Case You have been hired by a federal agency that has recent

Case: You have been hired by a federal agency that has recently received an audit report on its construction-contracting practices. The report concluded that the current practices of the agency might be preventing the use of the most advantageous contractual methods of acquiring construction services. Between February 2007 and January 2008, the agency executed forty contracts (representing a total of approximately $339 million). These contracts were reviewed during the audit, and thirty-three (83 percent) of them were negotiated as cost-reimbursement contracts, which represented the lowest monetary risk to the federal government. The auditors recommended that a better review and selection of the contract type could be facilitated by improved control in coordination and planning of the contract type. First, there was no appropriate justification for the selection of a contract type or for the methodology used for selecting contract types. In addition, cost-reimbursement contracts were used routinely and little effort was made to convert follow-on work into less risky contract types, even when it was evident that firm prices for follow-on work could be determined prior to the award of follow-on contracts. Questions: •As part of the procurement or contracting department of this federal agency, you need to demonstrate your understanding of the different project delivery methods and contract types available to the agency. What are the key features of alternative project delivery methods and the key differences between the two main types of contracts mentioned above? In addition, which contract type can be best used with which delivery system? • •What are the project circumstances under which one type of contract would be justified over the other? • •What steps would you take for each of the contract types to ensure that the agency does not continue to waste taxpayer money through its procurement practices? • •What steps would you take to ensure that you could effectively convert follow-on work for projects originally negotiated as cost-reimbursement contracts into fixed-price contracts?

Solution

Answer :

This report presents the results of our review of the selection of contract type. The overall
objective of this review was to determine whether the Internal Revenue Service (IRS) is using
appropriate contract types, as presented in and directed by the Federal Acquisition Regulation
(FAR),1 to accomplish its mission of tax administration. The review was requested by the IRS
Office of Procurement. It was also part of the Treasury Inspector General for Tax
Administration Fiscal Year 2008 Annual Audit Plan coverage under the major management
challenge of Erroneous and Improper Payments.
Impact on the Taxpayer
Cost-reimbursement contracts, which reimburse contractors for all their costs, represent the
highest monetary risk to the Federal Government. In our sample of 40 contracts, we found that
only 2 were negotiated on a fully firm fixed-price basis (lowest monetary risk) and
33 were awarded on a cost-reimbursement basis. We also identified little coordination between
program offices and the IRS Office of Procurement regarding selection of the most advantageous
contract type prior to the program offices submitting their requirements. The IRS’ predisposition
to use cost-reimbursement contracts could result in inefficient use or misuse of taxpayer funds.