EPA failed to comply with sole-source contracting rules, report finds

The Environmental Protection Agency issued millions of dollars in sole-source contracts without approval from appropriate managers or the necessary components that could have increased competition and saved taxpayer money, according to a new watchdog report released July 1.

The EPA inspector general found technical and procedural problems with numerous noncompetitive contracts issued between October 2005 and June 2007.

The IG discovered a handful of contracts in which the "justification for other than full and open competition" lacked the required signature of senior agency managers. On other contracts, acquisition officials failed to publish a required contract synopsis or to perform market research to identify additional sources.

"These issues occurred because either EPA did not have effective internal controls or because existing controls were not followed," the report said. "Without the required approvals for the [justification for other than full and open competition] and without the required elements, EPA increases the risk that inappropriate sole-source procurements will be awarded."

While the IG found several sole-source contracts that failed to comply with the Federal Acquisition Regulation, they appear to represent only a small percentage of EPA's contracting universe.

In fiscal 2006, the Office of Management and Budget reported that EPA had competed 80 percent of its contracts. That figure increased to 90 percent in fiscal 2007 -- a calculation error originally had tallied the competition rate at 82 percent.

The IG examined 20 noncompeted contracts, all with a value of more than $100,000. For five, a justification for forgoing open competition was not required.

But, the IG found that the exemptions for four of the remaining 15 sole-source procurements were not authorized by the appropriate agency official.

The FAR required the Office of General Counsel and the competition advocate -- the agency official responsible for promoting open acquisition contests -- to sign off on two of those contracts. One of those deals, worth an estimated $12 million, also should have been approved by the director of the Office of Acquisition Management, the IG found.

When limiting competition, the FAR states, agencies must justify the decision in writing. But eight of the contracts were missing key elements, including the estimated value of the procurement, a list of sources that had expressed an interest, and an indication that the cost of the contract was fair and reasonable, the report said.

The FAR requires agencies to publish a synopsis of proposed contract actions, which should include a statement indicating that companies can submit bids, proposals or quotes.

In one instance, a synopsis was not published because, according to a service center manager, the "prior contracting staff were not completely knowledgeable of their job requirements, nor was their work adequately supervised and reviewed. A checklist designed to ensure all required steps were followed when awarding contracts was not used."

For four other contracts, the IG said the synopsis "did not contain language that may have encouraged interested firms to submit information regarding their capabilities to meet EPA requirements."

The IG noted that on two occasions, contracting officers had mistakenly failed to conduct market research either because they did not believe that such a step was required or they thought only one source existed.

The IG recommended that EPA go back and document in each of the contract files the reason a justification for exemption from competition had not been approved at the appropriate level and what corrective actions had since been taken. The report also called for increased internal controls and changes to the agency's acquisition handbook.

Luis Luna, EPA's assistant administrator, said in the agency's official response that he generally agreed with the IG's findings and that he had a plan to put all the recommendations in action no later than the end of July.