DOD’s Visibility into the Number of Contracts Eligible for Closeout Is Hindered by Inadequate Data

DOD does not have visibility into the total number of its Iraq contracts  eligible for closeout, but our analysis of available data indicates that  relatively few of these contracts will be closed within the time frames  prescribed by the FAR. C3, which awarded the majority of the Iraq  contracts, did not have sufficient internal controls to ensure its contracting  data were accurate and complete, and was further affected by limitations  of its contracting systems, turnover in contracting personnel, and other  competing demands. Based on  available data provided by C3 and the other DOD contracting  organizations we reviewed, there are at least an additional 4,298 Iraq  contracts—90 percent of which are already over age—that need to be  closed. C3’s  data on these firm-fixed price contracts indicates that C3 closed over  9,600 of its Iraq contracts awarded between fiscal years 2009 and 2010. Planning, Workforce, and Contractor Accounting Issues Hinder Efforts to Close Contracts

DOD’s ability to close the contracts it awarded to support efforts in Iraq is  hindered by several factors, including the failure to plan for or emphasize  the need to close these contracts until reconstruction efforts were well  underway, staffing shortfalls, and contractor accounting issues. Limited DCAA Staffing and Unresolved Contractor Accounting Challenges Hinder Closeout of Cost- Type Contracts

DOD’s efforts to close its large, cost-type contracts are hindered by  staffing shortages at DCAA and unresolved issues with contractors’ cost  accounting practices. For example, DOD has deobligated some funds to make  them available to meet other DOD needs, but there remains at least  $135 million that will potentially not be available for use by DOD at the  end of fiscal year 2011. Additionally, instances of improper payments  and potential fraud were sometimes found years after final deliveries were  made, but contracting personnel may not be able to recover funds owed  to the government. While C3 officials noted that some contracting officers may have tracked  unspent funds for contracts for which they were responsible, we found  that C3’s contracting data systems did not maintain such financial data. Growing Backlog of Afghanistan Contracts Suggests Problems Related to Closing Contracts Will Continue

DOD reported that actions are underway to address the lessons learned  in Iraq, including developing deployable contract management systems  and explicitly requiring that contract closeout requirements be  incorporated into contingency contracting planning documents. As part of this effort, C3 identified the  need to improve and consolidate data management, improve contract  oversight, and increase emphasis on contract administration and  closeout. To address its backlog of contracts awarded before  fiscal year 2009, C3 delegated responsibility for closing at least  22,597 Afghanistan inactive contracts to the Task Force. Conclusions

Contract closeout is a key step to ensure the government receives the  goods and services it purchases at the agreed upon price and, if done in  a timely manner, provides opportunities to utilize unspent funds for other  DOD needs. DOD’s recognition in 2008 that it needed to address the backlog of  contracts that are over age for closeout and its establishment of the Task  Force came too late in the operation to make a significant difference in  closing contracts within the required time frames. Further, the  limited visibility provided by the contracting and financial management  systems hindered DOD’s ability to identify and address improper  payments. DOD has recognized the  need to increase DCAA’s staffing and address contractor business  systems, but fully implementing these initiatives will take several years. To help improve DOD’s ability to manage the closeout of contracts  awarded in support of future contingencies, we recommend that the  Secretary of Defense, in coordination with the Chairman of the Joint  Chiefs of Staff, take the following two actions:  revise DOD’s contingency contracting doctrine and guidance to reflect  the need for advanced planning for contract closeout; and  require senior contracting officials to monitor and assess the progress  of contract closeout activities throughout the contingency operation so  steps may be taken if a backlog emerges. Appendix I: Scope and Methodology

To assess the Department of Defense’s (DOD) efforts to close its Iraq  contracts, under the authority of the Comptroller General to conduct  evaluations on his own initiative, we examined the (1) total number of its  contracts with performance in Iraq that are eligible for closeout and the  extent to which DOD closed these contracts within required time frames,  (2) factors that contributed to contracts not being closed within required  time frames, (3) steps DOD took to manage the financial risks associated  with not closing contracts within required time frames, and (4) how DOD  captured and implemented lessons learned from closing its Iraq contracts. We reviewed DOD’s current contingency contracting  doctrine and guidance, and interviewed officials from the Joint Chiefs of  Staff who are responsible for revising the doctrine and guidance.
Why GAO Did This Study

Since 2002, DOD obligated at least $166.6 billion on contracts supporting reconstruction and stabilization efforts in Iraq and Afghanistan. Many of these contingency contracts, in particular those awarded in Iraq, need to be closed. Contract closeout is a key step to ensure the government receives the goods and services it purchased at the agreed upon price and, if done timely, provides opportunities to use unspent funds for other needs and reduces exposure to other financial risks. To assess DOD's efforts to close its Iraq contracts, GAO examined the (1) number of contracts that are eligible for closeout and the extent to which they will be closed within required time frames, (2) factors contributing to contracts not being closed within required time frames, (3) steps DOD took to manage the financial risks associated with not closing contracts within required time frames, and (4) extent to which DOD captured and implemented lessons learned from closing its Iraq contracts. GAO reviewed contingency contracting guidance, analyzed contract and closeout data for contracts awarded between fiscal years 2003 and 2010, and interviewed DOD officials from six organizations responsible for awarding or closing out these contracts.

What GAO Found

DOD does not have visibility into the number of its Iraq contracts eligible for closeout, but available data indicate that DOD must still review and potentially close at least 58,000 contracts awarded between fiscal years 2003 and 2010. GAO's analysis indicates that relatively few of its contracts will be closed within required time frames. For example, about 90 percent of the limited number of contracts for which DOD could provide closeout data are already over age for closeout. The U.S. Central Command's Contracting Command (C3) and its predecessors, which awarded many of DOD's Iraq contracts, did not have sufficient internal controls to ensure that contracting data were accurate and complete. C3's management visibility was further affected by limitations of its information systems, staff turnover, and poor contract administration. DOD's ability to close its contracts has been hindered by the lack of advance planning, workforce shortfalls, and contractor accounting challenges. For example, DOD's contingency contracting doctrine and guidance do not specifically require advanced planning for contract closeouts. DOD took steps in 2008 to address its backlog of contracts needing to be closed but such actions came too late to make significant difference in closing contracts within required time frames. DOD is now transitioning responsibility for closing out C3's contracts to the Army Contracting Command. Staffing challenges, however, during this transition have hindered efforts to close these contracts. Efforts to close large, cost-type contracts have been further hindered by Defense Contract Audit Agency staffing shortages and unresolved issues with contractors' accounting practices, which have delayed audits of the contractors' incurred costs. DOD's efforts to identify unspent contract funds and improper payments--two examples of financial risks that timely closeout of contracts may help identify--are hindered by limited visibility into its Iraq contracts. DOD identified at least $135 million in unspent funds that could potentially not be available to meet other DOD needs. If not used, these funds will be returned to the U.S. Treasury at the end of fiscal year 2011. Should DOD identify a need to pay for an unanticipated cost on these contracts, it will need to use other funds that are currently available. Additionally, instances of improper payments and potential fraud were sometimes found years after final contract deliveries were made, making it harder for DOD to recover funds owed to it and increasing the risk that it may need to pay contractors interest fees on late payments. DOD has identified and addressed some of the problems related to the closeout of Iraq contracts, but the growing backlog of over 42,000 Afghanistan contracts that need to be closed suggests the underlying causes have not been resolved. DOD officials noted that the lessons learned in Iraq highlight the need to improve contract data, increase the emphasis on contract administration and closeout, and improve contingency contracting doctrine and guidance. DOD officials reported that actions are underway to correct these deficiencies in future contingencies, but fully implementing these initiatives may take several years.

What GAO Recommends

GAO is making three recommendations to ensure DOD has sufficient resources to close its Iraq and Afghanistan contracts and to better plan for and improve visibility of closeout efforts in future contingencies. DOD concurred with each of the recommendations.