Department Of Defense Audit Report - Laboratory Support Services for Environmental Testing - Part III - Management Comments

Deputy Under Secretary of Defense (Environmental Security) Comments

January 21, 1997

OFFICE OF THE UNDER SECRETARY OF DEFENSE

SUBJECT:
Draft Audit Report on Laboratory Support Services for Environmental Testing Project No. 5CK-0053

This memorandum responds to the subject Draft Audit, dated October 18,1996. The audit concludes that the DoD organizations reviewed were not efficient nor effective in procuring and administering environmental testing contracts. Additionally, the draft report states that the inefficient and ineffective procedures resulted in widely ranging prices, high administrative costs, and unreliable test results. The draft report recommends that DoD establish an integrated process action team to centralize procurement, develop standardized quality assurance procedures; establish adequate procedures to administer contractor performance; and establish procedures to ensure inclusion of adequate government remedy clauses in environmental testing contracts.

The audit report states that the main reason for the problems was that the Department used decentralized procurement procedures. While the data indicate that some installations did pay widely ranging costs for the same tests, the data do not indicate that decentralized procurement is the reason for the cost differences. Additionally, the data do not document that there are not valid reasons for some of the cost differences. Without more detail concerning such issues as the type and purpose of testing, state and local regulations, the presence or absence of specific contaminants, sample quantities, and the response time for each test, the data as presented do not support the conclusion that contracts were inefficient and ineffective.

The audit does raise issues about quality assurance procedures, contract administration, and adequate government remedy clauses that warrant further DoD attention. However, I do not agree with the recommendation to form an integrated process action team to address these issues. The Navy currently chairs a DoD Environmental Laboratory and Testing Work Group under the auspices of the Defense Environmental Security Council. Adding representatives from the Director of Defense Procurement and the Office of the Under Secretary of Defense (Acquisition Reform) to this working group, as required, should fulfill the requirement to address the quality assurance and performance issues. I will task that working group to respond to these issues, and will provide your office with a copy of that tasking.

Specific comments on the audit recommendations, the material control weaknesses, and the data presented in the draft report are attached. Mr. Charlie Wood (6974015) is the point of contact for this audit.

Gary D. Vest
Principal Assistant Deputy Under Secretary of Defense (Environmental Security)

Comments on Draft Audit Report on Laboratory Support Services Recommendations

IG Recommendation: That the Deputy Under Secretary of Defense (Environmental Security) establish an integrated process action team to include the Services, the Defense Logistics Agency, and obtain assistance from the Office of the Deputy Under Secretary of Defense (Acquisition Reform) and the Director of Defense Procurement, as needed, to consolidate the requirements and centralize the procurement of environmental tests during FY 1997.

DUSD(ES) Response: Non concur. The data do not support centralization as a solution to the problem. Centralization is the antithesis of procurement reform and empowerment of contracting and technical personnel. This office established a DoD Laboratory and Testing Work Group in September 1996, chaired by the Navy. The purpose of this group is to review laboratory issues, develop coordinated positions, and make recommendations on actions through the Compliance Committee of the Defense Environmental Security Council. That group, with necessary support from Procurement and Acquisition Reform representatives, is the correct group to address the issues of compliance with contract administration requirements, guidance regarding DoD quality assurance methodologies, and use of appropriate government remedy clauses.

Recommendation a. Develop standardized statements of work and description of services for environmental testing to be used in all environmental testing contracts. They should include a well written description of the work to be performed under the contract, sampling procedures, proper analysis procedures, and reporting requirements.

DUSD(ES) Response: Non concur. There are accepted procedures for performing the EPA required tests. While a suggested format could be helpful, the details would need to be customized to the task at hand. Requirements such as the type, scope and purpose of sampling and testing, state and local regulations, sensitivity of each sample, response time, shipping & handling instructions and costs, the numerous test matrices required, and the number and complexity of contaminants present in each sample must be factored into each test, and the cost for each test could vary accordingly.

Recommendation b. Establish standardized DoD procedures to ensure that Environmental Protection Agency approved quality assurance methods are used to adequately determine the quality of environmental test results received from commercial laboratories.

DUSD(ES) Response. Non concur. The development of standardized quality assurance procedures for all DoD contracts is contrary to acquisition reform and would not be cost effective. The scope and purpose of sampling and testing can vary markedly; the quality assurance procedures required will also vary accordingly. DoD is examining the need for additional guidance on the appropriate use of various EPA quality assurance guidelines through the DoD Environmental Laboratory Working Group previously mentioned.

Recommendation c. Establish adequate procedures to administer environmental testing contracts.

DUSD(ES) Response. Partially concur- Each organization should have procedures to ensure that purchase thresholds are not exceeded, that orders are not split to avoid such thresholds, and that only authorized personnel place orders under the authority of any such contracting mechanism. The Lab Working Group will address the contract administrative procedures as part of their review.

Recommendation d. Establish procedures to ensure that adequate Government remedy clauses are included in environmental testing contracts as a means of holding the contractor accountable for inadequate contractor performance.

DUSD(ES) Response. Partially concur. The Lab Working Group will address the need for the Components to make sure that their installations make full use of the existing remedy clauses.

Comments on the Material Control Weaknesses

The recommendations to correct the material control weaknesses are the same as the recommendations for the entire audit, e.g.

"Establish an integrated process action team to consolidate requirements and centralize the procurement of environmental tests; develop standardized quality assurance procedures; establish adequate procedures to administer contractor performance; and establish procedures to ensure inclusion of adequate Government remedy clauses in environmental testing contracts."

The response is also the same. The Lab Working Group established under the auspices of the Defense Environmental Security Council will address the management control weaknesses. However, centralized procurement is not the method to solve the problem. The report is critical (pages 10-l 1) of the environmental organizations for not making use of the government purchase card for contracts costing less than $2,500. That appears to be in direct opposition to the recommendation to centralize and consolidate contracts for environmental testing. The individual contracting offices and technical personnel must improve the way they use existing guidance on monitoring contract administration, include quality assurance requirements in the contract, and approve invoices for payment. However, none of these problems would appear unique to the Environmental arena, but are problems that need to be addressed across the board in contract administration.

The Director of Defense Procurement and the Deputy Under Secretary of Defense for Acquisition Reform should be added to the official report distribution list.

Specific Comments on the Draft Report

Under the Audit Results section of the Executive Summary, the report states that inefficient and ineffective procedures resulted in environmental test prices ranging from a difference of 123% to 762% for the same tests. The validity of the data documenting the differences is discussed later in this commentary. However, the difference in prices is incorrectly calculated. The range should be from 23% to 662%.

On page two, in the first paragraph, the report includes the value of environmental restoration contracts, $3.7 billion, in the scope of the audit- There should be a disclaimer inserted at this point to indicate that there is no data available to analyze for the cost of environmental lab testing for environmental restoration contracts. The same statement applies to the $548.9 million stated in the Indefinite-Delivery Contracts paragraph, also on page two. [Page 2]

On page 5, the statement at the head of the page is in dispute. The audit does not prove that “Organizations were not efficient and effective because contracting and environmental Personnel used decentralized procurements.. .” Additionally, the percentage of price variations is again misstated at 123% to 762%. While additional savings may be possible through better coordination of requirements and available contracts, centralization is not the cure. [Page 4]

Under the heading Decentralized Procurements on page 5, the report again contains the statement that the problems the IG discovered were caused by decentralized procurement. The audit does not prove the cause of the problems. [Page 5]

Table 2, on page 8, calculates the Percentage Difference incorrectly for all of the examples. The last sentence on page 8 also calculates the difference incorrectly, the amount should be 23%, not 123%. [Page 7]

The data on pages 7 and 8, and in appendix D, do not indicate whether or not all testing methods were performed to the same level at each lab. Even when test methods are the same, the different metals for which tests are conducted will have a bearing on the price. The data are not in dispute, however, it is not necessarily an indication of inefficiency nor ineffectiveness. [Pages 7-8]

Table 5, on page 13, shows that 7 organizations used only the quality assurance methods the EPA identified as being less effective. The data in the Table on page 21 indicates that these locations account for $3.6 million of the identified costs for lab support services. However, the first sentence on page 14 states that the cost at these locations is $12.9 million. The disconnect may include restoration contracts for which test costs were not available, but regardless of the source, the statement on page 14 is not supported in the data provided on page 2 1. Additionally, the table says less effective, the audit language says ineffective. [Page 11]

On page 15, under the heading “Indefinite Delivery Contracts and BPAs”, the report compares the Corps-South Pacific Division statements of work with those of PWC Jacksonville, preferring those at Jacksonville which were more thoroughly written. However, the Corps-SPD awarded 28 contracts at a total cost of $0.5 million. Jacksonville awarded 3 contracts at a cost of $1.2 million. Based upon the size of the contracts, the Corps-SPD may have had sufficient documentation to support a limited test as opposed to the Jacksonville scope of work. [Page 15]

On page 16, under the heading “Government Remedies,” the report notes that one of the Jacksonville labs provided an invalid test. Jacksonville used two of the more effective quality assurance protocols, had the more detailed specifications, and still got bad results from the lab. Without knowing the volume of data tested, the timing and response times for each test, and the presence or absence of specific contaminants, it is impossible to fully support the conclusions in the audit with respect to the cost effectiveness of any one of the contracts. [Page 13]

Based on the data on pages 13 and 21, please note that although only 7 of the 18 locations used the most effective quality assurance methods, that those most effective quality assurance methods were in effect for over 85% of the identified dollar value of the contracts reviewed by the audit team. [Pages 11 and 19]

Audit Team Members

This report was prepared by the Contract Management Directorate, Office of the Assistant Inspector General for Auditing, DoD.

• Paul J. Granetto
• Joseph P. Doyle
• John Yonaitis
• Ellen P. Neff
• Towanda L. Stewart
• Charles R. Johnson
• Brenda J. Solbrig
• Monica Graves
• Michelle D. Yantachka

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