On October 30, 2009 the Special Inspector General for Iraq Reconstruction (SIGIR) issued a report entitled “Iraq Security Forces Fund: Weak Contract Oversight Allowed Potential Overcharges by AECOM to Go Undetected” (SIGIR 10-005).  SIGIR’s audit of the Global Maintenance and Supply Services (GMASS) contract found weak contractor invoice review processes by the U.S. Army Contracting Command.  The GMASS contract is a cost-plus-fixed-fee (CPFF) ID/IQ contract that includes 3 Task Orders to assist the Iraqi Army in developing a self-sufficient logistics capability, and is one of the largest contracts funded by the Iraqi Security Forces Fund.  As of September 2009, more than $567 million had been paid to the GMASS prime contractor, AECOM Government Services, via payment of 139 invoices. Under the GMASS Task Orders, AECOM was responsible for establishing ten maintenance centers, developing a repair parts supply system, repairing and maintaining Iraqi military vehicles, and refurbishing 8.500 Humvees.

The SIGIR found that the U.S. Army Contracting Command’s process for reviewing AECOM’s GMASS invoices “improved over time.  However, the Contracting Office lacked sufficient experienced personnel to review invoices thoroughly ….” According to the SIGIR, only one person reviewed AECOM’s billings—which was insufficient in that one invoice contained more than 11,000 line items for parts alone.  As the review process improved, the Contracting Office denied payment in higher amounts, culminating in a disallowance of as much as 33% of AECOM’s invoices.   Regardless, the SIGIR found that even the improved review process would not have found what the SIGIR found, which included roughly $4 million in “potential overbillings” – including $2.1 million in subcontractor pass-through costs that exceeded the subcontractor’s contractual “mark-up” amounts, $332,000 in billings “above contractually agreed-upon prices,” $1.4 million in billings “above reasonable market rates,” and $177,000 in duplicate and triplicate billings. See the entire SIGIR report here.

As specific examples supporting its findings, the SIGIR reported the following—

• AECOM billed the U.S. government $25.00 for a liter of coolant that cost the contractor $2.16, and thus should have been billed at $2.64 after the allowable maximum markup.  This resulted in $1.7 million in potentially overbilled coolant costs for the four invoices.
• AECOM billed the U.S. government between $102 and $190 per tire for tires that should have been billed at $85.61 after the allowable markup.  As a result, the U.S. government was potentially overbilled $101,834 for the four invoices.
• Although the price of a package of 10 common 7/16” hardware washers was $1.22 after the allowable markup, the contractor charged $196.50 for each package, or $19,650 for 100 packages.
• AECOM billed $29.60 each for oil filters that had an agreed price of $14.80 each—100% over the allowable rate.
• AECOM billed $210.00 each for inner-tubes that SIGIR identified on the open market priced at $19.70 each.   After adding the allowable markup, AECOM billed 772% over the market rate. This amounted to about $103,000 in potential overbillings.
• SIGIR’s analysis … found over 200 instances where specific parts, ordered for a specific vehicle, were double- and triple- billed.  In one case, AECOM charged for 3 windshields, 12 headlamps, and 3 batteries for the same Nissan vehicle, on the same day.

According to SIGIR, AECOM acknowledged billing errors but stated that it had credited the U.S. Government for them.  The SIGIR was not entirely convinced by AECOM’s response, reporting—

AECOM officials indicated that billing errors occurred early in the contract and that they credited about $4 million back to the U.S. government as an adjustment. SIGIR’s analysis found that about $2.4 million of the overcharges we identified are covered by these credits. Additionally, AECOM’s invoice that included these credits also contained $5.3 million in additional charges. SIGIR’s review of these charges identified problems similar to those in our original review including about $39,000 in billings above the contractor’s cost plus allowable markup, $239,000 in billings above contractually agreed rates, and $426,000 above market rates. For example, a credit appears on AECOM’s invoice for the previously noted coolant overbilling, which the contactor billed at $25.00 per liter when it should have billed at $2.64, but then raises the cost for coolant to $58.56 per liter in an additional charge. We also identified seven part charges that appear to have been billed on a previous invoice. For example, we identified a charge for a clutch assembly with the same delivery location, delivery date, part number, part description and quantity delivered as one from April 2006. Consequently, since AECOM’s $4 million credit was combined with questionable charges from the $5.3 million, SIGIR cannot verify the U.S. government received a full credit for prior overbillings.

SIGIR concluded its report by noting that lack of a robust review process by the Contracting Office, coupled with AECOM’s problematic billings “clearly illustrate the need for a thorough review of the invoices submitted in support of the GMASS contract.”  That may be, but we have some additional questions, based on the SIGIR report.

1. What is the GMASS contract type?  Is it CPFF or ID/IQ Task Order?  Why were repair and maintenance services procured via cost-type contracts, when they would seem to be amenable to fixed-price repair orders.
2. If the contract was cost-reimbursable, why did AECOM agree to fix-price certain items at “contractually agreed-upon prices”?
3. Work orders are commonly used to manage depot repair and maintenance services.  But why was AECOM using repair work orders as support for its cost-plus invoices?
4. If AECOM’s subcontractor (Anham, LLC) was generating “over 93% of the costs billed” on AECOM’s invoices, then what value was AECOM adding?  Was there a violation of the DFARS prohibition against excessive pass-through charges?

In summary, we don’t know if AECOM has properly billed its customer or not.  We don’t know whether AECOM had already credited its customer for improper billings prior to SIGIR’s audit, or not.  But we think that the contracting process was cumbersome (at best), and the confusion quite likely led to billing problems.  We believe the lesson is clear:  simplicity facilitates compliance.  Unnecessary complexity facilitates administrative problems.