After finding evidence of unfair price comparisons, higher pricing, and undue influence from an employee, the inspector general for the General Services Administration (GSA) recommended that the agency cancel the IT Schedule 70 contract of consulting firm McKinsey in a report released July 23.

The report found that a division director of the Federal Acquisition Service (FAS) improperly handled the contract by reassigning McKinsey’s Federal Supply Schedule contract renewal to himself and awarding contract rates above what the company initially proposed. These increased prices led the inspector general to estimate that GSA customers could pay an additional $69 million over the contract extension’s lifespan.

The audit also found that the division director “manipulated the GSA Pricing Tool to skew the price analysis,” “overestimated weekly rates for McKinsey competitors,” and “incorrectly claimed cost savings despite the substantial increase in government costs.”

For the IT Schedule 70 contract, the division director advocated for McKinsey, helping the company get its application assigned to the Washington D.C. office after the Fort Worth office had rejected the contract multiple times for rates that the Fort Worth office considered “ridiculous.”

“Schedule 70’s normal practice is to assign resubmitted offers to the contracting officer who handled the previous rejection. However, the McKinsey Schedule 70 offer was not handled according to this practice. Instead of being assigned to the Fort Worth contracting officer, it was assigned to the Washington, D.C. office,” the report notes.

The report recommends cancelling both contracts and reviewing all FAS contracts with team-based pricing, along with additional controls to avoid undue influence from FAS staff.

In its response to the report, GSA noted that they would reassign the contracts to new teams and pursue a bilateral contract modification instead of cancelling the contract to ensure that agencies did not feel the disruption. However, the response noted that “if McKinsey declines to accept a bilateral contract modification or renegotiations do not yield a result in the government’s best interest, FAS will cancel the contracts.”

“We have received the OIG’s report and are in discussions with GSA,” a spokesperson for McKinsey told MeriTalk.

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