Audit
Report
Coalition Provisional Authority’s
Contracting Processes Leading Up To and
Including Contract Award
Report Number 04-013 July 27, 2004
Office of the Inspector General
Coalition Provisional Authority

C O A L I T I O N P R O V I S I O N A L O F F I C E O F T H E I N S P E C T O R A U T H O R I T Y
G E N E R A L
July 27, 2004
MEMORANDUM FOR HEAD OF CONTRACTING ACTIVITY, IRAQ PROJECT AND
CONTRACTING OFFICE
SUBJECT: Coalition Provisional Authority’s Contracting Processes Leading Up To and
Including Contract Award
We are providing this audit report for your information and use. We performed the audit
in accordance with our statutory duties contained in Public Law 108-106 which mandates the
conduct of audits relating to the treatment, handling, and expenditure of funds by the Coalition
Provisional Authority or its successor entities on Iraq reconstruction, and of the programs,
operations, and contracts carried out in utilizing such funds. We considered management
comments on a draft of this report in preparing the final report.
Management does not concur with the recommendation to request a post-award audit of
contract DABV01-03-C-0015. We continue to believe the recommendation is valid and will
work with the Head of Contracting Activity to reach a mutually satisfactory resolution. We will
accomplish audit follow-up to evaluate management corrective actions.
We appreciate the courtesies extended to the staff. Questions should be directed to Mr.
Brian Flynn at (703) 343-9229 or Mr. Kevin Ellenberger at (703) 343-9230. Management may
request a formal briefing on the results of this audit. See Appendix D for the report distribution.
Stuart W. Bowen, Jr.
Inspector General
Coalition Provisional Authority
400 Army Navy Drive • Arlington, Virginia 22202

Office of the Inspector General
Coalition Provisional Authority
Report Number 04-013 July 27, 2004
Coalition Provisional Authority’s Contracting Processes
Leading Up To and Including Contract Award
Executive Summary
Introduction. Exercising the authority granted to them by the Administrator of the Coalition
Provisional Authority (CPA), the CPA Contracting Activity, Iraq Project and Contracting Office
informed us that it had awarded 1,988 contracts, grants, and purchase and delivery orders valued
at approximately $1.04 billion as of April 4, 2004. Of this total, 1,928 contracts valued at
approximately $847 million were awarded with Development Funds for Iraq (DFI).
The Coalition Provisional Authority (CPA) issued Coalition Provisional Authority Memorandum
No. 4 (the Memorandum), “Contract and Grant Procedures Applicable to Vested and Seized
Iraqi Property and the Developmental Fund for Iraq,” August 19, 2003, to establish procedures
applicable to the execution of contracts and grants using Iraqi funds for the benefit of the Iraqi
people. Although the use of Iraqi funds is not subject to the same laws and regulations that apply
to U.S. appropriated funds, the CPA was expected to manage Iraqi funds in a transparent manner
that fully comported with CPA obligations under international law, including United Nations
Security Council Resolution 1483.
Objective. The objective of the audit was to evaluate the procedures used by the CPA
Contracting Activity to award contracts. Specifically, we evaluated policies and procedures
associated with acquisition planning, source selection, use of competition, and contract
negotiation.
Conclusion. The CPA Contracting Activity had not issued standard operating procedures or
developed an effective contract review, tracking, and monitoring system. In addition, contract
files were missing and incomplete. Further, contracting officers did not always ensure that
contract prices were fair and reasonable, contractors were capable of meeting delivery schedules,
and payments were made in accordance with contract requirements. As a result, the CPA
Contracting Activity was not accurately reporting the number of contracts actually awarded by
the CPA Contracting Activity. This hindered the CPA Contracting Activity’s ability to
demonstrate the transparency required of the CPA when it awarded contracts using DFI funds.
Management Actions. During the course of our audit, the Head of Contracting Activity
established and staffed a policy and compliance officer position with a contracting professional
to develop and standardize contracting procedures and processes for the procuring contracting
officers assigned to the Iraq Project and Contracting Office. The duties for the policy and
compliance officer are to:
• Draft and issue a Standard Operating Procedure;
• Review contract actions and draft, review, and issue standard contract clauses;
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• Review, track, recommend, and compile warrant packages for the Army’s Principal
Assistant Responsible for Contracting; and
• Track and monitor contract actions and dollars.
We believe the scope of these actions will be sufficient to strengthen the controls for tracking
and monitoring contracts and the additional problems discussed in this report. Further, we
believe these actions should result in data that is available and accurate to ensure transparency in
reporting. Therefore, we did not make recommendations for this area.
Recommendation. We recommended the Head of Contracting Activity request the Defense
Contract Audit Agency perform a post-award audit of contract DABV01-03-C-0015, the
National Currency Exchange Program.
Management Comments. The Head of Contracting Activity non-concurred with the
recommendation and stated, “It is important to note that Contract DABV01-03-C-0015, National
Currency Exchange was a DFI (Development Fund for Iraq) funded contract that is not subject to
the Federal Acquisition Regulation. We noted that the DCAA (Defense Contract Audit Agency)
documentation in the file is not a DCAA audit rather; it is a request for pricing assistance by the
contracting officer. While not in the original file, documentation recently obtained from DCAA
(Attachment 1), indicates that the Contracting Officer would negotiate the reduced rate unless
justification was provided from the contractor. Justification was provided from the contractor as
originally documented in the file and the contract was awarded for $ 24,770,738 vice $ 31.7
million.”
Audit Response. The Contracting Activity Office comments were not responsive to our
recommendation. We continue to believe the recommendation is valid and we will work with
the Head of Contracting Activity to reach a mutually satisfactory resolution.
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Table of Contents
Executive Summary i
Introduction
Background 1
Objective 1
Finding
Contracting Processes 2
Appendices
A. Scope and Methodology 5
B. Management Comments 6
C. Acronyms 9
D. Report Distribution 10
E. Audit Team Members 11

Background
Exercising the authority granted to them by the Administrator of the Coalition Provisional
Authority (CPA), the CPA Contracting Activity, Iraq Project and Contracting Office had
awarded 1,988 contracts, grants, and purchase and delivery orders valued at approximately $1.04
billion as of April 4, 2004. Of this total, 1,928 contracts valued at approximately $847 million
were awarded with Development Funds for Iraq (DFI). The scope and methodology used to
perform this audit are discussed at Appendix A. The acronyms used in this report are shown at
Appendix C and the audit team members are shown at Appendix E.
Coalition Provisional Authority Memorandum No. 4 – Purpose. The Coalition Provisional
Authority (CPA) issued Coalition Provisional Authority Memorandum No. 4 (the
Memorandum), “Contract and Grant Procedures Applicable to Vested and Seized Iraqi Property
and the Developmental Fund for Iraq,” August 19, 2003, to establish procedures applicable to the
execution of contracts and grants using Iraqi funds for the benefit of the Iraqi people. Although
the use of Iraqi funds is not subject to the same laws and regulations that apply to U.S.
appropriated funds, the CPA was expected to manage Iraqi funds in a transparent manner that
fully comported with CPA obligations under international law, including United Nations
Security Council Resolution 1483.
Coalition Provisional Authority Memorandum No. 4 – Applicability. The Memorandum
states “This Memorandum applies to contracts and grants executed by or on behalf of the CPA,
when those instruments obligated and expended Iraqi Funds. It covers contracts and grants
executed by. . . CPA's Head of Contracting Activity, or designee(s),. . . .“
Objective
The objective of the audit was to evaluate the procedures used by the CPA Contracting Activity
to award contracts. Specifically, we evaluated policies and procedures associated with
acquisition planning, source selection, use of competition, and contract negotiation.
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Contracting Processes
The CPA Contracting Activity had not issued standard operating procedures or developed an
effective contract review, tracking, and monitoring system. In addition, contract files were
missing and incomplete. Further, contracting officers did not always ensure that contract prices
were fair and reasonable, contractors were capable of meeting delivery schedules, and payments
were made in accordance with contract requirements. This occurred because the CPA
Contracting Activity did not provide adequate administrative oversight and technical supervision
over the contracting actions completed by procuring contracting officers as required by the
Memorandum. As a result, the CPA Contracting Activity was not accurately reporting the
number of contracts actually awarded by the CPA Contracting Activity. This hindered the CPA
Contracting Activity’s ability to demonstrate the transparency required of the CPA when it
awarded contracts using DFI funds.
Technical Supervision
The Memorandum provided that “The Head of Contracting Activity, CPA, shall be responsible
for providing technical supervision over Contracting Officers. . . . This technical supervision
may include prescribing training requirements and prescribing appropriate forms for use in
solicitations, contract awards, and grant awards. For contracting officers assigned to the CPA
Contracting Activity, the Head of Contracting Activity, CPA, shall provide administrative
oversight as well as technical supervision.”
Contracting Processes
The CPA Contracting Activity had not issued standard operating procedures or developed an
effective contract review, tracking, and monitoring system. In addition, contract files were
missing and incomplete. Further, contracting officers did not always ensure that contract prices
were fair and reasonable, contractors were capable of meeting delivery schedules, and payments
were made in accordance with contract requirements.
Contract Tracking and Monitoring System. The spreadsheets used by the CPA Contracting
Activity to review, track, and monitor contract actions provided inaccurate and unreliable
information and, therefore, were not effective. Specifically, spreadsheets developed by the CPA
Contracting Activity to track contract files were not adequately maintained and could not be
relied upon to ensure compliance with the Memorandum or be used as a source of information
for Congressional reporting. We attempted to reconcile spreadsheets to the contract files by
verifying contracts with a total value of $5 million or more. The CPA Contracting Activity was
unable to locate 13 of 62 contract files listed in the spreadsheets.
Incomplete or Missing Documentation. The Procuring Contracting Officer did not comply
with the contract procedures outlined in the Memorandum. Specifically, 29 (67 percent) of 43
small and large purchase contracts we analyzed had incomplete or missing documentation and
the current status of five contracts was unclear. Additionally, because of the absence of
receiving reports and complete invoices and payment vouchers, we were unable to determine if
the goods specified in the contract were ever received, the total amount of payments made to the
contractor, or if the contractor fully complied with the requirements of the contract.
Fair and Reasonable Price. The CPA Contracting Activity did not ensure that a fair and
reasonable price was negotiated for contract DABV01-03-C-0015, National Currency Exchange,
valued at $ 31.7 million. Specifically, when the contractor developed the contract proposal for
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the Iraqi banknote exchange project, it stated that the proposed contract price was calculated as
accurately as possible based upon current prices and historical costs from existing contracts.
However, the proposed costs were not based on contractor’s most recent contract (a contract for
guard/security services for the Republican Presidential Palace in Baghdad), and the contractor
was not able to provide a justification for the increased proposed costs.
The Defense Contract Audit Agency (DCAA) conducted a pre-award contract review of the
contractor’s cost proposal and issued an audit memorandum on August 29, 2003, that
recommended potential cost reductions of over $5 million. According to the memorandum, the
contractor could not provide any reasonable and supportable explanation as to why the proposed
daily labor rates should exceed the rates used to determine their most current security contract
with CPA. Nevertheless, the contract was awarded at the contractor’s proposed price. The
contract file contained no documentation of any further negotiations by the contracting officer.
Meeting Delivery Schedules. The Procuring Contracting Officer did not ensure contractor
compliance with the proposed delivery for the date of purchase order DABV01-04-M-0018,
Extended Cab Pickup Trucks for the Border Police. The statement of work required a 30-day
delivery schedule for the vehicles. However, the contractor was awarded the contract even
though the contractor proposed a modified delivery schedule of 60 days. That bid should have
been considered non-responsive to the contract requirement for the delivery of the vehicles.
Additionally, there was little evidence the contracting officer sought widespread competition for
this requirement. As such, it is not known whether a more responsive contractor could have been
awarded the contract
Payment in Accordance with Contract Requirements. The Procuring Contracting Officer did
not comply with the schedule of payments of contract DABV01-03-C-5003, the Mitsubishi L200
Double Cab Trucks for the Maysan Police. Specifically, the contracting officer approved and
paid an advanced payment of $87,500 to the contractor despite the contract terms stating
payments shall be made upon delivery of the vehicles. Further, the remaining balance of
$100,000 was paid to the contractor without written documentation showing that the contractor
had actually delivered the vehicles.
Conclusion
We believe these problems occurred because the CPA Contracting Activity did not provide
adequate administrative oversight and technical supervision over the contracting actions
completed by procuring contracting officers as required by the Memorandum. As a result, the
CPA Contracting Activity was not accurately reporting the number of contracts actually awarded
by the CPA Contracting Activity. This hindered the CPA Contracting Activity’s ability to
demonstrate the transparency required of the CPA when it awarded contracts using DFI funds.
We do not believe that transparency can be achieved when pertinent data is unavailable or
inaccurate.
Management Corrective Actions
During the course of our audit, the Head of Contracting Activity established and staffed a policy
and compliance officer position with a contracting professional to develop and standardize
contracting procedures and processes for the procuring contracting officers assigned to the Iraq
Project and Contracting Office. The duties for the policy and compliance officer are to:
• Draft and issue a Standard Operating Procedure;
3

• Review contract actions and draft, review, and issue standard contract clauses;
• Review, track, recommend, and compile warrant packages for the Army’s Principal
Assistant Responsible for Contracting; and
• Track and monitor contract actions and dollars.
We believe the scope of these actions will be sufficient to strengthen the controls for tracking
and monitoring contracts and the additional problems discussed in this report. Further, we
believe these actions should result in data that is available and accurate to ensure transparency in
reporting.
Recommendations, Management Comments, and Audit
Response
We recommend the Head of Contracting Activity request the Defense Contract Audit Agency
perform a post-award audit of contract DABV01-03-C-0015, the National Currency Exchange
Program.
Management Comments. The Head of Contracting Activity non-concurred with the
recommendation and stated, “It is important to note that Contract DABV01-03-C-0015, National
Currency Exchange was a DFI funded contract that is not subject to the Federal Acquisition
Regulation. We noted that the DCAA documentation in the file is not a DCAA audit rather; it is
a request for pricing assistance by the contracting officer. While not in the original file,
documentation recently obtained from DCAA (Attachment1), indicates that the Contracting
Officer would negotiate the reduced rate unless justification was provided from the contractor.
Justification was provided from the contractor as originally documented in the file and the
contract was awarded for $24,770,738 vice $31.7 million.”
Audit Response. The Contracting Activity Office comments were not responsive to our
recommendation. Specifically, the nature of the DCAA analysis, (i.e. audit vs. pricing
assistance) does not change the DCAA results. The contractor proposed a price of $24,770,738,
of which DCAA questioned $5,080,717 in costs, but the contract was awarded at full price. The
contracting office provided us with an email stating the Procuring Contracting Officer would
award the contract at the lower price and wait for an explanation for the increase. (That email
also contained proprietary information and will not be included in this report.) However, we
found no support to demonstrate further negotiations or that the contractor provided additional
support for the proposed price. Additionally, management comments refer to a price difference
in the award of $7 million. However, the reduced price management refers to is the difference
between the original contract and the final contract amount after five modifications. We
continue to believe the recommendation is valid and we will work with the Head of Contracting
Activity to reach a mutually satisfactory resolution. We will accomplish audit follow-up to
evaluate management corrective actions.
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Appendix A. Scope and Methodology
We performed this audit from April thru July 2004 in accordance with generally accepted
government auditing standards.
We reviewed Coalition Provisional Authority Regulation 2, “Developmental Fund for Iraq,”
June 10, 2003, and Coalition Provisional Authority Memorandum 4, “Contract and Grant
Procedures Applicable to Vested and Seized Iraqi Property and the Developmental Fund for
Iraq,” August 19, 2003.
We interviewed contracting officials assigned to the Coalition Provisional Authority (CPA)
North, CPA South, and to the CPA Contracting Activity, part of the Iraq Project and Contracting
Office. We also interviewed the Head of Contracting Activity and the Head, Policy and
Compliance, at the CPA Contracting Activity.
We attempted to verify the contract listing contained in EXCEL spreadsheets maintained by the
CPA Contracting Activity by comparing that contract listing to manually prepared contract
registers and other source documents. We judgmentally selected 45 contracts for review from a
universe of 1,928 contracts recorded in the spreadsheets and valued at approximately $847
million. Those 45 contracts were awarded between July 4, 2003 and April 4, 2004, and were
funded with Development Funds for Iraq. We reviewed each contract file to determine whether
the file adequately documented actions related to acquisition planning, source selection, use of
competition, and contract negotiation
Scope Limitation. Our scope was limited due to time and resource constraints. Specifically, we
did not review files from the South Central contracting office (located in Al Hillah, Iraq) due to
security concerns.
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Appendix B. Management Comments from the Head
of Contracting Activity
6

7

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Appendix C. Acronyms
CPA Coalition Provisional Authority
DCAA Defense Contract Audit Agency
DFI Development Fund for Iraq
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Appendix D: Report Distribution
Office of the Secretary of Defense
Under Secretary of Defense (Comptroller)/Chief Financial Officer
Director, Program Analysis and Evaluation
Deputy Chief Financial Officer
Deputy Comptroller (Program/Budget)
Inspector General, Department of Defense
Director, Defense Procurement and Acquisition
Office of the Secretary of State
U.S. Ambassador to Iraq
Inspector General, Department of State
Director, Iraq Reconstruction Management Office
Department of the Army
Assistant Secretary of the Army, Acquisition, Logistics & Technology
Assistant Secretary of the Army for Policy and Procurement
Auditor General, Department of the Army
Other Defense Organizations
Director, Defense Contract Audit Agency
Other Federal Government Organizations
Office of Management and Budget
Government Accountability Office
Inspector General, Department of Commerce
Inspector General, Health and Human Services
Inspector General, U.S. Agency for International Development
Congressional Committees and Subcommittees, Chairman and
Ranking Minority Member
Senate Committee on Appropriations
Senate Subcommittee on Defense, Committee on Appropriations
Senate Committee on Armed Services
Senate Committee on Governmental Affairs
Senate Committee on Foreign Relations
House Committee on Appropriations
House Subcommittee on Defense, Committee on Appropriations
House Committee on Armed Services
House Committee on Government Reform
House Subcommittee on Government Efficiency and Financial Management, Committee on
Government Reform
House Subcommittee on National Security, Emerging Threats, and International Relations,
Committee on Government Reform
House Subcommittee on Technology, Information Policy, Intergovernmental Relations, and the
Census, Committee on Government Reform
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Appendix E: Audit Team Members
The Logistics Management Division, Office of the Assistant Inspector General for Auditing,
Coalition Provisional Authority, prepared this report. Personnel of the Office of the Assistant
Inspector General for Auditing, Coalition Provisional Authority, who contributed to the report
are listed below.
John Betar
Brian Flynn
Robert Murrell
Kevin Ellenberger
Ramon B. Miller Jr.
David Griffin
Wei Wu
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