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IG: Managers at GSA greased contracts for favored vendors

Jun. 10, 2013 - 11:49AM   |  
By JIM McELHATTON   |   Comments
General Services Administration
'Contracting officers need an environment in which they are free to make judgments, conclusions and findings without undue influence,' said General Services Administration Inspector General Brian Miller. (Staff)

Two years ago, Virginia-based information technology contractor Carahsoft Technology Corp. was in a heated negotiation over the renewal of one of the General Services Administration’s largest IT contracts.

The GSA contracting officer negotiating the deal told supervisors in an April 2011 email that “Carahsoft wants us to make allowances for them.” Later, the unidentified contracting officer added: “When I don’t make allowances ... they come to you. ... and it’s become a pattern ... and it’s causing my authority as CO to be circumvented.”

Replied one GSA supervisor: “You need to take into consideration that Carasoft [sic] is not the average offer in-house. There is considerable industry influence when it comes to them.”

A division director made clear to the contracting officer what to do once the company made its offer: “Whether it is the response you are requesting or not, under no circumstances will the offer be rejected at this time,” the director wrote. Weeks later, the director transferred the contract to another contracting officer.

By December 2011, GSA accepted Carahsoft’s offer to extend the contract, which generated more than $400 million in sales that year. The company provides IT consulting and resells technology equipment and services.

A GSA Office of Inspector General audit last week found GSA managers overruled their own contracting officers on the Carahsoft contract as well as on two other large IT contracts with Deloitte and Oracle, which totaled a combined $900 million worth of business in 2011. Deloitte and Carahsoft continue to do business with the agency.

After GSA managers intervened in contracting officer decisions, the result was higher-than-appropriate prices for federal customers and a demoralized acquisition staff for GSA, according to the IG report.

The report doesn’t state an overall cost to the government, but it found contractors benefited in multiple ways.

The names of the GSA officials and lawmaker aren’t disclosed in the IG audit. Carahsoft officials did not respond to emails or phone calls. In written responses, GSA officials note that they’re already taking actions to fix problems that occurred under previous management.

The Carahsoft negotiations ended in a “lengthy extension of a contract with inflated pricing,” the IG found.

For the Deloitte contract, labor rates increased after GSA management transferred contract negotiations to a new contracting officer.

And for the Oracle contract, GSA contracting staff told the IG that a six-month extension wasn’t in the government’s best interests, but a division director insisted the contract be extended anyway. The decision to extend came after the contracting officer had expressed concern to the company that many of its contract labor categories appeared to be outside of the scope of the schedule and its labor rates were “extremely high,” the IG found.

IG Brian Miller said the audit findings reflect broader concerns about the overall integrity of the federal acquisition system, which gives contracting officers the power to negotiate to get the best possible deal for the government.

“Contracting officers need an environment in which they are free to make judgments, conclusions and findings without undue influence,” he said. “Independence of contracting officers is crucial to the integrity of the procurement process.”

The IG learned about the problem from frustrated contracting staff: “The pressure is coming from my boss who has told me he doesn’t want Carahsoft to call their congressman,” a contracting officer complained to the IG in a March 2011 email.

“They have already called their congressman before so ... my division director said if we don’t work with them (which means bend the rules that we have in place and make other vendors follow) that they will call the congressman, and he doesn’t want that. I just feel stuck between a rock and a hard place.”

The IG audit prompted a sharp response from Sen. Claire McCaskill, chairman of the Homeland Security and Governmental Affairs subcommittee on financial and contracting oversight, who called the findings “shocking.”

“The General Services Administration must ensure that anyone found to have aided in these abuses is held fully accountable,” she said in a statement.

Tom Sharpe, commissioner of GSA’s Federal Acquisition Service, told Miller in a letter after reviewing a draft of the report that one unnamed official had been placed on administrative leave pending a further review. He said he’s ordered a management review to see if contracts should be renegotiated or canceled.

The audit didn’t suggest any kickbacks, bribes or criminal activity, but it did reveal a level of coziness between senior management and big contractors that seemed to leave contracting officers under fire from supervisors for seeking a good price for the government.

A GSA spokeswoman, Mafara Hobson, said in a statement that “the OIG report raises serious concerns stemming from the management of three large contracts in 2011. Under GSA’s new leadership, the agency has already taken action to address the OIG’s recommendations and will continue working to ensure the integrity of the procurement process.”

Hobson was referring to the new management team of acting GSA Administrator Dan Tangherlini, who assumed control of the agency last year.

Steven Maser, professor of public management and public policy at Willamette University, said the report could damage GSA’s reputation among agency customers. “It’s a perception issue,” he said.

In the absence of evidence of fraud or insider dealing, the report also raises the question of why supervisors would act so quickly to back contractors, he said.

“It raises the suspicion that maybe they’re making decisions while working for the government favorable to business in anticipation of working for business,” Maser said. “If they weren’t well-intentioned, you wouldn’t know that for months or years later if they took a job in business.”

The IG audit showed in detail how GSA managers acted to undermine their own contracting officers as they were negotiating with Carahsoft. After the GSA director transferred the contract negotiations to another contracting officer, the new contracting officer encountered the same problems, sending an email to supervisors complaining that the company’s “demands for special treatment” bordered on unethical, according to the IG report.

Days after GSA accepted Carahsoft’s offer in December 2011, the new contracting officer sent an email asking the company to send a note to GSA management to let officials know that Carahsoft was pleased with the officer’s work.

“I would be glad to,” the Carahsoft official replied.

Bill Allison, editorial director of the Sunlight Foundation, which monitors transparency in government, said it’s not surprising that a big contractor upset with a contracting officer’s actions would call upon high-ranking agency officials and even Congress for help.

“This shows members of Congress do get involved in contracting issues,” Allison said. “We’re so concerned about earmarking, but congressional influence can extend beyond that.”

Indeed, not surprisingly, all three contractors highlighted in the IG report — Carahsoft, Deloitte and Oracle — employ Capitol Hill lobbyists. Deloitte alone spent nearly $3 million on in-house lobbyists, plus hundreds of thousands more for outside firms.

Lobbying disclosure forms filed by Oracle show its lobbyists contacted GSA on IT procurement issues during 2011, but the company declined to comment on whether that related to the IT contract highlighted in the IG report. An Oracle spokeswoman declined to comment on the report.

Similar to the trail of emails on the Carahsoft contract, the IG report uncovered the same pattern of supervisors interfering in IT contractswith Deloitte and Oracle.

On June 29, 2011, for instance, a contracting officer sent a letter to Oracle saying the company’s contract wouldn’t be extended and that its labor rates were “extremely high.”

Less than two months later, an official in Oracle’s government affairs office sent an email to an associate administrator at GSA complaining that the company was “having a miserable time” with the GSA contracting officer.

“How would we go about getting a new one?” the Oracle official asked.

Indeed, the contract was later reassigned to another contracting officer. Managers could provide no justification for doing so, according to the IG.

What’s more, the IG found that a statement of determinations and findings by GSA to justify the agency’s Oracle contract extension failed to address a host of issues with the contractor, including its settlement of a False Claims Act case for $199.5 million. Oracle declined to comment.

Likewise, Deloitte officials weren’t happy with initial negotiations with GSA on the company’s offer of a new contract in September 2011, the IG found. They later met with FAS management and the contract was reassigned to a new contracting office.

Deloitte issued a statement saying the company is studying the report.

“We believe our negotiations with GSA were at all times appropriate and conducted in good faith,” the company said in a statement emailed to Federal Times.

Months after the Deloitte contract was reassigned, a contracting officer asked about the move in an email to a supervisor.

“Is this another Carahsoft?”

“Yes,” the supervisor replied. “There are issues and it needed to be assigned to someone else.”

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