Report criticizes fee-for-service contracting operations

The Government Accountability Office said two fee-for-service procurement shops, the Interior Department's GovWorks and the Treasury Department's FedSource, have failed to provide fair and reasonable prices to their clients in the Defense Department.

The two, which operate much like private businesses by seeking to attract federal clients and charging fees, did not sufficiently compete work among different providers and may have missed the opportunity to save millions of dollars on service contracts, the report (GAO-05-456) said.

In one case involving an Air Force request for analytical services, GovWorks sought competing proposals but gave contractors only four days around Christmastime to respond, GAO said. GovWorks awarded the $63.4 million contract to the only contractor that responded. In another case, involving the National Guard Bureau's Chief Information Office, GovWorks increased the contract price by $45.5 million, 20 times the original, without checking whether or not the price was fair and reasonable.

GAO faulted GovWorks and FedSource and their parent agencies for failing to provide proper oversight, as well as the Defense Department, which is the biggest user of the shops. In fiscal 2004, Defense paid GovWorks and FedSource over $1.2 billion for purchases.

The report also noted inherent conflicts in fee-for-service shops. The offices are driven to increase sales volume in order to grow, which can conflict with the desire to follow procurement regulations, it said.

"They have paid insufficient attention to basic tenets of the federal procurement system - taxpayers' dollars should be spent wisely, steps should be taken to ensure fair and reasonable prices, and purchases should be made in the best interest of the government," the report stated.

Bob Welch, a partner with the firm Acquisition Solutions of Oakton, Va., which has worked with GovWorks, said the report makes the procurement shop appear worse than it is. He said the operation already has taken significant steps to increase its oversight.

Interior and Treasury said they generally agreed with GAO's recommendations and that they already had started implementing some of them. GovWorks said it has instituted a management control review and performance improvement plan that includes monitoring compliance with existing procurement regulations.

The Pentagon also agreed with the report's findings and said it is working to collect prices in order to monitor the value of contracts bought through GovWorks and FedSource. After confusion over the Pentagon's policy on the use of fee-for-service shops and other non-Defense contracting vehicles, Deidre Lee, director of Defense Procurement and Acquisition Policy, clarified in a June memo that "the use of non-DoD contracts is encouraged when it is the best method of procurement to meet DoD requirements."

In May, Interior said it would merge GovWorks with its National Business Center, which also provides procurement services to outside agencies.