Aug 31 1995
The Honorable David Pryor
Ranking Minority Member
Post Office and Civil Service
Subcommittee
Committee on Governmental Affairs
United States Senate
Washington, DC 20510
Dear Senator Pryor:
Thank you for your letter concerning Coopers and Lybrand (C&L) contracts for Activity Based Costing (ABC) studies at Naval shipyards. The 13 questions in your letter were referred to the Department of the Navy Inspector General for investigation. The enclosed Inspector General report responds to those questions.
Investigators with extensive procurement experience in the Inspector General's office conducted a thorough investigation, which included personal and telephonic interviews with personnel at the shipyards and at Headquarters, Naval Sea Systems Command, and the collection, compilation, and review of numerous records and contract deliverables. Reorganizations, downsizing and shipyard closure actions over the past few months hindered and slowed the investigation.
The findings of our investigation are consistent with those provided to you in the DoD IG report and Ms. Slatkin's letter of February 2, 1995, except for our finding that retired naval officers were working for C&L. The ABC studies provided by C&L benefitted the Naval Sea Systems Command through uniformity in information gathering, minimal disruption to shipyard work schedules, and consistent analysis and comparison of shipyard statistics.
I trust this material is responsive to your request. If I can be of further assistance, please do not hesitate to contact me.
Sincerely,
W. C. Bowes
Vice Admiral, U. S. Navy
Principal Deputy
Enclosure
1.
2. Question: "For delivery order N00123-93-0111, a Donald Safford signed a memorandum to concur that no J&A was required for a sole source award. Why is this document dated 8 April 1993 when the delivery order was issued on 18 December 1992? What prompted Mr. Safford to create this document?"
Answer: In February 1993, Mr. Donald Safford, legal Counsel, Naval Regional Contracting Center, Long Beach Detachment at San Diego, consulted with NAVSUP contract personnel regarding issues related to a then ongoing DoD IG audit of the C&L studies. DoD IG had questioned why a Justification and Approval had not been prepared for a sole source contract award of $466,363 for Mare Island Naval Shipyard. In response, NAVSUP contract personnel stated that no Justification and Approval (J&A) was required because the OPM contract was like the Federal Supply Schedule, wherein the agency of the contract advertises and makes a competitive award. NAVSUP noted that other agencies using the Federal Supply Schedule have only to place an order under the contract number and the Contractor delivers the product or services. The purpose of Mr. Safford's memorandum was to document the contract files with the above information.
3. Question: "Navy spent thousands of dollars on travel expenses on these services. Why was it necessary to fly consultants to San Francisco and Hawaii to perform these services? Why didn't the Navy attempt to secure these services from consultants already in California or Hawaii? What value was added by using tax dollars to pay for these multiple trips?"
Answer: The C&L Government Consulting Practice staff is based in Arlington, Virginia, with offices in Tysons Corner, Virginia, Washington, DC, and Norfolk, Virginia. Because the site location at the shipyard differed from the Contractor's site, the company was entitled to travel and expenses. OPM negotiated with all contractors on their schedule to pay a rate no greater than the government employee per diem rate. C&L responded during the NAVSEAINSGEN inquiry that the C&L personnel, for the most part, remained on-site for the duration of the project. C&L said that lt negotiated travel costs consistent with its practice to permit members of its staff to return home on a periodic basis, depending on the work site location. Hence, for the Pearl Harbor and Mare Island ABC study, it was necessary to negotiate return home trips for C&L employees. The shipyards individually placed delivery orders under the OPM contract for the ABC study. It was determined that the studies should be conducted consistently at all shipyards and therefore, all the ABC study contracts were placed under the C&L OPM contract. As discussed in Answer 1, using C&L for the studies provided a consistency in analysis and comparison of the shipyard procedures.
4. Question: "Does Coopers and Lybrand have any other current contract(s) with any of the shipyards involved in these contracts? Please, list these contracts and include the date the contract was awarded, whether it was a competitive award, the dollar amount of the contract, and a brief description of the contract."
Answer: According to the Dun & Bradstreet report for Coopers & Lybrand, 1530 Wilson Blvd., Arlington, Virginia, printed 15 June 1995, and a NAVSEA (DD 350) inquiry, there were no current naval shipyard contracts.
5.
Answer:
(b) Mr. Dennis Fish, prior to working for C&L, was in the Navy Supply Corps and retired at the rank of Captain. CAPT Fish from l973 to 1978 was assigned to the Ship Parts Control Center as the Director for Purchasing, from 1978-80 he was the Executive Director for Contracts at the Naval Air Systems Command, and from 1980 until he retired in 1981, CAPT Fish was the Deputy Commander for Contracts at the Naval Supply Center. [Systems Command - error]
(c) Mr. O. Keith Evans, prior to working for C&L, was a Navy line officer. He retired at the rank of captain after twenty-seven years of service in 1992. Mr. Evans' last duty station was at Norfolk Naval Shipyard as Comptroller.
C.Question: "Why didn't the Navy inform me of their involvement?
6.Question: "Also on the Mare Island Coopers and Lybrand effort, did Mr. Eugene Shull, Mr. Robert Reeve, and Mr. Engwall Olson perform any services? If so, given that they are retired from Navy positions, why didn't the Navy inform of their involvement? What particular expertise did these individuals bring to this effort?"
Answer: As stated in Answer 5 above, Mr. Robert Reeve worked on the Mare Island contract. Neither Mr. Engwall Olson nor Mr. Eugene Shull performed any services on the Mare Island contract.
7.Question: "Before the Mare Island delivery order was awarded, was there any discussion of the legality of doing activity based costing under the scope of the existing Coopers and Lybrand contract? Please provide me with a copy of any document that involves this issue."
Answer: "Mare Island Naval Shipyard's delivery order was awarded on 18 December 1992. In the spring of 1990, the Strategic Planning officer in the Naval Shipyard and SUPSHIP Management and Field Activity Support Directorate attended a seminar on the OPM contract. Additionally, NAVSUP contracts personnel, in response to questions from Puget Sound Naval Shipyard, queried the OPM quality executive regarding the shipyard's statement of work being within the scope of the OPM contract. NAVSEAINSGEN, during this inquiry, discussed the scope of work under the east coast and west coast shipyards' delivery orders with tho OPM contract manager at the General Services Administration (GSA). GSA referred NAVSEAINSGEN to the Federal Quality Institute for a determination of whether the statement of work under the shipyard contracts was within the scope of the of contract. NAVSEAINSGEN faxed a copy of the statements of work from the Charleston Naval Shipyard and Puget Sound Naval Shipyard delivery orders to the Federal Quality Institute. Mr. Jeff Manthos of the Federal Quality Institute stated that both shipyards' statements of work were within the scope of the OPM contract.
8.Question: "Why was the initial award to Coopers and Lybrand made on a sole source basis?"
Answer: Portsmouth Naval Shipyard was the first shipyard to conduct ABC studies by contracting with C&L. Initially Portsmouth's ABC contract was not for the entire shipyard, but only for the Planning and Estimating Department. Portsmouth, in a Memorandum for the Record, stated that "NAVSEA directed use of C&L because they are part of an established GSA negotiated multi-award schedule, FSS contract number OPM 89-2884. That direction was based on a misinterpretation that the OPM contract had been competed by OPM and that further competition was not required. The OPM contract was unique because it required TQM schedule users to contact at least three sources to become familiar with the services provided before making a selection.
9.Question: "Please provide me with a copy of the final reports prepared by C&L at each of the shipyards."
Answer: The C&L reports are large, and are contained in binders approximately three inches thick. For some shipyards, there are multiple binders. Some are located here at NAVSEA Headquarters, while others are still retained at the individual shipyards. We are prepared to provide you either a sample, or a complete set whichever you desire.
10.Question: "Why were these studies required at each shipyard? Which shipyards did not contract for a study? What was the result of any shipyard's decision not to contract for a study?"
Answer: The response to this first question is provided in Answer #1 Philadelphia and Long Beach Naval Shipyards did not participate ln the ABC study. Philadelphia Naval Shipyard, designated for closure by the 1991 BRAC, did not participate because of financial constraints. It was anticipated that Long Beach Naval Shipyard would be selected for a "quick~ closure in 1993 and that there would have been insufficient time to conduct the study. (Long Beach Naval Shipyard was selected for closure by BRAC 1995.)
11.Question: "What action lead to the November 20, 1992, letter by C&L to the Navy to perform ABC activities? What meetings or letters or other activities occurred to let the contractor know about this proposed work?"
Answer: Coopers and Lybrand had performed other services at the naval shipyards prior to the ABC studies and was aware of upcoming needs of the shipyards.
12.
Answer: No. As stated in answer #3, NAVSEA has no other contracts with Coopers and Lybrand.
13.Question: "Finally, I'm enclosing a document that CAPT Sullivan sent to CAPT Cavender. Please, explain why this action went forward even though the 'Legal Counsel for Puget would not sign the J&A for Puget, and they will not sign the one for us either. The contracting officer will proceed to award the delivery order without this signature.' What is your reaction to this finding?"
Answer: Naval Supply Center, Puget Sound officials said there were two reasons why a J&A was not written. They noted that three bids had been obtained for the ABC study for the Puget Sound Naval Shipyard, ie., they had not awarded the contract sole source to Coopers and Lybrand. Accordingly, there was no need for a J&A. Secondly, they noted that OPM had contracted with Coopers and Lybrand on a competitive basis.
See this non-existent legal document I mailed to Vice Admiral Bowes - pending a scanner - anyone in the San Francisco Bay Area care to help
October 1995, Senator Pryor's staff investigator Richard Goodman met with and posed yet more questions to Captain Milton Finch, Naval Sea Systems Command Inspector General. Read the July 1996 reply and ask yourself "Did they still answer all the questions?".
Return to Coopers & Lybrand, Navy and TQM - Fraud or Mistake
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