DoD's $62.4M Financial Audit Support Contract Awarded to Ernst & Young LLP Shows Strong Competition

Contract Overview

Contract Amount: $62,408,427 ($62.4M)

Contractor: Ernst & Young LLP

Awarding Agency: Department of Defense

Start Date: 2016-07-22

End Date: 2023-08-17

Contract Duration: 2,582 days

Daily Burn Rate: $24.2K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 4

Pricing Type: FIRM FIXED PRICE

Sector: Other

Official Description: IGF::OT::IGF FINANCIAL STATEMENT AND AUDIT SUPPORT SERVICES.

Place of Performance

Location: FALLS CHURCH, FAIRFAX County, VIRGINIA, 22042

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $62.4 million to ERNST & YOUNG LLP for work described as: IGF::OT::IGF FINANCIAL STATEMENT AND AUDIT SUPPORT SERVICES. Key points: 1. The contract demonstrates a commitment to robust competition, with a full and open bidding process. 2. Ernst & Young LLP, a major accounting firm, secured this significant contract. 3. The contract duration of over 7 years suggests a long-term need for these financial services. 4. The firm fixed-price contract type indicates that cost risks are largely borne by the contractor. 5. The award value of over $62 million reflects substantial government spending on essential audit functions. 6. The Defense Health Agency's reliance on external auditors highlights the complexity of its financial operations.

Value Assessment

Rating: good

The contract value of $62.4 million over approximately 7 years for financial audit support appears reasonable given the scale of the Defense Health Agency's operations. Benchmarking against similar large-scale federal audit contracts would provide a more precise value-for-money assessment. The firm fixed-price nature of the contract shifts cost risk to the contractor, which is generally favorable for the government. However, without specific performance metrics or detailed cost breakdowns, a definitive assessment of exceptional value is challenging.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under a full and open competition, indicating that all eligible and responsible sources were permitted to submit bids. The presence of multiple bidders (implied by 'full and open') generally leads to more competitive pricing and a wider selection of qualified contractors. The specific number of bidders is not provided, but the category suggests a healthy competitive environment for these essential financial services.

Taxpayer Impact: A full and open competition ensures that taxpayer dollars are used efficiently by driving down prices through market forces. This approach maximizes the opportunity to secure the best value for the government.

Public Impact

The primary beneficiaries are the Department of Defense and the Defense Health Agency, which receive critical financial audit and support services. These services ensure the accuracy and integrity of financial reporting for a major government health program. The contract supports the agency's compliance with federal financial management regulations. The workforce implications are primarily within the accounting and auditing sector, with Ernst & Young LLP utilizing its professional staff.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for contractor lock-in due to long contract duration.
Reliance on a single large firm for critical financial oversight.
Limited transparency into specific audit methodologies and findings without further reporting.

Positive Signals

Awarded through full and open competition, suggesting competitive pricing.
Firm fixed-price contract type minimizes cost overrun risk for the government.
Contractor is a well-established firm with significant experience in government audits.
Long contract duration provides stability and continuity of essential services.

Sector Analysis

The federal government relies heavily on external audit firms to ensure accountability and compliance in its vast financial operations. This contract falls within the professional services sector, specifically accounting and auditing. The market for these services is dominated by large, established firms capable of handling complex government requirements. Spending on audit and financial support services is a consistent component of federal agency budgets, essential for maintaining financial integrity.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'ss' being false and 'sb' being false. The primary contractor, Ernst & Young LLP, is a large multinational professional services firm. While there might be opportunities for small businesses to subcontract, the primary award is not directed towards them. The focus is on securing the expertise of a large, established firm for complex audit requirements.

Oversight & Accountability

Oversight for this contract would typically be managed by the contracting officer and the Defense Contract Management Agency (DCMA) or equivalent within the Defense Health Agency. The firm fixed-price nature of the contract provides some inherent oversight by incentivizing the contractor to manage costs effectively. Transparency is generally maintained through regular reporting requirements and the audit process itself, though specific findings may be sensitive. Inspector General jurisdiction would apply if any fraud, waste, or abuse were suspected.

Related Government Programs

Federal Financial Management Services
Government Audit and Assurance Services
Defense Contract Audit Agency (DCAA) Services
Department of Defense Financial Improvement and Audit Readiness (FIAR) Program

Risk Flags

Long contract duration may reduce flexibility.
Potential for contractor lock-in.
Reliance on a single large provider for critical services.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $62.4 million to ERNST & YOUNG LLP. IGF::OT::IGF FINANCIAL STATEMENT AND AUDIT SUPPORT SERVICES.

Who is the contractor on this award?

The obligated recipient is ERNST & YOUNG LLP.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Health Agency).

What is the total obligated amount?

The obligated amount is $62.4 million.

What is the period of performance?

Start: 2016-07-22. End: 2023-08-17.

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

Ernst & Young LLP (EY) has a significant history of performing work for the federal government, including numerous contracts with various agencies within the Department of Defense (DoD). Their experience spans a wide range of professional services, including financial auditing, tax advisory, and management consulting. For the DoD specifically, EY has been involved in supporting financial statement audits, audit readiness initiatives, and other financial management support services. Their extensive experience with complex government accounting standards and regulations positions them as a capable contractor for large-scale financial support contracts like the one with the Defense Health Agency. Past performance data, often available through federal procurement databases, would provide more granular detail on their successful completion of similar engagements.

How does the value of this contract compare to similar financial audit support contracts awarded by other federal agencies?

The $62.4 million contract value for financial audit support services awarded to Ernst & Young LLP by the Defense Health Agency (DHA) over approximately seven years is substantial, reflecting the scale and complexity of DHA's operations. To benchmark this value, one would compare it to similar contracts for audit and financial advisory services awarded to large public accounting firms by other major federal agencies, such as the Department of the Treasury, the Department of Health and Human Services, or the Department of Veterans Affairs. Factors influencing these values include the scope of services (e.g., full financial statement audits vs. specific support), the duration of the contract, the number of bidders, and the specific regulatory environment. Without direct comparative data on similar-sized agencies and service scopes, it's difficult to definitively state if this represents a premium or a discount, but it aligns with the significant investments large federal entities make in financial integrity.

What are the primary risks associated with a contract of this nature and duration?

A primary risk associated with a long-duration contract for financial audit support is the potential for contractor complacency or a decline in service quality over time, despite the firm fixed-price structure. Another risk is the government's potential over-reliance on a single contractor, which could reduce flexibility and bargaining power in the future. Scope creep, where the requirements expand beyond the original agreement without commensurate adjustments in price or schedule, is a constant risk in complex service contracts. Furthermore, changes in federal regulations or accounting standards could necessitate contract modifications, introducing complexity and potential cost impacts. Finally, there's always a risk related to the contractor's personnel turnover, which could impact institutional knowledge and the consistency of audit procedures.

How effective are firm fixed-price contracts in ensuring value for money in complex service procurements like this?

Firm fixed-price (FFP) contracts are generally considered effective in ensuring value for money for the government when the scope of work is well-defined and unlikely to change significantly. In this case, for financial audit support, the core requirements are relatively stable, driven by federal regulations and accounting standards. The FFP structure places the primary burden of cost control and risk management on the contractor, incentivizing efficiency and predictability. This means the government pays a set price, and the contractor absorbs cost overruns. This can lead to better price certainty for the government compared to cost-reimbursement contracts. However, for highly complex or evolving services, an FFP contract might lead the contractor to build in higher contingency costs, or it could stifle innovation if not carefully managed. For routine, well-understood services like financial audits, FFP is often a suitable choice for value.

What are the implications of awarding such a large contract to a single 'Big Four' accounting firm for market competition?

Awarding a large contract like this to a 'Big Four' firm (Ernst & Young LLP being one) has mixed implications for market competition. On one hand, it signifies that the government is leveraging the extensive resources, specialized expertise, and established methodologies that these large firms possess, which smaller firms may not be able to replicate. This can ensure a high level of service quality and compliance. On the other hand, it concentrates a significant portion of federal audit support spending within a few dominant players, potentially limiting opportunities for mid-tier or specialized firms to gain experience and scale in the federal space. It also raises questions about market concentration and the potential for reduced competitive pressure over the long term if such large contracts are consistently awarded to the same few entities.

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) › MANAGEMENT SUPPORT SERVICES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: SUBJECT TO MULTIPLE AWARD FAIR OPPORTUNITY

Solicitation ID: HT001115R0029

Offers Received: 4

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 1101 NEW YORK AVENUE, NW, WASHINGTON, DC, 20005

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

Financial Breakdown

Contract Ceiling: $63,265,672

Exercised Options: $62,408,427

Current Obligation: $62,408,427

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: GS23F8152H

IDV Type: FSS

Timeline