Contracting

NIH could use a little more follow through when it comes to ending contracts

The Department of Health and Human Services Office of Inspector General recently analyzed 30 NIH contracts and found many of them were not properly closed out.

Eric White@FEDERALNEWSCAST

July 11, 2024 1:32 pm

8 min read

Just as important as obtaining contracts with companies to help fulfill an agency’s mission, is the ability to end them properly. That’s the part the National Institutes of Health is apparently having some trouble with. The Department of Health and Human Services Office of Inspector General recently analyzed a handful of NIH contracts and found many of them were not properly closed out. To learn more about the review, Federal News Network’s Eric White welcomed Amee Wentz, Assistant Regional Inspector General for the Office of Audit Services with HHS OIG.

Interview transcript:

Eric White
Just as important as obtaining contracts with companies to help fulfill an agency’s mission is the ability to end them properly. That’s the part the National Institutes of Health is apparently having some trouble with. The Department of Health and Human Services Office of Inspector General recently analyzed a handful of NIH contracts and found many of them were not properly closed out. To learn more about the review, we welcome Amee Wentz, Assistant Regional Inspector General for the Office of Audit Services with HHS OIG. Ms. Wentz, thank you so much for taking the time.

Amee Wentz
Thank you.

Eric White
Let’s just start out. What needs to happen when a contract is actually closed out? Are there procedures in place to make sure that things end where they are supposed to end?

Amee Wentz
Right, but first, let’s just talk about and define, like, what a closed contract is. A contract is actually closed when the contract is physically completed, which means that the contract has reached its end date, and the contractor has satisfactorily provided the goods or services. So, once a contract reaches its end date, federal agencies are required to begin the closeout process. Depending on the type of contract that was awarded, for example, a fixed price contract or cost reimbursement contract, the timeframe to close that contract can vary between six months to three years. So, during the closeout process, federal agencies are to adhere to the Federal Acquisition Regulations, or, we like to call it the FAR, which establishes the administrative requirements for closing contracts. So, depending on the type of the contract, the FAR has different administrative requirements that must be met. Some examples of these administrative actions that must occur are things like the agency conducting a contract audit to include reviewing contract funds, ensuring classified material has been properly disposed, ensuring all patent and royalty information is cleared, and ensuring that the contractor has submitted its final invoice to the agency and all completed work is specified in the contract.

Eric White
Gotcha, okay. So, it’s kind of different for each contract there. What specifically could happen if that is not done properly? You know, since there are all these different procedures, I guess there’s a lot of different things that could go wrong if an agency doesn’t do its due diligence and make sure that it closes it out properly.

Amee Wentz
Ultimately, if a contract is not closed properly, federal funds are at stake. You see, the contract closeout process is a very important step in the contract lifecycle, because it is the government’s last opportunity to detect and recover improper payments. So, when agencies don’t close contracts, or they don’t close them properly, federal government funds could be at risk. Specifically, when contracts are not closed, the agency that issued the contract is not afforded an opportunity to redirect unused funds to other projects or to return funds to the government. And if the government can’t confirm that a contract is completed properly, it is at risk of awarding another contract to that same contractor in the future.

Eric White
What parts of the closeout requirements was NIH missing or having the most trouble with? Was there a particular aspect of the closeout process that they were missing?

Amee Wentz
We found that NIH did meet all the close out requirements for one of the 30 contracts that we reviewed, and that contract was valued at approximately $140 million. Now, for the remaining 29 that we looked at, we have an appendix in our report, which is available on the HHS OIG website. And that lists all the various administrative closeout requirements that were not met for these 29. Some examples of these requirements that are in our report were things like, closing documents did not exist, contract desk reviews, or audits — which would ensure cost incurred during the lifecycle of the contract were allowable — were not conducted. And finally, a signed contract or closing statement, which could protect NIH from future claims or legal issues, were not obtained. Again, these 30 contracts were selected from an initial population of contracts where we suspected the closeout process had not occurred. So, we shouldn’t walk away from this audit and say, okay, 97% of all of NIH contracts are not closed properly. That’s not the case. We were just trying to find areas where NIH could improve its closeout process and have better stewardship of government funds.

Eric White
We’re speaking with Amy Wentz. She’s with the Office of Inspector General for the Department of Health and Human Services. So, that’s interesting that you said that you analyze contracts where you thought there might be some issues with closeout procedures. How do you determine that? I’m just curious about, you know, was it certain areas where you see most contracts have problems being closed out? Was that the idea?

Amee Wentz
So, actually, it’s based on the contract closed date. So, to conduct our audit, we needed to look at NIH files to see what requirements were being met and what requirements were not being met. So, first, we had to obtain a list of contracts from NIH, and we narrowed that list to contracts that were overdue for closeout, meaning that the end date of the contract was three years or older. So, we took that narrowed list, and that consisted of a little over 29,000 contracts valued at approximately $12 billion. And we narrowed that and focused on high-dollar contracts. And from those high-dollar contracts, we looked at 30, and those 30 totaled $2.1 billion. And, so, for those 30 contracts, we looked at 25 that were overdue for closeout, based on the date, like we discussed, and then five that were identified as closed, according to NIH records. So, you ask, why do we look at closed contracts? Well, we reviewed contracts that were identified as closed to determine whether NIH had in fact correctly followed all the administrative closeout requirements. And, so, we use that FAR, the regulations we discussed earlier, and we reviewed all 30 contract files to determine if NIH had met the federal closeout requirements, and if not, why.

Eric White
So, you said the federal funds are at stake when contracts aren’t closed out properly. Was there any finding, any part of your review process of seeing that, you know, some federal funds were misspent due to these contracts not being closed out properly?

Amee Wentz
So, our goal was to look at whether or not NIH was following the administrative closeout requirements. Our goal was not to look at whether the contractor completed their contractful obligations or whether they spent the money correct. But what we did identify and what we did find is that, like I said earlier, funds are at risk if NIH doesn’t close that contract timely, and so therefore, they can’t repurpose or reuse those funds if they haven’t closed the contract, and they don’t identify any unused funds.

Eric White
Let’s talk about that why at the end. Why was it that some of those contracts weren’t closed out, in talking with officials at NIH? What were some of the reasons that they brought to you?

Amee Wentz
So, ultimately, contracting officers at NIH have the authority to enter into, administer and close contracts. They’re the ones responsible for ensuring that contracts are closed in accordance with federal regulation. So, during the process of reviewing the 30 contracts of our audit, we identified some processes and some NIH policies that could be improved in order to assist NIH with closing contracts. In our report specifically, we recommended that NIH update its internal policy manual and establish activities for monitoring the contract closeout process. And of course, we recommended the NIH do close those 29 contracts that were reviewed. And let me just say, NIH has been very responsive to our audit, and has already begun implementing our recommendations. Case in point, NIH set a date of December 2024 to close out the 29 contracts that we recommended they close. Also, they’ve already set dates of December 2024 and June 2025 to implement our recommendations pertaining to updating their policies and procedures. And the June 2025 date they’re using to update its oversight accountability of the closeout process. Strengthening that closeout process and the oversight of that process should assist NIH in the future with closing contracts and ensuring good stewardship of government contract funds.

Eric White
Amee Wentz is with the Office of Inspector General for the Department of Health and Human Services. Thank you so much for joining me.

Amee Wentz
Thank you so much.

Eric White
We’ll post this interview along with a link to her report at federalnewsnetwork.com/federaldrive. You can also find it wherever you get your podcasts.