Report | April 7, 2021

Audit of the U.S. Army Corps of Engineers Use of Undefinitized Contract Actions for the Conversion of Alternate Care Sites in Response to the Coronavirus Disease–2019 Pandemic (DODIG-2021-074)

Audit

Publicly Released: April 9, 2021

 

Objective

The objective of this audit was to determine whether U.S Army Corps of Engineers (USACE) officials properly managed undefinitized contract actions (UCAs) for Alternative Care Sites (ACS) constructed in response to the coronavirus disease–2019 (COVID‑19) pandemic by definitizing actions within required time limits, conducting analyses of fair and reasonable price determinations, and ensuring profit was adjusted for costs incurred.

 

Background

ACS are facilities temporarily converted for healthcare use during a public health emergency. ACS are intended to reduce unnecessary burden on hospitals and other healthcare facilities, help infected patients maintain isolation, and allow patients to be monitored, minimally treated, and quickly moved to other facilities if their condition worsens.

UCAs are agreements that allow a contractor to begin work and incur costs before the Government and the contractor have reached a final agreement on contract terms, specifications, or price.

USACE contracting officers awarded 30 UCAs with a not‑to‑exceed amount of $483,881,673 to convert facilities into ACS to address the rapid rise of COVID‑19 cases in the U.S. because of concerns that hospitals would quickly become overwhelmed. In order to start ACS conversion as quickly as possible, USACE officials awarded UCAs to shorten the amount of time required to complete ACS conversion by beginning immediately and subsequently negotiating contract costs.

 

Finding

USACE contracting officers were not operating in a normal contracting environment because of the urgent nature of COVID‑19 pandemic response; therefore, USACE contracting officers exercised the flexibility permitted under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and awarded 30 UCAs funded up to 100 percent of the not‑to‑exceed amount to start the conversion of facilities to ACS as quickly as possible. USACE contracting officers shortened the amount of time required to complete ACS conversion by awarding the contract actions as UCAs because contractors could begin conversion immediately and subsequently negotiate contract costs. However, USACE contracting officers only definitized 2 UCAs, valued at $9,524,754, of the 30 total UCAs within the definitization schedules included in the contract actions. For the other 28 UCAs, with a not‑to‑exceed amount of $474,356,919 at the time of award, USACE contracting officers definitized the award from 1 to 26 days after the definitization dates they established in the contract actions. According to USACE officials, the delays in definitization were out of USACE contracting officials’ control and occurred because:

  • contractors experienced delays in obtaining supplies for 3 contract actions;
     
  • Government officials from the Federal Emergency Management Agency and officials at the state and local levels changed the requirements for 4 contract actions;
     
  • contractors encountered unexpected site conditions for 1 contract action; and
     
  • USACE officials required contractors to complete multiple revisions to proposals and conducted numerous negotiation sessions to align contractors’ proposals to Government estimates for 12 contract actions.

USACE officials did not provide a reason for, or document in the contract file, delays in definitization for the other 8 UCAs.

Additionally, USACE contracting officers determined the price was fair and reasonable for the 30 contracts awarded; however, contracting officers did not follow DoD acquisition regulations related to adjusting the potential contractor profit to reflect the definitization status of the award. For the 30 UCAs issued, USACE contracting officers only considered the ACS completion status for 2 UCAs when determining profit. USACE contracting officers did not document their reasons for not considering completion status in the contract files for the remaining 28 UCAs. The Chief of the USACE Acquisition Support Division stated that this occurred because of the urgent environment contracting officers were operating within.

As a result, USACE officials may have paid more than necessary for ACS conversion by not complying with Defense Federal Acquisition Regulation Supplement requirements. By the time USACE contracting officers definitized the contract actions, the period of performance was almost complete and contractors had most likely completed significant portions of the conversion and incurred the majority of costs. The cost risk to the Government is highest during this undefinitized period, and the cost risk increased even more because contracting officers could obligate 100 percent of the not‑to‑exceed amount at award as allowed under the flexibilities of the CARES Act. Until awards are definitized, the Government is responsible for any allowable costs the contractor incurs for the contract action up to the not‑to‑exceed price, giving the contractor little incentive to operate efficiently and greatly increasing the cost risk to the Government. According to USACE officials, USACE and its stakeholders understood that the short periods of performance would increase contractor costs; however, because of the life, health, and safety risks associated with any delays, the parties assumed some cost risks, worked to mitigate these risks during the construction phase, and considered these impacts during negotiations.

 

Recommendations

We recommend that the USACE Director of Contracting:

  • Complete an after‑action review following the completion of the COVID‑2019 mission to identify best practices and areas of improvement when issuing UCAs, including establishing attainable definitization schedules and definitizing contract actions within those schedules, in order to reduce the risk of complications occurring during future emergency situations.
     
  • Issue guidance requiring contracting officers to document the reason definitization schedules were not met in the contracting files.
     
  • Issue a memorandum directing contracting officers to differentiate the profit associated with UCAs dependent on contractors’ decreased cost risks involved in completing work in an undefinitized status and the incentive to definitize contracts based on Defense Federal Acquisition Regulation Supplement guidance.

 

Management Comments and Our Response

The USACE Director of Contracting agreed with the recommendations. The Director stated that USACE officials would prepare an after‑action review to identify best practices and areas of improvement when issuing UCAs. The Director also agreed to issue guidance requiring contracting officers to document the reason if definitization schedules are not met.

Lastly, the Director agreed to issue a memorandum alerting USACE contracting officers of the updated DD Form 1547, “Record of Weighted Guidelines,” and the need to differentiate cost-type risks associated with costs incurred up to the UCA qualifying proposal and those incurred after the qualifying proposal. Comments from the Director addressed the recommendations; therefore, the recommendations are resolved but will remain open until we verify the corrective actions have been implemented.

 

This report is the product of Proj. No. D2020-D000AV-0144.000.