IG: State Department ‘missing opportunities’ to save millions through smarter purchasing

The State Department approved hundreds of multi-million-dollar purchases without taking the due diligence to ensure the agency would get the most value for its money, according to a recent inspector general report.

The agency’s Office of Inspector General found that the agency, save for one program, had not implemented a value engineering (VE) program for procurements over $5 million.

Since 2013, the Office of Managment and Budget has required agencies to implement a VE program to designate a senior accountable official (SAO) to ensure that purchases for systems, projects, equipment, facilities, services and supplies have a low life-cycle cost, and meet standards for performance, reliability, quality and safety.

“Federal agencies shall consider and use VE as a management tool to ensure realistic budgets, identify and remove nonessential capital and operating costs, and improve and maintain acceptable quality in program and acquisition functions,” the agency wrote in its Circular A-131.

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However, the IG office determined that the Bureau of Overseas Buildings Operations was the only agency program that had implemented a VE program.

“The goal of VE is to break down a project into parts and identify alternatives to satisfy each part’s function. VE can help provide greater knowledge of projected costs, ensure realistic budgets, identify and remove nonessential capital and operating costs, and clarify the economic impact of various project development and design decisions,” the OIG wrote in its Aug. 13 report.

OMB requires agencies to conduct a VE study for procurements worth more than $5 million.

USASpending.gov lists more than 500 procurement actions related to State Department contracts that exceed $5 million, but the IG office found the agency failed to do a VE study on any of those purchases.

State Department procurement officials also didn’t obtain a waiver from the senior accountable official for any of those actions, because the agency didn’t designate anyone for that role.

“The department has not implemented a department-wide VE program, in part, because it has not been attentive to establishing the VE program by designating an SAO to coordinate, oversee, and ensure that VE is considered when the cost estimate for contracts exceeds $5 million,” the IG office wrote.

The agency has approved a number of major contracts well above the $5 million threshold.

For example, the Bureau of Diplomatic Security awarded a contract worth more than $1.1 billion for global supply chain management, logistics, and technology development without running a VE study.

The Bureau of Consular Affairs also awarded a contract valued at $49 million for IT services that also lacked a VE cost analysis.

The OIG discovered the near-agencywide absence of a VE program during an ongoing audit of the State Department’s Bureau of Overseas Buildings Operations (OBO).

“OIG found that OBO has a VE process in place. However, OIG reviewed the department’s organizational structure and policies and did not find evidence that the department had implemented the VE program at any other bureau. Furthermore, senior officials from the Bureau of Administration, the bureau responsible for the Department’s procurement activities, stated that they were unaware of any VE program in the department other than the one OBO has in place,” the OIG wrote.

OBO, for its part, reported to OMB that in fiscal 2016, it had saved nearly $50 million in cost avoidances through spending less than $1.5 million on VE studies.

“Because the department has not established and implemented the VE program beyond OBO, the department is missing opportunities to consider and optimize life-cycle costs, quality, performance schedule, risk, and initial cost reduction for major procurements,” the IG office wrote.

The OIG recommends the agency’s Office of the Undersecretary for Management select a senior accountability officer “at a level with sufficient authority to coordinate, oversee, and ensure the appropriate consideration” for value-engineering new projects, programs and contracts.

The Undersecretary for Management position currently lacks a permanent appointee.

In July, the Senate Foreign Relations Committee held a hearing for Brian Bulatao, the White House’s second pick for the undersecretary for management position.

The president withdrew his first pick, Eric Ueland, a former Republican staff official on the Senate Budget Committee and current senior official at the Millennium Challenge Corporation, in June after waiting for more than a year without a committee hearing.

The undersecretary’s office agreed with the OIG’s recommendation, and will designate its head of contracting activity as the SAO for VE at the agency. The office will also update the Foreign Affairs Manual to reflect this designation.

The agency has also agreed to work with its Office of Logistics Management, Office of
Acquisitions Management, to develop an agency-wide VE program.