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CENTRAL INTELLIGENCE AGENCY


Office of lnspector General

(U) REPORT OF AUDIT


(l)) The Use of Independent Contractors
Report No.. 201 0-0028-AS

(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

22 June 2012

Issue Date

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Table of Contents
(U) EXECUTIVE SUMMARY ......................................................................................... 1
(U) BACKGROUND ....................................................................................... ................. 4
(U) Independent Contractors ................................................................................ 4 .
(U) Independent Contractors Are Used Extensively Throughout the CIA ........ 4
(U} AUDIT RESULTS AND RECOMMENDATIONS ...................................................... 7

(b)(3) CIAAct
U//POUO) Contracting Practices Within
~Violate CIA Regulation ...........................,. ..................................... 7
(U) Some Independent Contractors Are Performing Inherently
.
Governmental Functions ..................................................................................... 10
U/lfOl:JG} Independent Contractors Within l
(b)(3) CIAAct
re Interviewing Applicants ............................................... 10
(U//FOl:JQ) Some Independent Contractors Utilized by the
CounterTerrorism Center Are Performing a Supervisory Role .................. 12
(U) Price Analysis Is Not Adequately Documented .......................................... 1J
_ _
(b)(3) CIAAct
~
Do Not Provide Services on a Fee-for- asl< Basas ............................................. 14
(GHNF} Independent Contractors in

{U) Independent Contractors Begin Work Without a Contract ........................ 16


(U) Objectives, Scope, and Methodology ......................................................Exhibit A
(U) Sample of Independent Contractor Proposal Review ............................ Exhibit B
{U) Employee Bulletin 0012-07 ...................................... ............ .....................Exhibit C
(U) List of Sample Contracts With Unauthorized Commitments ........ ~........Exhibit D
(U) Recommendations .......................................................................:............ Exhibit E
(U) Audit Team .............................~ ................................................................... Exhibit F

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(U) Report of Audit
(U) The Use of Independent Contractors
(U) EXECUTIVE SUMMARY

Independent contractors are used in compliance with


applicable guidance.

Independent contractor prices are fair and reasonable.

Appropriate contract types are used for independent


contractor work.
(b)(3) CIAAct

(b)(3) CIMct

(8~W) Independent contractors (ICs) are self-employed individuals with whom the
CIA contracts to a[ uirj specific services. ICs are not employees of the CIA. ln FY 2010,
the CIA executed
new IC contracts and task orders valued at
to obtain
(b)( 1)
a wide variety of services i~cluding worldwide operational assistance
(b)(3) NatSee_Act
]translators, protective security services, CIA Universll-:-ty-u'l
.,s-.,.-c
tru --,-to
_ r_s_, a- n-1
research services. ICs are used hv all Directorates. As of31 July 201 1, the CTA utilized
the services o~
~Cs. (b)(3) CIAAct

(Chq.W) The CIA relies heavily on ICs to accomplish important facets of its mission
and should strive to protect the overall integrity of the IC program, while at the same time
procuring the appropriate services at a fair and reasonable price. During the audit, we
identified instances of noncompliance with federal laws and CIA regulation: (1) there
is the appearance of an emp_lQ~_plov..ee relationshill..between the CI~ and National
(b)(3) CIAAct
lCs, and (2) ICs
Clandestine Service <NCS)i
within tb
(b)(3} CIAAct
}are performi~g inherently_ __,
ovemmental functions when they interview prospective employees.
(b)( 1)
(b)(3} CIMct
(b)(3) NatSecAct
(b}(5)

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~'fNf') CIA components should carefully scrutinize expenditures and ensure the
CIA is paying the best possible price for IC services. We found that contracting officers
and procurement oflicers 1 are not adequately documenting the price analysis and
negotiations used to substantiate the prices paid for IC services. Without evidentiary
documentation that demonstrates cost reasonableness, it is not known whether_the CIA
is a ing more for IC services then it needs to a .

(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct
(b)(5)

(CIItif') Most of the IC contracts we reviewed contained an appropriate contract


type. However, ICsC_
_ Jare-paid und(b)(1 ).borhour contract, the least preferred met oa or contracting with res, resulting ir(b)(3) NatSecAct
increased workload on an already overburdened contract stafl' and no ositive incentive
(b)(1 ) l
for the ICs to control costs and work efficiently. !
(b)(3) ClAAct/
(b)(3) NatSecAct
(b)(5)

(U//FOUO) Many ICs, most of whom work for the NCS, begin performance of
services without a valid contract or task order. These actions, referred to as unauthorized
commitments, are non-binding agreements made by representatives without the authority
to enter into contracts on behalf of the US Government. The CIA is under no obligation
to fulfill the terms of an unauthorized commitment and has discretion whether or not to
ratify the unauthorized commitment with the contractor.
(b)(S)
]
[
that last-minute requirements chal1enges with
implementing the new acquis ition system,C (b)(3) CIAAct:-:J and a contract staff that
struggles to keep u with the volume of IC task orders contribute to res work in without
a valid contract.
(b)(3) CIAAct
(b){S)

(UI/~) A procurement officer is an officer with the authority to enter into and administer procurement
actions for commercial type products, services, and JCs. Generally, a procurement officer will handle commercial
purchases, IC contracts, and other finn-fixed-price type contracts, but can bandle other types of contracts if so
authorized. The main difference between a procurement officer and a contracting officer is the level of education
ui~
re:.-.d.,_
. ------and training~re~
1

<_b_H3_)_c_IAA
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c_
t ____________________

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(b)(3) CIMct
(b)(5)

~~b)(3) CIAAct~
L b)(6)

-_j

Acting Assistant Inspector General for Audit -

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(U) BACKGROUND
(U) Independent Contractors

(U//FOUe) Independent contractors are self~employed individuals with whom the


CIA contracts to acquire specific services. ICs are not employees of the CIA. ICs are
not incorporated, and contracts must be issued in the name of the i diYidital wh.o_wi!
provide the service.
(b)(3) CIAAct
.__ _ _ _ _ _ _ _ _ _ the CIA may contract with ICs when (a) the services to
be performed are for a specific task over a fixed period for a specific fee or other legal
consideration; (b) the work to be done requires a unique skill or knowledge for its proper
performance; and (c) the work does not have to be done pursuant to a regimented daily
time schedule. An IC arrangement should not be considered until use of existing CIA
staff resources and industrial contracts--competitively awarded or sole sourced-prove
to be unavailable or inappropriate. CIA personnel may not supervise ICs or prescribe
how the agreed-upon services are to be performed. CIA personnel should, however,
review ICs' work products to ensure the ICs are satisfying the requirements of their
contracts.
(U//FeH-9) The Procurement Executive oversees the policies and regulations
ICs to ensure consistency among components, while giving due regard to
the components' differing needs. CIA policy, authorities, and responsibilities for the
administration ofiCs are set forth in Agency Regulation (AR) 40-8, independent
Contractors. Additionally, the Procurement Executive has established[ (b)(3) CIAAct~
(b)(3) CIAAcr
l procedures and clauses for contracting for the services of ICs where such
procedures and clauses differ from what is normally required of the contracting officer
or procurement officer to contract for other non-personal services. For any issues not
addressed C{b)(3) CIAAct~the CIA should apply normal contracting procedures.
gov~rning

(U) Independent Contractors Are Used


(b)(3) CIAAct
Extensively Throughout the CtA

(Sj) In FY 2010, the CIA executed[


valued at

lnew JC contracts and task orders'

Ito obtain a wide variety of services, as depicted in Figure 1.4

(b)(3) CIAAct

(b)(3) CJAAct
(b)(3) CIAAct

(U//~ As of 18 November 2010, thel


(b)(3) CIAAct
~howed thatc =tc contracts
and task orders were awarded during FY 20 I0. To determine our population, we excluded0
zero-dollar contracts, 102
Office of the Director of National Intelligence contracts, and seven National Geospatial-lntelligence Agency contracts,
resulting i~ IC contracts and task orders with an effective date between 1 October 2009 and 30 September 20 l 0.
3

~ "Other" category shown in Figure 1 includes the following orocucement entities bv directOiate: Nafional
Clandestine SerVice: 0 lobal Deployment Center, jl ----.:;::-->"--:---,;::-;;;;--:;o=o-;-.,....-;-----::= - -;;-;;

(b)(3)
CIAAct

Information Operations Center; Dire'it.orate ofScience and Tee~: Office..oLGlobalAcess ~fTechnical


Collection, Corporate Services Staff,[
_ _ jDirectorate
(b)(3) CIAAct
ofSuooon.-_Q al Communications Services, !
'
Director's Area: Director's Executive- Support Staff, Information Management Services.
4

(b)( 1)
(b)(3) NatSecAct

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(b)( 1)

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'tet Figure 1
(U) Nw IC Contracts aifd Task':.orden: by Procurement En

- FY 2010

(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

{U//fetf&) Source: Auditor-developed from da


18 November 2010.

(b)(3) CIAAct

(b)(3) CIAAct
(b)(3) CIAAct
.

~on

ESi,q.ff) As of31 July 2011,f


] reported! _j1cs under contract
with the CIA.5 The majority ofiCs can be grouped by the similarity of tasks they
perfonn, to r
in~c~
lu~d~e~:--------------------------------------------~

(b }( 1)
(b}(3) CIAAct
(b)(3) NatSecAct

s U//.Petfe) Reliable historical information on the number of ICs is not available due to limitations in the
eportin functionality and the way IC contracts and task orders were recorded and modified in the
ystem.
eplacedL
""]in October 20 I 0.

(b)(3) CIAAct

(b)(3} CIAAct

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The Open Source Center has approximately !


ICs that provide
translation services of print and audio and other translation-related
services, such as research and acquiring materials for translation.
The Human Resources/Recruitment Centetf
]has approximately
(b)(3) CIAAct
0 ICs that conduct phone and in-person interviews of applicants for
employment within the NCS 's Professional Trainee and Clandestine
Service Trainee Program.

(b)(3) CIAAct

The DS/Office of Security/Global Response Staff bas approximately


L_.ICs that provide protective services at designated locations
overseas. These ICs supplement C~
- (b)(1) ~

(b)(3)
CIAAct

(b)(3}Na~

The DI has approximatety0ICs that conduct research and analysis


on assign~d topics and prepare research papers and presentations.

CIA University has approximately! ~~cs that provide instruction and


lectures, facilitate course segments, and create and provide support
materials.

(b)(3) CIAAct

(b )(3)
CIAAct

(b)(1)
(b)(3) CIAAct
(b}(3) NatSecAct

i&J Figure 2
(U)

Petc~nt

of T.otai:Doll~r :Value~of New IC:.~conlracts and~Task


orders.b . Director~
at.....,e:....::.::.:F-.~Y.:::...!2~0:..!.1~
0 -----------,

(b)(1)
(b)(3) CIAAct
(b)(3) NatSecAct

(U) Source: Auditor-developed based on information'! _ _ _ _ _(b


_)_(3_)_C
_I_AA
_ c_t _ _ _ _..___.

(b)(3) CIAActm 18 November 2010.


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!(U) AUDIT RESULTS AND RECOMMENDATIONS

lUJIIouo

Contractin

[_

(C/J'N1'~

Practices Within
Violate CIA Regu lation

(b)(3) CIMct

(b)( 3 ) CIMc

P1as a significant number of individuals


under contract as ICs that are being utilized or .are providing services in a manner that makes
them appear to be employees, which is in violation of CIA regulation and procedures.
AR 40-8, Independent Contractors,1 (b )(3) CIAAct
!state that the use of an IC contract
is not appropriate when the terms of the IC contract would create the appearance of an
employer-employee relationship between the CIA and the IC. There are significant risks to
the CIA associated with treating ICs as employees, including the potential liability for taxes
and employee benefits that would have been withheld or paid had the individuals been
treated as employees and potential criticism that the CIA is circumventing its
Congressionally mandated personnel ceiling by utilizing ICs as if they were employees.
(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

(S/~W) In assessing whether a contract with an IC creates the appearance of an


emplo er-employee relationship, which is prohibited by AR 40-8, we reviewed the tenns
of~
ndependent Contractor Ordering Agreements (ICOAs) and task orders. 7
We considered the description of work to b~ performed in the ICOA and task order, the
information recorded on the
Requirement Form, the contract type used,
the IC Proposal Review Check Sheet,' the Business Review,9 and interviews with the

(b)(3) CIMct

(b)(3) CIAAct

L
;= ==

==----==-----(b)(3) CIAAct

(U) An ICOA allows for the issuance of fixed-priced services task orders during a tixed per1od not exceedmg
three years. The bilateral base agreement will include all terms and condit ions for the specified services. All services to be furnished under the lCOA will be issued as task orders. All task orders are subject to the tenns and

c.onditii>DS oftbtiCOA._

(b)(1)
(b)(3) CIAAct
(b)(3) NatSecAct
(b)(S)

(U//POUO) A Business Review is a contract document that contains the specifics of a procurement including a
checklist of minimally required documentation/certifications per the Federal Acquisition Regulation and the CIA
Contracting Manual; points of contact; a description of the procurement, market research, source justification, and
justifications for contract type and contract price; and any other special issues.

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(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

contracting or procurement officer and the COTR. NCS performed a search


on individual IC names and we reviewed a sample of cables that provided us with
examples .ofthe work activities carried out by the ICs. (b)(3) CIAAct

(/IUF) We found that, in most instances,f ---~C 'contracts are not established
for a soecific purpose and fee as required by AR 40-8. For example, task orders with
(b)( 3 ) CIAAct
do not contain specific tasks to be performed by the IC. Instead, almost all of
the task orders we reviewed merely stated tfbo)t(3("')
ired to "provide operational
11
c Requirement Fonn that NCS
support'' to a specific station or base. Th ~
area divisions, components, and centers send to
to request the services of an
(b)( 3 ) CIAAct
IC provides only slightly more information than the task order regarding how the NCS
intends to use the IC. Based on discu si
with the Chief,'
(b)(3) CIAAct
land the COTR for [_
NCS ofticers provide specific direction to b 3 CIAAct
the ICs when they arrive at the station or base. The failure to explicitly articulate in the ( )( )
contract the tasks to be performed by the ICs used by[
contributes to the
appearance of an employer-employee relationship.
(b)(3) CIAAct

Jcs

ciAA. t-il

I__

( )( )

C IAAct~ Additiona~"lyj

(b)(3) CIAAct
]the ~pe of contract. used for
J Cs, labor-hour, 1s the least preferred method of contractmg for IC servtces and
provides no positive incentive to the TC for labor efficiency. Labor-hour contracts
provide for acquiring services on the basis of labor-hours at a specified hourly rate.
(b)(3) CIAAct
Jrecommends firm-fixed-price completion contracts because they bel
mat tam_an "ann' -lenrrth reJatio.nsbio" betwe.en..t.heJ:IA_and the~C..

1_

(b)(3) CIAAct
(b)(5)

The"iC Proposal Review also indicates the appearance of an emplo~


employee relationship: (Exhibit B contains the TC Proposal Review used for allL _ j (b)(3) CIAAct
ICs.) The IC Proposal Review contains 20 factors for the contracting officer or
procurement officer to consider when assessing whether the arrangement reflects an
employer-employee relationship. As stated in the IC Proposal Review Check Sheet,
"a "yes" answer means that particular factor indicates the proposed IC contract or its
a~ministration could lead towards the c~eation of an emfoi:er-emJ loyee relationship.
wtth the IC." The one IC Proposal Revtew prepared for
contracts shows nme
(b)(3)
of the 20 factors marked "yes," including that the IC will perform a key aspect of the
CIAAct
Agency's mission (#9), the IC will be precluded from having some control over hiring
arid paying of assistants (# 13),~nd the contract would be tor an ongoing need (#8).
(b)(3) CIAAct
jthere is not a total number of factors that, when
exceeded, automatically puts a proposed TC contract into the realm of forming an
(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct
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employer-employee relationship, we believe that the nine factors, together with
the
absence of specific tasks to be performed in the e.ontr,t, the inability to use a firm1
(b)(3} CIAAct
fixed-price contract, and the fact that almost all1
Cs are retired case officers
performing functions similar to the duties they performed prior to retirement, create the
appearance that these ICs are employees.
3

(emW) Furthermore, since the formation ofl (b)( ) CIAAct l two reports were
issued that expressed concerns that the use of lCs b~
J o augment the staff
workforce at stations and bases could be problematic and result in noncompliance with
CTA regulations. A previous Office of Inspector General audit report12 pointed out the
vulnerabilities for the CIA in using ICs contrary to CIA regulations. A 2001 special
review13 performed by a CIA officer at the request of the then Executive Director resulted
in a report which provided that, rhe Agency needs to face up to the fact that its practices
regarding the use of independent contractors are sometimes incompatible with its
th=e'----,
policies. There are clusters of ICs that fail to meet the fundamental definition..:.:in:.:...::
relev_ant Agency reJilllalLon. AR 40-d
(b)(3) CIAAct
(b)(5)

However, as currently utilized, mos{


Cs are providing services to NCS stations
and bases that appear to establish an employer-employee relationship that is in violation
of AR 40-8.
(b)(3) CIAAct

------------------------------------.

(b)(3) CIAAct
(b)(3) NatSecAct
(b)(5)

12

JJ

(U) Report ofAudit: Contracting With Independent Contractors, 1999-0039-AS, dated 27 July 200 I.
(U) Review of Independent Contractors, A Report for the Executive Director; December 200 l.

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(U) Some Independent Contractors Are
Performing ln~erently Governmental Functions

(U//FOUO) Some ICs are engaged in inherently governmental functions. By


using ICs for these functions, the components have improperly transferred government
authorities in violation of federal laws and CIA regulations. The Federal Activities
Inventory Refonn Act of 1~98 (FAIR Act)' 4 defines an activity as inherently governmental
when it is so intimately related to the public interest as to mandate performance by federal
employees. FAR, Subpart 7.5, Inherently Governmental Functions, implements the FATR
Act and provides soecific exam les of prohibited functions. 15 AR 40-8, Independent
tate that ICs cannot perform inherently governmental
Contractors, -(b)(3) CIAAct
functions; such functions should be reserved for government employees. These functions
include activities that require the exercise of discretion in applying governmental authority
or the use of value judgments in making decisions for the government, such as collecting
or disbursing public funds, committing the government to binding contracts or
agreements, or decisions on entitlf:me:nt~ or hP:nefits. Des ite these policies, we found
two components- theC
(b)( 3 } CIAAct
j and
(b)(3) CIAAct
.___ _ _ _ _ _ _ _- that are using ICs to perform inherently governmental functions.

~{i~ ~R_endent Cont~J (b)( 3 ) CIAAct


re Interviewing Applicants

(b)(3} CIAAct

(b)(3} CIAAct

(/~~F) The Human Resources/Recruitment CenteL .


~as contracted with
as of April 2011 to, in part, conduct interviews of applicants for employment
within the NCS's Professional Trainee (PT) and Clandestine Service Trainee (CST)
Program, 16 which is not in compliance with applicable federal laws and AR 40-8. FAR,
Subpart 7 .503, explicitly prohibits the use of contr~ctors for "the selection or non
selection of individuals for federal government employment, includin the interview in of
individuals for em loyment.j
(b)(3) CIAAct

D es

L--14

- - - --

- - - - - - - -- (b)(S)- - - - - --

---'

(U) Public L. 105-2?0 (Oct. 19, 1998), 112 Stat. 2382,31 U.S.C. 501 note.

15

(U) In September 20 II, after the completion of our fieldwork, the Office of Management and Budget, Office
of Federal Procurement Policy published Office of Federal Procurement Policy (OFPP) Policy Letter 11-01,
Pe~(ormance ofInherently Governmental and Critical Functions. This Policy Letter, effective October 12, 20 II,
provides Executive Departments and agencies guidance on managing the perfonnance of inherently governmental
and critical functions. The policy letter is intended to implement direction in the Presidential Memorandum on
Government Contracting, dated 4 March 2009, that requires OMB to clarify when governmental outsourcing for
services is and is not appropriate.
16

(Uifti6t16') The purpose of this program is to hire and train entry level Operations Officers, Collection
Management Officers, Staff Operations Officers, Special Operations and Program Officers, Collection Support
Officers, and Program Support Officers in support of the CIA's mission.
(UI/~) CIA Employee Bulletin 0012-07, Work That May Not Be Peiformed By Contractors, dat~d
2 October 2007. Exhibit C contains the full text ofthe bulletin. In discussions with OGC officials during the
audit, they indicated that the guidance remains valid.
17

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(b)(3) CIAAct
(b)(3) NatSecAct
(b)(S)

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(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct
(b)(5)

(b)(3) CIAAct
(b)(3) NatSecAct

(U/IFEU::fO) Some lndependent Contractors


Utilized by the CounterTerrorism Center Are
Performing a Supervisory Role
(b)( 3) CIAAct-

(Sh't~F) SomeO

tcs are performing supervisory responsibilities. FAR Subpart 7 .5,


identifies direction and control of federal employees as inherent! ovemmental
funct10ns J_
(b)(1 )----,----..J
speci~calfY

(b)(3) CIAAct
' - - - - - - - - - - - - - - - - - - - - - - -(b}(3) NatSecAct
(U/~) The HBT (Headquarters Based Trainee) program prepares trainees to serve in the Staff Operations
Officer (SOO), Collection Management Officer - Specialized (CMO-S), and the Specialized Skills Officer('~(.!)so..npositions.
22

(b}{3) CIAAct
(b )(3) NatSecAct
(b)(5)-- - - - - - - - - -- - --

- -- -

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(b)(1)
(b)(3) CIAAct
(b)(3) NatSecAct
(b)(S}

(U) Price Analysis Is Not Adequately Documented

(U/IfOUO) Contracting officers and procurement officers are not adequately


documenting the price analysis and negotiations used to substantiate the fairness and
reasonablene~s of the prices paid for IC services. Without such documentation, there is
no eviqence that analysis is being performed and that the resulting prices are, in fact, fair
and reasonable. If the analysis is not being performed, the CIA could be paying more for
IC services than it should.
I
(b)(3) CIAAc
(U//P'-PO~u~o~) L
be process for negotiating IC contracts is
the same as that used to negotiate industrial contracts, and that contracting officers and
procurement officers should conduct price analysis in determining fair and reasonable
prices and document the determination in the Business Review. The documentation
should show how a fair price for services was determined. focusin on the value of
the work to be performed under the contract. r - -(b)(3) CIAAct
AR,
.
Subpart 15.404-l(b) state that documentation~mc u e how contracting otlicers
CQnsidered rates established with other ICs for the same or similar services. This section
of the FAR also states that historical prices paid by the government may be used for price
determination purposes; however, historical prices must be a valid basis for comparison.

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(Sffl<W) Almost all Business Reviews that we assessed stated.that the contract prices
were fair and reasonable; however, the contracting officers or procurement officers did
not provide documentation to supporl the rationale behind their assertions of price
(b)(1)
reasonableness
]Jc contracts or tasks orders we reviewed. !~
(b)(3} CIAAct

id

(b)(3) NatSecAct

The contracting officer did not mclude


m the Business Review any reference_s_t_
o -co_m
_p_ar
- able contracts for similar work oi

evidence of negotiations with the IC. In addition, we reviewed! ] contracts for lCs
who provide course instruction for CIA University. The Business Reviews for these ICs
stated that the prices paid were based on previous prices paid. However, the previous
contract files do not include any documentation to support the determination that the _
rices paid in those contracts were fair and reasopable. l
(b)(3) CIAAct
]

~l~ct

_
(b)(S)
(b)(3) CIAAct
We were not able to assess the adequacy of the price analysis fo~
~
contracts in our audi t samo\e because Business Reviews tor the entire cadre of1 (b')~
( ) CIAAct
IC
(b)(3) CIAAct
Ihave not been prepared.

(U/IPOUO) Contracting officers and procurement officers should ensure that all prices
paid to TCs are fair and reasonable. The Business Review should document how the
contracting officer determined the contract price. Without documentation of the analysis
there is no assurance that the resulting prices are, in fact, fair and reasonable.
----------------~
(b)(3) CIAAct
(b)(3) NatSecAct

{b)( 1)
{b)(3) CIAAct
{b)(3) NatSecAct

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(Cf/Nn lnd.Mendent C_o_j)~t<?rs in the


JDo Not
Provide Services on a Fee-for-Task Basis

EC/INF~ Independent Contractors supporting th[

(b)(1)
(b)(3) CIAAct
(b)(3) NatSecAct

ork under a labor-hour contract rather than a flriii="fixed-pnce comp:!!:~~


=.!Jtl~O.!.!.n_ _
.__c_o-nt-ra-c--'
t (also known as fee-for-task contract).
{b)(3) CIAAct
fee-for-task contract when there is a simzle requireme_nt with a known end date and few or
no anticip~ted .c~anges.
(b)(3) CIAAct ~ ]a labor-hour contract should only
be used when 1t ts not poss!Ole, at t e time o p acmg the contract, to estimate accurately
the extent or duration of the work or to anticipate total price with any reasonable degree of
confidence. Because a labor-hour contract is based on the number oflabor hours incurred
at a specified hourly rate, which provides no positive incentive to the IC for cost control
Or labor efficiency,25 it iS the )eaSt preferred method Of COntracting for rc ServiCeS.

(C/I+W) j

(b)( 1)
(b)(3) CIAAct

(b){1)
(b)(3) CIAAct
(b)(3) NatSecAct

(b)(3) CIAAct

(b)( ) Na~'-s_e_c_
A_c_t_____..JI According to the Chief,[

ll ~bor-hour contracts were selected for the


in 2008 because NCS contracting officials could not accurately
~~----~~--~~
estimate a fee-for-task price.
ECt~I)

(b)( 1)
(b)(3) CIAAct
(b){3) NatSecAct

The Chieq
~__ ___J

]acknowledged that there is currently enough


(b)(3) CJAAct

.....=============--- - - _ _ _ _ _ _ _ _ _(b)(1 )_ __
(b)(3) CIAAct
(b)(3) NatSecAct

25

(U) Under FAR, Subparts 16.60 I and I6.602, a labor-hour contract is a variation of the time-and-materials
contract, differing only in that materials are not supplied by the contractor. A time-and-materials contract provides
no positive profit incentive to the contractor for cost control or labor efficiency. Therefore, appropriate government
surVeillance of contractor performance is required to give reasonable assurance that efficient methods and effective
cost controls are being used.
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historical data to accurately estimate the extent, duration, and anticipated costs
of IC{
=:]with a reasonable degree of confidence. Once
standardized fees are determined, each IC contract should be converted to a fee-for-task
contract. Convertin~ contracts to fee-for-task will reduce variability in the cost of
nd will also reduce the administrative burden that currently
exists for budget officers, acquisition officers, and COTRs who have to estimate, track,
CIAActand verifY the nu~ber of hours worked by each IC across several rate categories.

~~~g~

(b)(3) NatSecAct
(U) Office of Management and Budget Memorandum, Improving
Government Acquisition, M-09-25, July 29, 2009

(U) The Office of Management and Budget (OMB) recognized labor-hour


contracts as high-risk contracting vehicles that pose special risks of overspending
because they provide no direct incentive to the contractor for cost control. OMB
further cautioned that reports from the Government Accountability Office, agency
~nspectors general, and agency management indicated that labor-hour contracts
are often used without an appropriate basis or sufficient management and
oversight to limit taxpayer risk. OMB advised agencies to begin taking actions to
reduce the use of high-risk contracts, including labor-hour contracts.

(b)(1)
(b)(3) CIAAct
(b)(3) NatSecAct

(U) Independent Contractors Begin


Work Without a Contract

(U//FOOO) ICs are initiating the perfonnance of services without a valid contract
or task order. These actions, referred to as unauthorized commitments, are non-binding
agreements made by representatives without the authority to enter into contracts on
behalf of the US Government. The CIA is under no obligation to fulfill the terms of an
unauthorized commitment and has discretion whether or not toratify the unauthorized
commitment with the contractor.
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(U//FOUO) AR 40-4 (d), Contracting Officer Authorities and Responsibilities,
(b)(3) CIAAct

_______,I Accordingly, component officers are not

authorized to direct lC~(b)(3)cfA.A~{ormance without a properly awarded contract or task


c _ jcoTRs are not authorized to issue changes or
order. Further, th~
make commitments (either formal or informal) that may involve a change in consideration,
scope (quantity, quality, delivery schedule), or legal aspects of a contract. Such actions are
the responsibility of and must be reterred to the contracting officer."
(b)(3) CIAAct

(SAC.Nf) We found that in


~(42 percent) contracts or task orders we
reviewed, contracting officers and procurement officers had not awarded a contract or task
order before the ICs began providing services to the CIA~
(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

(b)(3) CIAAct
(CI~W]

ICs began working without a valid contract or task order because the
components requesting the ICs failed to approve the contract requests and funding, or the
contracting officers or procurement officers failed to award the contracts or task orders
before the ICs started work. Inc_
__=jNCS contracts or task orders, the component
requesting IC services failed to a rove the contract requirement and certify the.------.
avai labili of funds via b 3 CIAAct re uest form before the IC be an work. 28
(b)(3) CIAAct
(b)(5)

(b)(3) CIAAct
fS/H'Wj IL
=.__]Ncs contracts or task orders, the contracting officers and
procurement officers failed to award a contract or task order before the IC began
perfonning services. Contracting officers and procurement officers were delayed in
awarding contracts because the components did not give them sufficient time to award the
contracts or task orders or because the contracting officers and procurement officers were
working through a backlog of existing contract actions. 29 L (b)(3) CIAAct

(b)(3) CJMct

(b)(5)
'

26

(U) FAR SubPart 16.5, Indefinite Delivery Contracts, defines a \ask order contract as a contract for services that
does not procure or specify a finn quantity of services (other than a minimum or maximum quantity) and that
rrovides for the issuance of..Qrders for the perfonnancc of tasks during the period of the contract.
7
(U//ffit:f&)L
~ontracts were for components outside of the NCS. Details o~
pontracts are
contained in ExhibiLD
(b)(3) CIAAct- - - - - - - :

(b)(3) CIAAct

(b)(3) CIAAct

(U/II'Otte) tl[
~on tracts, the contracting officer had less than five days to prop~ award the
contract. Auditors noted that milestones have not been established for the minimum time NCS L (b )(3) C IMct
needs to process requests for contracts; we applied five days in the absence of speci fie guidance.
9

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.--~---------- _ _ _ _ _ _ _ _ (b)(3) CIAAct


(b)(S)
(b )(3) C IAAct

The CIA 'sl


Ishows the number ofNCS contract actions increased by 55
percent from fiscal years 2008 to 20 I 0,1
(b )(3) C IAAct
(b}(S}
L_ We acknowledge the increased workload; however, ICs should not start work
without a contract
and a _..:...__..:..._:.....:..::..._
task order. _ _ _ _
_ _ _ _ _ _ _ _ _____,
(b)(1)

r---

(b)(3) CIAAct
(b)(3) NatSecAct
(b)(S)

(U//FOUO) The practice of creating unauthorized commitments must cease.


AR 40-4
(b)(3) ClAAct
Individuals who create unauthorized commitments are liable for
~-;d,....is-c.....ip' [..,...
in-a-ry- ac- t..,..io- n_,a nd could incur personal liability. For the0
ontracts or task orders
we identified as having unauthorized commitments, the CIA does not have a legal (b)(3) CIAAct
obligation to pay the TCs. The contracting officer's subsequent authorization of the
contract does not resolve the unauthorized commitment. In accordance with the CCM
subpart 10 1.602-3(b), the~b)(3) CIAAct
~hief may ratify unauthorized commitments
subject to the limitations prescribed lnthe1'AR. 32 The Procurement Executive should
ensure that the ratification process is completed for theO mauthorized commitments
identified. In addition, NCS components must ensure that all requests for contractual
(b)(3) CIAAct
(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

Jl (UI/~) The Acquisition Statistical Summary For the Period I October 2008 to 30 September 2009 and the
Acquisition Stati.~tical SummaiY..EPLLite.J!.e.riod I October 2009 to 30 September 2010. These reports compare
acquisition activities recorded.
] for previous and current-year acquisition activity both in tenns of
dollars and contract actions.
32
(U) FAR, Subpart 1.602-3, states that ratification authority is vested in the head of the contracting activity, unless
a higher )evel official is designated by the agency. The FA~ pennits the delegation of ratification authority in
accordance with agency procedures, but in no case shall the ratification authority be delegated below the level of

chief of the contracting office.

(b )( 3) C IAAct: - - - - - - - - - - - - - -- - -- 18

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services are properly approved, certifications of funds are obtained, and contracts and
task orders are approved before ICs perform services.

-----------------------------------------.

(b)(3) CIAAct
(b)(3) NatSecAct
(b)(5)

I.
(b)(3) CIAAct
(b)(3) NatSecAct
(b)( 5)

(U/IFOU~C(b)( 3 ) C IAAct
' -

~erbal authorizations are permitted

when urgent circumstances require an IC to begin work before a written contract can be
signed. Even under such circumstance~._v..erhalauthorizations..alone do noL9ermit
components to direct lCs to start workl
(b)(3) CIAAct
_jthe
contracting officer or procurement officer shall ensure that all appropriate_doc_umentatLon
and/or approvals have been received, and a verbal authorization from th~
(b)(3) CIA.f-ct
Chief has been granted. Also, the component must (~""3n)vCPI;{A "
act requirement and
certify the availability of funds as well as obtain th b)(
ct Chief approval before
erbal authorizations need to
the IC can begin work!
(b)(3) CIAAct
be reduced to a written'tc contract wtt m t ee wor
ays of the issuance of the
verbal authorization to the IC. I
-----------,
(b)(3) CIAAct
(b)(5)

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(b)(3) CIAAct
(b)(5)

(b}(3) CIMct
(b)(5)

(U/!fOUO) Agency procedures, as contained in the CCM, subpart I 01.602-3


Ratification of Unauthorized Commitments, state that only the contracting officers acting
within the scope of their authority may enter into contracts on behalf of the Agency. (b)(3) CIAAct
During the audit, we confirmed that for each of ther-JIC contracts or task orders, the IC
started work before the contract or task order was signed by the cognizant contracting
officer or procurement officer, in effect creating an unauthorized commitment by those
managers who tasked the IC contractor to start work without a contract. However we
F hiefs need to make their own independent judgment
recognize that tb
regarding the appropriateness of these contracts or task orders and.have changed the
recommendation to acknowledge this authority.
(b)(3) CIAAct

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Exhibit A
(U) Objectives, Scope, and Methodology
(U) The objectives of this audit were to determine whether:

Independent contractors are used in compliance with applicable


guidance.

Independent contractor prices are fair and reasonable.

Appropriate contract types are used for independent contractor


work.

(U//FOUO) The audit topic and objectives were selected during the Office of
Inspector General's annual planning process. The audit is responsive to the Intelligence
Community-wide focus on the use of contractors as well as to the government-wide
focus on the use of high-risk contracts, such as labor-hour contracts.
(U//ffOUC) The scope of the audit included contracts for services of inde endent
contractors ICs initiated durin FY 20 I 0 as ca tured in the CIA'
(b)(3) CIAAct

excluding
no-fee contracts and contracts in support of other government agencies.
(gi~W)

(b)(3) CIAAct

To accomplish our audit objectives, we:

Selected a random statistical sample ofC::JIC contracts and task


(b)(3)
CIMct
orders initiated during FY 2010. As of 18 November 2010 there
wP.'I'P.I
l IC contracts and task orders awarded during FY 20 I 0 in
(b)(3) CIAAct
J To determine the population
from which to sample, we excludedc=lzero-dollar contracts, 102
Office ofthc Director ofNationallntelligence contractsL {.Q).@)_ j
(b)(3)
The population (b)(3) CIAAct
represents [=-'IC contracts and task orders with an effective date
between I October 2009 and 30 September 2010. The sample size
was determined based on criteria established in the Government
Accountability Office/President's Council on Integrity and Efficiency
(GAO/PCIE) Financial Audit Manual. In selecting our sample, we
used a confidence level of 90 percent; a tolerable error rate of
5 percent, and an expected deviation rate of 2 percent.

(b)(3) CIAAct

Reviewed and summarized federal laws and regulations and CIA


regulations, policies, and procedures related to ICs. We incorporated
these laws, regulations, policies; and procedures into a checklist used
to review IC contract documentation and interview contracting
officers, procurement officers, and contracting officer's technical
representatives (COTRs)
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(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

Searched for and reviewed selected cables from


related to individuallCs to determine actual wor activtttes carrie
by the ICs.
Interviewed officers from the NC - -(b)(3) CIAAct
I
[
DS/Office of Corporate Businesses/Support
Contractor Management Program Office, and Chief/Human
(b)(3) CIAAct]to
Resources/Recruitment Center
discuss audit results.

(b)(3) CIAAct

Conducted research, reviewed, and summarized previously issued CIA


Office of Inspector Genera] audit, invesfigatiop., and inspection reports';
OIG reports of other federal agencies; and CIA internal reports related
to ICs.

ReviewedU
ontracts and task orders to determine whether:
The terms 'of the contract created the appearance of an
employer-employee relationship.

The IC performed an inherently governmental function.

The prices paid for IC services were substantiated.


The Associate Deputy Director/CIA approved contracts
lor those that would result in an IC being
over!
paid over
)in aggregate value per calendar year.
The appropriate contract type was used.
The contracts and task orders, and associated funding,
were properly authorized.

(b)(3) CIAAct

(U) We conducted this performance audit from December 2010 to June 2011 in
accordance with generally accepted government auditing standards. Those standards
require that we plan and perform the audit to obtain sufficient, appropriate evidence to
provide a reasonable basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
(U) Comments on a draft of this report were provided by the Director of the National
Clandestine Service and the Procurement Executive and were considered in preparing the
final report.

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Exhibit B
(U) Sample of Independent Contractor Proposal Review
CLASSIFY ,\S"AP.PROPRlATE

lnifcpendcnt Coillr3ctor Propo~ol Rc\"icw


N3n\c or }'fcc,oscd JC:

Date;

Reque$ling:OITu:cr;

Component:

Coritmct Numbtr cmrec~ "'"'c.nn."rn' OJii..,,;

(10/08)

Rcoucst Number:

IHs t\gcncy Jloliey not to o:nler into an TC cqntrnct.lhnt would crc:ntc a11 C(Jiployer-cmploy~ rtbtioll,hip. "11ois form provlllc~
lho Conornctina OfficcJ's Tcchni,ca! R~res~ll"lli-e (CqTR>. lhcRcquating Officer, and the comP.oncnt t\pproving Ollicer
(Lc.thc ~pproverofthe f1mds) a me.vis to holpsumri1.iize :uid document a propOsed IC contrxt in lhe conoc.~1 of the f~ctors
11ia1 indiQIO ohc f11rmation of an cmployer..:mploycc rciationship. Tht purpoic of this form is to.preclude the 1\gc:m:y from
entcnng into an IC eon11"3ctlhot,lhrough lhe contDclterms, ercalc:& Ihe oppc3tancc of an cmploycr-cmplo~cc n:lationship.

(b)(3)
CIMct

If the ln1ern.11 Revenue Service or a coun were to determine that on t\gcncy. ICI~ actll411)' an :\g,-ncy etnplo)cc, IhOc Agency
c9uldf.1cc liabil ity lor lll.~cs ~nd .anpiOY.c~ b;cnclit C0515.that would have been withheld or paid had the individua.l bn.
eom:ctly cl:liJilied":L<. ;nl employee.
T11 help c:Mun: the Agency doe.\ not enter into an cmploycr..:mpiO)"CC rcl>tionship wllh an IC,.caeh proposc:d IC contract
must lie ev>huteci"againstlhe f:KlOilllisted below th>t'indicatc an cmpllJ)cr~mploycc relationship. No single faClor is
delcnnin>livc In an nsse.umenl nfwhetl>tr n worker t~ nn-IC or on erns1loyec..Not>11 fnctolllarc weighed cqll411y. nocn: ~rc:
no In IOJ;IIttumhcr of"'y~"nn,wcrsthat, when exceeded, "4UlOmalicallypuiS the proj.~cd IC contnctinto the rcotm of an
cmploycr:O..mployo:c rctationahip. '' 'Uetcnnil!nlion or.wo.rkcr'i .sll"ltus.must take into aecouilllhe overall rc:latioi\Shlp of the
indhidual and lhc Agcney.
1\ "yes~ answer means.that"p:>niwbr fctor indicates th~proposcd IC contract or its "aclminl$tration could lead towards the
en:ation.of an cmploycr-c:mploycc rclatioMhip with the IC. T11c more itans that arc n.~wcrcd "yes; the more likely It would
be th,.lthc individual would be pcrecivcd 10 be on empiO)'cc, mthtr donn an IC. In rotno.cnses, 8Uch JS when lhe IO.<k 11111.~1 be
accomplishcd"Onlhc Agency DMa~crvicu Network (!\I)Sl'{) or.nl an.t\gcncy facility, yes onswcrs will be unavoidable.
Concise cspl:anations or rutionilles supporting '"y.:s" :sn:~\v~ruhould he recorde~ on the last page ofthi.< form.

'lllc Requc:nin.g 0ffit<:1" is rcquin:d lo complete :utd submit this form to.thc Coolracting 0fficct (CO) for all proposed JC
~ctions on

or prior to ioiti.1tion of the pnxun:mcnlfundina document. The ReqU<iting Offi~r.the Approving0fficcr, and
the G01"R should n:view it ~nd discuss whether lhc t:..~k, or the m>nncrin whi.ch il iJ 10 he provided, could 11.-.ppropn>lely
modllled.to.clintlnatc ~yes ~nswcrs. The component's CO will serve o.s on advis~ in this proce~s.
me Rcctuc:sting 0fficcr,thceomponcnl t\pp\"o'"ing Ofliccr; ~nd the CO"rf!. shall sign the final version of this form >nd
prc,Ciu"illO the CO. The C.O requires :alirull hord-c'opy ycrsion ofthis fonn piior 10 ll"lking any action on the IC procurcmont
request. (In oclclition, soO-copy must" be tlt~cltcd 10 lhc c : Jn:qucsl ifthc CO delctmincs lhc n:quin:mcn.t can be
PfOIICJ"!)'Iillcd throughusc ofan IC.) Tlu: CO will mlkc > dctcrmin:uion ofwhcthcrthc propos~!. iflillcd through.an IC
contract, -:ould lead 10 tloc creation of an employer-employee n:lotion.ship with Ihe individ~UI. If the CO dclcnninu th>l the
requirement oan be mel r ropcf!y through on IC contract, lhe s!gncd hard-copy ~r l~s runn will be n:talnc!f in Ihe contract
rile. If the CO dct~rmi!I<S thotlhc pruP,Os~d IC conlt:tel would crc:alc o.n crnj!loyct<mployce n:lationshlp, the kcquestlne
Officer will be odviscd 10 seck the >dvicc of.thc llumon Rcsourcc Recruitment Center 10 cngagc the individuol1111der tr:nns
other !han as on IC {e.g. conlr>Ct employee, rehin:d annuil3nl, etc.). The cos 1\cqui~ition Center Chief will be ll>e orbiter
of any disagreement rc:gardinslhc CO's dctcnnin:ilion.
Regardless of.lhc terms-of aniC eontroCI, impru110r eontracl odmini"rntion m~y lc>d to the crc:otio!' of >n employeremploy" n:lalionship with an IC. COTR.s :.re cncour.>gcd to"rc,;cw a copy <>flhis.fonn periodically duoif18 administration of
lho.elmlrJCIIO hell).ensure tHat ~n employer-employee rel3tioMhip is not cre3tcd.lnadvcncnlly. CO"fR.s who h~vc ~ny
questioN regarding proper odminislf3lion of their IC <Onltll15 should consult with thdr rcspcclivo COs.
Rcquc.<tins Oltiur:

Sign.ttw-e:

Dale:

ApptOVing Olliccr:

Sign3111re;

Done:

CO'ffi:

Signohlie:

Pate:

Contra.,lina Officer:

Sig1lilture:

Dote:

CLASSIFY 1\S Al'l'ROPRir\"1& _ _ _ _ __ _

(b)(3) CIAAct

(U) Source.

Exhibit B is UNCLASSIFIED

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CMSSlFY AS AP.PROPRJA:rE._ _ __ __ _

Amwer

F.1ctor

E.'\J!Innatory Comments

' Yes, No,


N/A

I. Will the.,.\ gcncy l!;lve thc

right [Q.detennine ltow the


worl; result~ ~rc to be,
:~chievcd?

2. Will the IC receive training


or instruction to peifotm
scrl!ic~s -in a-pariicular m31UlCf.
(orbor than m:tnda!Ol)' _soculjt}
'nd counterintelligence traii\in~
c:dledfor in tht contracl)'l

- 1\nyone:buftli.:: IC d~i~rrriln1ng how wor* reswts are to be achieved is one


.of tho factors thal inilicato ~n cmploycr-<:Tllployee relatiu!15hip.
'llte IC contract itself..~nd :ulininistr.Jtion of the contr.tct, sho.uld focuson
specj.fying wh~.l servico i~ to be pi'oviiled, not how the service i3 to be
pruviilcd:
Dc:spfle ll,lc lcnns.ofi C contr.u:t,.impt'o~r a.dmini6trAiion (c:a. requiring
.:ulhcnmcoto Agency SOJ?s for how tasksare accompliM>e4)e~n 1\}Jid to the
Agency. derecmining,.how w.oi'k rcsUI~ ar~.Jchieved.
An IC, as a businesspe!'llon, i-Hesponsible for-derennlnin,& how 1he wort
re5ui!N nre ln'bc:.achiev<id,
-Providing !raining or inslrucrion on how to pclfollt\ acr:viccs in a p:J.J1icular
'm3JU\tr isori~ oftlie, fac:for~. tllafiit(licatc ~n cmploycr-c:mpi9YCC.rCiationship.
It hu.nn impi!Ct m'two-11n:as: an 'IC!s responsibility for h.avingjob skills ;~nd
a)l TC'~.ourpnOf11Y lo dc_rcnninc how t<~.~k~ 3rc accomplished.
An IC, as a bWiint~~pcrson, isrtsjlllnsibkfor obtaining. ~nd m:lintaining
tho akills and k,nowledgc need'd to perfo"" thetaaks und~r hi~ih.er IC
contract.
.An IC'5 role, besides to provid,e. a sccvice, is to iletcnn.ine how tl'lat
service it best accompli ~hcd. Thus, an IC should not be advi~ed or traincllto
provide services in a (loll'li cular manner.
Provi.ting lllilndalol)' ~ccurity or countcrintclligcncc lrainin~...,. called for
goal of s11<0h training is io
in the IC ~;onlr3,t, i~ ..an exception to'thig,
prottcr cln.~sific:d in(ormatibn ns-wcllas sourc~s.and methods; 1hc goal i~ not
to providC.in31ruction on how topcrformscrviccs in 3 par1icular mann~r.
Aitho\l&h prpvidina,mambtpry security or counkrintelligence training is still
providing an rc training, it is not 3iS slrong :1 f3ctor towards cre~ting an
cmpl'oy~r-anploycc relationship u woold be p~ding commerciaUy
av~ilflblil traini.tut such as Lotus Not~s tr.tinin11.
~,Directly paying or reimbursing businc ~ndlor travel e:o.:pens~ is one of the
fa~;tors tl)at inili~tc an employer-employ(;~; ~latipnship.
An IC oontracl should be structuJ'cd io.hovc .. nth IC's costs roUed into
tiic.l;laic;fc.c: 'This. ainng!lmcnt 'givi:S the IC. the, w~rctiWl anu rc:pomibility
for controlling tr:tvcl and busin,.,.s cx~nscs.

me

'
3, WiU tho Agoncy directly

pay the IC'sbu~in~~s and/or


lr~vel e~>;peFUe!9'?

(b)(3) ClMet
(b)(3) NatSecAct

I
4. Will the IC be able to
provide the 5CIVicc without a

8ignificont financial inve11tmtnt


in lllo f.,cilitics.ils"d to pcrtonn
the servi<A:s?
5. Hiu the Agency unila1i:rally
.Mtenn.incd the sef'Vice fee to he
v~illto the IC?

- 1\n-IC I.Jcliing.signiti~;antpersonal invcstml!nt in thef;aciliries used to


pci'fonn 9mic'e~'i.o.onc of ihe r..cto:rs rliat m~y indica1e 3n employeremployee rclationthip:
LOll Jhould h:IVC:<I fin311Cf3l stak'e in tho f3C:ilitits used to provide !heir
service~.

- Unila'tcrnlly dctcrmining.thc scrv'icc.fi:c ro be pajd to iin fC is one of the


fa~to~ that indic~leal) employer-employee; rclationshial.
An IC, :~s a busin~ssperson, has the respon.sibilily. and latitude to
ncl!otiatc the price ofhiMhcr !icrvicc~.

2
CLASSIFY AS APPROPRTAT.E _ __ _ __ _

SECRETitNOFORN
Approved for Release: 2016/03/31 C06491273

C06 49 1273

Approved for Release: 2016/03/31 C06491273

SECftET1tNOFOFtN
CLASSIP.Y AS APPROPRIATE _ _ _ _ _ __
F~~;tor

F..~pl3nalory

Arunver

GommcmtS

Y.cs, N.o,
N/A

'

Providing an IC the.r~ls, materi~l. ~nd ~quipmcn1 nect~SOJry to perfof111


.tl)cir ta~ksis one ofthc:rnctors.th?l indicalc:m cmploycr~pluy"
rclationiihip.
To the e.'(tcnt con&islenr wilh Agcn;y security n:qUiremeni:J,.ICs should
be ~pomiblc for providing tho: loolt, material, and cquipmenl ncccss~ry to
perform their ser:vices.
To the extent these iicms (includingvehiele.-.) are provided, the
:~JrangeinenUeans-tow~rd.crealing rin .employ.cr~mployee relalionsltip. To
'th..,e~tenUhescilt:mRan~ not provided, the.amngemenlle:ms Iowan! the
individu:tl being ao JC ioslcnd of nn employee.
Pilying an lCon an hourly, wc:i:IUy, or.d:tily r::JIC is one of lh~ t:acrors.that
indicarc an crnpiC?ycc'cmployer rclotionsllip.
rc sc:rvicrs shoUld be: obtained under a fum-ftxed pricedelivery colllracl,
-under wbich conlr.lel '('!~y.mcnt is dctcrmirn:d solely by ~pletion or non
completion ofllie task.
Having an ongoing need for ~n IC ror an ind.cfinilc'amount lime is una of
.lhc foc1001 lltDI indicate 3R 'mplop:r-cmP.Ioycc rclatian~hip.
. An IC rcqciircmcnr should be for~ fi.:~>!d ~nod of time, .1111hcr th411 an
'indcfinitctime os coulil be indio;~ ted by renew,ls.
Rcncw3l$ of IC c:onrrocts ~hould be avoided.
lfnving.nn.JC pcrforming n key a'JlCCI of Ihe Agency's mi~sion iA one of the
r~clors ihat.indic31e .an emplnycr-employec.relationship.
Inherently govcmmcnlal functions (:alisltcl ~Y. FAR Sobpar17.S) cannot
be provid.:il by JCs.
- !?~tting houl!l of worl( i.~ one ofrhc factors that indicate an ~'1ploy..remploye' tcl"3lionship,
An 1~, ns:o blisjnc~5penon, is: rcr~ponsiblc t9r dctcm1ining his or her own
)!9un> of work.

6. Wilt the Aaency provide.lhe


tool$, m;~tori.~l. or cquipiTienl
(includi11g n vehicle) needed io
perfoJlll ihe serviet?

1. Willthe.IC be paid on an
hourly, d~ily, or-weekly rate?

8. I.!llhis a co~lro~t te!JeWai?'

9. Will the TC pcrform a key


~~peel of-the Ag.:T\Gy's
mission?

LO. WilllheJC.have tofollow


htiurs of work sc1by tl~c
Agency?
1

(b)(3) C IAAct
II. Will lhc IC receive

work

111r: manner in wfuch :m.tC reeavcs work :~Sscgnmcnrs 1S one of 1hc f.1c1or.;
rhnl inllic.alc an employer-employee rcblion~hip.

~~~ignmcnts or direction nna


day-to-d3y baRis?

11iccontract srnlomont ofwori; should be the source of the IC's work


assignment~.

The statemi:ut of workshould lie: Wriuen in such 3:way.a:~ 10 clearly


oullinc thc.,rc~ Ja~.ltsft:~.~d to J!fl;clild~ the nepd for,giVi.ng work lls~i8J1mcnts
on a dav-to-d:Jv basi:
Requiril1g thai a ~~~cc must t;e provid~ !'~!>nolly iJ~onc of the faclors th~t
ind.ic3to.an c:niploycr-cmpioycc:-relarion5hip:

12. Will the ICprovide


rcndcn:d
pc:r.;on31Jv'?
l3. \Viii tbc JC be precluded
from having som~ conrro!.over
hinhg and 'paying of a~sistants?
~crvicc~ 111'11 n>ul be

P.c-ecluding.anIC from ha"'ing some control over hiring ~nd-paying.of


OISSisb~ls is one of Ihe factors thai indicate an employer-employ~e
rclationRhij>.
.
.
li.wing.an IC work: fuil'lirne i5 on~ of the faclors lhnt indic~le an employer
c mpl oyee.rel ~tionshi'p.
Lc:Vcl of elTon C()nlraclli th~t <:311 for-a compl~tc ~r~ll-limc c.quivalenlu
level ofelfort indicDiefwllirilc work.

l4. Willlhe~IC:worJC;. fuUtime


for the Ag~"Y U11dr:r this
contrnet?

-J
CJ~.ASSIFY

AS APP!,tOPRJA:rE____ __ __

Sf!CftET1/NOFORN
Approved for Release: 2016/03/31 C06491273

C06491273

Approved for Release: 2016/03/31 C06491273

SCRETNNOFORN

CLASSIFY A:S AP.PROPRJA'f.E _ _ __ _ __

F:aclor

fu; pi anotr11y Comments

Answer
No,
N/A

Yc~.

.,roviCJin& an IC eriiployc:etypc: benefits is one oftht faclors 1I1M indic.:~le an


cmployar-cmployce:n:lillionship.
ll1e;provi.Sion of.employcelype' bc:ncfits wcigh!r vecy heavily towards
creating' 30 employer-~:mployee .mationship.
In.~ur~nc~ (lifc.or.mcdicaf) should be: coru~idcrcd for.IC~ only_when the IC
ilo.cunicnLfthat &!he'.has o'poiicy th:ill'{au,ld not provi<lc ~:overage Wider Ihe
circumstances in which lht lC will work.
Requiring an IC to provide services on :'\gency prcinisi:S is oric of Lhe
fnctors tlioi indicntcon cmploycr-cmploycc. rclnrion~hip.
Security .concems are the only l~gi timatc n:;uion'to justity rcqillring :m,JC
to provide services on ARcncvnrcniisc,.
Providing rcgidai slatu.!l ~ora is on~ of the-factors that inay indic.:~lc: an

15: Will the -IC be 11rovided


employcet~pc;

benefit&, we~ :1~


insurance, a pcn~ion plan,
vacation p~; onick P.ay?'

f6. Willlhe IC be n:q11irtd to


provido all tbeir $crviccs on
Ascncy prell)ises?

17: Will Lhe IC bo fl;quircd to


submi I rcgul ar statua reports?

cmplo):Cf"CCltpluy~>~:.rclaiionship.

Tif~:: IC.cimtract atatcm~nl .ohvotk shoUld clcarly,.idcntify dGlilicrablc


reports:
lCa aliould n11t be required to, or. ~ked to, proVide any reports, suvices,
or products th~tarc not required by the; stucmcnt of work.
-Service: MT'ilngcmc:t~ts tool preclude an IC from making;:. prolil.or.,.u!Tcring
a loss from providing s~rviccs is one .of the factors th~t indicate an 1:1nployc:remploy~ rel3tionship,
Pn:clu.dingan t~from halfing di~cn:tiqn OV!=f CO$t managc:m e n~ ~uch a
by .providing cquipmci'll and fiicilitiesanCI reimbursing travel or busin~s
c:'\pcmcs, also pn:cl udc. an !Cl fm111 mllking a profi t or suO<.-ring a los~ olher
th:Jn thc.b:lse seivii:c fee.
To the extent possible; the lC servicc!fcc shouJd.bc inclusive of all costs.
lh this situation; the: rc
the IVid,st laliiudc possible for cusl managcm~nt
and l!,n:atesl po1~1Uial for profit or loss.
Requiring ~ IC to obtai n peiJOission to provide services lo others (for other
,lh\'n security (!t-cQnDict ofintcrcsl reasons) could indi.carc an cmpl(!yer.cmplbycc iclation~hip.

ICs, as.b~in..ss pe_oplc, have' the latitude lo provide their senricc:s to olhe~
client! (except for is., ucs relali~S. tO liCCWity or contJiel~ ('lfintcrut ),

Ill. Will.lhcurrangcm:.;nt
preclude the>IC from making"
profi 1or st.i.ffcring a.loss fir;lm
,providing. ~cmccs (oiher than
the ha!ie i~i-vicc fcc)?

has

19. Other Lhan 'fo{ reasons


relating to security. or con.llicl!l
ofinterc1~ will the.Agency
require lb~ IC to obtain
Jlllnnission to (1) bnw otl1cr
clic!niS outside.of the .contract
or (2) olicr';cr\liccs to the
gene!':II public or-rolcvant
mMkCI'!

Allowing Wlila!cral tcnnination.of se.Vicc~ by cilher pany without incumng


ti ~bit iryotpenilliy.iii oneot'the factor-.: .thal i ndicotc -ali <:mplaycr-cmploycc
'relationship.
An IC contract sMultl contain standai'd.claust:~ -aildressing tonnination for
dc:fD~Irand t~rmin~tibn for convenience: lbc:se:cla~cs outline the liabili lies
und penalties involved in a Wtilateraltennination cif:scrvices.

20. Can tho lC'lr ~ervices be:


unllolcr3lly. tcmtinaled ~ci thcr p~tly wi Ihout incurring
liability or. p~nal,ly?

'

~L1\SSIFY

AS APPROPRIATE_ __ _ __ _

SEGRETNNOFORN
Approved for Release: 2016/03/31 C06491273

C06 491273

Approved for Release: 2016/03/31 C06491273

SECRETHNOFORN
Exhibit C
(U) Employee

EMPLOYEE

Bull~tin

0012-07

(~)BULLETIN~

0PR: OGe:EB N.UMBER:0012-07


2 O~tober:2oo7

W:O:RK T.HkT:M A .-N.OT BEPERFOR-MED'BY.:CON.I'RAGTORs'.

1. {:U/ ~}. 'Becal:lse 0Go of.ten receives quest''ions about; whether a


contcactor ~egal'ly. ma)r p.er:for:iJI _-a pact:'ict.ifiu:' .activ.ity '.on. behal:f o,f
the CIA, OGC is r>el:ssu i'ng.-the: foilow'i119 su.i.-letin to .expla:in this
iss\le, t'o. ~H e:p:l. emplo.y,ees: arfc:.l o.n~racto:J;".s . . fl.'l thoug:n the wo,t:'k that
a contcac.t<:>r may perfocm :l's al\"C!YS .restt:.fcted qy the -ter:ms of his
or. her ontrac~, tQere. are c~;i_~t~air;~.:' ~).ihct;ions: kmowrl' as '~'in herently
governmental ftmct:ions" .that: feder-al 'law _gener-al-ly. prohibi-ts the
CIA. from out sou_rc):!;.9.
.
2'. J Ut/~. -Who is a Contnactor.? F-or~.pur:poses. of; this
Bulletin, .the: te.rm "to.11tr,a-ctor" refers tO: an independent or
i nd1.4.strial eontr.actor.. An. .indeP.enGlent. contr~ctc;>r :f.s a
sei r.:-empfoyeci'. inp:ivJ'dua-i .with wh~iri th{! CIA 'entt!rs, into a
contz;ac.t . to pro~i'de ,sP.,ecifi~-~~OJ,ices: f:a die. CIA. . Ap ,
industr.ial coritcactor ;is a cbrporat!ii:>ri or. oth'e-r. reiated eiit:i.ty
wftn which the. CJ::A ent!ec-s. :fm:o .a simflar-eontr.Bct; and t:he'i:-r
emplroyees.

3. '( v/;,~ ttJhb.'i s not a: Contlfec.!lor'?' Th':i:s .'Bu;rl;etdn .tloes .... no.t
apply to CIA caiitrac~ 'Eim~.loyees:-.. For purposes of. .the fede -r.al
!Ja'\oJ discussed in 'this Sul'J.:e'tin, 8 C61itr'act .emp.l oy;ee :i s .an
einpioYee of t'he <:>~ A : wlio' i; apeo'i:nted ..fur: :1-'irrt'it:ed tezi..m,.
during wh~ch he !!IBY=::P et:fQ:t:'Rl :~h~~ :!:!:~me fl:.lneti'0ns-aJ?.- a .~I:A. ;s:t.aff
employee.. Thi:s Bih-l'etin, wses:tJ:l:e; term'~ell)p i'~ye~e.'' .to refer .to
ciA. sta.ff and..cont t::!=kt:t'.-;emplq.yees;.

.:a

4. (.U/I~f What i-s. P.t:'ohibtte.d?.' T-h.e .Fel!fera':i:. .P;cguis i t~on


R:eg1:1lation" (;'~f'AR'~~)., 'wh:ich. i:!t 'the t~mplex.::se.t o~: r\:ife3: that
g.o:ve.r.n~ gover'i'iment :c6n''t;'racting:~ pr.9 hi'bfts.' a,qencie:s, from
eoritracJ;ir:t.9 out ~'inherent-ly. _gov~tr.unental. 'func:tions .. ~~~ 48 c . F. R.

Exhibit C is UNCLASSIFIED//AIW&1

SECRETHNOFORN
Approved for Release: 2016/03/31 C06491273

C06491273

Approved for Release: 2016/03/31 C06491273

SEGRETHNOFORN

7. 50 3. The purpos;e .l?ehii:ld this .t:'!lle is to prevent the U.s.


Government from improperly tra-nsferring its authority to
c<;mt:;r acto:rs . As suc;:h, "inher ent1y -goverrunental functions"
u~ua lly involve the c;liscretionary el:'(ercise of goverrunent
authority or financial transact ions. There is no ha:rd and fa st
rule for det ermining when a particular a:ctivity qualifies as
an inhe ~.ently goV..e rnmental func ti on. The gener al rule is that
decision-making authorit. ~or issues involving the control of
U.S. government. employ~es , .policy, money, o.r property must
remain with. all' e mployee of .the u.s. Government.
!i. (U/ /~) How D6es this Rule- Apply. 'to the CIA-? To
illus.t rate how th.i:s restrictio'n app li'es to 'CIA C(i>ntrac.to.rs,
OGC. has developed a lis't of act.ivities .( Reference A) that can
and cannot be performed by con:t rac t~rs . Plea's.e no.te that this
List is !!2! exhaustive cut me i 'ely r :epresents answer s t o
questions tha1;- are frequen't1y as'k'e d .of OGC:. Arty questions
.regar~hng whetli.er an activ~ty quali.fie~ as an "inh~;:.rently
governme ntal func tion" sho~ld be directed to the Office of
General Counsel, :Adr!ri.nist.rativ-e taw Division, a tl
'An.y
quest ions rega-rdin:g the law of go:ver nment contracti ng
generally should b.e di,rect ed to the Of'f ice .of General Counsel,
Contr-act Law oi.vl.sion, at (b)( } CIIAAct

Reference A What Can Contractors Do and No.t


(b}(3) CIAAct

SECRETIINOFORN
Approved for Release: 2016/03/31 C06491273

Do?

(b)(3) CIAAct

C06491273

Approved for Release: 2016/03/31 C06491273

SEGAETNNOFORN

(b)(3) CIAAct

SECRET#NOFORN
Approved for Release: 2016/03/31 C06491273

C064 9 1273

Approved for Release: 2016/03/31 C06491273

SECRETHNOFORN

(b)(3) CIAAct

'!

S&CRETHNOFORN
Approved for Release: 2016/03/31 C06491273

C06491273

Approved for Release: 2016/03/31 C06491273

SECRETfi'NOFORN

Exh'ibit D
(U) List of Sample Contracts With
Unauthorized Commitments
CS#NFt National Clandestine Service fNCS) Contracts

(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

____
__ _
(U) Source: Auditor-developed from data inL __ _ _ _ _ _ _ _ _
(b)(3)
CIAAct

SECRFiTUNOFORN
Approved for Release:

20~6/03/31

C06491273

C06491273

Approved for Release: 2016/03/31 C06491273

5EGRET/fNOFORIQ

(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

SECRETUNOfORN
Approved for Release: 2016/03/31 C06491273

C06491 2 73

Approved for Release: 2016/03/31 C06491 273

SECRET11NOFORN
/

(b)(1)
(b)(3) CIAAct
(b)(3) NatSecAct

fSn'NF) Non-NCS Contracts


Contract Number

Procurement Unit

Price

Independent
Contractor
StartWo~

(b)( 1)
(b)(3) CIAAct

(b)(3) NatSecAct

Total Non-~
N=
CS
=----------l~(b)( 1 )
1
Contracts:
(b)(3) C IAAc~
(b)(3) NatSecAct

'
Grand Tot"f'-- - - -

Contracts:

(b)( 1)
(b)(3) CIAAct
' - - - - - -(b)(3) NatSecAct- - - - '

SECRETHNOFORN
Approved for Release: 2016/03/31 C06491273

Date of
Contract
Award

Days
Late

C0649 127 3

Approved for Release: 2016/03/31 C06491273

SEGRETrNOFORN

Exhibit E
(U) Recommendations
(b)(3) CIAAct

----------..

(b)(3) NatSecAct
(b)(S)

(b)(3) CIAAct
(b)(3) NatSecAct

(b)(3) CIAAct
(b)(3) NatSecAct

(b)( 1)
(b)(3) ClAAct
(b)(3) NatSecAct

(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

Exhibit E is

CQNFIBENTblcUIN6PO~N

SEGRETJINOFORN
Approved for Release: 2016/03/31 C06491 273

C06 4912 73

Approved for Release: 2016/03/31 C06491273

SECRETHNOFORN

(b)(3) CIAAcl
(b)(3) NatSecAct
(b)(5)

(U) The status of significant recommendations will be included in the Inspector


General's semiannuaJ reports to the Director, Central Intelligence Agency.

SECRETtfNOPfORN
Approved for Release: 2016/03/31 C06491 273

C06491273

Approved for Release: 2016/03/31 C06491273

Sf!CRETHNOFORN
Exhibit F
(U) Audit Team

~ This audit report was prepared by the


of Inspector General.

I (b)(3) CIAAct

!Audit Staff, Office


-----'

(b)( 1)
(b)(3) CIAAct
(b)(3) NatSecAct

Exhibit F Is CONFI9ENTIAU/N8Fe,._N

8ECRET//NOFORN
Approved for Release: 2016/03/31 C06491273

C064912 73

Approved for Release: 2016/03/31 C06491273

SECRETffNOFORN

S!CIItET//NOFORN
Approved for Release: 2016/03/31 C06491273

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