Army's $812M Audit Support Contract Awarded to Ernst & Young LLP Faces Scrutiny for Value and Competition

Contract Overview

Contract Amount: $812,624,580 ($812.6M)

Contractor: Ernst & Young LLP

Awarding Agency: Department of Defense

Start Date: 2018-09-21

End Date: 2025-10-31

Contract Duration: 2,597 days

Daily Burn Rate: $312.9K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: TIME AND MATERIALS

Sector: Other

Official Description: BASE AWARD - FY18-20 ARMY GENERAL FUND AUDIT SUPPORT

Place of Performance

Location: WASHINGTON, DISTRICT OF COLUMBIA County, DISTRICT OF COLUMBIA, 20005

State: District of Columbia Government Spending

Plain-Language Summary

Department of Defense obligated $812.6 million to ERNST & YOUNG LLP for work described as: BASE AWARD - FY18-20 ARMY GENERAL FUND AUDIT SUPPORT Key points: 1. The contract's significant value raises questions about cost-effectiveness and potential for overruns. 2. Limited public data on performance metrics makes it difficult to assess value for money. 3. The 'Full and Open Competition' designation suggests a competitive process, but the number of bidders is not specified. 4. The contract's duration and complexity present inherent performance risks. 5. This contract positions Ernst & Young LLP as a key player in federal audit support services. 6. The use of Time and Materials pricing could incentivize longer project durations, impacting overall cost.

Value Assessment

Rating: fair

The $812 million base award for audit support services is substantial. Without detailed performance data or comparable contract benchmarks, it is challenging to definitively assess value for money. The Time and Materials (T&M) contract type, while flexible, can sometimes lead to higher costs compared to fixed-price contracts if not managed closely. Benchmarking against similar large-scale audit support contracts for other military branches or federal agencies would be necessary for a more robust assessment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under 'Full and Open Competition,' indicating that all responsible sources were permitted to submit offers. However, the number of bids received is not publicly detailed, which is crucial for understanding the true level of competition. A robust competition typically involves multiple bidders, driving down prices and improving service quality. The absence of this detail limits the assessment of how effectively competition translated into taxpayer savings.

Taxpayer Impact: A competitive award process is generally beneficial for taxpayers as it encourages multiple firms to offer their best pricing and services. However, without knowing the number of bidders, it's difficult to quantify the specific taxpayer advantage gained in this instance.

Public Impact

The primary beneficiaries are the Department of the Army and potentially other Department of Defense entities requiring audit support. The services delivered are critical for financial accountability and compliance with federal auditing standards. The contract's impact is primarily concentrated within the federal financial management and auditing sector. Workforce implications include employment opportunities for certified public accountants and audit professionals within Ernst & Young LLP and potentially its subcontractors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Time and Materials pricing structure can lead to cost overruns if not closely monitored.
The long contract duration (through 2025) increases the risk of scope creep and evolving requirements.
Lack of detailed performance metrics makes it difficult to hold the contractor accountable for specific outcomes.
The sheer scale of the contract presents a significant financial commitment for the government.

Positive Signals

Awarded through Full and Open Competition, suggesting a broad search for qualified contractors.
Ernst & Young LLP is a well-established firm with significant experience in audit and financial services.
The contract aims to address a critical government need for audit support, enhancing financial transparency.

Sector Analysis

The federal audit and accounting services sector is a significant market, driven by regulatory requirements and the need for financial oversight across government agencies. This contract falls within the professional services category, specifically focusing on certified public accounting and audit functions. Comparable spending benchmarks would involve analyzing other large federal contracts for audit support, financial management consulting, and compliance services across agencies like the DoD, Treasury, and GSA.

Small Business Impact

The data indicates that small business participation (sb) is false, and there is no explicit small business set-aside (ss). This suggests that small businesses were not specifically targeted for this prime contract. While Ernst & Young LLP may engage small businesses as subcontractors, the primary award does not appear to prioritize small business inclusion, potentially limiting opportunities for smaller firms in this large-scale engagement.

Oversight & Accountability

Oversight for this contract would typically fall under the Department of the Army's contracting and financial management offices. Transparency is facilitated through contract databases like FPDS, but detailed performance reports and cost breakdowns are often not publicly available. The Inspector General for the Department of Defense may have jurisdiction to investigate potential fraud, waste, or abuse related to this contract.

Related Government Programs

DoD Financial Improvement and Audit Readiness (FIAR) Program
Federal Audit Services
Government Contract Auditing
Financial Management Support Services

Risk Flags

Potential for cost overruns due to T&M pricing.
Lack of detailed public performance metrics.
Long contract duration increases risk.
Limited insight into the number of bidders in the competition.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $812.6 million to ERNST & YOUNG LLP. BASE AWARD - FY18-20 ARMY GENERAL FUND AUDIT SUPPORT

Who is the contractor on this award?

The obligated recipient is ERNST & YOUNG LLP.

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Army).

What is the total obligated amount?

The obligated amount is $812.6 million.

What is the period of performance?

Start: 2018-09-21. End: 2025-10-31.

What is the historical spending pattern for audit support services within the Department of the Army?

Historical spending on audit support services by the Department of the Army has been substantial, particularly in recent years as the DoD has focused on achieving auditable financial statements. Prior to the current contract, the Army likely engaged in various contracts, potentially with different firms and structures, to meet its audit readiness and support needs. Analyzing spending trends over the past decade would reveal an increasing emphasis and investment in this area, driven by legislative mandates and the complexity of military financial operations. This $812 million contract represents a significant, consolidated investment, suggesting a shift towards larger, longer-term engagements for comprehensive audit support compared to potentially smaller, more fragmented contracts in the past.

How does the Time and Materials (T&M) pricing structure compare to fixed-price contracts for similar audit support services in terms of cost-effectiveness?

Time and Materials (T&M) contracts offer flexibility, allowing the scope of work to adapt as needs evolve, which can be beneficial for complex, evolving services like audit support. However, they generally carry a higher risk of cost overruns for the government compared to fixed-price contracts. With T&M, the contractor is reimbursed for direct labor hours at specified rates and for the actual cost of materials. This structure can incentivize longer project durations and potentially less efficient work, as the contractor's profit is tied to the hours worked. Fixed-price contracts, conversely, provide cost certainty for the government, as the price is set upfront, encouraging the contractor to manage costs and timelines efficiently to maximize profit. For audit support, where requirements might be somewhat predictable, a well-defined fixed-price contract could potentially yield better value, assuming the scope is accurately estimated.

What are the key performance indicators (KPIs) used to measure the success of this audit support contract?

Specific Key Performance Indicators (KPIs) for this contract are not publicly detailed in the provided data. However, for federal audit support contracts, typical KPIs often revolve around the timely completion of audit tasks, the accuracy and completeness of audit documentation, adherence to audit standards (e.g., Generally Accepted Auditing Standards - GAAS), the number of audit findings identified and resolved, and the contractor's ability to meet deadlines set by the government or external auditors. Other potential metrics could include the efficiency of resource utilization, the quality of reports generated, and the contractor's responsiveness to government inquiries. The effectiveness of Ernst & Young LLP's performance would be measured against these or similar metrics, though their public disclosure is limited.

What is Ernst & Young LLP's track record with large federal contracts, particularly within the Department of Defense?

Ernst & Young LLP (EY) has a significant track record of performing large federal contracts, including substantial work within the Department of Defense (DoD) and other federal agencies. As one of the 'Big Four' accounting firms, EY possesses extensive experience in audit, tax, and advisory services. They have been involved in various large-scale government engagements related to financial auditing, audit readiness, cybersecurity, and management consulting. While specific contract details and performance histories are often proprietary or not fully public, EY's continued success in winning and performing major federal contracts indicates a generally positive standing and capability to handle complex, high-value government requirements. Their experience likely includes navigating the complexities of federal acquisition regulations and DoD-specific operational environments.

What are the potential risks associated with a sole-source or limited competition award for federal audit services?

This contract was awarded under 'Full and Open Competition,' not sole-source or limited competition. However, if it were, potential risks associated with sole-source or limited competition for federal audit services include significantly reduced price competition, potentially leading to higher costs for taxpayers. It can also limit the government's access to innovative solutions or specialized expertise that might be offered by a broader range of contractors. Furthermore, a lack of robust competition can reduce the incentive for the awarded contractor to maintain high service quality or efficiency, as the threat of losing future business to competitors is diminished. This can also raise concerns about fairness and equal opportunity for other capable firms.

How does this contract contribute to the Department of Defense's overall financial improvement and audit readiness goals?

This $812 million contract is a critical component of the Department of Defense's broader Financial Improvement and Audit Readiness (FIAR) initiative. The DoD faces immense challenges in achieving auditable financial statements due to its vast scale, complex operations, and legacy systems. Audit support contracts like this one provide the necessary expertise, personnel, and resources to assist the Army in preparing financial records, implementing internal controls, conducting self-assessments, and facilitating independent audits. By engaging a large, experienced firm like Ernst & Young LLP, the Army aims to accelerate its progress towards auditability, enhance financial transparency, improve accountability, and ensure compliance with federal financial management regulations. The success of this contract directly impacts the DoD's ability to meet its audit objectives.

Industry Classification

NAICS: Professional, Scientific, and Technical Services › Accounting, Tax Preparation, Bookkeeping, and Payroll Services › Offices of Certified Public Accountants

Product/Service Code: SUPPORT SVCS (PROF, ADMIN, MGMT) › PROFESSIONAL SERVICES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Solicitation ID: W91CRB17R0018

Offers Received: 2

Pricing Type: TIME AND MATERIALS (Y)

Evaluated Preference: NONE

Contractor Details

Address: 1 MANHATTAN WEST, NEW YORK, NY, 10001

Business Categories: Category Business, Not Designated a Small Business, Partnership or Limited Liability Partnership, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $910,779,793

Exercised Options: $910,779,793

Current Obligation: $812,624,580

Actual Outlays: $16,768,045

Subaward Activity

Number of Subawards: 22

Total Subaward Amount: $12,496,795

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: GS00F290CA

IDV Type: FSS

Timeline