Government may be Awarding Too Many OTAs (Other Transaction Agreements)

The Project on Government Oversight (POGO) published a new asking whether the benefits of using "Other Transaction Agreements" (OTAs) are commensurate with the risks (see: Other Transactions: Do the Rewards Outweigh the Risks?). OTAs have been around for a long time but are being used more frequently these days to streamline the procurement process. POGO wonders whether the increased use of OTAs is putting the Government (and taxpayers) at undue risk.

The original idea behind OTAs is that nontraditional vendors might be interested in entering the Government marketplace with a streamlined procurement process. OTAs are not subject to FAR or DFARS, or CAS, or really, any type of Government oversight. Nontraditional contractors that were unable or unwilling to gear up to understand, implement, and comply with procurement regulations and open themselves up to Government oversight, would be willing to come to the table and bring with them innovative solutions that traditional contractors were not offering. The reality, however is that these speedy buying procedures are being leveraged by large traditional contractors that are looking to boost their bottom line by avoiding normal contract administration, oversight, and accountability protections.

The POGO report cites a number of flaws inherent in the OTA process. First, the Government is at a disadvantage with determining price reasonableness. There is no requirement to furnish cost or pricing data which means that in order to determine price reasonableness, the contracting officer must rely totally on outside sources. Second, because OTAs are not subject to FAR (and related regulations), the Government (and public) lose a degree of transparency in the process. The Government must take the word of contractors as to the propriety of claimed costs - there are no audit clauses in OTAs.

POGO argues that OTAs are not serving the stated intent of luring non-traditional contractors to the Federal marketplace. It nots that 72 percent of research OTA funding and 97 percent of prototype OTA funding went to traditional DoD contractors while a DoD IG (Inspector General) report concluded that OTAs have not attracted a significant number of  nontraditional defense contractors to do business with the Government.

POGO includes some recommendations that include scaling back the use of OTAs to truly nontraditional contractors (as initially envisioned), adding a layer of oversight to ensure taxpayers are protected and renegotiate some OTA as FAR contracts.

The full report can be found here.

More Recommendations for Contract Reform

Yesterday we alerted you to a recently published report from POGO (Project on Government Oversight) entitled "Baker's Dozen: 13 Policy Areas that Require Congressional Action". One of the 13 areas involve contract reform. Within the area of contract reform, POGO made six recommendations, one of which we discussed yesterday; the idea of creating a Federal Contract Audit Agency to replace the myriad of organizations - both public and private - now tasked with contract audit oversight.

Today we will briefly describe the other five recommendations that fall under POGO's contract reform initiative. Recommendation No. 3 below seems to run counter to current trends in Government contracting where the Government is pushing commercial item acquisition to the extent that justification is often required when an acquisition is not a commercial item.

1. Need for more information on service contracts. Congress should commission a study of the federal government's use of service contracts and the performance results achieved through them. Service contracting information must be used to inform budgeting and manpower decisions as well as mission and readiness capabilities.

2. Limit the definition of non-traditional contractors. Congress needs to restore the original intent of bringing innovation to the public from non-traditional government contractors, rather than throwing billions of dollars with no oversight controls to the government's top vendors. The definition of non-traditional contractors should be revised and the rules should be changed to prohibit any contractor who has accepted a FAR contract from being eligible to receive on OTA (Other Transaction Agreement).

3. Limit when agencies can use the "commercial item" acquisition process. Congress should redefine a "commercial item" to mean goods or services that are actually sold to the general public in like quantities. Congress should also require manufacturers to share certified cost or pricing data with the government when the government is acquiring commercial goods or services on a sole-source basis, even if the awarded contract contains no flexible pricing provisions. Without such data, there is no assurance that prices are fair and reasonable.

4. Require better preparation for responding to the new normal in disasters. Congress needs to oversee improved inter-agency coordination and more realistic budgeting that allows for expanded pre-established supply stockpiles and properly vetted contracts for rapid effective disaster response. Congress should also strengthen the federal suspension and debarment system so taxpayer money is not wasted on awards to poorly performing or corrupt vendors. Finally, Congress must engage in ongoing oversight of disaster-related spending to ensure timely and effective spending and to safeguard the money from fraud and improper diversion.

5. Improve federal spending data on USASpending.gov. Congress should work with the Department of the Treasury and the Office of Management and Budget to ensure the agencies have the authority , resources, and guidance necessary to improve USASpending. Congress should also closely review the data quality and level of detail for awards reported into USASpending and demand that agencies meet higher standards for critical information around data points such as award descriptions, place of performance, and sub-recipient awards.

What We Need is a Federal Contract Audit Agency

The Project on Government Oversight (POGO) is a nonpartisan independent watchdog that investigates and exposes waste, corruption, abuse of power and when the government fails to serve the public or silences those who report wrongdoing. Since its founding in 1981, it has investigated a number of high profile cases of fraud, waste, and abuse within the Government and has consistently been a strong supporter of DCAA (Defense Contract Audit Agency) activities.

In addition to highlighting problems, POGO desires to be part of the solution by making recommendations to Congress and the Executive Branch to address harms exposed by its findings. Last month, POGO published the "Baker's Dozen: 13 Policy Areas that Require Congressional Action". The seventh of the thirteen recommendations is entitled: Commonsense Contract Reforms to Protect the Taxpayer. Withing this recommendation, there are six sub-recommendations regarding the need for contract reform. We will look at a few of these recommendations beginning today with a recommendation to establish a federal contract audit agency to conduct all contract audits.

The idea of establishing a federal contract audit agency is nothing new. We recall the recommendation being bandied about in the early 80's. DCAA was never officially in favor of it (wink wink) because DoD was opposed to it. In reality, there were many within the DCAA hierarchy that believed it was a good idea, not only for the empire building opportunities such an agency provided, but for consistency in auditing contracts across the full spectrum of Government purchases.

POGO has now resurrected the idea of a Federal Contract Audit Agency. In its report, POGO states:

Audits are among the most useful tools we have to check on federal contracts and ensure the money was spent wisely. But currently, contract audits are performed by numerous federal offices, including DoD's Defense Contract Audit Agency, small auditing offices in other agencies, contracted auditors, and various inspectors general. This sprawling fragmented system means missed opportunities, patchwork coverage, and limited effectiveness. A single consolidated federal contract audit agency could save more than it would cost to run by uncovering waste and fraud across the federal government.

Its recommendation to resolve this fragmentation issue and streamline the audit process is obvious:

Congress should establish a consolidated agency to provide all federal agencies with a needed check on contractors, ensuring by pre- and post-award audits that the government is not being overcharged for goods and services. Such an office would be more effective than provisions passed in the FY 2017 National Defense Authorization Act that allow defense contractors to choose their own private auditors. Those provisions should be repealed to maintain government oversight of federal defense contracts.

The reference to the FY 2017 NDAA includes a provision that DoD contract out a minimum of 20 percent of the incurred cost audit workload to private CPA firms.

See Baker's Dozen for the full report.