Audit Reports

BACKGROUND:

Performance-based contracting emphasizes that all aspects of an acquisition be structured around the purpose of the work to be performed as opposed to how the work is performed. It is designed to ensure that contractors are free to determine how to meet performance objectives, that appropriate performance quality levels are achieved, and that payment is made only for services that meet these levels. Performance-based contracts contain four attributes: a statement of objectives that describes the desired outcome, measurable performance metrics, a quality assurance plan to monitor the contractor’s performance, and incentives to encourage better performance. Our objective was to assess U.S. Postal Service controls for overseeing performance-based contracts.

WHAT THE OIG FOUND:

Postal Service contracting officials did not have adequate controls to oversee performance-based contracts. Specifically, they did not track these contracts and did not always take advantage of contracts benefits. Although officials did not track performance-based contracts, we identified six contracts with incentives valued at $602 million. We also identified two additional contracts that could have been awarded as performance-based but were not. These additional contracts contained all attributes except a statement of objectives.

Officials did not see a business need to track performance-based contracts, could not explain why they were not used, and indicated there was a lack of training and clear guidance on the use of these contracts. By not tracking and promoting the use of performance-based contracts, the Postal Service could miss opportunities to increase revenue and efficiencies. Lastly, we identified six improperly coded contracts valued at $120 million and one with about $18 million in improperly certified payments. Inaccurate data and inadequate contract oversight increases financial risk to the Postal Service. Management corrected the six incorrectly coded contracts to reflect the correct contract type and enforced internal controls for certifying invoices on the other contract.

WHAT THE OIG RECOMMENDED:

We recommended management develop a process to identify performance-based contracts, provide guidance and training on the use of these contracts, correct miscoded contracts, and enforce controls for certifying invoices.