The report said an in-house bid submitted by the American Federation of Government Employees union would have saved taxpayers $30 million more than ACS'. It added that DFAS reviewers gave ACS deficient ratings for handling customer calls and account changes in February, March and April of 2002, and suggested that DFAS re-evaluate ACS' contract. "We believe it is the responsibility of DFAS to consider the results of this audit and . . . include a determination of why a re-competition should not be held," the report said.
The report also recommended that the Defense Department take "appropriate action" against the contractor who improperly added $31.8 million in personnel costs to the union's bid, Alabama-based Mevatec Corp., and examine why the error wasn't caught by several Defense Department agencies that reviewed the contract, including the office of the Inspector General.
A spokesman for the company that recently bought Mevatec, BAE Systems, said his firm does not comment on work it performs for customers.
DFAS spokesman Bryan Hubbard said the agency is pursuing remedies against Mevatec that are afforded under its contract with the company but said he could not disclose them because they are of a "proprietary, contractual" nature.
He said the ACS contract with DFAS is renewable annually and its performance is evaluated continuously. He said ACS' early quality problems were start-up difficulties and that the company's performance is now satisfactory in all respects. He cited a recent Office of Personnel Management survey that showed customer satisfaction rose 8 percent since January 2002, when ACS began to handle benefits for more than 2.5 million military retirees and their survivors.
After DFAS verified the bidding error in July 2002, Hubbard said it decided to renew ACS' contract for another year after examining all available options "from a legal and business perspective." ACS spokeswoman Lesley Pool did not return phone calls yesterday.
"In the first year of contract operations, DFAS spent almost $5 million less than anticipated in the cost comparison on our contract with ACS for the operation of retired and annuitant pay," Hubbard said. "DFAS leaders expect to continue decreasing cost in the out years. These reductions are in addition to those forecast in the original cost comparison conducted almost two years ago."
Cleveland Democratic Rep. Dennis Kucinich, who requested the Inspector General's investigation, said DFAS should immediately give the contract to the union. Kucinich criticized DFAS for continuing the ACS contract after it learned of the bidding irregularities.
"With privatization, taxpayers pay more and get less," Kucinich said. "The only thing that remains to be asked is whether we can reverse it. I think we have plenty of information that makes a case for reversal."
Union officials said the mistakes in Cleveland show flaws in the Bush administration's plan to privatize as many as 850,000 federal jobs, nearly half the government work force.
They said many senior government managers are biased toward privatization because they hope to make big money by taking early retirement and accepting posts with contractors doing their old jobs while collecting government pensions.
Vic-tor Davis, acting president of AFGE Local 3283, which represents 1,100 DFAS workers in Cleveland, said his former members who ended up working for ACS lost their union protection and job security. If DFAS continues its contract with ACS, Davis said the union will consider a lawsuit.
"I realize that this is political, but fair is fair," said Davis. "A lot of lives have been adversely affected by this."
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