The U.S. Department of Interior's Office of Insular Affairs (OIA) requested OPA's assistance in resolving disallowed costs on the architect-engineer (A&E) contract for the Phase II upgrade of the Saipan Beach Road Sewer System (hereinafter referred to as the "Project"). The issue stemmed from OIA's review of costs paid to the contractor resulting in the disallowance of $204,000 in project costs, consisting of (a) $57,000 in missing or unlocated equipment, (b) $60,000 change orders without government approvals, and (c) $87,000 in lost project costs.

This report presents OPA's compilation of costs on the specific items raised by OIA. Additionally, this report highlights additional issues from our review of the procurement process and payments made to the contractor. The objectives of our compilation were to: (1) identify the costs associated with the three specific items disallowed by OIA, and (2) identify other issues incidental to our review of the procurement history for the Project associated with contract #18-OS.

Juan C. Tenorio & Associates (JCTA), the A&E design contractor, received payments totaling $253,728 from its contract (#18-OS). Of this amount, $78,779.93 (net of 10% retainage) pertains to equipment purchased that cannot be located by CUC, reimbursements for purchases and other expenditures not specifically authorized in JCTA's contract, and additional work on the Project never approved. The $78,779.93 cost consisted of the following:

• $13,966.59 in government-paid equipment that cannot be located by CUC.
• $13,076.48 in equipment purchases and other payments that were not specifically authorized under the reimbursement provision of JCTA's contract. This consisted of $11,211.40 in pipe exploration and other expenditures not authorized in JCTA's contract, and $1,865.08 in equipment purchases that were not covered by the reimbursable equipment provision of the contract.
• $51,736.86 for additional work that did not have the required government approval (this excludes $10,943.02 in unapproved change orders that are already included in the $11,211.40 unauthorized payments). Overall, the unapproved change orders totaled 62,679.88.

Following is a comparison of the costs disallowed by OIA and the costs associated with the findings cited in this report.

OIA's position on the items that fall within these categories is $57,000 for missing equipment, which covers payments and equipment purchases not authorized in the contract. OIA also valued unapproved change orders at $60,000, or a total of $117,000. The difference between OIA's disallowed costs and OPA's compilation figures is approximately $38,220.07 (noting that OPA's figures are based on net of the 10% retainage and OIA's figures are at gross.) As for the project costs considered lost, we cannot ascertain its accuracy since this item requires technical expertise. Although OIA has determined a Project lost value cost of $87,000, OPA will defer comment to a technical expert on the figures used to determine reasonable cost for the Project as established by OIA. OPA does note that OIA's calculation on the lost value does not credit CUC for the items it seeks to disallow in calculating how much to credit against CUC for payments made to JCTA.

With respect to the method of procurement of the services for this project, it appears that due to confusion concerning the interplay between the Federal and CUC regulations, CUC did not follow the procurement procedures set forth for solicitation of A&E services specified in their regulations and instead followed those established for competitive sealed proposals.

It would now be up to the grantor agency to determine the final disallowed costs that must be reimbursed to the Federal Government.

Please note that this compilation of information was not conducted in accordance with Government Auditing Standards issued by the Comptroller General of the United States and, therefore, should not be considered an audit report.

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