Pass-Through Contracts for War Zones Need Monitoring, GAO Finds

Three agencies working overseas that together spent $322 billion on contracting in fiscal 2013 need to improve guidance given contracting officers to reduce risk of overpayments, a watchdog found. Two-thirds of that money is funneled through prime contractors to smaller contractors who perform most of the work.

Use of pass-through contracts—under which at least 70 percent of funding is routed to subcontractors—requires new analysis and guidance before they are awarded, the Government Accountability Office noted in a Dec. 22 report.

“Concerns remain that the government could overpay contractors that provide no, or little, added value for work performed by lower-tier subcontractors,” GAO wrote.

The watchdog cited requirements imposed on the Defense and State Departments and the U.S. Agency for International Development under the 2007, 2009 and 2013 versions of the National Defense Authorization Act to reduce waste in purchasing goods and services primarily in Afghanistan.

GAO found that USAID had issued a policy directive and is updating checklists for contracting officers and that State issued a procurement bulletin restating the requirements. But neither agency has created guidance on implementing the requirements or documenting decisions on use of pass-throughs to lower-tier contracting companies.

The Pentagon has yet to take such actions. Officials said they are awaiting revisions to the Federal Acquisition Regulation due in March. None of the three has updated management review procedures, GAO said. “The lack of guidance and updated management review processes limits the agencies' ability to minimize the potential risk of paying excessive pass-through costs,” auditors said.

In evaluating the agencies’ use of subcontractors, GAO said it relied on interviews and the Federal Procurement Data System-Next Generation, rather than USASpending.gov. “Federal reporting systems used to populate USASpending.gov do not identify all contract awards,” the report noted, and that site’s information “is largely inconsistent with agency records or unverifiable.”

GAO recommended that DoD, State and USAID issue guidance to contracting officers and revise management reviews to document implementation of the requirements.

DOD and State agreed, but USAID argued that additional guidance might limit its contracting officers' discretion.