SIGIR 05-012: Policies Procedures For IRRF PM CQA

Audit Report Policies and Procedures Used for Iraq Relief and Reconstruction Fund Project Management - Construction Quality Assurance Report No. SIGIR 05-012 July 22, 2005 Office of the Special Inspector General for Iraq Reconstruction SPECIAL INSPE CTOR GENE RAL FOR IRAQ RECONSTRUCTION July 22, 2005 MEMORANDUM FOR DIRECTOR, PROJECT AND CONTRACTING OFFICE COMMANDER, GULF REGION DIVISION, U.S. ARMY CORPS OF ENGINEERS SUBJECT: Policies and Procedures Used for Iraq Relief and Reconstruction Fund Project Management - Construction Quality Assurance (Report No. SIGIR 05-012) 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, as amended, which mandates the independent and objective conduct of audits relating to the programs and operations funded with amounts appropriated or otherwise made available to the Iraq Relief and Reconstruction Fund. Public Law 108-106, as amended, requires that we provide for the independent and objective leadership and coordination of and recommendations on policies designed to promote economy, efficiency, and effectiveness in the administration of such programs and operations and to prevent and detect waste, fraud, and abuse. This report does not contain recommendations, therefore, no written response to this report is required. We appreciate the courtesies extended to our staff. For additional information on this report, please contact Mr. James P. Mitchell at jim.mitchell@sigir.mil or at (703) 428-1100. For the report distribution, see Appendix D. Stuart W. Bowen, Jr. Inspector General 400 Army Navy Drive • Arlington, Virginia 22202 Special Inspector General for Iraq Reconstruction Report Number SIGIR 05-012 (Project No. D2005-DCPAAP-0005) July 22, 2005 Policies and Procedures Used for Iraq Relief and Reconstruction Fund Project Management – Construction Quality Assurance Executive Summary Introduction. In May 2005, we initiated an audit to determine whether the policies, procedures, and internal controls used by U.S. government organizations resulted in the effective management of Iraq reconstruction projects. This audit report is the first of a series of reports addressing policies and procedures used by U.S. government organizations within Iraq to manage reconstruction projects funded by the Iraq Relief and Reconstruction Fund. This report discusses policies and procedures used for construction quality management. Objective. The objective of this audit was to identify the policies, procedures, and internal controls established by U.S. government organizations for monitoring and reviewing Iraq reconstruction projects. This information was obtained as part of a broader review of the effectiveness of the U.S. government’s policies, procedures, and internal controls, and whether those policies, procedures, and internal controls are adequately coordinated by and among U.S. government organizations and sufficiently consistent for the effective management and timely completion of Iraq reconstruction projects. We plan additional reviews to determine the effectiveness of these policies, procedures, and internal controls and the adequacy of their coordination. Results. The Project and Contracting Office and the U.S. Army Corps of Engineers, the two major organizations involved in Iraq Relief and Reconstruction Fund projects, have issued written policies and procedures for establishing and managing construction quality management programs for reconstruction projects funded by the Iraq Relief and Reconstruction Fund. i Table of Contents Executive Summary i Introduction Background 1 Objective 1 Finding Policies and Procedures 3 Appendixes A. Scope and Methodology 4 B. Project and Contracting Office Standard Operating Procedures 5 C. Acronyms 7 D. Report Distribution 8 E. Audit Team Members 10 Background Introduction In May 2005, we initiated an audit to determine whether the policies, procedures, and internal controls used by U.S. government organizations resulted in the effective management of Iraq reconstruction projects. This audit report is the first of a series of reports addressing policies and procedures used by U.S. government organizations within Iraq to manage reconstruction projects funded by the Iraq Relief and Reconstruction Fund (IRRF). This report discusses policies and procedures used for construction quality management. Construction Quality. Obtaining quality construction is a combined responsibility of the construction contractor and the government. The contract documents should specify, establish, and clearly define the quality of materials and workmanship required for a construction project. Construction contractors must comply with the contract’s terms and produce the required product. Certain civil works structures specify a construction procedure in lieu of an end-product. In such instances, contractors are responsible for the specified procedure and the government must verify design assumptions, project control, and assure the end-product quality. Contractors are responsible for all activities necessary to manage, control, and document work so as to ensure compliance with the contract terms, plans, and specifications. Accordingly, the contractor develops and implements a contractor quality control system to manage, control, and document all construction activities and other functions related to delivering quality construction. Government Quality Assurance. Government quality assurance is the process by which the government assures end product, project, or specified procedural quality. The government quality assurance process starts well before construction and continues through acceptance of completed construction. While government quality assurance is required on all construction contracts, the extent of government quality assurance activity should be commensurate with the value and complexity of the contracts involved. In any case, effective monitoring and review of construction activity by the government is paramount to ensure that completed construction projects are compliant with contract specifications. Management of Iraq Reconstruction Projects. The Project and Contracting Office (PCO) and the U.S. Army Corps of Engineers (USACE) are the two major organizations involved in the management of IRRF related projects. The PCO is responsible for all activities associated with asset, financial, program, and project management and for managing both construction and non-construction activities. Objective The objective of this audit was to identify the policies, procedures, and internal controls established by U.S. government organizations for monitoring and reviewing Iraq reconstruction projects. 1 This information was obtained as part of a broader review of the effectiveness of the U.S. government’s policies, procedures, and internal controls, and whether those policies, procedures, and internal controls are adequately coordinated by and among U.S. government organizations and sufficiently consistent for the effective management and timely completion of Iraq reconstruction projects. We plan additional reviews to determine the effectiveness of these policies, procedures, and internal controls and the adequacy of their coordination. For a discussion of the audit scope, methodologies, and prior coverage, see Appendix A. For definitions of the acronyms used in this report, see Appendix C. For a list of the audit team members, see Appendix E. 2 Policies and Procedures The PCO and the USACE, the two major organizations involved in IRRF projects, have issued written policies and procedures for establishing and managing construction quality management programs for reconstruction projects funded by the IRRF. Project and Contracting Office The PCO manages approximately $13 billion of the IRRF program, of which approximately $8.7 billion has been apportioned for construction projects, and is responsible for all activities associated with construction. Its policies and guidance for establishing construction quality management procedures are detailed in its standard operating procedures. Between June and December 2004, the PCO issued more than 100 standard operating procedures, and we identified 42 that were related to construction and contracting quality management. The procedures range from conducting construction quality control and assurance inspections to final inspection, acceptance, and transfer of construction. According to a senior PCO official, these procedures supplement the USACE regulation, which also applies to PCO managed projects. A list of the PCO Standard Operating Procedures that apply to construction quality management is provided in Appendix B. U.S. Army Corps of Engineers USACE Regulation 1180-1-6, “Construction Quality Management,” September 30, 1995, provides the general policy and guidance for establishing quality management procedures in the execution of USACE construction projects. The regulation is based on requirements in the Federal Acquisition Regulation and applies to all USACE elements, major subordinate commands, districts, and field operating activities responsible for awarding and supervising construction contracts. Essentially, the regulation recognizes that obtaining quality construction is a combined responsibility of the construction contractor and the government. On the government side, the process starts before construction and includes reviews of plans and specifications for biddability, constructability, operability, and environmental responsibility; plan-in-hand site reviews; coordination with using agencies or local interests; establishment of performance periods and quality control requirements; field office planning; preparation of quality assurance plans; and reviews of quality control plans. During construction, the government is responsible for enforcement of contract clauses, maintenance of quality assurance and quality control inspection and work records, and acceptance of completed construction. On the contractor side, contractors are responsible for all activities necessary to manage, control, and document work so as to ensure compliance with the contract terms and specifications. The contractor’s responsibilities include ensuring adequate quality control services are provided for work accomplished on- and off- site by the contractor, suppliers, subcontractors, technical laboratories, and consultants. The work activities include safety, submittal management, and all other functions relating to the requirement for quality construction. 3 Appendix A. Scope and Methodology To obtain information on construction quality management policies and procedures, we reviewed portions of the Federal Acquisition Regulation and the U.S. Army Corps of Engineers Regulation 1180-1-6, “Construction Quality Management,” September 30, 1995, applicable to construction quality management and discussed these regulations with professional engineers experienced in Iraq reconstruction1 . We also reviewed the Project and Contracting Office’s Standard Operating Procedures Index to identify those procedures applicable to construction quality management and obtained and reviewed all applicable procedures for completeness. We also discussed these procedures with senior Project and Contracting Office officials. We conducted this performance audit from May through July 2005, in accordance with generally accepted government auditing standards. Scope Limitation. We did not test the adequacy of the Federal Acquisition Regulations, the U.S. Army Corps of Engineers regulation, or the Project and Contracting Office Standard Operating Procedures. We plan to test the adequacy of regulations, policies, procedures, and internal controls and the implementation of that guidance in a series of on-site reviews and will report our results in a future audit reports. Prior Coverage. There were no audits performed in the past five years with the same or similar objectives as this audit. 1 The professional engineers were the Project and Contracting Office’s Deputy for Operations; the Project and Contracting Office Government Water Sector Project Manager; and the Special Inspector General for Iraq Reconstruction’s Senior Project Technical Manager. 4 Appendix B. Project and Contracting Office Standard Operating Procedures Updated: 3/31/05 PROCEDURE NUMBER EFFECTIVE DATE Contracting Contracting primer CM-100 11/05/04 Contractor invoicing CM-101 06/30/04 Evaluate contractor performance and administer fee boards CM-102 11/05/04 Conduct negotiations of scope and price for db task orders CM-103 06/30/04 Management of contractor-acquired government property CM-104 07/05/04 Identification and appointment of contracting officer’s representatives CM-105 11/05/04 Adjust award fee plan evaluation criteria CM-106 11/05/04 Construction Conduct construction contractor quality control and assurance inspection CN-100 06/20/04 Prepare project construction management plan CN-101 06/17/04 Contractor quality control and assurance construction deficiency tracking CN-102 06/29/04 Contractor construction quality control plan CN-103 06/20/04 Construction contractor quality control assurance mutual understanding meeting CN-104 06/29/04 Construction submittal review process CN-105 06/20/04 Biddability, constructability, operability, and environmental reviews CN-106 06/20/04 Process construction interim payments (cost plus) CN-107 12/19/04 Accident prevention plan CN-108 06/20/04 Schedule update and progress payment for firm fixed-price construction CN-109 12/19/04 Develop construction submittal register CN-110 06/30/04 Preconstruction conference CN-111 06/30/04 Processing construction contractor performance evaluations CN-112 06/30/04 Request for information-construction CN-113 06/30/04 Preparation of as-built drawings CN-114 07/05/04 Construction project photographs CN-115 06/30/04 Develop project security plan CN-116 06/30/04 Operation and maintenance training CN-117 06/30/04 Final inspection, acceptance, and transfer of construction CN-118 Rev 1 12/25/04 Develop operation and maintenance manuals CN-119 06/30/04 System startup and commissioning CN-120 07/05/04 Process modification for changes (directed and constructive) CN-121 07/15/04 Process modification for differing site condition CN-122 06/30/04 Process modification for excusable delay CN-123 07/05/04 Process modification for user requested change CN-124 06/30/04 Designation of procuring, administrative, and termination contracting officers CN-125 07/05/04 5 Process suspension of work (ordered and constructive) for construction CN-126 07/05/04 Resolving contract disputes and claims CN-127 12/19/04 Terminations for the convenience of the government and for default CN-128 12/19/04 Beneficial occupancy CN-129 07/05/04 Task order final payment and closeout (cost plus) CN-130 12/19/04 Contractor quality control factory testing CN-131 12/19/04 Warranty repair procedures CN-132 07/05/04 Accident investigation and reporting CN-133 06/29/04 Preservation of historical, archeological, and cultural resources CN-134 07/05/04 6 Appendix C. Acronyms IRRF USACE Iraq Relief and Reconstruction Fund PCO Project and Contracting Office U.S. Army Corps of Engineers 7 Appendix D. Report Distribution Department of State Secretary of State Senior Advisor/Coordinator for Iraq U.S. Ambassador to Iraq Director, Iraq Reconstruction Management Office Inspector General, Department of State Department of Defense Deputy Secretary of Defense Director, Defense Reconstruction Support Office-Iraq Under Secretary of Defense (Comptroller)/Chief Financial Officer Deputy Chief Financial Officer Deputy Comptroller (Program/Budget) Inspector General, Department of Defense Department of the Army Assistant Secretary of the Army for Acquisition, Logistics, and Technology Principal Deputy to the Assistant Secretary of the Army for Acquisition, Logistics, and Technology Deputy Assistant Secretary of the Army (Policy and Procurement) Director, Project and Contracting Office Assistant Secretary of the Army for Financial Management and Comptroller Commander, U.S. Army Corps of Engineers Commander, Gulf Region Division Auditor General of the Army Other Defense Organizations Director, Defense Contract Audit Agency Other Federal Government Organizations Director, Office of Management and Budget Comptroller General of the United States Inspector General, Department of the Treasury Inspector General, Department of Commerce Inspector General, Department of Health and Human Services Inspector General, U.S. Agency for International Development 8 Congressional Committees and Subcommittees, Chairman and Ranking Minority Member U.S. Senate Senate Committee on Appropriations Subcommittee on Defense Subcommittee on Foreign Operations Senate Committee on Armed Services Senate Committee on Foreign Relations Subcommittee on Near Eastern and South Asian Affairs Subcommittee on International Operations and Terrorism Senate Committee on Homeland Security and Governmental Affairs Subcommittee on Government Efficiency and Financial Management Subcommittee on Financial Management, the Budget, and International Security U.S. House of Representatives House Committee on Appropriations Subcommittee on Defense Subcommittee on Foreign Operations, Export Financing and Related Programs House Committee on Armed Services House Committee on International Relations Subcommittee on Middle East and Central Asia House Committee on Government Reform Subcommittee on Government Efficiency and Financial Management Subcommittee on National Security, Emerging Threats and International Relations 9 Appendix E. Audit Team Members The Office of the Assistant Inspector General for Auditing, Office of the Special Inspector General for Iraq Reconstruction, prepared this audit report. The Office of the Special Inspector General for Iraq Reconstruction staff members who contributed to the report include: Michael A. Stanka, PE William J. Whitehead Lloyd E. Wilson 10