Interior, Pentagon Faulted In Audits
Effort to Speed Defense Contracts Wasted Millions

By Robert O'Harrow Jr. and Scott Higham
Washington Post Staff Writers
Monday, December 25, 2006

The Defense Department paid two procurement operations at the Department of the Interior to arrange for Pentagon purchases totaling $1.7 billion that resulted in excessive fees and tens of millions of dollars in waste, documents show.

Defense turned to Interior, which manages federal lands and resources, in an effort to speed up its contracting. Interior is one of several government agencies allowed to manage contracts for other agencies in exchange for a fee.

But the arrangement between Interior and Defense "routinely violated rules designed to protect U.S. Government interests," according to draft audit documents obtained by The Washington Post.

More than half of the contracts examined were awarded without competition or without checks to determine that the prices were reasonable, according to the audits by the inspectors general for Defense (DOD) and Interior (DOI). Ninety-two percent of the work reviewed was awarded without verifying that the contractors' cost estimates were accurate; 96 percent was inadequately monitored.

In one instance, Interior officials bought armor to reinforce Army vehicles from a software maker. In another, Interior bought furniture for Defense from a company that apparently had not previously been in the furniture business. One contract worth $100 million, to lease office space for a top-secret intelligence unit in Northern Virginia, was awarded without competition. Defense auditors said that deal cost taxpayers millions more than necessary, and they have referred the matter for possible criminal investigation.

"These poor contracting practices have left DOD vulnerable to fraud, waste and abuse and DOI vulnerable to sanctions and the loss of the public trust," the Interior auditors concluded in their report.

They examined 49 deals and concluded that 61 percent had evidence of "illegal contracts, ill advised contracts, and various failings of contract administration procedures."

The auditors' findings underscore the difficulties that have come with efforts over the past decade to streamline government by outsourcing work, simplifying contracting procedures and cutting back on the procurement workforce. Agencies such as Interior are allowed to handle contracts for other agencies under the theory that they can perform some services more efficiently. But in this case, auditors found that Interior did not follow through on oversight and collected $22.8 million in fees for work the Pentagon could have done itself.

Officials at Defense and Interior said they have been working to fix contracting problems cited in the audits.

"We are currently reviewing the findings of the DOD IG, and we have been meeting with representatives of the DOI regarding the specifics of the draft report," said Shay Assad, director of defense procurement and acquisition policy at the Pentagon. "It would be premature to comment specifically except to say that we understand DOI is actively taking actions to improve their contracting practices in response to a number of the draft findings."

Interior officials said they are adopting many of the auditors' recommendations and have made "giant strides." They said they are examining "specific contracts of concern" as well as reviewing the qualifications of their contracting officers and improving their training.

"We believe that many of your recommendations can help us further improve our internal controls related to the acquisition environment," R. Thomas Weimer, Interior's assistant secretary for policy, management and budget, wrote in a Nov. 30 response to his department's inspector general.

Unnamed contracting officials were quoted in the Defense audit as saying that they went to Interior to save time.

"We used DOI because they are able to expedite the contracting process," one Defense official said.

Another said that the Defense office "did not have enough contracting people to handle the requirements."

The Interior procurement operations were allowed to charge fees for managing contracts on behalf of other government agencies. One of the operations, GovWorks, is located in Herndon. The other is the Southwest Acquisition Branch of the National Business Center at Fort Huachuca, Ariz., an Army base.

Defense paid Interior management fees of up to 4 percent for everything from pistol holsters to intelligence consultants to office leases. The Defense inspector general said the Pentagon could have saved $22.8 million by using the U.S. General Services Administration (GSA).

The Interior inspector general said Defense "could have used these monies to purchase as many as 50,000 sets of body armor to protect our soldiers."

At the Southwest Acquisition Branch office in Arizona, the auditors concluded, $411 million worth of deals were struck without a fundamental step in government contracting: review and approval by properly trained and certified contracting officers.

The Defense auditors found that nearly half of the 49 contract files they reviewed failed to document that the prices "were fair and reasonable." Contracting officials relied upon e-mailed statements and cursory reviews from the Pentagon, rather than "documenting a detailed analysis of the contractor's proposal."

At Interior, there was little supervision of the work. The Defense inspector general "questioned the adequacy of government surveillance for 23 of the 24 contracts" -- or 96 percent of the total reviewed in one analysis.

Key documents were missing from contract files. "Lack of good documentation can create serious problems," the auditors noted. "If it is not documented, it never happened."

The findings prompted the inspector general's office to demand that the Pentagon stop using Interior's contracting shops.

The auditors singled out two contracting arrangements for particularly sharp criticism. In 2002, the Pentagon opened a new office called Counterintelligence Field Activity, known as CIFA, which supervises protection at Defense facilities against terror attacks.

When CIFA needed office space in Northern Virginia, Defense officials turned to Interior's GovWorks program instead of the GSA, which manages office space for the government, the audit said. GovWorks awarded a 10-year, no-bid deal worth $100 million to a private company based in Anchorage to acquire and manage the space, the auditors said.

The auditors said Defense officials violated regulations by not using the GSA for their office space.

"CIFA and DOI circumvented numerous laws in contracting for leased space," the auditors said. "By not following the proper procedures, they entered into a lease without the legal authority to do so."

Auditors found that the lease cost taxpayers up to $2.7 million more than it should have. Auditors also found that the deal violated procedures because it was not cleared by the House Permanent Select Committee on Intelligence and the Senate Select Committee on Intelligence.

In May, members of the Defense inspector general's office told senior CIFA staffers that they could be in violation of the law if they continued to make payments on the lease.

"Subsequently, we learned that CIFA had continued to make lease payments, totaling $2.9 million," the auditors wrote.

The auditors referred the matter for possible criminal investigation to the deputy inspector general for investigations.

Weimer, Interior's policy and budget chief, disputed the auditor's findings on the lease arrangement. In his written response, he argued that CIFA did not have to go through the GSA to obtain the office space. Weimer also said CIFA did not enter into an improper lease because the lease was between CIFA's contractor and the managers of the office building. Moreover, he said, the chief counsel for the Justice Department's Foreign Terrorist Tracking Task Force advised CIFA that the arrangement was appropriate.

The other arrangement that received sharp criticism from the auditors involved the Open Market Corridor, an online buying program billed as a way to save tax money.

Built by a California company, the Open Market Corridor began as a research project for the Naval Postgraduate School in Monterey, Calif. In 2002, management of the contract was handed to officials at Interior's Fort Huachuca operation. The California company, the Naval school and Interior all received a small percentage when the system was used to order goods and services.

Auditors found that select companies were favored, in violation of federal regulations. The contracting officer responsible for overseeing the online purchases "was unable to provide a list of either the customers or participating vendors who were using the system," the auditors said.

Sixteen vendors "appeared to be Government employees or firms that appeared to be affiliated with Government employees," another apparent violation of regulations and a possible violation of federal criminal statutes, auditors said.

One official who processed 1,616 "contract actions" worth nearly $135 million was a lecturer at the Naval school who did not have the authority to award government work.

Senior Interior officials were not even "aware that the system existed" or that it was processing tens of millions of dollars in deals each year without approval, the audit said.

In March, after auditors reported the abuses, officials at the Naval school took the system offline.

The auditors concluded that Defense should not continue to manage or use the Open Market Corridor "because of the serious legal and other problems we found."

They referred their findings to the deputy inspector general and the Navy Acquisition Integrity Office for further investigation.

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