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Background
The Environmental Protection Agency (EPA) has become increasingly reliant on contractors. Contract obligations have increased from $600 million in 1986 to approximately $1.4 billion in 1992. Currently, the agency has about 700 active contracts serving nearly all program areas, including information systems development, pesticide testing, and Superfund site clean-up.
Several reasons underlie this contractor dependence. The use of contractors has provided EPA with a wide array of specific technical expertise on a short-term basis, allowing the agency to forgo long- term hiring commitments. In addition, over the years, the agency has been more successful in getting dollars to hire contractors, than in getting dollars for employee salaries. Finally, the law sometimes encourages the use of contractors, as in the legislation governing Superfund site cleanup.
EPA has been subject to criticism because of inadequate oversight of its contractors. During the last four years, agency contract management practices have come under the scrutiny of numerous General Accounting Office and Inspector General reports, as well as several congressional hearings. EPA has long focused on its central mission- environmental protection-and not on strong contract management, but the recent criticism is pushing the agency to carefully analyze its current methods and to target specific areas for major improvement. Contract management was declared a material weakness in the agency's December 1992 report on internal controls to the President, required by the Federal Managers' Financial Integrity Act (FMFIA).(1)
Improving contract management practices at EPA requires an analysis of several issues such as resources, contractor-client relations, and accountability. With respect to resources, EPA does not have enough personnel with the technical knowledge needed to adequately manage contractor performance. Since 1981, EPA's annual contract obligations increased by 237 percent in nominal terms, yet the agency's overall work force grew by only 25 percent during the same period.(2)
EPA is actively searching for opportunities to reallocate staff to contract management. In addition, EPA's Standing Committee on Contracts Management, formed to review the entire contracting process, made several recommendations in its June 1992 report. Of particular importance were the recommendations to highlight contract management in agency vacancy announcements and to place an emphasis on improving the quality of oversight resources currently in place. Doing more with less, however, can only go so far, and if EPA's responsibilities continue to multiply, it will have to match improvements in contract management with a commitment to shrink its dependence on outside help.
The use of so many contractors has engendered problematic ties between EPA and the non-governmental firms to which it turns for assistance. The transformation of a formal contractor-client relationship into the more informal interaction between employer and employee carries potential risks. Other problems exist when contractors have performed inherently governmental functions, such as payroll review. Incumbent firms may receive an unfair advantage when their contract comes up for renewal. Perhaps most serious is that agency oversight has become lax, leading to vague work instructions, nebulous lines of authority, and compromised individual responsibility. Such abuses have been documented, as in the March 31, 1992, Inspector General audit of EPA's relationship with the Computer Sciences Corporation.(3)
There is also the possibility of conflicts of interest. This issue has emerged frequently regarding the Superfund Program, where the delegation of cleanup duties to a firm implicated in the initial pollution raises concerns. In some instances contractors are being hired to clean up the pollution that they have created. The conflict of interest risk is particularly worrisome because current federal regulations require contractors to self-police, a process that does not adequately safeguard against abuse.
To improve contract management, EPA should pursue a multitiered approach. As a start, the agency's own Standing Committee has acted on five specific, complementary steps. These include:
(1) implementation of performance standards for contract management, complete with an awards program, to foster awareness and accountability throughout the agency;
(2) encouragement of better contract planning through new requirements for annual acquisition strategies;
(3) provision of written guidelines wherever possible to facilitate reliable contracting, such as in preparation of Independent Government Cost Estimates or in FMFIA assessments;
(4) assembly of a quality contracting team pilot composed of a Procuring Contracting Officer, an Administrative Contracting Officer, a Project Officer, an Office of General Counsel Representative, and any needed specialists, to monitor a contract from its inception to closeout;
(5) injection of more competition into the contracting process by awarding contracts to multiple vendors. This would guarantee a constant alternative to the incumbent and promote continuing competition to meet agency standards even after contract award.
These measures reappear in EPA's response to a March 1993 review of agency contract policy requested by the Director of the Office of Management and Budget (OMB). In that same response, EPA requested authority over its intramural-extramural budget distribution as a way of empowering the agency to reform its dealings with contractors.
Though the recommendations of both the Standing Committee and the OMB review should improve EPA contract management process, they leave some difficult issues unaddressed. Foremost among them may be the agency's fundamental high reliance on contractors, and the blurring it promotes between contractor and agency responsibilities. Without appropriate controls, training, and monitoring staff, it will be difficult to prevent abuses. Administrator Browner has begun to grapple with this quandary by ordering an independent analysis of the agency's use of intramural-extramural resources to determine, among other things, whether EPA's current distribution of dollars best serves its mission. Administrator Browner has also pledged to spearhead reform in agency culture by emphasizing that management and accountability will be cornerstones of her administration.
With respect to accountability, EPA has failed to hold both contractors and its own personnel accountable for fiscal and legal discrepancies. On the fiscal front, there have been blatant indirect cost abuses by contractors. Indirect costs, those charges not immediately related to specific work orders, include utilities, office rent, administrative salaries, health insurance costs, and an array of similar items. These expenses are generally stated as a percentage of direct labor. Certain costs--alcoholic beverages, for example, or customized chocolates imprinted with the company logo-- are unallowable. Inspector General audit reports disclosed just these violations by EPA contractor CH2M Hill in 1992.
The agency has also not held its personnel accountable to the legal requirements delineated by the Business Opportunity Development Reform Act of 1989. This legislation requires competition among 8(a) contractors for procurement with an estimated value above $3 million.(4) Recent Inspector General audits of EPA's Office of Research and Development laboratories have found instances where requirements were split and government cost estimates understated to stay under the $3 million threshold, thus avoiding competition.(5)
EPA has confronted these problems through several tacks. Many of the aforementioned recommendations of its Standing Committee have been implemented. The Committee's proposal to tighten indirect cost recovery with the assistance of OMB represents a more focused response, as does EPA's participation in the interagency contract management review. This effort, launched by the Office of Federal Procurement Policy (OFPP) in the summer of 1992, challenged internal auditors in 12 civilian agencies to find unallowable expenses in contractor claims and to determine the frequency of negotiated settlements disallowing the costs. EPA's report to OFPP contained 41 agency-specific findings and 38 governmentwide--a total of 79 recommendations, which accounted for one-third of proposals received from all 12 organizations. Agency action on its internal findings is nearing completion. On a final front, Administrator Browner's initiatives, particularly her program to establish Senior Resource Officials (SROs) responsible for fiscal and ethical management, should substantially support her pledge to restore EPA accountability.(6)
The agency's tripartite response to its accountability deficit, based on proposals from the Standing Committee, interagency review team, and the Administrator, should lessen much of the abuse prevalent thus far, if these proposals are integrated and implemented. A familiar caveat remains, however, concerning EPA's long-term prognosis: if the agency's growing responsibilities are met with an increasing reliance on contractors, enforcing accountability will only become more of a challenge.
1. EPA should fully implement performance standards for contract management advocated by the Standing Committee, OMB review, and the Administrator by January 1994.
Contract management awareness and accountability should be strengthened through the agency performance standard and evaluation process. Individual performance standards for contract management should be one of several human resource management mechanisms that directly support the integration of resource management into the priorities and responsibilities of staff throughout the agency. Others include highlighting contract management in job announcements and position descriptions, providing better training opportunities, and promoting more definitive disciplinary and awards programs. Since so much of EPA's staff is involved in contract management, the human resource mechanisms are a primary means of ensuring accountability. Taken with other agency contract management improvements, these changes should be evaluated overall in terms of how the agency has improved its ability to manage contracts.
2. EPA should institutionalize the oversight recommendations of the Standing Committee, the OMB Review, and the Administrator by January 1995.
EPA should evaluate the success of the agency's quality contract team pilot to determine how well the contract was managed, costs were controlled, and goods and services were rendered. If the quality contract team proves to be more effective, EPA should begin implementing it throughout the agency by the end of fiscal year 1994, with the condition that all team members be inhouse agency personnel. EPA should supplement this program by placing the SROs advocated by Administrator Browner throughout the agency by the end of fiscal year 1994. EPA should ensure that each of the agency's 10 regional offices has at least one SRO, and this official should be held accountable for extramural resource management in the region.
3. EPA should maximize competition in the contracting process.
EPA should evaluate its pilot program to award multiple contracts with the same work statement to different vendors (a strategy that functions by farming out individual delivery orders and assignments to competing contractors). The contracts should be awarded by the end of the fiscal year 1994. At the midway point of the three-year contract, the agency should assess its effectiveness. If the pilot project is found to yield net savings when compared to the traditional practice of employing single contracts for a project's entirety, EPA should consider implementation by the end of fiscal year 1996.
4. OMB should provide EPA with more flexibility in determining the appropriate balance of extramural versus intramural resources.
EPA is currently conducting an independent analysis to identify this balance. Once an appropriate balance is identified, EPA should begin converting contractor dollars to regular staff to better achieve that balance. Conversion of contractor dollars to fulltime equivalent (FTE) positions will have to be accomplished within the context of the President's Executive Order to reduce federal employment. Additional FTEs may be obtained through the agency's efforts to streamline operations.
Better contract management and over-sight should result in significant contract dollar savings and improved contract services.
This proposal is cost-neutral. Additional FTEs needed to provide oversight and management of contract work that is currently done by contractors will be reassigned from units through agency streamlining efforts.
1. Federal Manager's Financial Integrity Act of 1982, Public Law 97- 255, September 8, 1982.
2. Standing Committee on Contracts Management, "Contract Management at EPA: Managing Our Mission," June 1992.
3. U.S. Environmental Protection Agency, Management of Computer Science Corporation Contract Activities Report (Washington, D.C., March 1992).
4. Section 8(a) of the Small Business Act, 15 U.S.C. 637(a) et. seq. 1953.
5. U.S. Congress, Senate, Committee on Government Affairs, testimony by EPA's Inspector General, June 22, 1993.
6. U.S. Congress, Senate, Committee on Government Affairs, testimony by EPA Administrator Carol Browner, March 10, 1993.
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