Today's Article
The White House
failed to create 'a
rigorous award fee
process before
awarding' millions to
KBR.
failed to create 'a
rigorous award fee
process before
awarding' millions to
KBR.
The American Spark
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Bush Administration Provides Little Oversight Of Iraqi Oil
Contracts: GAO Report
By Cliff Montgomery - Aug. 28th, 2007
The Government Accountability Office (GAO) in July 2007 released a telling audit of the Bush Administration's
questionable Iraqi oil contracts with KBR, which had been a Halliburton subsidiary until that company's
divestment earlier this year.
The verdict? The GAO found that the Bush White House flatly failed to create "a rigorous award fee process
before awarding a cost-plus-award-fee contract" to KBR.
We quote from the report below:
"As of October 2006, the United States had obligated about $29 billion for reconstruction and stabilization
efforts in Iraq. The United States has relied heavily on private sector contractors to provide the goods and
services needed to support reconstruction efforts in Iraq.
"For example, to help reestablish Iraq’s oil infrastructure, in March 2003 the U.S. Army Corps of Engineers
(Corps) awarded the Restore Iraqi Oil (RIO I) contract to Kellogg Brown & Root [Kellogg Brown & Root is now
known as KBR].
"The contract was also used to import fuels from neighboring countries to avoid domestic fuel shortages in
Iraq. Under this contract, the Corps issued 10 task orders worth approximately $2.5 billion.
"The RIO I contract, like many other reconstruction and support contracts, was a cost-plus-award-fee type
contract. In general, these contracts provide for payment of the contractor’s allowable, allocable, and
reasonable costs; a fixed base fee amount determined at inception of the contract; and a potential award fee
sufficient to provide motivation for excellence in contract performance.
"[But] a cost-plus-award-fee contract, like other cost reimbursement type contracts, increases the risk to the
government of incurring higher than expected costs, as compared to some other contract types. To mitigate
this risk, these types of contracts require sufficient oversight.
"The Defense Contract Audit Agency (DCAA) provides services that can help the Department of Defense
(DOD) ensure accountability for its acquisitions. For example, DCAA has audited many Iraq contract proposals
and contracts and has identified costs it considers to be questioned. DCAA defines questioned costs as those
costs that are not acceptable for negotiating a fair and reasonable contract price.
"Ultimately, the contracting officer has the final decision about whether questioned costs should be paid,
taking into account DCAA’s advice and other information.
"On the RIO I contract, DCAA identified $221 million in questioned costs in its final audits of the task order
proposals under the contract.
"DOD considered DCAA’s audit findings on the RIO I contract and performed additional analysis before
deciding to pay the contractor nearly all of the $221 million in costs that DCAA questioned, a decision
influenced by the fact that negotiations of the task orders’ terms and conditions did not begin until most of the
work was complete.
"Lack of timely negotiations was a major contributing factor to DOD’s decision on how to address the
questioned costs. Although the Defense Federal Acquisition Regulation Supplement (DFARS) generally
requires that contract actions be definitized within 180 days after issuance of the action, all 10 task orders
were negotiated more than 180 days after the work commenced.
"As a result, the contractor had incurred nearly all costs at the time of negotiations, and this fact influenced the
DOD contracting officer’s decision to pay most of the questioned costs.
"According to various DOD officials and contractor representatives, changing requirements, funding
challenges, and inadequate contractor proposals contributed to the negotiation delays.
"[Regarding the potential award fees for excellence], DOD’s Army Corps of Engineers paid about $57 million in
award fees, or 52 percent of the maximum possible award fees, on the RIO I contract, but it did not adhere to
some key steps in its planned award fee process related to providing performance feedback to the contractor.
"DOD developed an award fee plan that laid out the steps for making its award fee decision, but it did not fully
adhere to that plan. For example, the plan required award fee evaluations on a regular basis during the period
of performance, but DOD did not conduct a formal evaluation until July 2004, subsequent to the completion of
nearly all work on the contract.
"By not conducting such evaluations during the period of performance, DOD was not able to provide the
contractor with formal award fee feedback while work was ongoing, which federal regulations state should be
done in order to motivate a contractor to either improve poor performance or continue good performance.
"Additionally, DOD was not able to provide us with sufficient documentation to enable us to fully assess its
adherence to other steps of its plan.
"Our review does not include a determination of whether DOD reached the appropriate award fee decision for
the RIO I contract.
"To ensure that cost-plus-award-fee contracts provide the intended benefits, we are recommending to the
Secretary of the Army that the department conduct an analysis of the administrative feasibility of following a
rigorous award fee process before awarding a cost-plus-award-fee contract in contingency situations.
"In written comments, DOD agreed with the recommendation."
Like what you're reading so far? Then why not order a full year (52 issues) of The American Spark e-
newsletter for only $15? A major article covering an story not being told in the Corporate Press will be
delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!
Contracts: GAO Report
By Cliff Montgomery - Aug. 28th, 2007
The Government Accountability Office (GAO) in July 2007 released a telling audit of the Bush Administration's
questionable Iraqi oil contracts with KBR, which had been a Halliburton subsidiary until that company's
divestment earlier this year.
The verdict? The GAO found that the Bush White House flatly failed to create "a rigorous award fee process
before awarding a cost-plus-award-fee contract" to KBR.
We quote from the report below:
"As of October 2006, the United States had obligated about $29 billion for reconstruction and stabilization
efforts in Iraq. The United States has relied heavily on private sector contractors to provide the goods and
services needed to support reconstruction efforts in Iraq.
"For example, to help reestablish Iraq’s oil infrastructure, in March 2003 the U.S. Army Corps of Engineers
(Corps) awarded the Restore Iraqi Oil (RIO I) contract to Kellogg Brown & Root [Kellogg Brown & Root is now
known as KBR].
"The contract was also used to import fuels from neighboring countries to avoid domestic fuel shortages in
Iraq. Under this contract, the Corps issued 10 task orders worth approximately $2.5 billion.
"The RIO I contract, like many other reconstruction and support contracts, was a cost-plus-award-fee type
contract. In general, these contracts provide for payment of the contractor’s allowable, allocable, and
reasonable costs; a fixed base fee amount determined at inception of the contract; and a potential award fee
sufficient to provide motivation for excellence in contract performance.
"[But] a cost-plus-award-fee contract, like other cost reimbursement type contracts, increases the risk to the
government of incurring higher than expected costs, as compared to some other contract types. To mitigate
this risk, these types of contracts require sufficient oversight.
"The Defense Contract Audit Agency (DCAA) provides services that can help the Department of Defense
(DOD) ensure accountability for its acquisitions. For example, DCAA has audited many Iraq contract proposals
and contracts and has identified costs it considers to be questioned. DCAA defines questioned costs as those
costs that are not acceptable for negotiating a fair and reasonable contract price.
"Ultimately, the contracting officer has the final decision about whether questioned costs should be paid,
taking into account DCAA’s advice and other information.
"On the RIO I contract, DCAA identified $221 million in questioned costs in its final audits of the task order
proposals under the contract.
"DOD considered DCAA’s audit findings on the RIO I contract and performed additional analysis before
deciding to pay the contractor nearly all of the $221 million in costs that DCAA questioned, a decision
influenced by the fact that negotiations of the task orders’ terms and conditions did not begin until most of the
work was complete.
"Lack of timely negotiations was a major contributing factor to DOD’s decision on how to address the
questioned costs. Although the Defense Federal Acquisition Regulation Supplement (DFARS) generally
requires that contract actions be definitized within 180 days after issuance of the action, all 10 task orders
were negotiated more than 180 days after the work commenced.
"As a result, the contractor had incurred nearly all costs at the time of negotiations, and this fact influenced the
DOD contracting officer’s decision to pay most of the questioned costs.
"According to various DOD officials and contractor representatives, changing requirements, funding
challenges, and inadequate contractor proposals contributed to the negotiation delays.
"[Regarding the potential award fees for excellence], DOD’s Army Corps of Engineers paid about $57 million in
award fees, or 52 percent of the maximum possible award fees, on the RIO I contract, but it did not adhere to
some key steps in its planned award fee process related to providing performance feedback to the contractor.
"DOD developed an award fee plan that laid out the steps for making its award fee decision, but it did not fully
adhere to that plan. For example, the plan required award fee evaluations on a regular basis during the period
of performance, but DOD did not conduct a formal evaluation until July 2004, subsequent to the completion of
nearly all work on the contract.
"By not conducting such evaluations during the period of performance, DOD was not able to provide the
contractor with formal award fee feedback while work was ongoing, which federal regulations state should be
done in order to motivate a contractor to either improve poor performance or continue good performance.
"Additionally, DOD was not able to provide us with sufficient documentation to enable us to fully assess its
adherence to other steps of its plan.
"Our review does not include a determination of whether DOD reached the appropriate award fee decision for
the RIO I contract.
"To ensure that cost-plus-award-fee contracts provide the intended benefits, we are recommending to the
Secretary of the Army that the department conduct an analysis of the administrative feasibility of following a
rigorous award fee process before awarding a cost-plus-award-fee contract in contingency situations.
"In written comments, DOD agreed with the recommendation."
Like what you're reading so far? Then why not order a full year (52 issues) of The American Spark e-
newsletter for only $15? A major article covering an story not being told in the Corporate Press will be
delivered to your email every Monday morning for a full year, for less than 30 cents an issue. Order Now!