Watchdog cites improper contract action

A division director at the General Services Administration's Federal Acquisition Service inappropriately intervened on behalf of a large management consulting firm in negotiations for the agency's contracts, according to GSA's Office of Inspector General.

In a report released on July 23, auditors said an FAS officials had improperly aided Washington, D.C.-based management services provider McKinsey and Co. in setting pricing for a professional services contract and entry onto the Schedule 70 contract. As a result, the OIG recommended that a Federal Supply Schedule contract and an IT Schedule 70 contract be cancelled.

The report doesn't name the division director but states that in 2016 the official stepped into renegotiations with McKinsey on a professional services contract under the Federal Supply Schedule and replaced a lower-level GSA contracting officer who had asked the company to provide support for its proposed pricing. According to the OIG report, the director made invalid comparisons, used unsupported information and manipulated GSA's pricing tool to skew the price analysis.

The improper pricing model may wind up costing the U.S. as much as $69 million, the report states.

Since 2006, McKinsey has held a renewable contract under the Federal Supply Schedule to provide strategy, organization, operations and business technology management consulting services. The company's current contract will expire in January 2021.

The same official helped McKinsey get a spot on GSA's IT Schedule 70 multiple-award contract in 2016 after the company had failed repeatedly because GSA contracting officials said its proposed rates for services were "ridiculous" and unsupported, the report states.

Auditors wrote that the company was determined to gain access to Schedule 70 despite the repeated rejections, and a McKinsey representative told a GSA contracting official who was handling the negotiations that the company would keep submitting its offer until it got a contract.

According to the OIG’s report, the company asked the FAS official for help, after which the contract was reassigned from the Fort Worth, Texas, office to GSA’s Washington, D.C., office. McKinsey was awarded a Schedule 70 contract in August 2017. Since then, the contract has reported $1.6 million in sales and hasn't been audited, according to the OIG.

In a July 19 memo to Jay Fisher, acting regional IG in the OIG's Office of Audits, FAS Commissioner Alan Thomas said he agreed with the concerns raised.

He added that the official involved no longer works at FAS, and FAS is pursuing "appropriate action" against the employee. Furthermore, the Federal Supply Schedule contract and the Schedule 70 contract have been reassigned to a new team at FAS.

Thomas told the OIG that the agency had strongly considered cancelling McKinsey's two contracts as recommended by the report and will renegotiate pricing on both contracts. That process stops any new work from being started and will facilitate a smoother transition for the agencies that are already using the contracts, he added.

A McKinsey spokesman told FCW: "We have received the OIG’s report and are in discussions with GSA."

If the company won't renegotiate, FAS  will cancel the contracts, Thomas said.

Editor's note: This story was updated July 26 with comment from Kinsey.