Thank you for the opportunity to respond to your draft audit report entitled FDIC ‘s Consolidated Facilities Management Approach. We appreciate the OIG for its acknowledgement that the Consolidated Facilities Management (CFM) contract structure and the FDIC’s management of the contract were generally adequate to ensure the efficient operation of the FDIC’s Washington, D.C., area facilities.

Although the OIG identified efficiencies in the facilities operations, the report did include seven recommendations. Six recommendations pertained to the Division of Administration (DOA) while the one remaining recommendation was made to the Division of Finance (DOF) on the appropriateness of costs that were expensed rather than being capitalized.

We have carefully reviewed the OIG’s report, considered each of your recommendations, and have provided a detailed “Management Response” that includes planned corrective actions and expected completion dates as appropriate. Also, we have included a section that provides clarification to some of the report’s findings. We believe these comments are necessary to provide a more balanced perspective. Our full response is provided below.

MANAGEMENT DECISION

Recommendation #1. That the Director, DOA, amend the APM to provide guidance on contract bundling in accordance with statutory and regulatory requirements, including:

• Performing market research in support of contract bundling decisions.
• Maximizing participation of small business concerns in bundled contracts to include identifying impediments to, and alternative strategies for, small business participation.
• Assessing whether proposed contract bundling will result in measurably substantial benefits to the FDIC and is necessary and justified.
• Providing SBA the opportunity to review proposed contract bundling.

Management Response. DOA concurs with the recommendation. The DOA Acquisition Services Branch (ASB) will amend the APM to include language on contract bundling using the FAR implementation as a guideline. ASB will issue Interim Policy Guidance by May 15, 2006.

Recommendation #2. That the Director, DOA, amend the APM to require monitoring and periodic assessments of whether intended benefits and small business participation are being achieved in bundled contracts for use in procurement decisions.

Management Response. DOA agrees with the intent of the recommendation, but does not concur with the specific recommendation to amend the APM. It is the on-going responsibility of each program office to assess the progress and performance of various projects and make determinations as to whether those projects are achieving their intended objectives. We do not believe this issue is appropriate for inclusion in acquisition policy.

Recommendation #3. That the Director, DOA, prior to the next contract option period, perform an assessment to determine if the CFM contract is achieving intended benefits, including small business participation.

Management Response. DOA concurs with this recommendation. The DOA Corporate Services Branch will assess whether the CFM contract is achieving intended benefits against established benchmarks and will review the level of small business participation with the Acquisition Services Branch. However, this review will not be completed prior to the exercise of the next option due to time constraints. CSB expects to complete this review by June 30, 2006.

Recommendation #4. That the Director, DOF, identify and capitalize all the costs for the column collar installation project.

Management Response. The Division of Finance (DOF) agrees with the recommendation that all of the costs associated with the F Street Column Project should be capitalized. An asset for the F Street Column Project was established in the Asset Management module in September 2005. The total cost associated with the F Street Column Project at that time was $843,438.00. Based on a subsequent review of the invoices associated with the project by the DOA and DOF it was determined that an additional $1,322,873.00 in costs should also be capitalized. The review of invoices determined that the costs associated with the project which were not capitalized were coded to the Miscellaneous Operating Expense account when the invoices were submitted to DOF for payment. On March 15th an adjusting entry was recorded by DOF which increased the amount of the F Street Column capitalized asset by $1,322,873.00.

DOF does not feel that the costs of the F Street Column Project which were not capitalized should be reported as “Funds Put To Better Use”. The costs to be capitalized do not constitute a reduction in outlays, unnecessary expenditures or any other specifically identified savings to the Corporation, in relation to the project. Furthermore, the designation of “funds put to better use,” as applied, does not fall within one of the six actions identified in the Inspector General Act. ^{[ 1 ]}

Recommendation #5. That the Director, DOA, amend the APM to establish requirements associated with documented market research and justification of noncompetitive procurements for large-dollar-value work orders on existing contracts.

Management Response. DOA agrees with the intent of the recommendation, but does not concur with the specific recommendation to amend the APM. The APM currently contains language in Chapter 2, Paragraphs 2.J.1 and 2.J.2 that require market research and justifications of noncompetitive procurements when the value of the procurement is greater than $100,000. This language would apply to any work outside of the scope of the original contract.

The large dollar work order reviewed under this audit was determined to be within the scope of the contract by the contracting officer. Since the contract made provisions for work orders to be written against the contract, the contracting officer determined that writing the work order was within the original scope of the contract and did not require a justification. This decision was consistent with the contract and with acquisition guidance, and was within the scope of the contracting officer’s authority.

Recommendation #6. That the Director, DOA, amend the APM to provide guidance on structuring incentive fee provisions, including clearly establishing the performance standard and service that are considered above and below standard.

Management Response. DOA agrees with the intent of the recommendation, but does not concur with the specific recommendation to amend the APM. Incentive structures for specific requirements are highly unique and based upon project needs. Prescriptive policies as to how to structure incentives would not be appropriate. Since the award of the CFM contract, DOA/ASB has addressed the need for increased understanding of performance based contracts by providing training to the contract specialists on performance based contracting, incentives and performance management. For example, in 2004, a class was presented on-site for ASB contract specialists. In order to improve contract specialist and project manager access to available information on this topic, we will modify the DOA website for “Procuring Goods and Services” to establish links to guidance and best practice information from sources such as the Office of Federal Procurement Policy. These links were added to the website on March 16, 2006.

Recommendation #7. That the Director, DOA, seek modification of the incentive fee provisions in the CFM contract to provide specific performance targets that must be exceeded to earn incentive fees.

Management Response. DOA does not concur with this recommendation. The next option must be exercised on April 1. Although it might be possible to improve the incentive structure of the current contract, DOA does not believe the current structure harms the FDIC. An attempt to renegotiate the incentive provisions while attempting to exercise the next option would not be appropriate and could result in a break in service of the current contract. Based on current utilization rates, the contract ceiling is estimated to be reached by the first quarter of 2007 and market research for a new contract will be initiated in the near future. DOA will consider the input of this OIG report as we formulate the acquisition strategy for the follow-on contract.

If you have any questions regarding the response, our point of contact for this matter is Andrew Nickle, Audit Liaison for the Division of Administration. Mr. Nickle can be reached at (703) 562-2126.