DATE:	January 18, 2005
MEMORANDUM TO:	Arleas Upton Kea, Director
	Division of Administration
FROM:	Russell A. Rau [Electronically produced version; original signed by Russell A. Rau], Assistant Inspector General for Audits
SUBJECT:	FDIC’s Use of Consultants (Report No. 05-003)

The subject final report is provided for your information and use. Please refer to the Executive Summary for the overall evaluation results. Our evaluation of your response is incorporated into the body of the report, and your response is included, in its entirety, as an appendix to the report. Your response adequately addressed the three recommendations to the Division of Administration. The three recommendations are considered resolved, but they will remain undispositioned and open for reporting purposes until we determine that the agreed-to corrective actions have been implemented and are effective.

We appreciate the courtesies extended to the evaluation team.

Background and Purpose of Evaluation Consulting contracts can be a useful and effective tool for the Federal Deposit Insurance Corporation (FDIC), but they present their own set of risks. Consulting contracts are considered sensitive in nature and can potentially influence the authority, accountability, and responsibilities of FDIC officials. Because consulting contracts often provide a less rather than more tangible output, expected work must be clearly defined in order to ensure that the consultant meets the cost, schedule, and deliverable requirements of the contract. Further, these consulting contracts require special management attention to ensure that consultants do not perform functions that should be performed by FDIC management; do not result in conflict of interest situations; and are adequately justified, planned, and managed so that the FDIC benefits from the consulting work. Our overall objective was to evaluate the use of, and benefits derived from, consulting services at the FDIC. Specifically, we determined: (1) the extent to which the FDIC utilizes consulting services; (2) whether consulting contracts are effectively justified, planned, and managed; and (3) whether tangible benefits were achieved from consulting services.

FDIC’s Use of Consultants Results of Evaluation From January 1996 through March 2004, the FDIC awarded 213 consulting contracts valued at $123 million, which represents about 3 percent of the number of contracts awarded and about 5 percent of the value of all FDIC contracts awarded. Our review of 34 sampled contracts, valued at about $41 million, showed that contract files did not always contain evidence that contracts were properly justified, planned, and managed. FDIC contracting personnel did not always follow policies and procedures for documenting contracting activity in the contract file and for clearly defining work requirements. We determined that the FDIC received a benefit from all but 2 of the consulting contracts reviewed. However, because of the lack of documentation in the contract files or because work requirements were vague, only testimonial evidence was available from the program offices for 13 of our sampled contracts to reach this conclusion. Collectively, our findings illustrate an environment in which controls over procurement could be circumvented, and the use of consultants could be abused. Recommendations and Management Response Our report contains two recommendations for actions to address deficiencies we noted in the administration of specific contracts, and one recommendation to generally strengthen the controls over the FDIC’s use of consultants. In addition, because we have identified systemic problems with a lack of contract file documentation in this and previous reports, we are highlighting this matter for further management attention. The following table summarizes the results of our review. Description Number of Contracts* Contract Amount Amount Expended Contract file did not contain justification for noncompetitive award. 10 $915,199 $754,437 The extension of the period of performance may no longer be justified. 1 $170,000 $50,656 Contract file did not contain copies of statements of work. 7 $2,440,612 $1,575,377 Statements of work were not always well-defined. 9 $12,725,003 $7,708,845 Contracts where oversight management was weak or no evidence was available to indicate oversight management. 6 $2,590,390 $1,730,549 No evidence that benefits were received. 2 $200,000 $87,085 Source: OIG Analysis. * Contracts may be included under more than one finding category.

---

RESULTS IN BRIEF

BACKGROUND

EVALUATION RESULTS

The Extent of Consulting Contracts Used by the FDIC
Justification, Planning, and Management of Consulting Contracts
Adequacy of Justification for Consulting Contracts
Recommendation 1
Adequacy of Acquisition Planning and Management for Consulting Contracts 12
Recommendation 2
Benefits Achieved
Enhanced Controls are Warranted
Recommendation 3

CORPORATION COMMENTS AND OIG EVALUATION

APPENDIX I: OBJECTIVE, SCOPE, AND METHODOLOGY

APPENDIX II: CORPORATION COMMENTS

APPENDIX III: MANAGEMENT RESPONSES TO THE RECOMMENDATIONS

TABLES:

Table 1: Summary of Findings
Table 2: Total Purchase Orders and Consulting Contracts
Table 3: Number of Consulting Contracts and Amounts Spent by Division or Office
Table 4: APM Guidance for the Use of JNCPs
Table 5: JNCP Interim Policy Guidance
Table 6: Sampled Contracts with Missing JNCPs
Table 7: Sampled Contracts with Missing or Vague SOWs
Table 8: Modifications to Contracts with Missing or Vague SOWs
Table 9: Contracts with Specific Oversight Management Deficiencies
Table 10: Unreconciled Difference – Service Costing (Benchmarking) Contract
Table 11: Analysis of Benefits

FIGURES:

Figure 1: Categories of Consulting Contracts (As a Percentage of Consulting Contract Dollars)
Figure 2: Average Consulting Contract Amount by Division

ACRONYM LIST

APM - Acquisition Policy Manual
ASB - Acquisition Services Branch
CO - Contracting Officer
DIR - Division of Insurance and Research
DIRM - Division of Information Resources Management
DOA - Division of Administration
DOF - Division of Finance
DRR - Division of Resolutions and Receiverships
DSC - Division of Supervision and Consumer Protection
FAR - Federal Acquisition Regulation
FDIC - Federal Deposit Insurance Corporation
GAO - Government Accountability Office
GSA - General Services Administration
IT - Information Technology
JNCP - Justification for Noncompetitive Procurement
ODEO - Office of Diversity and Economic Opportunity
OERM - Office of Enterprise Risk Management
OM - Oversight Manager
OPA - Office of Public Affairs
PCIE - President’s Council on Integrity and Efficiency
POS - Purchase Order System
SOW - Statement of Work

RESULTS IN BRIEF

Background

Consulting contracts can be a useful and effective tool for the Federal Deposit Insurance Corporation (FDIC), when expertise in a specialized area is required, but the need is not great enough to justify hiring personnel to perform the function. Although consulting contracts in government are generally not high-dollar procurements, they do present their own set of risks to the FDIC. Consulting contracts require the contractor to provide advice, opinions, recommendations, ideas, reports, analyses, or other work products and thus have the potential for influencing the authority, accountability, and responsibilities of FDIC officials. Further, the Government Accountability Office (GAO) has identified contract and consulting service payments as one of a number of sensitive payment areas that could present scrutiny and criticism from the public and media in the event of any impropriety or conflict of interest, real or perceived, regardless of the cost involved.

As with all contracting engagements, the FDIC is obligated to ensure that consultants are subject to fair and open competition and that decisions to noncompetitively award consulting contracts receive appropriate justification and authorization. In addition, because consulting contracts often provide a less rather than more tangible output, expected work must be clearly defined in order to ensure that the consultant meets the cost, schedule, and deliverable requirements of the contract. For these reasons, consulting contracts require special management attention to ensure that consultants are not performing functions that should be performed by FDIC management; do not result in conflict of interest situations; and are adequately justified, planned, and managed so that the FDIC benefits from the consulting work. We performed this evaluation as part of our continuing effort to provide oversight in areas that present risk to the FDIC.

Objective

Our overall objective was to evaluate the use of, and benefits derived from, consulting services at the FDIC. Specifically, we determined:

• the extent to which the FDIC utilizes consulting services;
• whether consulting contracts are effectively justified, planned, and managed; and
• whether benefits were achieved from consulting services.

Evaluation Results

From January 1996 through March 2004, the FDIC awarded 213 consulting contracts valued at $123 million, which represents about 3 percent of the number of contracts awarded and about 5 percent of the value of all FDIC contracts awarded. Our review of 34 sampled contracts, valued at about $41 million, showed that contract files did not always contain evidence that contracts were properly justified, planned, and managed. FDIC contracting personnel did not always follow policies and procedures for documenting contracting activity in the contract file and for clearly defining work requirements. We determined that the FDIC received a benefit from all but two of the consulting contracts we reviewed. However, because of the lack of documentation in the contract files or because work requirements were vague, only testimonial evidence was available from the program offices for 13 of our sampled contracts to reach this conclusion.

Collectively, our findings illustrate an environment in which controls over procurement could be circumvented and the use of consultants could be abused. Our report contains two recommendations for actions to address deficiencies we noted in the administration of specific contracts, and one recommendation to generally strengthen the controls over the FDIC’s use of consultants. In addition, we have identified systemic problems with a lack of contract file documentation in this and previous reports. While additional recommendations are not warranted at this time, we are highlighting this matter for further management attention. Table 1 summarizes the results of our review.

Table 1: Summary of Findings

	Description		Number of Contracts*		Contract Amount		Amount Expended
	Contract file did not contain justification for noncompetitive award.		10		$915,199		$754,437
	The extension of the period of performance may no longer be justified.		1		$170,000		$50,656
	Contract file did not contain copies of statements of work.		7		$2,440,612		$1,575,377
	Statements of work were not always well-defined.		9		$12,725,003		$7,708,845
	Contracts where oversight management was weak or no evidence was available to indicate oversight management.		6		$2,590,390		$1,730,549
	No evidence that benefits were received.		2		$200,000		$87,085

Source: OIG Analysis.
^* Contracts may be included under more than one finding category.

BACKGROUND

Consulting contracts can be a useful and effective tool to help the FDIC accomplish its mission when expertise in a specialized area is required, but the need is not great enough to justify hiring to perform the function. For purposes of this evaluation, we focused on consulting services that provided FDIC management with information necessary to assist in decisionmaking and excluded services such as implementation of management’s decisions and training programs. We used the following definition of consulting services to evaluate the FDIC’s use of consultants:

Definition of Consulting Services Consulting services are those services designed to support or improve: organizational policy development; decision-making; management and administration; program and/or project management and administration; research and development activities; and professional advice and assistance about management. Outputs from consulting contracts may include information, advice, opinions, alternatives, analysis, evaluations, and recommendations.

Source: Adapted from Advisory and Assistance Services, A Practical Reference Guide.^{[ 1 ]}

Although consulting contracts in government are generally not large dollar procurements, they do present their own set of risks to the FDIC. For example, the Federal Acquisition Regulation (FAR)^{[ 2 ]} notes that contracts for services that require the contractor to provide advice, opinion, recommendations, ideas, reports, analyses, or other work products have the potential for influencing the authority, accountability, and responsibilities of agency officials. Therefore, consulting contracts require special management attention to ensure that they do not result in performance of inherently governmental functions by the consultant and that agency officials properly exercise their authority.^{[ 3 ]} While the FDIC is not required to follow the FAR, its provisions on consultants represent a prudent business practice for governmental entities that use consultants.

Moreover, the Government Accountability Office (GAO) identified contract and consulting service payments as one of a number of sensitive payment areas that could present scrutiny and criticism from the public and media in the event of any impropriety or conflict of interest, real or perceived, regardless of how much money is involved. For example, an agency’s control framework should adequately ensure against potential conflict of interest problems such as:

• direct or noncompetitive award by senior executives;
• ownership interest in companies that the consultant does business with, as evidenced by financial disclosure forms or other substantiated data;
• senior executive approval of contractor invoices for payment;
• repeated use of the same contractors;^{[ 4 ]} and
• contract(s) that give unfair competitive advantage over competing contractors, unless every effort is first taken to mitigate such conflict or advantage.

As with all contracting engagements, the FDIC is obligated to ensure that consultants are subject to fair and open competition and decisions to noncompetitively award consulting contracts receive appropriate justification and authorization. Further, because many consulting contracts are advisory in nature, the FDIC needs to ensure that these contracts clearly define the work requirements and measurable expectations for the contractor’s satisfactory performance.

The Federal Deposit Insurance Act empowers the FDIC to enter into contracts which would include using private sector firms to provide goods or services. This Act also provides that the FDIC may establish policies and procedures to administer the powers granted to it, including the power to enter into contracts. The authority to establish policies and procedures for the contracting program has been re-delegated by the Board of Directors to the Director, Division of Administration (DOA). The DOA’s Acquisition Services Branch (ASB) is responsible for developing contracting policies and procedures, and communicating and implementing those policies and procedures throughout the FDIC. DOA’s primary vehicle for fulfilling that responsibility is the Acquisition Policy Manual (APM). The APM establishes policies and procedures and uniform standards for contracting for goods or services at the best value for the FDIC and was revised in May 2004.

The FDIC’s contracting program employs a team approach for contract administration. The contracting officer (CO) is responsible for contract administration, which includes oversight management. Overseeing the technical performance requirements of the contract is primarily the responsibility of the oversight manager (OM) assigned by the program office. The CO and OM jointly perform contract administration.^{[ 5 ]} The contract team is empowered to make decisions within their area of responsibility, and exercise personal initiative and sound business judgment in providing goods or services at the "best value" to meet a program office's needs.

The APM does not distinguish between the policies and procedures for consulting service contracts and non-consulting service contracts. All contracts go through similar processes, but different parts of the process receive varying degrees of emphasis depending on contract complexity and price. Contracts with estimated expenditures less than $100,000 that are classified by the CO as having a non-complex nature (i.e., a single deliverable, short period of performance) follow a more simplified procurement process in which contracting procedures and documents are abbreviated. In contrast, contracts for the acquisition of complex goods or services, or goods or services with a total estimated dollar amount of $100,000 or greater, follow the FDIC’s formal procurement process, as defined in the APM. Enhanced controls are built into the formal procurement process to ensure fair competition and evaluation of offeror proposals and a higher level of oversight.

ASB has also issued interim policy guidance^{[ 6 ]} that requires written acquisition plans for all procurements $100,000 or greater. The acquisition plan: (1) identifies all technical, contracting, fiscal, and business management factors that govern the particular acquisition; (2) provides an overall strategy for accomplishing and managing an acquisition; and (3) drives the business decisions to best support fulfilling the customer’s requirement. The level of detail and formality for the acquisition plan depends on the dollar threshold and complexity of the acquisition. ASB provided a streamlined template for all procurements from $100,000 to $1,000,000, and a more detailed template for procurements greater than $1,000,000. The inset below shows acquisition plan approval levels:

	APPROVING OFFICIAL(S)		DELEGATED AUTHORITY
	Contracting Officer, ASB		$1,000,000 and less
	Assistant Director, ASB		Greater than $1,000,000 and less than $5,000,000
	Associate Director, ASB		$5,000,000 and above

Source: Interim Acquisition Policy #2004-9, dated August 31, 2004.

EVALUATION RESULTS

The Extent of Consulting Contracts Used by the FDIC

From January 1996 through March 2004, the FDIC awarded 213 consulting service contracts valued at $123 million, which represents 5 percent of the value of all FDIC contracts. Table 2 presents a summary of total contracts awarded and those that we determined were consulting contracts.

Table 2: Total Purchase Orders and Consulting Contracts

	UNIVERSE		NUMBER OF CONTRACTS		TOTAL PURCHASE ORDER BASE AMOUNT (IN MILLIONS)
	Total Purchase Orders a		7,243		$2,640
	Consulting Service Contracts b		213		$123
	Percent of Total		3%		5%

Source: OIG Analysis of the FDIC Contracting Activity.
^a Per the FDIC Purchase Order System (POS). Data represents the universe of active purchase orders (those contracts that have not been purged from the system due to inactivity for more than 2 years) from January 1, 1996 through March 22, 2004. POS is a sub-module of the FDIC’s Financial Information Management System.
^b Data also includes 13 credit card transactions totaling $40,428.

The FDIC generally used consulting service contracts for the purposes as shown in Figure 1. We determined that the FDIC used consulting services to provide special knowledge and skills that were not otherwise available within the FDIC, and provided temporary or intermittent services consistent with justified uses of consulting contracts in government. Slightly more than half of the total consulting contract dollars were used for financial advisory and asset disposition services. Examples of general advisory services included electronic banking research, diversity consulting, and a disbursement advisory contract.

[ D ]

FDIC Division/Office Use of Consulting Contracts

As Table 3 shows, of the 213 consulting service contracts identified, DRR used $44 million for financial advisory services and data analysis of financial institutions that were in danger of failing, and those that had failed and were going through the resolution process. DIRM used almost $16 million for information technology research and special studies.

Table 3: Number of Consulting Contracts and Amounts Spent by Division or Office

	FDIC DIVISION OR OFFICEa		NUMBER OF CONSULTING CONTRACTS		AMOUNTS EXPENDED THROUGH MARCH 2004
	Division of Resolutions and Receiverships (DRR)		36		$44,292,619b
	Division of Information Resources Management (DIRM)		78		$15,619,533
	Division of Administration (DOA)		42		$4,642,069
	Division of Supervision and Consumer Protection (DSC)		7		$3,155,088
	Division of Insurance and Research (DIR)		29		$2,650,615
	Division of Finance (DOF)		15		$1,017,413
	Office of Public Affairs (OPA)		1		$706,198
	Office of Diversity and Economic Opportunity (ODEO)		3		$263,646
	Office of Enterprise Risk Management (OERM)		2		$92,900
	Totalc		213		$72,440,081

Source: OIG Analysis of FDIC Contract Activity.
^a During our review, various FDIC reorganizations resulted in name changes for the program offices. This table reflects the current name, and may include contracts that were awarded by the predecessor program office.
^b Includes payments for non-consulting services, such as training and asset disposition. Contracts were not always structured to identify consulting versus non-consulting services. Therefore, the entire contract amount is presented.
^c The OIG also used consulting contracts. However, to maintain independence, we did not audit our own contracts.

Average Contract Cost

Figure 2 shows the average cost of consulting contracts by FDIC program office. As the figure indicates, consulting contract values average over $100,000, which would generally require the use of the FDIC’s formal procurement process, as required by the APM.

[ D ]

Repeated Use of Contractors

We analyzed the universe of consulting service contracts to determine the extent to which the FDIC used the same consulting contractors and to identify potential conflicts of interest in repeated use of the same contractors. We found no distinct patterns of repeated use of the same consulting contractors. The FDIC used 130 different vendors for the 213 consulting contracts in the universe. Of those 130 vendors, only 32 vendors had been used more than once.

Justification, Planning, and Management of Consulting Contracts

The official contract files did not always contain evidence that contracts were properly justified, planned, or managed for a sample of consulting contracts that we reviewed. Our sample consisted of 34 consulting contracts totaling $40,689,577, or 33 percent of the value of all identified consulting service contracts in our universe. The results of our review follow.

Adequacy of Justification for Consulting Contracts

The FDIC did not always adequately justify its use of noncompetitive procurement methods to obtain consultants. Of the 34 sampled contracts, 17 were noncompetitively awarded. Of the 17 noncompetitively awarded contracts, we found that justifications were not prepared and/or documented in the official contract file for 10 contracts, as required by the APM. Additionally, for one contract, we concluded that the continued extension of the period of performance may no longer be justified. Contracting and program officials did not always follow established policies and procedures by maintaining appropriate documentation in the file to support noncompetitive procurements. As a result, DOA has a reduced level of assurance that the consulting contracts were subject to fair and open competition and decisions to noncompetitively award contracts were appropriately justified and authorized.

During the acquisition planning process, many decisions are made that are critical to the successful outcome of the contract. The FDIC’s divisions and offices (program offices) are responsible for identifying requirements, establishing a schedule, obtaining funding, and developing an overall approach to the procurement action. In conjunction with the program office, the CO selects the most suitable contract type and the best pricing arrangements to satisfy the requirement and create the best value solution for the FDIC. Also, during acquisition planning, the program office prepares a Requirements Package and submits it to ASB for contract initiation. The CO is required to review the Requirements Package for completeness and clarity. The Requirements Package is to be retained in the official contract file by ASB and includes, among other key documents:

• a complete Procurement Requisition form with appropriate expenditure authority and budget approval, and cost estimate;
• a complete SOW, including the period of performance (with options);
• the minimum qualifications a firm must have to be considered for award;
• documentation of market research if conducted; and
• a Justification for Noncompetitive Procurement memorandum (JNCP), if applicable.

According to the APM, although it is the FDIC’s policy to procure goods or services through competition, instances arise when a noncompetitive procurement^{[ 7 ]} is justified. In these instances, and when the value of the noncompetitive procurement is greater than $5,000, the program office must provide a JNCP. Before preparing the JNCP, the program office, with the CO, should conduct market research^{[ 8 ]} in order to identify possible sources for the goods or services required. Table 4 shows APM guidance for preparing JNCPs.

Table 4: APM Guidance for the Use of JNCPs

JNCPs Are Authorized When:

The need for the goods or services is of such an unusual and compelling urgency that delay would adversely affect the Corporation. After adequate investigation, only one firm is identified that can meet the specific needs, (e.g., highly specialized services demanding the expertise of an individual or firm with unusual capabilities). There is only one firm that provides the required goods or services that meet specific FDIC requirements. An existing contractor offers the benefits of historical expertise or systems compatibility, which other contractors could not provide as cost-effectively or as timely.

JNCPs Must Include:

a description of the goods or services required to meet the FDIC’s needs (including estimated value); rationale for the use of noncompetitive procurement; demonstration that the proposed contractor meets the FDIC’s needs; any patent rights, copyrights, or other proprietary information, which may preclude a competitive procurement; results of market research; and documentation that the anticipated price to the FDIC will be fair and reasonable.

JNCP Expenditure Delegations of Authority:

Level of Authority Division Directors/ Office Directors/Inspector General Chief Operating Officer and Chief Financial Officer jointly Chairperson Board of Directors Dollar Limits $5,000 up to $50,000 Up to $250,000 Up to $250,000 Over $250,000

Source: APM.

At the time of our review, all requests for noncompetitive contracts required approval prior to soliciting the selected offeror. According to the APM, the CO would send the request to the Competition Advocate Program for review.^{[ 9 ]} The CO could reject a request for noncompetitive approval if the CO believed that a competitive procurement could be awarded within the required time frame.

In December 2004, the FDIC Board of Directors rescinded expenditure authority delegations for competitive and non-competitive contracting actions including those delegations listed in Table 4. In response, ASB issued interim policy guidance^{[ 10 ]} establishing delegations of authority for non-competitive contracting actions, as shown in Table 5.

	ASB Approving Official		Program Office Approving Official		JNCP Approval Authority
	Contracting Officer		Project Manager		Greater than $5,000		Less than $100,000
	Assistant Director		Branch Chief/Assistant Director		Greater than $100,000		Less than $1,000,000
	Associate Director		Division Director		$1,000,000 and above

Source: ASB.

An ASB representative indicated that this interim policy was intended to enhance the controls over the process for approving JNCPs by requiring thresholds for approval within ASB and the program office.

Justifications for Noncompetitive Procurements

Our review of 34 sampled contracts showed that 17 contracts were awarded using the noncompetitive procurement process. However, for 10 of the 17 noncompetitively awarded contracts, there were no required JNCPs in the official contract file, and we could not obtain copies of the JNCPs from the program office. Although the APM requires that JNCPs be approved and documented in the official contract file for all contracts over $5,000, the APM procedures were not followed in all cases. Without evidence of an approved JNCP, there is reduced assurance that the best possible sources for the services were procured at the most reasonable prices, and there is an increased risk of potential conflict of interest problems. Table 6 shows the summary of contracts without JNCPs.

Table 6: Sampled Contracts with Missing JNCPs

	CONTRACT DESCRIPTION		CONTRACT AMOUNT		AMOUNT EXPENDED
	Survey		$ 6,545		$ 6,545
	Business Continuity Services		279,950		279,950
	Facilitation Services		13,000		11,567
	Facilitation Services		13,800		8,406
	Survey		100,000		99,910
	Business Continuity Services		81,840		40,920
	IT Special Studies		100,000		35,295
	IT Special Studies		100,000		51,780
	IT Program Assessment		103,692		103,692
	IT Special Studies		116,372		116,372
	Total – 10 contracts		$915,199		$754,437

Source: OIG Analysis of Sampled Contracts.

DOA issued interim policy guidance in August 2004 that requires acquisition plans for all procurements and written acquisition plans for procurements $100,000 or greater. The acquisition plan must include, among other key documents, the approved JNCP (when applicable) and must define the basis on which the source selection will be made. As discussed earlier, the CO approves acquisition plans for procurements $1,000,000 or less.

Contract Extension May No Longer Be Justified

The FDIC’s contract for its diversity advisor was modified in March 2004, to extend the period of performance through March 2005. However, the diversity advisor has been unable to perform any coaching or mentoring services under the contract since December 2003 due to an extended illness. According to the Director of the FDIC’s diversity program, it is in the best interest of the FDIC to continue the contract with this diversity advisor. However, in the event the diversity advisor can no longer perform under the contract, then it would be appropriate to terminate the contract and reevaluate the need for another diversity advisor.

To support the FDIC’s diversity program, in May 1999, the ODEO requested the services of a diversity advisor for 6 months. Required services were broadly defined to include providing input on diversity initiatives and conducting research to provide data regarding the achievement of a diverse workforce. The contract was noncompetitively awarded and according to the JNCP, the advisor was selected based on a review of market information of leading diversity advisors.^{[ 11 ]}

Our analysis of the currently active ODEO contract showed that the diversity advisor held 3 group meetings and 48 individual meetings with a total of 18 FDIC executives from April 2002 through December 2003. However, as of October 2004, the diversity advisor had not met with any executives in 2004 and no further action has been taken or payments made on this contract.

We determined that the market for diversity consultants includes similar services available at hourly rates substantially lower than the hourly and/or daily rate charged by the FDIC’s current diversity advisor. Further, there may be merit associated with awarding a contract to a new diversity advisor, such as adding a new perspective to the FDIC’s diversity program, and providing an opportunity to achieve cost savings. However, the Director, ODEO, who is responsible for the FDIC’s diversity program, feels strongly that this advisor’s knowledge of the Corporation and the relationships that he has developed with the Corporation’s executives whom he has coached and mentored over the years, justifies the continued use of this advisor. However, the Director, ODEO, did acknowledge that if the advisor can no longer continue to provide his services to the FDIC, then continuation of the contract should be reevaluated.

Recommendation:

(1) We recommend that the Director, DOA, reevaluate the continuation of the diversity consultant contract.

Adequacy of Acquisition Planning and Management for Consulting Contracts

For 18 of the 34 sampled contracts, we verified that work requirements were clearly established and deliverables or outputs needed from the contract were sufficiently defined. Further, we saw evidence in program office files and obtained testimonial evidence from oversight managers, who have the responsibility to ensure that the contract’s technical performance requirements are met, that the FDIC received the required services on schedule at the requisite quality and price specified. We concluded that these 18 contracts were adequately planned and managed. However, for the remaining 16 contracts in our sample, the SOWs were either not prepared, were missing from the official contract file, or contained vague requirements. We also identified deficiencies in oversight management for 6 of those 16 contracts. As a result, we could not always determine whether the FDIC had clearly defined the work requirements and communicated them to the contractor, or whether the FDIC received what it needed when it was needed.

Acquisition planning and contract management is essential for ensuring that the FDIC’s needs are met in the most efficient, effective, economical, and timely manner. Effective acquisition planning and management includes ensuring that requirements are clearly defined and properly funded and that adequate competition is achieved. Further, effective acquisition planning and management ensures that the contractor delivers the required goods or performs the work according to the delivery schedule and prices stated in the contract. If the contract has not been adequately planned, it may be difficult for the oversight team to obtain good results. Because the nature of consulting contracts is generally to provide "brain power," as opposed to a more tangible output, clearly defining the work requirements becomes even more important so that the contractor’s performance can be measured.

At the FDIC, all contract actions require a clear SOW. The SOW is the portion of a contract that describes the actual work to be done by the contractor and is the key to successful oversight management. SOWs are developed by the program office during the acquisition planning phase. The APM provides the following guidelines for developing the SOW:

FDIC’s Guidelines for Developing a SOW A thorough understanding of the required goods or services and expected results is critical for a well-developed SOW. Items to be considered and conveyed through the SOW include:     a. nature of the services,     b. qualifications necessary to perform the work,     c. deliverables and the scheduled milestones for their delivery, and     d. standards by which the contractor's performance will be measured.

Source: APM.

The FDIC does not require a format for the SOW content. However, the APM states that SOWs should be comprehensive and include clearly defined work requirements that address all the elements necessary for successful performance by the contractor. We consider the SOW to be a key control over the FDIC’s procurement process. If the contract does not specify the FDIC’s needs, there is an inherent risk that those needs may not be met by the contractor.

Planning Problem Areas The following problem areas generally are the results of poor planning, inadequate contractor selection procedures, and not fully understanding and enforcing the contract terms: less competition; increased prices; use of an hourly rate when a more economical total contract price would have been appropriate; selection of the wrong method, or less economical contract type; lack of creditable contractor staff and creditable findings or statements from the contractor; lack of confidence in the contractors’ staff; contractor submissions of frequent requests for cost increases; and contractor failure to meet time frames.

Source: PCIE, Advisory and Assistance Services, A Practical Guide.

Acquisition Planning

The APM establishes policy and procedures for the FDIC’s acquisition planning process and requires documentation of this process in the contract file. We found that the APM was not always followed. DOA contracting officials stated that with the newly implemented changes to the APM, and through issuance of interim policy guidance, they see evidence of improvements in the documentation for newly awarded contracts. Nevertheless, because the official contract file lacked documentation, and/or the SOW contained vaguely described work requirements, we could not always determine the adequacy or appropriateness of the planning for these contracts. Table 7 shows the summary of contracts without documented or clearly defined SOWs.

Table 7: Sampled Contracts with Missing or Vague SOWs

	CATEGORY		CONTRACT DESCRIPTION		PURCHASE ORDER AMOUNT		AMOUNT EXPENDED
	Missing SOWs:		Facilitation Services		$ 13,000		$ 11,567
			Facilitation Services		$ 13,800		$ 8,406
			Facilitation Services		$ 81,840		$ 40,920
			Information Technology (IT) Special Studies		$ 100,000		$ 35,295
			IT Special Studies		$ 100,000		$ 51,780
			IT Special Studies		$ 116,372		$ 116,372
			Service Costing (Benchmarking)		$ 2,015,600		$ 1,311,037
			Subtotal - 7		$ 2,440,612		$ 1,575,377
	Vague SOWs:		Business Continuity Services		$ 279,950		$ 279,950
			Financial Advisory Services		$ 327,000		$ 317,144
			IT Special Studies		$ 200,000		$ 115,831
			Financial Advisory Services		$ 200,000		$ 200,000
			E-banking Advisory Services		$10,987,553		$ 6,311,733
			Diversity Consulting		$ 170,000		$ 50,656
			Diversity Consulting		$ 222,500		$ 212,990
			Diversity Consulting		$ 50,000		$ 37,154
			Survey Services		$ 288,000		$ 183,387
			Subtotal - 9		$12,725,003		$ 7,708,845
			Grand Total - 16		$15,165,615		$ 9,284,222
	Percent of Sample				37%		38%

Source: OIG Analysis of Sampled Contracts.

Of these 16 contracts, further analysis showed that modifications to increase contract price were made to 7 contracts as shown in Table 8.

Table 8: Modifications to Contracts with Missing or Vague SOWs

	CONTRACT DESCRIPTION		AMOUNT OF INCREASE		PERCENT OF ORIGINAL CONTRACT TOTAL
	Business Continuity Services		$230,000		460%
	Diversity Consulting		$137,500		162%
	Financial Advisory Services		$177,000		118%
	IT Special Studies		$ 50,000		100%
	IT Special Studies		$ 30,000		43%
	Service-Costing (Benchmarking)[ 12 ]		$982,000		95%
	Survey Services		$209,956		269%
	AVERAGE		$259,494		178%

Source: OIG Analysis of Sampled Contracts.

About $9 million, or over one-third of the expended costs of the sampled contracts, were not supported by clear SOWs. Although the APM requires the CO to review the Requirements Package for completeness or clarity, the CO reviews did not always result in clear, well-defined SOWs. As a result, the FDIC did not always communicate a thorough understanding of the required goods or services and expected results to consultants. We were unable to confirm whether the lack of clear SOWs directly contributed to the need for contract modifications. However, we verified that for the 7 contracts, modifications were made that, on average, almost doubled the original contract prices.

The OIG recently issued its report entitled, Acquisition Planning and Execution Strategy,^{[ 13 ]} in which recommendations were made to improve the acquisition planning process. These contract awards were made prior to the issuance of the revised APM as well as the subsequent interim policy guidance, and efforts are underway to improve the FDIC’s acquisition planning process. Therefore, we are making no further recommendations at this time.

Oversight Management

As discussed earlier, it is difficult for the oversight manager to obtain good results from a contract that was inadequately planned. Effective oversight management involves overseeing the technical performance requirements of the contract and is primarily the responsibility of the program office. Although it was difficult to determine the adequacy of oversight management for all 16 contracts listed in Table 7, we concluded that 6 contracts had specific deficiencies, as summarized in Table 9.

Table 9: Contracts with Specific Oversight Management Deficiencies

	CONTRACT DESCRIPTION		REASON		CONTRACT AMOUNT		AMOUNT EXPENDED
	Service Costing –(Benchmarking)		Unable to reconcile total contract amount per the FDIC’s purchase order system to task orders because of a lack of documentation.		$2,015,600		$1,311,037
	Business Continuity Services		Contract price increased and the period of performance was extended but the scope of work did not change from the original SOW.		$279,950		$279,950
	Business Continuity Services		Did not ensure all work requirements were completed and deliverables were received.		$81,840		$40,920
	IT Special Services		Unable to determine the contract requirements (no SOW), the quality of oversight management, or whether the FDIC received what it expected from the contractor.		$100,000		$51,780
	IT Special Services		Unable to determine the contract requirements (no SOW), the quality of oversight management, or whether the FDIC received what it expected from the contractor.		$100,000		$35,295
	Facilitation Services		Incorrect GSA hourly rate was authorized.		$13,000		$11,567
			Total Findings – 6 contracts		$2,590,390		$1,730,549
			Percent of Sampled Contract Dollars		6%		7%

Source: OIG Analysis of Sampled Contracts.

We discuss these six contracts more fully below.

Service Costing (Benchmarking) Contract: The service costing (benchmarking) contract is an active contrac