This article is an excerpt from the 2023 edition of The Art of Tendering: A Global Due Diligence Guide.
Recent federal procurement audits in the United States have raised significant concerns over rushed contract awards. These reports underscore the inherent risks associated with rushed awards, including the risk of open-ended contracts that lack clear requirements, the adverse impact on competition, the increased risk of weak supporting documentation, and the failure to obtain value-for-money. These audits serve as useful warnings to public institutions across all jurisdictions.
For example, in its July 2021 report entitled Audit of Department of State Compliance With Requirements Relating to Undefinitized Contract Actions, the U.S. Department of Justice Office of the Inspector General raised concerns over the Department’s overuse of rushed open-ended contract awards, which are referred to as “undefinitized contract actions” (UCAs). As the report explains, a UCA is “an agreement between the Government and the contractor that allows the contractor to begin work and incur costs before the Government and the contractor have reached a final agreement on contract terms, specifications, or price when there is insufficient time to use normal contracting vehicles.” The audit reviewed 48 high-value contracts and found that 75 percent of those contracts were improperly classified as UCAs due to a lack of staff training. As the Inspector General cautioned, “until these deficiencies are corrected, the Department is at increased risk of paying greater costs for contracted goods and services than necessary.”
Further, in its September 2021 report entitled Audit of Acquisition Planning and Cost Controls While Transitioning Support Service Contracts in Iraq, the U.S. Department of Justice Office of the Inspector General raised concerns over rushed non-competitive awards for support services in Iraq. The report found that the Department of State’s incomplete acquisition planning resulted in award delays and led to 65 non-competitive contract awards. The report concluded that “these shortfalls occurred, in part, because of poor coordination and the absence of internal controls within the acquisition planning process.” The Inspector General also found that the Department continued to place excessive reliance on non-competitive awards and was improperly using the exceptions to open competition under the Federal Acquisition Regulation. As the Inspector General noted, the Department justified the 65 non-competitive awards, which were valued at $663 million, based on “unusual and compelling urgency”. However, in noting that these direct awards undermined value-for-money objectives, the Inspector General concluded that “Federal law does not permit poor planning as justification for the use of non-competitive contracts.”
Similarly, in its October 2021 report entitled Audit of Noncompetitive Contracts in Support of Overseas Contingency Operations in Afghanistan and Iraq, the U.S. Department of Justice Office of the Inspector General raised concerns regarding the Department of State’s sole-source awards for military operations in Afghanistan and Iraq. As the report noted, government contracting officers failed to document or publicly disclose all non-competitive contract awards in accordance with applicable policies and procedures. The Inspector General cautioned that “until these deficiencies are addressed, the Department will lack assurance that all non-competitive award decisions have been properly documented to demonstrate the need for exceptions from full and open competition and that interested parties are notified when such decisions are made.”
As the report stated, the Department “did not fully adhere to required steps intended to ensure that fair and reasonable prices were paid on non-competitive contract awards” since contracting officers failed to “adequately document the principal elements of the price negotiation”, as required by the Federal Acquisition Regulation, in over 90 percent of the reviewed direct awards. The report attributed these weaknesses to the inattention of contracting officers to completing and maintaining required documentation and to “internal control operating weaknesses.”
Finally, in its July 2022 report entitled Audit of Sole‑Source Depot Maintenance Contracts, the U.S. Department of Justice Office of the Inspector General raised value-for-money concerns over whether the Department of Defense (DoD) negotiated fair and reasonable prices for its sole-sourced depot maintenance contracts. The report concluded that “DoD contracting officials may not have negotiated fair and reasonable prices for 21 of 34 sole‑source and single‑source depot maintenance contracts we reviewed, valued at $4.6 billion, because DoD officials did not provide well‑defined requirements, in accordance with Federal and DoD acquisition regulations.” More specifically, the report found that DoD officials limited their ability to negotiate fair and reasonable prices because the rushed sole-source contracting led to the acceptance of late or incomplete proposals, which “added pressure on DoD contracting officials to meet award date deadlines and accept higher prices”. The Inspector General recommended that contracting officials make better use of internal government data to help inform fair and reasonable pricing when negotiating sole-source awards.
As these reports illustrate, given the inherent risks associated with rushed sole-source awards, public institutions should improve their advance planning to avoid situations where they need to bypass open competition and part company with due process.
