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«Audit Report Consumer Federation of America Foundation - Costs Claimed Under EPA Cooperative Agreements CX825612-01, CX825837-01, X828814-01, ...»

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Each subsequent contract extension in excess of the $100,000 small-purchase threshold had a well-recognized sole-source justification - namely, to permit the incumbent to continue the work that it had started during the initial term. Given the nature of the services, this sole-source justification is particularly compelling. First, it takes years of focused effort to build a successful public awareness campaign whose message "burns through" public ignorance (or indifference) - especially where there are conflicting messages in the marketplace (for example, regarding the health impact of secondary smoke). For both campaigns, a consistent creative approach was indispensable. A change in advertising agency would have lead, almost inevitably, to a change in creative approach. Such a change might have made sense if the existing campaigns were unsuccessful, but they were not. PlowShare’s work was extremely well received and effective. One of its public service announcements won an Emmy. Second, the specialized nature of the services required for the campaigns meant that a replacement agency would take considerable time - perhaps months - to become familiar with the scientific and policy issues. This would amount to a substantial duplication of cost, which was unlikely to be recovered by competition, and would have cause unacceptable delays in the production and distribution of PSAs. Therefore, once the Radon PSA and ETS Contracts were in place and their respective campaigns successfully launched, a change of advertising agency would almost certainly have disrupted the campaigns and diminished their effectiveness, and would have imposed significant costs on the Government for no compensating benefit.

With respect to documentation: When the ETS Contract was awarded in October 1997, a memorandum was placed in the Foundation files describing the procurement process, the evaluation of offers and the basis for award.17 However, when the Radon PSA Contract was awarded, the Foundation did not place in its

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procurement files a formal explanation of the basis of contractor selection, or a justification for its use of less than "open and full competition." Nor were such explanations placed in the procurement file when the contracts were extended on the basis of EPA incremental funding of the corresponding CA. These omissions have been (or will soon be) corrected, bringing the Foundation into compliance with 40 CFR §§30.44(e)(2) and 30.46 with respect to all procurement transactions in excess of the $100,000 small purchase threshold. In addition, in order to ensure that, in the future, procurement decisions (including sole-source awards) are appropriately documented, we have adopted a manual on "Procurement Procedures for Federal Funds," which provides clear guidance on "competitive bidding for contracts" and requiring that documentation complying with 40 CFR §30.46 be prepared for each procurement and placed in the procurement file at the time of award.

The Foundation’s failure to comply in a timely manner with the documentation requirements of 40 CFR §§30.44(e)(2) and 30.46 should not be a basis for any disallowance of costs. For each procurement transaction in excess of the $100,000 small purchase threshold, the Foundation either made the award using "open and free competition," or can demonstrate a well-recognized justification for making a sole source award. Our untimely compliance does not alter the fact that, in each instance, the Foundation, acting on behalf of EPA, received high quality services from a responsible contractor at a competitive price.

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In addition, 40 CFR §30.46 requires that, for purchases in excess of $100.000, the recipient’s "procurement records and files" include an explanation of the "basis for award cost or price."

The DAR alleges that the "Foundation failed to make... cost or price analyses in connection with every procurement action." This allegation is untrue.

First, with respect to the Radon PSA Contract awarded to PlowShare in 1997, the Foundation compared the prices offered by PlowShare with prices for similar services that were paid to advertising agencies under CA CX 822244-01 between 1994 and 1996 - including such agencies as Bates USA, Campbell Mithun Esty (CMA), Pia Promotions, Commercial Works and PlowShare - before negotiating price with PlowShare.18 Second, with respect to the ETS Contract, as noted above, the Foundation conducted a competitive procurement from August to October 1997.

It received and evaluated four competing offers. The price of PlowShare initial proposal was one of the two lowest; in addition, the Foundation was able to negotiate additional price concessions, further reducing PlowShare’s already low competitive price. From that time forward, the competitive price information gathered from the ETS competitive procurement, PlowShare’s low competitive bid, and the even lower prices included in the contract after negotiations with PlowShare, served as a benchmark for price negotiations when the two contracts with PlowShare came up for extension.

In addition, it was the Foundation’s standard practice each time an extension to the Radon PSA or ETS Contracts was negotiated with PlowShare, to require that PlowShare submit a written contract proposal, broken down into specific contract tasks. With the contract proposal in hand, the responsible Foundation officials analyzed the proposed prices for each activity against the baseline established by the original ETS procurement and subsequent price adjustments, if any. They then conducted a careful line-by-line negotiation with PlowShare in a concerted effort to limit price increases over the baseline established in previous years. The Foundation was able [i] to obtain, on a regular basis, significant price reductions from the initial PlowShare proposal, [ii] to limit year-to-year price increases, and [iii] on occasion, to obtain year-to-year price reductions. For example, after PlowShare submitted its initial contract proposal for the 2001-02 extension of the Radon PSA Contract, the See Mary Ellen R. Fise and Jack Gillis to Kristy Miller, "Closeout Report" (December 30, 1997) (Attachment #7) Appendix B Foundation required the PlowShare to resubmit the proposal three times before the prices were deemed acceptable. As a result, PlowShare reduced its agency production fees from 17.65% in the initial proposal to 15.00% in the final proposal, and its creative fees by a total of $10,073.

In this context, we believe that the benchmark provided by the competitive information gathered in the first ETS procurement, the requirement of a detailed breakdown of prices by activity, the review and analysis of those prices conducted by the Foundation officials, and, finally, the intensive negotiation of final contract prices with PlowShare on a line-by-line basis - all this, taken together, amount to substantial compliance with the "price or cost analysis" requirement of 40 CFR §30.45.

The DAR also alleges that the "Foundation failed to... document cost or price analyses in connection with every procurement action." With respect to the award of the initial ETS contract in October 1997, the allegation is demonstrably untrue. The memorandum prepared by Foundation counsel at the time sets forth the "basis of the award in cost or price" - i.e., the evaluation of proposals in connection with the competitive solicitation. For the remaining procurement actions - that is, the extensions of the Radon PSA and ETS Contracts - we believe that the detailed proposals submitted by PlowShare, the spreadsheet analyses that the Foundation’s officials used to conduct price negotiations, and the resulting contract budgets, considered in light of the benchmark provided by the 1997 competitive solicitation, qualify as contemporaneous documentation of the "basis for award cost or price" within the meaning of 40 CFR §§30.45 and 30.46. Thus, we believe that the Foundation substantially complied with those provisions.

To be sure, Foundation officials did not prepare a formal memorandum or other formal written materials explicitly designed to record their price analysis. This omission has now been corrected, bringing the Foundation into compliance with the documentation requirements of 40 CFR §§30.45 and 30.46. Furthermore, the preparation of a contemporaneous price/cost analysis is now required for each procurement by the CFA manual on "Procurement Procedures for Federal Funds," and has become standard organizational practice.

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prices against a low competitive benchmark, negotiated successfully to keep year-toyear prices increases to a minimum (and even achieved year-to-year reductions), and in the end contracted for and received high quality services at a competitive price.

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The referenced "contract to develop and distribute PSAs for indoor radon pollution, awarded prior to the execution of CA CX825612-01" was awarded under a different CA by a different recipient. This award is clearly outside the scope of this audit, and any alleged defect in the procurement process for that contract cannot be the responsibility of the Foundation under of CA CX 825612-01.

If however DAR’s reference is to the Radon PSA Contract awarded by the Federation to PlowShare after the execution of CA CX 825612-01, the initial award and subsequent extension of that contract is discussed at length in Parts 7[A] and [B].

With respect to the DAR’s specific allegations:

[1] The Radon PSA Contract was awarded without open an free competition;

but the decision to do so was fully justifiable. See Part 7[A] [2] The Foundation conducted the required cost/price analysis by comparing the price offered by PlowShare to the prices charged by other advertising agencies for PSAs recently produced and distributed for the EPA under other CAs. See Part 7[B].

[3] The contract documents for the Radon PSA Contract, including without limitation a written offer (price proposal) submitted by PlowShare and accepted by the Foundation, did include specific prices covering all the activities to be performed by PlowShare under the contract.

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detailed PlowShare offer (price proposal), negotiation spreadsheets, and a final PlowShare offer (price proposal) that was accepted by the Foundation.

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The Foundation did not select the above-referenced contractor, nor was it a party to the above-referenced contract. The parties to the contract were PlowShare and Bruskin Research of Edison, New Jersey. Thus, the fact that the Foundation has nothing in its files to demonstrate how the contractor was selected, if true, is certainly not surprising.

To the best of our knowledge, PlowShare engaged Bruskin Research on EPA’s instructions to undertake urgently needed research on an expedited basis.

Based on contemporaneous experience with similar research contracts (at the time, we awarded three or four such contracts each year, paid for out of non-Federal funds), the cost of the research was reasonable.

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The Foundation did, in fact, perform a cost or price analysis when contracting for the legal and accounting services in question, and as a result received expert professional services at a reasonable cost - in the case of legal services, at a cost considerably below the rates charged by attorneys of similar background and seniority.

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specialized boutiques, such as Sonenthal & Overall, with experience in the award and administration of Federal grants and cooperative agreements.19 Based on her knowledge of local firms, Ms. Harmon recommended Sonenthal & Overall. Mr.

Brobeck also consulted Mary Ellen Fise, the Foundation’s general counsel for additional recommendations. After contacting a number of firms, Mr. Brobeck settled on Sonenthal & Overall as the best combination of expertise and competence, at a moderate cost.20 Subsequently, Mr. Sonenthal advised us that a significant portion of the work on the EPA suspension could be done, with equal effectiveness and at considerably lower cost, by a non-lawyer - e.g., an accountant with experience in the administration of Federal cooperative agreements. He recommended that we contact RSM McGladrey LLP regarding the services of Stephen Kroll, formerly head of the Contract Audit Management at the U.S. Agency for International Development.

RSM McGladrey offered Mr. Kroll’s services at an hourly rate of $180.00. Mr.

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