IG finds Army mismanaged contingency operations support contract

Army procurement officials failed to properly manage a key support contract for contingency operations in Iraq and Afghanistan, awarding millions of dollars of work without competition and disclosing bidders' proprietary information without their knowledge or consent, according to a watchdog's new report.

The report by the Defense Department inspector general found scores of internal control weaknesses associated with the Army Sustainment Command's management of a support contract for the massive Logistics Civil Augmentation Program, which provides a host of services and in-theatre assistance to soldiers. Three firms -- DynCorp International, Fluor Corp. and KBR -- compete for task orders on the LOGCAP IV contract.

Serco Inc. of Vienna, Va., in February 2007 won a $117 million support contract to help the Army plan and estimate costs of task orders on the LOGCAP IV contract. But, according to auditors, Army officials allowed the scope of Serco's contract to expand to non-LOGCAP requirements without taking the proper steps to ensure competition and prevent conflicts of interest.

"Army contracting officials did not properly manage this contract, instructed the contractor to perform work outside the scope of the contract, and did not provide adequate oversight and surveillance," the report stated.

In one instance, an Army procurement officer issued Serco a noncompetitive $9.3 million task order for base closure assistance teams -- a function the IG found was well beyond the scope of the support contract.

In total, Army officials instructed Serco to provide assistance for at least 71 non-LOGCAP contract requirements valued at about $1 billion. Serco, meanwhile, helped with only three LOGCAP-specific task orders and, as of April 2010, had devoted only one employee to working on requirements for the mega-logistics contract, the audit found.

Moreover, contracting officials did not make the 71 non-LOGCAP task orders competitive, and they did not provide an appropriate justification for their decision, according to the report.

"By not competing these requirements, Army officials had no assurance that they obtained fair and reasonable prices and that the LOGCAP support contractor provided the best value to satisfy the government's requirements," the IG said.

Procurement officials at the Rock Island Contract Center in Illinois, which administers the LOGCAP contract, defended the decision, arguing the program's mission had expanded to include other types of work.

A Serco spokesman did not respond to a request for comment on the report.

Auditors found other, potentially more problematic, lapses in oversight on the support contract.

Serco's original LOGCAP IV contract allowed for the company to review the proprietary business information of the three primary contractors. DynCorp, Fluor and KBR agreed to the arrangement and Serco's employees agreed not to disclose the information.

But, such precautions were not implemented when Serco assisted with non-LOGCAP functions. In several instances in Kuwait, Serco personnel received technical proposals of potential bidders that might have contained proprietary information, the report said. And, while Serco employees signed personal nondisclosure acts, the other companies apparently were not aware of, and did not consent to, the setup.

The report suggested Army officials might have violated the 1905 Trade Secrets Act, which guards against unauthorized disclosure of trade secrets. "It is imperative that the government implement controls to prevent this from happening," the IG wrote.

Army officials also allowed Serco to assist in developing contract requirements the contractor could have competed for -- a clear violation of federal organizational conflict of interest regulations. Though it was not contractually prohibited from bidding on the work, Serco apparently did not take advantage of the loophole.

The IG instructed the Army to inform the bidders that their data might have been exposed; place the non-LOGCAP requirements up for competition; and prevent Serco from performing work on any contract resulting from its services. The Army agreed with the recommendations and pledged to develop a corrective action plan.

"We are aware of the issues raised in the report and are taking appropriate steps to address them," said Daniel Carlson, a spokesman for the Army Sustainment Command.