The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit of the Internal Revenue Service's (IRS) contracting practices, which specifically assessed whether the IRS is using appropriate contract types to accomplish its mission of tax administration. The review was requested by the IRS Office of Procurement.

Choosing the appropriate contract type is essential to successful performance and obtaining the best value for the Federal Government. Cost-reimbursement contracts, which reimburse contractors for all their costs, represent the highest monetary risk to the Federal Government.

TIGTA reviewed a sample of 40 contracts representing approximately $339 million negotiated by the IRS with private vendors between February 2007 and January 2008. TIGTA found that 83 percent (33 of 40 contracts) were awarded on a cost-reimbursement basis.

"While the contract types we reviewed were not improper, these types of contracts present a greater risk of the IRS paying more for contracts than necessary," commented J. Russell George, the Treasury Inspector General for Tax Administration.

TIGTA recommended that IRS's program offices work more closely with the Office of Procurement during acquisition planning to ensure selection of the most appropriate contract type; the IRS document its justification for selecting a cost-reimbursement contract; and program officers routinely review contracts prior to exercising option years or recompeting contracts to consider less risky contract types.

The IRS agreed with the majority of TIGTA's recommendations. In addition, IRS personnel stated that they are now using more hybrid contracts, in which some elements of the contract are firm fixed-price, which can limit the financial risk to the Federal Government.