U.S. Department of Labor Office of Inspector General

Audit Report

OIG REVIEW OF CONTRACTOR CLAIM
RESULTS IN NEGOTIATED SAVINGS TO
THE GOVERNMENT TOTALING $582,608
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Report Title:    OIG Review of Contractor Claim Results in Negotiated Savings to the Government Totaling $582,608

Report Number: Final Report No. 18-98-004-04-370

Issue Date: January 27, 1998

During the contract closeout process for operation of Job Corps Centers in McKinney, Texas and Guthrie, Oklahoma, The Wackenhut Corporation, Inc. (Wackenhut) determined that a significant cost overrun occurred at the Guthrie Center and a lesser overrun at the McKinney Center.  Wackenhut claimed the overruns were due to an unusual set of circumstances over which it had little or no control and, therefore, should be paid the entire amount of the cost overruns plus unpaid contract amounts for which Job Corps had withheld final payment.

The Job Corps requested that the OIG review the Wackenhut claim to determine:

We reviewed about $2.3 million of claimed costs, evaluated the merits of the contractor's reasons for the cost overruns, and provided information to both the Job Corps and the Solicitor of Labor (SOL) for use in either a negotiated settlement or potential litigation.

The OIG determined that most of the costs Wackenhut had claimed and Job Corps had not yet paid (both costs "within the contract" and overruns) were legitimate Job Corps expenses.  The OIG also determined there were, in fact, unusual circumstances which complicated and aggravated the contract closeout process and contributed to the cost overruns.  There were conditions within Wackenhut which contributed to the lax oversight of accrued expenses.  Further, there were conditions external to Wackenhut, beyond their control, which contributed to the operational overruns.

On December 17, 1997, primarily as a result of the OIG's review, the Job Corps and Wackenhut entered into a Settlement Agreement.  The terms of the agreement included Job Corps reimbursing Wackenhut a fair amount on its unpaid claims for both contracts, determined to be $2.1 million, which saved DOL a total of $582,608 and avoided the costs of subsequent litigation.  The total savings is comprised of reductions of $205,992 in the amounts of the two contracts and $376,616 of allowable costs not claimed by Wackenhut, including interest costs to which Wackenhut would otherwise have been entitled under the Prompt Payment Act.

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