By: Paul Emanuelli
This article is an excerpt from the 2022 edition of The Art of Tendering: A Global Due Diligence Guide.
Recent audit reports reveal how weak oversight practices are creating systemic contract administration issues across government institutions. In fact, successful contract management calls for a commitment to project oversight and to proper staffing and training.
For example, in its July 2020 report entitled Management Advisory Memorandum Concerning the Department of Justice’s Administration and Oversight of Contracts, the United States Office of the Inspector General (OIG) concluded that recurring weaknesses in contract administration reflected systemic issues within the Department of Justice. The report noted that in fiscal years 2013 through 2019, the Department awarded over $54 billion in contracts for products and services and that over that period, various OIG audits “identified significant issues linked to inadequate contract solicitation, award, administration, and oversight.” More specifically, those audits regularly identified: “(1) inadequate execution of contract oversight responsibilities, (2) insufficient quality assurance practices, and (3) non-compliance with contracting-related laws and regulations.” However, the OIG noted that the Department’s 2019 Enterprise Level Risk Profile did not address these contract management challenges, which raised concerns that the Department was failing to properly prioritize contract management oversight.
The report found that this failure to prioritize contract oversight was further evidenced by a lack of adequate training for contracting staff. As the OIG noted, while the Federal Acquisition Regulation requires that contracting officers “be qualified by training and experience commensurate with the responsibilities to be delegated”, over a four-year period, correctional facility contracting officers were only provided a single 60-minute lecture on roles and responsibilities. In another example, the report noted that the contracting officers responsible for administering a $700 million federal detention centre contract “had minimal training and experience” and that those officers “did not have the technical proficiency to perform the responsibilities they were assigned.”
In another example of weak oversight, the report found that contracting officers “maintained an infrequent onsite presence at the Leavenworth Detention Center (LDC)”, that they “did not document the inspection activities performed,” and that they “did not develop an inspection program or monitoring procedures.” The OIG warned that these findings reflected broader systemic issues since the “lack of effective continuous monitoring at the LDC presented risks that could extend throughout all its other contract detention facilities.” As the report concluded, “adequate training and experience is crucial” to the “ability to perform the delegated contract oversight responsibilities.”
Similarly, in a July 2020 audit of the Department of Justice entitled Audit of the United States Marshals Service’s Contract Awarded to The GEO Group, Incorporated to Operate the Robert A. Deyton Detention Facility, Lovejoy, Georgia, the OIG found that the United States Marshals Service (USMS) needed to improve contract oversight procedures to address weak contractor staffing and training standards. The report concluded that the GEO Group, a federal contractor, “did not comply with the contract terms and law pertaining to mandatory training for officers transporting detainees.” As the report concluded, a lack of training of federal contracting officers created a ripple effect in the lack of enforcement of the contractor’s training and staffing obligations. The report made a series of recommendations that included enhanced training for government contracting officers to better deal with performance monitoring and related payment holdback protocols when contract breaches are discovered.
Further, in its August 2021 report entitled MV Veteran and MV Legionnaire, the Auditor General of Newfoundland and Labrador found that the Department of Transportation and Infrastructure failed to effectively manage the construction, operationalization and initial operations of two ships, the MV Veteran and MV Legionnaire. The report raised multiple concerns over how the Department’s passive management of the project “may have contributed to the significant operational delays, service disruptions and unplanned costs” and found that the Department’s staff failed to adhere to the established project management manual.
While the Auditor General found that the Department initially established a project management team, it noted that “the team only formally met five times between May 2009 and November 2009, four years prior to the award of the contract for the first vessel” and then failed to conduct any further formal meetings. In fact, the Auditor General found “no evidence to indicate that the project management team met in a formal capacity for the remainder of the project, including up until the vessels were completed in December 2015.” Unsurprisingly, the report concluded that “the Department did not conduct adequate construction oversight during the construction and operationalization of MV Veteran and MV Legionnaire” and that it failed to “appropriately evaluate, monitor and take corrective action regarding the contracted onsite supervisor role.” In fact, the Auditor General found that “there was no onsite departmental representation present for 67 per cent of the construction period of the MV Veteran, and 63 per cent of the construction period of the MV Legionnaire.” Furthermore, the report found that “the Department did not have representation for more than half of the quality control inspections of both the MV Veteran and the MV Legionnaire” and that “the Department could not provide evidence that supported all progress payments to the shipbuilder.”
Furthermore, the Auditor General found that “the Department did not maintain adequate information management and document management processes throughout the project” and that it relied on outdated cost estimates. More specifically, the report noted that the Department “did not present any details that supported the basis for the cost estimates”, which “ranged over 135 per cent, with a low of $37 million to a high of $87 million.” The Auditor General also found that the Department cut corners on staff training prior to deploying the ships and that it “did not have its safety management system manual finalized for a period of at least five months after the MV Veteran began operations.” In summary, the Auditor General concluded that the Department failed to follow expected project management planning processes, had no overarching project management plan, had no reliable overall cost estimate, and had inadequate planning for the human resource requirements of the new vessels. Moving forward, the report recommended that the government establish and follow a project management process that gives proper attention to onsite supervision, document management, and training.
Finally, in its August 2021 report entitled Defence’s Administration of Enabling Services — Enterprise Resource Planning Program: Tranche 1, Australia’s Auditor-General raised concerns over the need to improve program oversight. The report warned that “for programs that rely heavily on contractors, consideration should be given to the nature of the roles the contractors are undertaking and how program governance arrangements are structured to ensure that there is an appropriate accountability framework in place and that potential conflicts of interest are managed.” The report also highlighted the importance of improved communications to assist decision-makers, stating that the Department should “establish a structured and documented meeting and reporting pattern that ensures a regular flow of information that is appropriate for the program size and risks.” These communications should be geared to providing decision-makers with sufficient information “to understand how the program is tracking against scope, schedule and budget” and should “include information on any targets or milestone due dates.”
As these recent reports reveal, the failure to prioritize contract oversight and allocate adequate resources and training to contract administration can undermine the success of contracting initiatives. Purchasing institutions should bolster their contract oversight practices in the hope to improve their future contracting outcomes.
