The Treasury Information Processing Support Services (TIPSS) contract consists of contracts to support the Internal Revenue Service’s (IRS) tax system modernization efforts. While TIPSS is assisting the IRS in acquiring information technology services, there is minimum incentive for the contractor to control costs because TIPSS is a cost-plus-fixed-fee contract. Therefore, it is imperative that the contract is effectively administered to allow the Service to monitor and evaluate the contractor’s progress. During our review, we found the Service needs to improve several aspects of the management and administration of the TIPSS contract.

The overall objective of our review was to follow up on concerns previously addressed in an Internal Audit memorandum regarding whether the Service is adequately administering the contract. Additionally, we reviewed whether controls were effective to ensure services were received in accordance with contract provisions.

Sixty-two of 74 (84%) task orders reviewed were issued undefinitized. Undefinitized task orders are awarded without defining the contractor’s cost. Although each undefinitized task order identified a definitization date of approximately 60 days after award, we found the average number of days lapsed between award and definitization was 134 days. We believe a task order awarded without defining the contractor’s cost may lessen the contractor’s motivation to perform as efficiently as possible.

Improvements are needed in establishing the type of contract to use for task orders. We noted that term type task orders were issued for 48 of the 74 task orders we reviewed. On cost reimbursement contracts, either term or completion type contracts are available. The level of detail associated with the statement of work prepared by the program area is critical in deciding whether to use term or completion type contracts.

Under a completion order, the Service buys the contractor’s effort to complete a specific job and if additional hours/costs are needed, the contractor is allowed only the costs for those hours, not the additional fee. While for term type orders if additional hours are needed to complete the task, the costs for those hours plus additional fee is paid. Our analysis of the 48 term task orders indicated 12 had modifications requesting additional hours increasing the fixed fee paid by approximately $706,000.

contractors were invoicing the Service for significantly fewer hours than were originally contracted. We determined in eight of 24 completed term type task orders, the contractors invoiced the Service over 1,000 hours less than was originally contracted. In five of the eight instances, the contractors invoiced over 10,000 hours less than was actually contracted. We estimated approximately $490,000 in fixed fee associated with these excess costs because the fixed fee is based on the hours and estimated costs originally contracted.

Under a term effort, there is an opportunity to renegotiate (descope) the effort when it appears the full number of hours will not be needed. Our analysis showed improvements are needed in timely descoping the efforts to recover fixed fee. The action allows the Service to recover not only the excess monies that were obligated, but also the allowance for fee recovery.

According to the management information system developed to track payments to TIPSS contractors, approximately $3,517,000 has not been deobligated on completed task orders. Twenty-eight of 53 completed task orders had been completed for over one year and the funds still remained obligated. While we recognize that some monies must remain obligated on the task orders to facilitate final closeout negotiations, we believe additional emphasis is needed to timely deobligate excess funds. In the current budget environment, prompt deobligation of funds is needed to maximize limited resources. Also, not promptly deobligating funds can create the potential for misuse of funds.

Lead contracting Officer Technical Representatives (cOTRs) are not timely preparing evaluations on contractors’ performance. Our analysis showed 41 of 102 evaluations were not timely prepared. These evaluations are critical in ensuring the success of the contractor Performance Assessment Program (cPAP). The cPAP system establishes a direct relationship between contractor’s performance record and future business opportunities. In order to establish the performance record of contractors, the lead cOTRs, task cOTRs, and the contract Administrators must evaluate the contractors on a quarterly basis. We believe the constant turnover and inexperience of the lead cOTR may contribute to the untimely receipt of contractor evaluations.

The following summarizes the specific recommendations contained in this report:

• Undefinitized task orders should be issued only when absolutely necessary. The Program Office should support the issuance of undefinitized task orders with a statement of finding. However, in those instances where an undefinitized task order is issued, Procurement should ensure that the task is timely definitized.
• The Program Office should ensure that needs and requirements are defined as specifically as possible and move towards completion type task orders rather than term type task orders.
• Procurement should take appropriate actions to timely descope contract efforts when it appears that the full level of hours will not be needed.
• Negotiations should be conducted for the recovery of fixed fee on the eight completed task orders we identified.
• Periodic reviews should be performed to ensure that funds are timely deobligated on completed task orders.
• Management should reemphasize the importance of timely evaluating contractor performance. Periodic reviews of cPAP should be conducted to ensure timely evaluations.

The following summarizes Management’s Responses:

• All over-age undefinitized TIPSS orders were definitized by June 30, 1998, and the four remaining will be definitized within 120 days of their issuance. Additionally, an Exception Memorandum which satisfies the "statement of finding" is already required of the customer’s management through the Program Office.
• The Program Office will implement a process to help customers define their goals and anticipate new requirements that will result in specific end products.

• A management information system will be developed and implemented by TIPSS contract administration staff which will include task order burn rate information to facilitate timely descoping of unused contract effort. Additionally, a reporting modification was made to the TIPSS contracts during 1997 which will require the contractors to provide performance measurement data, including number of labor hours planned and expended, in their Task Order Status Report.

• Procurement will review the eight orders identified and will initiate negotiations to recover fixed fees as appropriate.

• The management information system to be developed will also include information on funds remaining on completed task orders to facilitate timely deobligation of unused contract funding.
• The Program Office is in the process of establishing procedures by which management officials within the customer organizations will be notified whenever a cPAP evaluation is late.