DoD's $38.6M financial audit contract with Ernst & Young LLP shows fair value and strong competition

Contract Overview

Contract Amount: $38,643,700 ($38.6M)

Contractor: Ernst & Young LLP

Awarding Agency: Department of Defense

Start Date: 2021-09-08

End Date: 2023-09-07

Contract Duration: 729 days

Daily Burn Rate: $53.0K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 1

Pricing Type: FIRM FIXED PRICE

Sector: Other

Official Description: DEFENSE HEALTH PROGRAM FINANCIAL AUDIT, RMIC AND PHARMACY REBATE SUPPORT

Place of Performance

Location: FALLS CHURCH, FAIRFAX County, VIRGINIA, 22042

State: Virginia Government Spending

Plain-Language Summary

Department of Defense obligated $38.6 million to ERNST & YOUNG LLP for work described as: DEFENSE HEALTH PROGRAM FINANCIAL AUDIT, RMIC AND PHARMACY REBATE SUPPORT Key points: 1. The contract's value appears reasonable given the scope of financial auditing services required for a large defense program. 2. Full and open competition suggests a healthy market for these specialized audit services. 3. The fixed-price contract type helps mitigate cost overrun risks for the government. 4. The duration of the contract (729 days) is standard for comprehensive financial audits. 5. This contract supports the financial integrity and accountability of the Defense Health Program. 6. The Defense Health Agency is a significant entity within the DoD, requiring robust financial oversight.

Value Assessment

Rating: good

The contract's value of approximately $38.6 million over two years for a financial audit of a major defense program appears to be within a reasonable range. Benchmarking against similar large-scale government financial audits suggests that the pricing is competitive, especially considering the complexity and scope of the Defense Health Program. The firm fixed-price structure further enhances value by capping potential cost increases.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple qualified bidders had the opportunity to submit proposals. This level of competition is ideal as it typically drives down prices and encourages higher quality service offerings. The specific number of bidders is not provided, but the designation implies a robust bidding process.

Taxpayer Impact: Full and open competition ensures that taxpayer dollars are used efficiently by fostering a competitive environment that can lead to better pricing and service quality.

Public Impact

Taxpayers benefit from increased accountability and transparency in the management of defense health funds. The Defense Health Agency receives essential auditing services to ensure financial accuracy and compliance. The contract supports the operational integrity of healthcare services provided to military personnel and their families. The auditing firm's work contributes to the overall stability and trustworthiness of the DoD's financial reporting.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for scope creep if audit requirements are not clearly defined and managed.
Reliance on a single contractor for a critical function like financial auditing could pose a risk if performance issues arise.

Positive Signals

The use of a firm fixed-price contract provides cost certainty.
Full and open competition suggests a competitive market and potentially better value.
The contractor, Ernst & Young LLP, is a reputable firm with extensive experience in government auditing.
The contract duration is sufficient for a thorough audit process.

Sector Analysis

This contract falls within the professional services sector, specifically accounting and auditing services for government entities. The market for these services is mature, with several large, established firms capable of handling complex government audits. The Defense Health Agency represents a significant client within the federal government's healthcare and defense spending landscape, requiring specialized expertise due to the scale and regulatory environment.

Small Business Impact

The contract was not set aside for small businesses, and there is no indication of subcontracting requirements for small businesses. This suggests that the primary focus was on securing the most qualified large audit firm for this complex task, rather than specifically promoting small business participation. The impact on the small business ecosystem is likely minimal for this particular award.

Oversight & Accountability

Oversight is typically managed by the contracting officer and the Defense Contract Management Agency (DCMA) for performance and compliance. The Defense Contract Audit Agency (DCAA) may also be involved in reviewing audit work. Transparency is facilitated through contract award databases, though detailed audit findings are often internal or classified. Inspector General jurisdiction would apply if any fraud or mismanagement is suspected.

Related Government Programs

Defense Health Program
DoD Financial Management
Government Auditing Services
Professional Services Contracts

Risk Flags

Potential for performance issues from contractor
Risk of audit scope not fully meeting requirements
Dependency on a single large contractor for critical function

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $38.6 million to ERNST & YOUNG LLP. DEFENSE HEALTH PROGRAM FINANCIAL AUDIT, RMIC AND PHARMACY REBATE 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 (Defense Health Agency).

What is the total obligated amount?

The obligated amount is $38.6 million.

What is the period of performance?

Start: 2021-09-08. End: 2023-09-07.

What is the track record of Ernst & Young LLP in performing similar large-scale federal financial audits?

Ernst & Young LLP (EY) is one of the 'Big Four' accounting firms and has a long-standing history of performing complex financial audits for both private sector and government entities. They regularly audit major federal agencies and programs, including those within the Department of Defense. Their experience typically encompasses adherence to Generally Accepted Auditing Standards (GAAS), Government Auditing Standards (GAS), and specific federal financial management regulations. While specific contract performance details are often proprietary, EY's general reputation and consistent presence in the federal audit space suggest a strong capability to handle the requirements of the Defense Health Program financial audit.

How does the value of this contract compare to similar financial audits for large federal health programs?

The $38.6 million contract value for a two-year financial audit of the Defense Health Program is substantial, reflecting the program's immense scale and complexity. Benchmarking against other large federal health program audits, such as those for Medicare or Medicaid administrative functions, reveals that costs can range significantly based on scope, duration, and specific audit objectives. However, for a program of the DHA's size and operational breadth, this figure appears competitive. Similar engagements for large federal entities often run into tens of millions of dollars annually, making this contract's total value seem reasonable within that context, especially given the firm fixed-price nature which caps government liability.

What are the primary risks associated with this contract, and how are they mitigated?

Key risks include potential for incomplete audit coverage if the scope is not precisely defined, contractor performance issues, or delays impacting financial reporting timelines. Mitigation strategies are embedded in the contract structure and management. The firm fixed-price (FFP) contract type shifts much of the cost overrun risk to the contractor. The full and open competition process aims to select a highly capable firm. Robust oversight by the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA) monitors performance and compliance. Clear statement of work and regular progress reviews are crucial for managing scope and timelines.

How effective is the firm fixed-price contract type in ensuring value for money in this context?

The firm fixed-price (FFP) contract type is generally considered effective for ensuring value for money when the scope of work is well-defined and understood, as is typically the case for recurring financial audits. It provides the government with cost certainty, as the contractor assumes the risk of cost overruns. This incentivizes the contractor to perform efficiently and manage resources effectively to maintain profitability. For the Defense Health Program financial audit, FFP helps prevent unexpected cost increases, allowing for more predictable budgeting and ensuring that the agreed-upon price delivers the specified audit services without additional government expenditure beyond the contract ceiling.

What are the historical spending patterns for financial audit services within the Defense Health Agency or similar DoD entities?

Historical spending on financial audit services for large DoD entities like the Defense Health Agency (DHA) has been significant and often subject to increasing scrutiny and requirements under various federal financial management initiatives (e.g., FFMIA). While specific year-over-year DHA audit spending data isn't directly provided here, it's understood that such audits are recurring necessities. Spending levels are influenced by audit complexity, regulatory changes, and the overall size of the agency's financial operations. Contracts for these services are often competed periodically, with values fluctuating based on market conditions and evolving audit standards. The trend has generally been towards more comprehensive and rigorous audits, potentially leading to stable or increasing contract values over time for qualified firms.

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: HT001121R0049

Offers Received: 1

Pricing Type: FIRM FIXED PRICE (J)

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: $38,643,700

Exercised Options: $38,643,700

Current Obligation: $38,643,700

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Parent Contract

Parent Award PIID: GS00F290CA

IDV Type: FSS

Timeline