture be done through a judicial process.
Anyone having a legal interest in the seized
property has the option of posting a bond.
After forfeiture, noncash property may be
sold, put into official use, or shared with
state and local law enforcement agencies
participating in the seizure. Forfeited cash
and the proceeds from the sale of noncash
properties may also be shared with state and
local law enforcement agencies.
The federal government has had the ability
to take property through forfeiture for more
than 200 years, although this was rarely done
before the 1980s. Beginning about 1980, the
number and value of seizures started
growing dramatically as law enforcement
agencies began relying more heavily on
forfeiture as a means of fighting drug
traffickers and other organized crime
figures. In addition, in 1984 the
Comprehensive Crime Control Act expanded
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
the federal government's seizure authority
and established funds to finance the
management and disposition of seized and
forfeited assets. More recently, the asset
forfeiture laws were expanded to cover
crimes associated with money laundering
and financial institutions-related offenses.
Collectively, these changes have resulted in
the value of Justice's and Customs' seized
property inventories growing from
$33 million in 1979 to $1.9 billion in 1992.
This explosive growth in the asset forfeiture
programs resulted in a nightmare for the
seizing agencies. Before the mid-1980s, they
were either unmotivated to take, or unable
to gain, control of the asset management
side of their programs. Most of what they did
was reactionary. They did not have effective
means for dealing with the management
problems associated with the ever-increasing
amount of property and money seized. The
agencies were, in essence, victims of their
own success-the more successful they
became in employing asset forfeiture as a
law enforcement tool, the larger their
problems grew in managing and disposing of
the assets.
During the late 1980s and early 1990s, the
programs matured, and the agencies gained
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
more control. Accomplishing this, however,
was no easy task because it involved
changing their organizations' cultures. What
was once viewed as a by-product of a law
enforcement responsibility is now viewed as
an integral part of overall operations.
Some of the more significant changes
affecting property management and
disposition are highlighted in the following
sections. While these changes have made a
tremendous difference in the management
and disposition of seized properties, we
believe the agencies have one more major
hurdle that needs to be overcome. That
hurdle involves consolidating the
management and disposition of noncash
seized properties in one agency. Recently,
Justice and Customs agreed on a plan to
begin testing the merits of consolidation, but
continued oversight will be necessary to
complete the consolidation effort. Continued
oversight is also needed to address some of
the other corrective actions that have been
initiated.
Special Funds
In July 1983, we reported that property was
Established to
not properly cared for after it was seized,
Pay Asset
resulting in lost revenue for the government.
Forfeiture-
We reported that the seizing agencies had
Related Expenses
little incentive to properly manage and
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
maintain seized property. They had to pay
expenses related to the seizure and
forfeiture out of money appropriated for
salaries and expenses. If seized property was
forfeited and sold, agencies could recover
seizure- and forfeiture-related expenses from
sales proceeds. If the property was not
forfeited, or if costs exceeded whatever
proceeds were realized, the seizing agencies
had to divert money from other law
enforcement operations to cover these costs.
We recommended that the Congress enact
legislation establishing special funds to pay
asset forfeiture-related expenses. In 1984,
such legislation was enacted, establishing
asset forfeiture funds in the Department of
Justice and the U.S. Customs Service. This
change removed the budgetary disincentive
to the aggressive use of forfeiture as a
weapon in the war against crime. Proceeds
from seizure activities are deposited in these
funds and are used to finance program
expenses such as those incurred in the care,
custody, and disposal of seized and forfeited
assets; payments of liens and mortgages; and
purchases of evidence and rewards for
information related to asset seizure. These
funds have always operated on a
self-supporting basis-that is, each year fund
receipts have exceeded expenses. For fiscal
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
year 1991, receipts exceeded expenses by
more than $715 million.
Year-end surpluses in Customs' fund are
transferred to the general fund of the
Treasury. Year-end surpluses in Justice's
fund have historically been used for other
law enforcement purposes, such as building
prisons or hiring more U.S. Attorney office
personnel, or transferred to a special
forfeiture fund under the control of the
Director of the Office of National Drug
Control Policy. On October 6, 1992, the
President signed into law a bill replacing the
Customs fund with a Treasury-wide
forfeiture fund. The newly created Treasury
fund was basically modeled after the
Department of Justice's forfeiture fund.
Improved Seized
Beginning in the mid-1980s, we reported on
Cash
several occasions that millions of dollars in
Management
seized cash was being held unnecessarily in
agency vaults and safe deposit boxes before
being deposited into designated U.S.
Treasury accounts. We reported that the
deposit delays prevented the government
from obtaining economic benefits from the
idle cash and increased the administrative
costs and risks in handling, storing,
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
accounting for, and safeguarding the cash
from theft and abuse.
In late 1986 and early 1987, we reviewed 129
seized cash cases involving about $39 million
and found deposit delays in 107, or
83 percent, of the cases. We considered a
delay to occur if the money was not
deposited within 14 days after forfeiture or
14 days after a decision that it was no longer
necessary to hold the cash as evidence. The
deposit delays varied from 2 days to almost 5
years.
We reported that there were several causes
for the delays, including the lack of a
national policy on seized cash management.
In addition, the agencies lacked information
necessary to oversee and monitor seized
cash operations.
In 1987, Justice and Customs established
policies designed to minimize the
unnecessary holding of cash. Their policies
stressed the need to promptly identify and
deposit all seized cash not needed as
evidence. Furthermore, agency policies
discouraged retaining seized cash for
evidence unless it was absolutely critical to
the case.
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
Both agencies have also established systems
for overseeing and monitoring seized cash
operations. These systems, along with the
new policies, have led to major
improvements in managing seized cash.
However, aggressive monitoring of seized
cash may be necessary for some time to help
ensure compliance with established cash
management policies. For example, the
Department of the Treasury's Office of
Inspector General recently reported that
Customs was not depositing seized cash in a
timely manner. In response, the Assistant
Commissioner, Commercial Operations,
issued a memo reminding employees that
seized cash is to be deposited unless there is
documentation in the file from the
appropriate U.S. Attorney's office stating
that the cash is needed as evidence and
should not be deposited.
Improved
The lack of reliable program information has
Management
been a major contributor to program
Information and
deficiencies. For many years, the asset
Financial Reports
forfeiture programs operated without
sufficient information necessary to make
informed management decisions.
Congressional oversight was also hampered
by the lack of reliable information.
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
Major improvements have been made in this
area by both Justice and Customs.
Additionally, both agencies have embarked
upon ambitious efforts to further improve
their information systems. These efforts are,
however, long term and require sustained
oversight.
Beginning with our first report on asset
forfeiture in 1977, we have reported on many
occasions the need to improve program
information. Also, a 1983 Department of
Justice internal report, which addressed the
management of seized assets
departmentwide, stated that forfeiture
operations were conducted without the
information needed to monitor, oversee, or
evaluate the initiative and recommended
that Justice ensure the availability of useful
asset seizure and forfeiture case tracking
and inventory data. Only recently, however,
have Justice and Customs been able to put
systems in place that provide them with the
information necessary to make data-driven
decisions. For many years, Justice and
Customs had to scramble to meet their
information needs.
With the number of seizures growing
exponentially in the early 1980s, the agencies
had to move quickly to establish even the
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
most rudimentary information systems.
Responding to this need, the U.S. Marshals
Service-the custodian for seized property
within the Department of Justice-
purchased personal computers, which were
used primarily for inventory control. The
intention was to use these computers in the
short term while a needs assessment was
done and a more sophisticated system put in
place. Because of budget constraints and
other program priorities, however, the new
system was slow in coming. It was not until
1987 that the Marshals Service issued a
request for proposals for the design and
installation of a new system, and it was not
until 1991 that the new system was fully
operational in all Marshals Service districts.
Establishing a system capable of producing
reliable inventory data fulfilled only part of
Justice's and Customs' information needs.
Financial and other management
information, such as case tracking data, is
needed to effectively manage the asset
forfeiture program. To satisfy this need,
Justice embarked on a major effort to
develop an information system that would be
used by all federal agencies participating in
Justice's asset forfeiture program. As
envisioned, this system would tie together
asset forfeiture personnel in over 640
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
locations throughout the United States. It
would replace the many incompatible
systems now being used by the various
seizing agencies. A prototype of the system
has been developed and demonstrated to
several user groups. Implementation is
expected in 1993.
Customs took a different path to fulfill its
need for inventory information. Customs
awarded a contract for the nationwide
management of its seized property inventory
and as part of that contract required that the
contractor develop a seized property
information system. That system was put in
place in early 1987 and remained virtually
under the exclusive control of the contractor
for the duration of the contract, which ran
until 1991. At the conclusion of the contract,
the system was turned over to Customs. At
that time, Customs made a number of system
improvements, including documenting the
system and adding edit checks, and began to
integrate its management and accounting
systems. As of September 1992, those efforts
were still under way. Customs has also
begun an effort to completely redesign its
seized property case tracking system. This
effort is expected to take about 4 years.
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
It will be some time before Justice's and
Customs' seized property information
systems are state-of-the-art. The agencies,
however, have made considerable progress
in improving seized property information
and have efforts under way to make other
substantive improvements. However,
without sustained oversight these efforts
may flounder, especially in times of tight
budgets. It is critically important that these
efforts not be sidelined but rather receive
the attention they deserve.
Accounting system weaknesses have also
been a particularly troublesome issue for
both Justice and Customs. Given the nature
of the seized property programs, we have
recommended since 1987 that Justice and
Customs annually produce audited forfeiture
fund financial statements. Such statements
would help instill a more businesslike
discipline in program operations and make
apparent other information shortcomings.
Justice started producing such statements
beginning with its fiscal year 1989 operations
and Customs with its fiscal year 1990
operations. In addition, legislation was
enacted in 1990 that should ensure
continued production of such statements.
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
Faster Forfeiting
In 1989 and again in 1990, we reported
of Uncontested
that millions of dollars in seized cash was
Cash Seizures
being forfeited through the judicial system
even though no one was contesting the
forfeiture. At the time of our review, the law
required that all cash seizures over $100,000
be forfeited judicially. We reported that this
requirement delayed forfeiture, added an
unnecessary burden on the district courts,
and contributed to inefficient use of U.S.
Attorney resources. We recommended that
the law be changed SO that all uncontested
cash seizures could be forfeited
administratively, regardless of amount.
That recommendation was implemented in
1990. The seizing agencies reported that this
change in law has resulted in seized cash
being forfeited much faster without affecting
individual due process rights. Contested
cases continue to be resolved judicially.
Agreement to
In 1991, we reported that program
Test Feasibility of
administration costs could be reduced by
Consolidating
about 11 percent annually if Justice and
Property
Customs consolidated the postseizure
Management and
management and disposition of their
Disposition
noncash seized property inventories. We also
reported that additional savings would likely
accrue from lower vendor costs due to
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
economies of scale. The recommended
consolidation has not yet taken place, but
the two agencies have agreed to a pilot test.
Given the similarities in Justice's and
Customs' seized property programs,
consolidation makes sense. Both agencies
seize similar types of assets, and those assets
are generally located in the same geographic
areas. However, under the current operating
structure, each agency maintains separate
and distinct programs for managing and
disposing of its property. Justice, through
the Marshals Service, contracts directly with
vendors that provide the service. Customs
has a nationwide contractor that provides
custodial services either directly or through
subcontracts with other vendors.
In April 1992, the Marshals Service and
Customs signed a memorandum of
understanding to test consolidation
beginning in October 1992. The Marshals
Service will manage both agencies' real
property, and Customs will manage the
agencies' vessels. The agencies will manage
vehicles, with the location and number of
vehicles being the determining factor in
which agency handles them. After 1 year, the
agencies will conduct a cost analysis and
evaluation of the pilot test. We see this pilot
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
project as a positive step forward. However,
sustained management attention and support
will be necessary to see this effort through;
otherwise, problems that might be
encountered along the way have the
potential of derailing the project.
Following this consolidation theme, in
July 1992 we recommended that Justice and
Customs develop mutually agreeable
guidelines for asset sharing and jointly
develop policies and procedures and assign
responsibilities for federal oversight of asset
sharing. In fiscal year 1991, Justice shared
more than $287 million and Customs shared
$95.2 million with state and local law
enforcement agencies that assisted the
federal government in making seizures.
Under current guidance, Justice and
Customs allow different uses of shared
proceeds. Officials in some state and local
agencies find the guidance vague and
confusing. A recent Justice Management
Division study concluded that more practical
guidance and oversight mechanisms were
needed to ensure that state and local
agencies comply with federal guidance on
using shared proceeds. Both Justice and
Customs agreed with our recommendations
and plan to work together to develop clearer
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
asset-sharing guidelines and to develop
oversight policies and procedures, including
assigning responsibilities for federal
oversight of asset sharing.
More Informed
In September 1987, we reported that the
Seizures Being
failure to obtain title searches on real
Made
properties before seizure often resulted in
seizures with very low or nonexistent
defendant equity. We recognize that there
are cases-such as crack houses and
clandestine labs-in which, for law
enforcement reasons, it is desirable to seize
properties with little or no defendant equity.
However, seizures that are designed to
financially punish a violator should only be
made when it can be shown there is
something of value to be forfeited.
Otherwise, the seizure may end up costing
the government more than it hurts the
violator.
As Justice's asset forfeiture program has
grown and more emphasis has been given to
its management, title searches, which
identify legal owners and encumbrances,
have been done on a more regular basis. 1 The
need for, and importance of, title searches
has been stressed to the seizing agencies
¹About 98 percent of the real property seizures are made by Justice.
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GAO/HR-93-17 Asset Forfeiture Programs
Seized and Forfeited Assets
through increased Justice oversight of
seizure activities and guidance to the field as
well as through training. In recent
discussions, Justice officials indicated that
very few real properties are now being
brought into inventory without first having
had a title search. For cases in which the
investigation would be jeopardized by doing
a title search before seizure, Justice's policy
is to do one immediately after seizure.
Justice officials also acknowledged that
some of their earlier less-than-ideal seizures
remained in inventory. Justice's Executive
Office of Asset Forfeiture is currently
incorporating these new preseizure planning
policies into a soon to be issued directive
entitled "Guidelines for Pre-seizure
Planning." That directive is expected to be
issued by the end of 1992.
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GAO/HR-93-17 Asset Forfeiture Programs
Conclusions and Action Needed
Seized property management today is very
different from what it was just a few years
ago. Congress and the press have recognized
the improvements as evidenced by the
dramatic decrease in the number of
congressional hearings and news items
relating to poor property management
practices.
Notwithstanding improved property
management practices, the seized property
programs remain highly visible and are
subjected to continued scrutiny. The focus
today, however, is not on property
management but rather on how the asset
forfeiture laws are being used. The first in a
series of planned hearings on this subject
was held on September 30, 1992, by the
Legislation and National Security
Subcommittee, House Committee on
Government Operations.
Concerns have been raised about agencies
becoming overzealous in their use of the
asset forfeiture laws or too dependent on the
funds derived from such seizures. The new
Attorney General and Secretary of the
Treasury need to ensure that adequate
safeguards are in place to help prevent such
developments. A system with proper checks
and balances must be in place; otherwise,
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GAO/HR-93-17 Asset Forfeiture Programs
Conclusions and Action Needed
the asset forfeiture programs risk being
seriously curtailed. Our future work will
focus more heavily on these aspects of the
asset forfeiture programs. We will also
continue monitoring property management
activities.
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GAO/HR-93-17 Asset Forfeiture Programs
Related GAO Products
Asset Forfeiture: Improved Guidance
Needed for Use of Shared Assets
(GAO/GGD-92-115, July 16, 1992).
Asset Forfeiture: U.S. Marshals Service
Internal Control Weaknesses Over Cash
Distributions (GAO/GGD-92-59, May 8, 1992).
Asset Forfeiture: Customs Reports Improved
Controls Over Sales of Forfeited Property
(GAO/GGD-91-127, Sept. 25, 1991).
Asset Forfeiture: Noncash Property Should
Be Consolidated Under the Marshals Service
(GAO/GGD-91-97, June 28, 1991).
Asset Forfeiture: Need for Stronger Marshals
Service Oversight of Commercial Real
Property (GAO/GGD-91-82, May 31, 1991).
Asset Forfeiture: Opportunities for Savings
Through Program Consolidation
(GAO/T-GGD-91-22, Apr. 25, 1991).
Asset Forfeiture: Opportunities to Improve
Program Administration (GAO/T-GGD-91-16,
Mar. 13, 1991).
Oversight Hearings on Asset Forfeiture
Programs (GAO/T-GGD-90-56, July 24, 1990).
Page 28
GAO/HR-93-17 Asset Forfeiture Programs
Related GAO Products
Asset Forfeiture: Legislation Needed to
Improve Cash Processing and Financial
Reporting (GAO/GGD-90-94, June 19, 1990).
Asset Forfeiture: Helping Finance the War
on Drugs (GAO/GGD-90-01VR, Oct. 1989).
Profitability of Customs Forfeiture Program
Can Be Enhanced (GAO/T-GGD-90-1, Oct. 10,
1989).
Asset Forfeiture: An Update (GAO/T-GGD-89-17,
Apr. 24, 1989).
Asset Forfeiture Programs: Progress and
Problems (GAO/T-GGD-88-41, June 23, 1988).
Asset Forfeiture Programs: Corrective
Actions Underway But Additional
Improvements Needed (GAO/T-GGD-88-16,
Mar. 4, 1988).
Seized Conveyances: Justice and Customs
Correction of Previous Conveyance
Management Problems (GAO/GGD-88-30, Feb. 3,
1988).
Real Property Seizure and Disposal Program
Improvements Needed (GAO/T-GGD-87-28,
Sept. 25, 1987).
Page 29
GAO/HR-93-17 Asset Forfeiture Programs
Related GAO Products
Asset Forfeiture Funds: Changes Needed to
Enhance Congressional Oversight
(GAO/T-GGD-87-27, Sept. 25, 1987).
Millions of Dollars in Seized Cash Can Be
Deposited Faster (GAO/T-GGD-87-7, Mar. 13,
1987).
Drug Enforcement Administration's Use of
Forfeited Personal Property (GAO/GGD-87-20,
Dec. 10, 1986).
Customs' Management of Seized and
Forfeited Cars, Boats, and Planes
(Testimony, Apr. 3, 1986).
Improved Management Processes Would
Enhance Justice's Operations (GAO/GGD-86-12,
Mar. 14, 1986).
Better Care and Disposal of Seized Cars,
Boats, and Planes Should Save Money and
Benefit Law Enforcement (GAO/PLRD-83-94,
July 15, 1983).
Asset Forfeiture: A Seldom Used Tool in
Combatting Drug Trafficking (GAO/GGD-81-51,
Apr. 10, 1981).
Drugs, Firearms, Currency, and Other
Property Seized by Law Enforcement
Page 30
GAO/HR-93-17 Asset Forfeiture Programs
Related GAO Products
Agencies: Too Much Held Too Long
(GAO/GGD-76-105, May 31, 1977).
Page 31
GAO/HR-93-17 Asset Forfeiture Programs
High-Risk Series
Lending and
Farmers Home Administration's Farm Loan
Insuring Issues
Programs (GAO/HR-93-1).
Guaranteed Student Loans (GAO/HR-93-2).
Bank Insurance Fund (GAO/HR-93-3).
Resolution Trust Corporation (GAO/HR-934).
Pension Benefit Guaranty Corporation
(GAO/HR-93-5).
Medicare Claims (GAO/HR-93-6).
Contracting
Defense Weapons Systems Acquisition
Issues
(GAO/HR-93-7).
Defense Contract Pricing (GAO/HR-93-8).
Department of Energy Contract Management
(GAO/HR-93-9).
Superfund Program Management
(GAO/HR-93-10).
NASA Contract Management (GAO/HR-93-11).
Page 32
GAO/HR-93-17 Asset Forfeiture Programs
High-Risk Series
Accountability
Defense Inventory Management
Issues
(GAO/HR-93-12).
Internal Revenue Service Receivables
(GAO/HR-93-13).
Managing the Customs Service (GAO/HR-93-14).
Management of Overseas Real Property
(GAO/HR-93-15).
Federal Transit Administration Grant
Management (GAO/HR-93-16).
Asset Forfeiture Programs (GAO/HR-93-17).
Page 33
GAO/HR-93-17 Asset Forfeiture Programs
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