Contracting of Real Estate Management Services
BACKGROUND:
In June 2011, the U.S. Postal Service awarded a contract to CB Richard Ellis, Inc. to be the sole provider of real estate management services to more effectively use its limited resources. Outsourcing real estate management services to one supplier is a fundamental change from how the Postal Service previously managed its real estate portfolio. Our objectives were to assess the inherent risks of the contract and determine whether the Postal Service effectively provided oversight to reduce these risks.
WHAT THE OIG FOUND:
Postal Service Facilities officials should improve oversight to mitigate inherent risks associated with the CB Richard Ellis contract. Specifically, there are conflict of interest concerns and no maximum contract value. In addition, the contracting officer did not properly approve contract payments, appoint contracting officer's representatives to monitor contract performance, or ensure services were provided. As a result, it is difficult for the Postal Service to determine whether the outsourcing effort has been or will be effective in reducing costs.
Conflict of interest concerns exist because the contractor provides a range of property values to negotiate a lease and receives a commission from the lessor based on the property value negotiated. Further, the contractor acts on behalf of the Postal Service in negotiating leases and the contractor can also represent the lessor. The Postal Service established a targeted incentive for reduced lease rates but in the first year of the contract did not meet the target. In addition, Facilities officials did not establish a maximum contract amount, which poses the risk of escalating contract costs. Officials increased contract funding from $2 million to $6 million and, as of February 2013, contract payments exceeded $3 million.
Lastly, in fiscal year 2012, employees not appointed contracting officer’s representatives certified $1.7 million for invoices, including $1.1 million for services requested and certified by the same individual, which presents an increased risk of fraud. Ineffective contract oversight poses an increased risk to the Postal Service’s finances, brand, and reputation.
WHAT THE OIG RECOMMENDED:
We recommended management establish a reasonable maximum contract value based on historical budgets, designate contracting officer's representatives, and specify their duties to monitor contract performance and approve payments.