MEMORANDUM FOR	GUY K. ZIMMERMAN ASSISTANT INSPECTOR GENERAL FOR AUDIT
FROM:	/s/ Stacia A. Hylton Stacia A. Hylton Federal Detention Trustee
SUBJECT:	Audits of U.S. Marshal Service Intergovernmental Agreements for Detention Facilities

This memorandum pertains to audits conducted by your office of intergovernmental agreements (IGAs) between the United States Marshals Service (USMS) and state or local governments for detention space and services for federal prisoners. Commencing around 2003, your office initiated a number of audits of IGAs and is now in various stages of completing these audits (see Attachment 1, “OIG Audit Status Report as of March 1, 2006”). With regard to several of these audits, your office has requested that the USMS recover amounts allegedly overpaid by them. As explained more fully below, the Office of the Federal Detention Trustee (OFDT) views these IGAs as negotiated fixed-price contracts and has advised the USMS not to seek reimbursement.

The issue of the types and pricing of the USMS IGAs has been debated for some time. Initially, this debate centered upon the Federal Procurement Regulations. As a result of the recurring refusal of some state and local governments to enter into the standard procurement contracts (which negatively impacted detention operations), David Stockman, then Director of OMB, issued an exception that allowed the USMS, INS, and BOP to enter into IGAs with state and local governments for the provision of prisoner detention services.¹ Pursuant to 18 U.S.C. § 4002, Congress has since authorized the Attorney General to enter into detention service contracts and agreements with state and local governmental entities at such rates “as will permit and encourage the proper authorities to provide reasonably decent, sanitary, and healthful quarters and subsistence.”

More recently, the OIG focused on whether the government may pay a fee above cost under these IGAs. While your office consistently opined that OMB Circular A-87 prohibited the Attorney
General from entering into an agreement with state and local governments on the basis of any terms other than cost, this reading was repudiated by the USMS, the Justice Management Division General Counsel, the former INS, and even OMB itself. In 2002, then Acting Deputy Attorney General Larry Thompson requested the Office of Legal Counsel (OLC) to provide an opinion as to whether it was permissible for the Department to pay profit under IGAs. On December 31, 2002, the OLC opined that the USMS could agree to a fixed price IGA for detention services and expressly found that Circular A-87 did not preclude IGAs from including a payment of profit or fee in excess of actual costs.²

With the OLC clarification of the issue, the USMS believes that the IGAs now in place do not limit reimbursement to actual costs. Regardless of this position, the OIG has conducted subsequent audits to evaluate whether the jail rate was totally supported by actual costs and, in each instance where it was determined that the rate was not totally supported, insisted that the USMS recover the overpayment.

OFDT has reviewed the IGAs and agrees with the USMS that they are fixed-price agreements. Indeed, none of the IGAs currently or recently audited by the OIG are explicitly limited to the repayment of actual costs incurred by the contracting State or local government. As such, they do not limit reimbursement to actual costs. Instead, the USMS negotiated with the state or local government for a “fixed per diem rate” which resulted in a contract amount. The rates are negotiated ³ and the cost data provided on Form 243 is used merely as a basis for price negotiation. While the cost data was used as a basis for price negotiation, on occasion, the USMS accepted a jail rate proposed by the state or local government based on “anticipated savings in transportation and personnel costs due to the close proximity of [the facility] to the Federal Courthouse” or “a need to alleviate a critical shortage of jail space in the [district].⁴ Thus, the USMS IGAs were not constructed to be cost-reimbursement contracts.⁵

Indeed, just as some state and local governments refused to enter into the standard procurement contract in the early 1980’s, some are now not agreeing to IGAs based on reimbursement of actual costs because the burden of maintaining systems for cost allocation plans is substantial. Thus, in some areas where there is a critical shortage of jail space, if the USMS were to attempt to incorporate the OIG recommended rate, jails may refuse to house the USMS prisoners and the USMS would be forced to pursue much costlier alternatives located at substantial distances from the Federal Courthouse. This would, again, have a negative impact on detention operations and the detention account.

Accordingly, based upon the OFDT’s determination that the USMS IGAs are fixed-price contracts and not cost-reimbursement agreements, the OFDT has advised the USMS to refrain from seeking reimbursement of overpayments. Furthermore, OFDT has directed the USMS to immediately negotiate with the jails to incorporate core rates which recently have been established as a part of an initiative to implement an indexed fixed-price method for obtaining jail beds from state and local governments.⁶

We believe that this approach is necessary to resolve the current controversy surrounding the audit of USMS IGAs and that it is the proper approach.

Attachment

cc:	Paul J McNulty Acting Deputy Attorney General John Clark, Acting Director United States Marshals Service

OIG Audit Status Report As Of March 3, 2006