Inspector General Report: Biden's SEC Missed Opportunities to Lower Contract Risk and More Effectively Manage Time-and-Materials Contracts

August 26, 2024 – Securities & Exchange Commission Office of Inspector General: SEC Missed Opportunities to Lower Contract Risk and More Effectively Manage Time-and-Materials Contracts

The SEC’s Office of Acquisitions has reported numerous efforts to improve the agency’s management of T&M contracts. However, further action is needed to reduce the SEC’s contract risks, decrease dependence on T&M contracts, and comply with applicable federal regulations and guidance. First, we reviewed invoices for a sample of T&M contracts and identified opportunities to convert portions of some contracts to lower-risk contract types. Although contracting officers converted parts of two contracts that we reviewed, the SEC missed other opportunities because it lacks a consistent approach, procedures, and an organizationwide commitment to assess available labor category data to look for such opportunities, as federal guidance and regulations encourage. Increased senior leadership attention may help identify opportunities to reduce the SEC’s use of T&M contracts and properly manage associated risks. Additionally, contracting officers responsible for selecting the appropriate contract type reported that the SEC divisions and offices that most frequently procure goods and services prefer T&M contracts and pressure contracting officers to award them. Some contracting officers attributed this to agency culture, the lower level of effort by program offices required to define requirements for a T&M contract versus a firm-fixed-price contract, and a need for further training on requirements development. Five years ago, we reported that the Office of Acquisitions had not established policies and procedures for converting T&M contracts to other pricing structures and we encouraged management to establish such policies and procedures. As of the date of this report, the SEC does not have such policies and procedures in place, contributing to the conditions we observed. Second, effective surveillance of T&M contracts is necessary to prevent the government from being overcharged, and well-documented surveillance plans provide a framework for ensuring that the government receives reasonable value for its spending. However, the surveillance plans were inadequate in half of the T&M contracts we reviewed. Office of Acquisitions officials explained that SEC contracting officers could help develop meaningful surveillance plans tailored to the nature of each contract. Contracting officers also relied on contracting officer’s representatives to conduct appropriate surveillance, even if established plans were nonspecific. Contracting officer’s representatives surveilled the contracts we reviewed, but our survey of contracting officer’s representatives found that they were generally unaware of the surveillance plans in the contract files and their responsibilities for developing and using the plans. Additionally, relevant training materials did not include any specifics on monitoring cost controls or mitigating overcharge risks or provide examples of how surveillance plans should vary based on contract value, complexity, and criticality of services. In sum, better surveillance plans and practices are necessary to improve the SEC’s stewardship, ensure that T&M contracts achieve their intended goals, and safeguard the government’s interests. Finally, third-party (i.e., contracted) contract file reviews were deficient. Six of the contracts we reviewed had been previously reviewed by the Office of Acquisitions’ contractor, yet we identified substantial obvious defects with five of them. For example, contractor personnel did not identify documents missing from the files and did not accurately report concerns identified. We estimate that, between August 2020 and August 2022, the SEC paid between $430,000 and $520,000 for file reviews that were not always effective. The SEC has since awarded a new contract for this work and, to date, has not identified similar performance issues.

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