The Office of Personnel Management’s procurement process for certain benefits is outdated, slow and could cause the government and taxpayers to overpay on services, according to a recent management alert from OPM’s Office of the Inspector General.

In a memo to OPM Acting Director Beth Cobert, OPM IG Patrick McFarland reported on two “very serious concerns” raised by his office regarding the agency’s Federal Flexible Spending Account Program (FSAFEDS).

One concern stems from the FSAFEDS Federal Acquisition Regulation (FAR) contract not having a single re-competition in the past seven years, while the other focuses on the issue that program offices have been administering contracts after contract awards, resulting in a conflict of interest.

“This procurement has reached a critical stage, as the period of performance has already significantly exceeded the limitations of the FAR,” McFarland’s Oct. 14 memo stated. “Should these items not be addressed, we are concerned that the Government will not receive the best value in meeting its needs for these programs and could potentially overpay for the services provided.”

Providing the best value to government, taxpayers

McFarland said the issues were brought to his office’s attention during an audit of FSAFEDS program operations and administration for contract years ranging from 2006 to 2010, as well as a review of the FSAFEDS procurement process that started in February.

“While these issues were not specifically addressed in either report, as the issues were outside the scope of these audits, we believe these concerns are significant enough to warrant bringing them to your attention to ensure that future program procurements sufficiently cover the government’s interests and provide the best value to the government, as well as to the taxpayers whose tax dollars fund the program’s administrative fees,” McFarland stated.

The results of those audits and reviews according to the alert were:

• The FSAFEDS contract’s period of performance has significantly exceeded the limits established under the FAR and should be awarded without additional delays or extensions to the period of performance.
• OPM should consider consolidating all future program procurements under its Office of Procurement Operations (OPO).

In his report, McFarland explained the original FSAFEDS contract was set with a seven-year term, with an unlimited number of successive option periods.

“Since the issuance of that recommendation, the contract’s period of performance has been extended a total of four times, resulting in a current contract end date of December 23, 2015,” the report stated. “With this most recent extension, the contract has now exceeded a 12-year period, in spite of substantial changes to the government’s program requirements that occurred over the course of the contract’s term and in spite of FAR regulations which limit the procurement for this type of service to a five-year performance period. Furthermore, in the absence of a statutory requirement, the contract’s initial term of seven years with an unlimited number of options is adverse to the government’s best interest because of a lack of built-in competition for enrollees that is inherent in other benefit programs administered by OPM. In our opinion, this procurement has reached a critical stage and future extensions should not be considered, as the period of performance has already significantly exceeded the limitations of the FAR.”

Also in the management alert, McFarland blamed the delay of the Federal Long Term Care Insurance Program re-competition on a lack of oversight from OPM’s Office of Procurement Operations, and the Federal Employee Insurance Operations (FEOI) group’s need for program continuity taking precedence over ensuring contracts are re-competed.

“While OPM’s Office of Procurement Operations is involved in the procurement process through contract award, it then transfers its responsibilities to FEIO for contract administration,” the report said. “This is understandable since the employees working for FEIO are the program experts and are best able to address questions that typically arise in the administration of programs under their purview. However, this should not absolve the Office of Procurement Operations from keeping abreast of the procurement’s status, to include being knowledgeable of the modifications that have been issued and the options that have been exercised.”

“Along the same lines, while we understand the logic behind delegating responsibilities to FEIO to administer its programs’ contracts, unfortunately, FEIO’s interest in ensuring program continuity has overridden its responsibility to ensure that future procurements are properly planned, are awarded timely, and follow the protocols established by the FAR,” the report said. “From what we have observed with the current contract delays, there appears to be no sense of urgency to ensure the contracts are re-competed in a timely manner since FEIO can modify the contracts to extend the period of performance, as was done multiple times with the FSAFEDS and BENEFEDS procurements.”

Awarding a contract, assessing the procurement process

The IG’s office recommendations include the following:

• Award a new contract, including a transition period, before the current contract’s Dec. 23, 2015 expiration date.

• Put into place controls that hold future program procurements to FAR requirements and ensure the contract’s time frame doesn’t go over FAR limits.

• Consolidate all contract administration functions under OPM’s Office of Procurement Operations rather than delegate them to program offices.

• Relieve future contracting officers assigned to contracts from administering the benefit programs.

In an Oct. 22 response to the IG’s concerns, Cobert said the issues raised were being taken very seriously by OPO.

“OPM’s OPO fully agrees that it is important to submit the FSAFEDS contract to competition and has been working to award a new contract,” Cobert said. “It is my understanding that after completing an initial evaluation of the proposals, the Contracting Officer and the Contracting Review Board (CRB) determined that significant revisions to the evaluation documentation were required. These revisions are important and necessary, but also unfortunately contributed to the delays in the procurement. At this time, the OPO anticipates being able to make a contract award in early 2016.”

Cobert said OPO is also in the midst of an agency review that looks at the procurement process across the department. An independent consultant has also been hired to assess the process.

Cobert said she has also requested that OPO provide biweekly updates to both her and the IG’s office on progress toward awarding a contract and on “other major benefits contracts highlighted in your alert.”

She said a more detailed response was being prepared and is expected to be released to the OIG later this fall.

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