The PRIME contract will be used to design and develop an information system that allows the Internal Revenue Service (IRS) to effectively and efficiently process tax information, provide customer service, and maintain accurate financial records. The PRIME contract is an Indefinite Delivery Indefinite Quantity contract under which cost reimbursable, fixed price, time and materials, and performance-based task orders may be issued. As requirements are determined, a task order is issued to the contractor to perform the work. Once the work is completed, the user function inspects and either accepts or rejects the goods or services. The overall objective of this review was to determine if the IRS received goods and services as stipulated in the PRIME contract and at the proper price.

We determined from the task orders reviewed that the IRS is properly accepting goods and services from the PRIME contractor and that the Contracting Officer’s Technical Representatives (COTR) were questioning costs invoiced by the PRIME contractor. Although the IRS is receiving and accepting goods and services at the appropriate price, we identified that undefinitized task orders are being issued and program oversight is lacking.

We determined that 25 of the 29 task orders reviewed, totaling $62 million in obligations, had been issued undefinitized. Task orders had not been definitized because requirements were vague, incomplete, or constantly changing, and the rates for consultants, sub-contractors, and profit percentages had not been agreed upon.

Undefinitized task orders provide the Contracting Officer (CO) the flexibility to issue task orders quickly so that work may begin. An undefinitized task order allows the contractor to be reimbursed for allowable costs up to a limitation amount stated in the task order. However, the government’s negotiating position is diminished as work is completed under an undefinitized task order since the contractor must be reimbursed for allowable costs incurred. Therefore, the contractor has little incentive to quickly negotiate the terms and conditions.

The PRIME contract is expected to span several years and is in the preliminary phases. Procurement management has asserted that the practice of issuing undefinitized orders will cease as the contract progresses. Since the PRIME contract is expected to span several years and is in the preliminary phases, we plan to assess the reasonableness of using undefinitized orders and associated risks in a subsequent audit.

A stable program management organizational structure has not been established to oversee the systems modernization effort, and this has impacted the administration of the PRIME contract. The Treasury Inspector General for Tax Administration issued a report to the IRS addressing the need to implement a program management organizational structure to oversee system modernization. We believe the establishment of this organizational structure will provide better oversight to the modernization efforts, as well as assist in the administration of the PRIME contract. However, additional steps are needed after the structure has been established to facilitate administration of the PRIME contract.

We determined the acceptance criteria developed in the task orders we reviewed were not specific enough to effectively evaluate the goods received. Without specific acceptance criteria, the government’s ability to accept work products that meet program needs is limited. We also determined that the Procurement function is providing input to the program management plan and the CO is helping maintain the budget for the PRIME program. We believe that the CO has other contracting responsibilities and should not be resolving budget issues. These duties are better suited for personnel in the program management office.

Procurement management should work with the program office and the contractor to definitize the current task orders as quickly as possible and seek to issue definitized task orders as the contract progresses. Once a program management office has been established, Procurement management should assist the program office in ensuring acceptance criteria are descriptive enough to effectively evaluate the work products received and relinquish the duties of managing the budget for the PRIME program.

Management’s Response: The IRS has made significant progress in the area of program management for Business Systems Modernization. The IRS has developed performance-based templates to improve the specificity of requirements, negotiated rates with the contractor, and elevated the priority of task order definitization. The performance-based templates should ensure that acceptance criteria are descriptive. IRS management agrees that it is not a CO’s responsibility to manage the budget. However, they believe that the CO has not been managing the budget but rather monitoring the available funding and recommending the reallocation of funds to cover shortfalls. Management stated that the Business Systems Modernization Office (BSMO) budget staff is responsible for managing the budget and relies on the support of the CO.

Office of Audit Comment: At the inception of our review, the BSMO had not been established and the CO stated that he was managing the budget. We believe that, with the establishment of the BSMO, the appropriate personnel will now be overseeing the budget process.