Tripped Up

Close scrutiny and tough rules slow down interagency contracting shops.

Nothing much distinguishes Crystal Square V, a generic office building at 251 18th St. South in Crystal City, Va., just outside Washington. The main tenant-the Defense Department's Counterintelligence Field Activity-is mostly hidden behind the fortified walls of a sensitive compartmented information facility. Despite the absence of a logo in the wood-paneled foyer, however, the agency's presence is hardly a secret. A dolly-wielding UPS deliveryman can tell you the way. "What're you looking for? CIFA?" he says, pointing down the road a couple of blocks.

CIFA's offices are well known in other quarters, too. The Pentagon's inspector general in January decided to highlight them in one of an ongoing series of reports critical of Defense's use of interagency contracting, the practice of buying goods or services through another agency (D-2007-044).

Critics contend that interagency contracting centers allow Defense to play fast and loose with acquisition rules. And the looser the rules in one area, the harder it is to impose discipline elsewhere, they say. Their concern has grown right along with the amount that Defense spends through contracting organizations other than its own. In fiscal 2005, the Pentagon spent $1.66 billion through the Interior Department. The IG and others contend that interagency spending isn't just increasing, it's increasingly mismanaged and ends up costing buyers more than they should be paying.

The IG report scolded CIFA for obtaining office space in 2004 using a service contract through the GovWorks Federal Acquisition Center, a fee-for-service buying operation run by Interior. The building's lease is held by TKC Communications, an Alaska Native corporation that rents the building from metropolitan Washington real estate giant Charles E. Smith Commercial Realty. TKC, in turn, provides CIFA access to the facility.

Providing offices "is clearly, in our view, not a service," says Thomas Gimble, acting Defense inspector general. The government mostly uses service contracts to hire private sector support for tasks not considered inherently governmental-computer programming, janitorial help, that sort of thing. Building leases are governed by a different set of rules.

Within the Washington area, government leases worth up to $2.2 million are supposed to be handled by the General Services Administration. Leases worth less require an affirmative resolution from a handful of congressional committees. CIFA pays at least $6.6 million a year for its offices, but didn't complete any of these steps. Gimble says CIFA and GovWorks circumvented the required process.

David Sutfin, GovWorks' assistant director, says CIFA contracted for use of the building but hasn't leased anything from anybody. "We were simply asking [TKC] to provide a secure facility" on CIFA's behalf, he adds.

CIFA and GovWorks argue that they've done nothing wrong. Sutfin says GSA told GovWorks that the normal rules wouldn't apply to CIFA because the office space was supposed to house CIFA contractors, not government employees-CIFA is heavily outsourced. The IG's office says CIFA officials misled GSA. Most of the back and forth can be found in detail in the IG report. CIFA responded to inquiries with a set of talking points stating that the matter is under legal review.

The larger questions at issue are whether, and if so, how much Defense will continue to use interagency contracting. These are painful questions for the centers that do it. Oversight of their actions has shot up disconcertingly. Most rely on Defense for the majority of their business. The department provides about 60 percent of GovWorks' annual revenue and more than half of GSA's.

Congress has required progressively more wide-ranging reviews of Defense's use of interagency contracting. In particular, the staff of the Senate Armed Services Committee chairman, Sen. Carl Levin, D-Mich., has targeted it for scrutiny. "Too often, DoD officials believe that by awarding a contract or task order through another agency, they have relieved themselves of all responsibility," according to a written reply from Levin's office. On the other hand, interagency contracting officials "believe that they are responsible only for the contract award and that planning and execution remain DoD's problem." More audits could be in the works at Levin's behest. His committee is actively reviewing whether to order new ones in the next Defense authorization bill.

Open to Interpretation

Defense program managers say they are under pressure to rely less on interagency contracting shops. Use has been down since an Oct. 29, 2004, Defensewide memo requiring formal justification when buying through outsiders. At GSA, for example, Defense business fell 38 percent during the past two years, from $8.2 billion in fiscal 2004 to $5.1 billion in 2006.

The justification requirement means program managers must win support from newly suspicious contracting officers. It's a disincentive, says Kevin Carroll, head of the Army's Program Executive Office-Enterprise Information Systems. "A lot of people don't want to do the paperwork," he says.

The 2004 memo permits inter-agency contracting when it is the "best method of procurement," but many acquisition officials took it as a prohibition. How exactly are they to demonstrate that interagency contracting is the "best method"?

"It's open to interpretation," says Joanne Woytek, program manager of the Scientific and Engineering Workstation Procurement, a governmentwide contract vehicle run by NASA. "Some [Defense agencies] have different policies than others, and that's not good." Woytek acknowledges that Defense orders-usually about half of SEWP's business-are down. SEWP handled orders worth $529 million in fiscal 2004, but only $300 million in fiscal 2006.

Since 2004, other Defense memos have emphasized that interagency contracting isn't banned, but congressionally induced inspector general watchfulness has made buyers increasingly cautious. "It's unbelievable right now," says a military program manager, speaking on condition of anonymity. He tells of a Pentagon contracting officer who refused to write a justification for a request to buy furniture through the GSA schedules-which were established in 1949 as a catalog of goods and services specifically to make buying things such as furniture easier. "She didn't want to get in trouble by going through GSA," the program manager says.

Layers of Complexity

Gimble says he isn't trying to inspire fear of interagency contracting. In person, he's hardly the fire-breather his staff's reports conjure. A plain-spoken Army veteran, he says, "We're suggesting that we have good acquisition planning and good contract execution." Levin's office also contends the problem is not that Defense uses interagency contracts too much, but that sound contracting practices slip through the cracks.

Defense acquisition is notoriously messy-in its 60-year history, the department never has produced a comprehensive tally of where all its money goes. But interagency contracting adds further layers of complexity.

It diffuses authority. CIFA paid for alterations to its space at Crystal Square V with money appropriated for operations and maintenance. Auditors say using O&M funds probably violated the Antideficiency Act because funds should have come from military construction accounts. CIFA contends that because GovWorks and the Defense Information Technology Contracting Organization pay the contractor, the renovations weren't military construction, so there was no Antideficiency Act violation. Third-party involvement adds complexity by adding players, as well. GovWorks is peeved about the CIFA lease, too, as it turns out. GovWorks has a beef with the Small Business Administration. SBA certified TKC Communications as an 8(a) small disadvantaged business. But when auditors investigated, they found TKC was ineligible during fiscal 2005 for 8(a) status as a lessor of nonresidential buildings (except miniwarehouses). As a result, SBA's Alaska district office issued a formal size determination of TKC's eligibility on Jan. 4, 2006, and, on Feb. 8, recommended the CIFA contract be terminated. Negotiations are ongoing.

Cost is another point of contention. GovWorks makes most of its deals on Defense's behalf through the GSA schedules-58 percent in fiscal 2005. But GovWorks charges a fee of 4 percent of the dollars spent through every contract it awards. GSA assesses a 0.75 percent fee for every sale made through its schedules. Defense could have avoided GovWorks, written task orders directly through the GSA schedule and saved $22 million on the CIFA deal, auditors contend. "It's hard for me to see that there's additional value add . . . when I could have gone straight to [GSA]," says Gimble. His auditors say that Defense contracting offices could have handled the whole $1.66 million worth of goods and services that Interior purchased for it.

Defense "has a capacity in house to use [GSA] schedules," Sutfin rejoins. But "they don't have enough contracting resources." That's partly why interagency contracting exists and why it has grown. The Defense acquisition workforce shrank by about 3 percent between 1999 and 2004. But there are glimmerings of a reversal. About a fifth of Army acquisition workers occupy positions created since fiscal 1999. Levin's staff considers authorizing a larger Defense acquisition corps a very live possibility. Such an authorization never would have gotten past former House Armed Services Committee chairman, Rep. Duncan Hunter, R-Calif., but the Democratic leadership might be amenable. A committee spokeswoman had no comment.

Even if Defense had more acquisition workers, it still would need interagency contracting centers, Sutfin contends. Not every military command or office has contracting staff, so they have to shop around for help. For them, what's the difference between a Defense-run procurement shop and an interagency one? "There is none," Sutfin says. And when it comes to cost, interagency contracting organizations say they're cheaper than in-house buyers. They say that because they don't receive appropriations from Congress, they must support themselves on customer fees alone, and that means they know exactly how much acquisition support costs and what to charge for it. Appropriated dollars cloud the true cost of in-house contracting, they argue. Sutfin subscribes to that argument as does GSA Administrator Lurita Alexis Doan, who often makes it during speeches.

"Who cares? . . . We'll go to GSA or the Army, depending on what our real cost is and that means what the real cost is to our program," says the Army's Carroll. "It doesn't matter to us. We're going to go where the prices are [lower]."

Finding Parking

Defense accountants began an offensive in fiscal 2005 against the practice of parking unspent funds in interagency centers at fiscal year's end in order to make the money appear to have been spent. Defense lost between $1 billion and $2 billion after GSA halted the practice in fiscal 2005 and sent unspoken-for funds back to the Treasury Department. The Defense comptroller's office was not happy. But many program managers remain interested in parking dollars.

Most have wish lists of badly needed but unfunded items and services. Says Carroll, "You wait for that call on Sept. 29th [the end of the fiscal year] and someone says, 'Oh, by the way, I got an extra $1 million. Can you spend it today?' And you want to be ready to say yes."

Although appropriated funds supposedly are doled out quarterly like clockwork, in real life money piles up in the fourth quarter to be used or lost. "Not every project starts on Oct. 1 [the beginning of the fiscal year], and there are any number of projects that get started midyear," says Sutfin, hence the need for a parking place, or what he calls "revolving fund flexibility."

An Oct. 16 memo from the Pentagon's acting deputy chief financial officer cut off the practice for Defense. Sutfin says GovWorks will suffer: "Clearly, we're going to see some reduction."

Even if the Defense acquisition workforce grows and if oversight and closed loopholes diminish the workload at interagency contracting centers, they won't disappear. They're simply too useful and too entrenched. "They're not trying to keep people from using us; they're just trying to keep them from using us in the wrong way," says NASA's Woytek.