[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]



 
THE STANDARD PROCUREMENT SYSTEM [SPS]: CAN THE DOD PROCUREMENT PROCESS 
                            BE STANDARDIZED?
=======================================================================


                                HEARING

                               before the

                   SUBCOMMITTEE ON NATIONAL SECURITY,
                   VETERANS AFFAIRS AND INTERNATIONAL
                               RELATIONS

                                 of the

                              COMMITTEE ON
                           GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                            FEBRUARY 7, 2002

                               __________

                           Serial No. 107-144

                               __________

       Printed for the use of the Committee on Government Reform







  Available via the World Wide Web: http://www.gpo.gov/congress/house
                      http://www.house.gov/reform



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                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida         EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York             PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California             PATSY T. MINK, Hawaii
JOHN L. MICA, Florida                CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia            ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia                    DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida                  ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California                 DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky                  JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia               JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania    THOMAS H. ALLEN, Maine
DAVE WELDON, Florida                 JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah                   WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida              DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia                      ------
JOHN J. DUNCAN, Jr., Tennessee       BERNARD SANDERS, Vermont 
------ ------                            (Independent)


                      Kevin Binger, Staff Director
                 Daniel R. Moll, Deputy Staff Director
                     James C. Wilson, Chief Counsel
                     Robert A. Briggs, Chief Clerk
                 Phil Schiliro, Minority Staff Director

 Subcommittee on National Security, Veterans Affairs and International 
                               Relations

                CHRISTOPHER SHAYS, Connecticut, Chairman
ADAM H. PUTNAM, Florida              DENNIS J. KUCINICH, Ohio
BENJAMIN A. GILMAN, New York         BERNARD SANDERS, Vermont
ILEANA ROS-LEHTINEN, Florida         THOMAS H. ALLEN, Maine
JOHN M. McHUGH, New York             TOM LANTOS, California
STEVEN C. LaTOURETTE, Ohio           JOHN F. TIERNEY, Massachusetts
RON LEWIS, Kentucky                  JANICE D. SCHAKOWSKY, Illinois
TODD RUSSELL PLATTS, Pennsylvania    WM. LACY CLAY, Missouri
DAVE WELDON, Florida                 DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho          STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia

                               Ex Officio

DAN BURTON, Indiana                  HENRY A. WAXMAN, California
            Lawrence J. Halloran, Staff Director and Counsel
                  J. Vincent Chase, Chief Investigator
                           Jason Chung, Clerk
                    David Rapallo, Minority Counsel















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on February 7, 2002.................................     1
Statement of:
    Myers, Margaret, Deputy Assistant Secretary of Defense, 
      Command, Control, Communications, and Intelligence [C3I], 
      Department of Defense; Gary Thurston, Defense Contract 
      Management Agency, Department of Defense; and Colonel Jake 
      Haynes, Program Director, SPS Program Office, Defense 
      Contract Management Agency, Department of Defense..........    52
    Willemssen, Joel, managing director, Information Technology 
      Systems Issues, U.S. General Accounting Office, accompanied 
      by Cynthia Jackson, Assistant Director, Information 
      Technology Systems Issues, U.S. General Accounting Office; 
      and Robert J. Lieberman, Deputy Inspector General, Office 
      of Inspector General, Department of Defense................    14
Letters, statements, etc., submitted for the record by:
    Haynes, Colonel Jake, Program Director, SPS Program Office, 
      Defense Contract Management Agency, Department of Defense, 
      prepared statement of......................................    77
    Lee, Deidre, Director, Defense Procurement Office of the 
      Under Secretary of Defense for Acquisition, Technology, and 
      Logistics..................................................     5
    Lieberman, Robert J., Deputy Inspector General, Office of 
      Inspector General, Department of Defense, prepared 
      statement of...............................................    32
    Myers, Margaret, Deputy Assistant Secretary of Defense, 
      Command, Control, Communications, and Intelligence [C3I], 
      Department of Defense, prepared statement of...............    54
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............    12
    Thurston, Gary, Defense Contract Management Agency, 
      Department of Defense, prepared statement of...............    66
    Willemssen, Joel, managing director, Information Technology 
      Systems Issues, U.S. General Accounting Office, prepared 
      statement of...............................................    16















THE STANDARD PROCUREMENT SYSTEM [SPS]: CAN THE DOD PROCUREMENT PROCESS 
                            BE STANDARDIZED?

                              ----------                              


                       THURSDAY, FEBRUARY 7, 2002

                  House of Representatives,
Subcommittee on National Security, Veterans Affairs 
                       and International Relations,
                            Committee on Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 9:36 a.m., in 
room 2247, Rayburn House Office Building, Hon. Adam Putnam 
(acting chairman of the subcommittee) presiding.
    Present: Representatives Putnam, Shays, Gilman, Kucinich, 
Tierney, and Lynch.
    Staff present: Lawrence J. Halloran, staff director and 
counsel; J. Vincent Chase, chief investigator; and Thomas 
Costa, professional staff member.
    Mr. Putnam. The subcommittee will come to order.
    The Subcommittee on National Security, Veterans Affairs and 
International Relations is convened here today to talk about 
the standard procurement system. Can the DOD procurement 
process be standardized? We welcome our panel and guests this 
morning.
    This year the Department of Defense will rely on a host of 
incompatible, largely paper-based systems and processes to 
manage an account for procurement contracts worth more than 
$130 billion. The President's fiscal year 2003 budget released 
this Tuesday pronounces those systems outdated and in need of 
an overhaul. Both the Comptroller General and the DOD Inspector 
General agree, citing longstanding financial weaknesses at the 
Pentagon. They also note DOD often suffers the Government-wide 
malady of purchasing large information technology systems that 
fail to meet user needs, fail to replace older, incompatible 
systems, and fail to meet schedule and cost projections.
    The standard procurement system was meant to address both 
problems. Standardization of contract and purchasing processes 
should bring greater transparency and data commonality to DOD's 
tangled web of financial systems. Selection of a commercial, 
off-the-shelf product should have brought efficiency and 
discipline to the data system development.
    Today we ask whether SPS, the 7-year-old, $359 million 
Department of Defense effort to modernize, streamline, and 
unify Pentagon contracting, has become an expensive part of the 
problem or a partial solution to the Pentagon's chronic 
financial management woes.
    The supposedly standard procurement system has required 
extensive, unanticipated modifications to meet user demands, 
causing the Inspector General to question the COTS-based 
acquisition strategy.
    The schedule has slipped by more than 3 years. Deployment 
of system modules has been clumsy. The military services 
continue to pursue non-standard approaches. A survey by the 
Inspector General found SPS under-utilized or used only in 
tandem with paper-based legacy systems.
    Based on the IG's concerns and the size and significance of 
the SPS effort, we ask the GAO to assess DOD management of the 
program. Their findings describe how the potential of a 
solution like SPS can be sabotaged by untested assumptions of 
value and the resulting failure to weigh the costs and benefits 
of each step in a complex development process.
    The Clinger-Cohen Act of 1996 provides a framework for 
large-scale IT acquisitions by Federal agencies. It requires 
explicit economic justification over the expected life of a 
program and specific analysis of the costs and benefits of each 
program increment.
    But the Department of Defense appears to dispute the need 
for incremental justification, relying instead on an outdated, 
all-or-nothing economic analysis of the $3.7 billion SPS. 
According to the General Accounting Office, the Department also 
lacks other non-economic measures to determine if SPS is 
meeting performance goals.
    SPS is an example of good intentions corrupted by lax 
oversight and entrenched bad habits. The fate of SPS should 
offer a cautionary tale to those in the Administration 
entrusted with the resources needed to wage the war on 
terrorism, enhance homeland security, modernize U.S. forces, 
and maintain military readiness.
    We look to our witnesses this morning to help us understand 
how the standard procurement system went astray and how the 
Department plans to make sure continued investment in SPS leads 
to improved financial accountability.
    Again, we thank our panel for being here. At this time the 
Chair recognizes the ranking member from Ohio, Mr. Kucinich.
    Mr. Kucinich. Thank you very much, Mr. Putnam, Mr. Shays, 
and committee staff, and to the people who are testifying 
today, good morning.
    There's two things I want to say at the beginning. First of 
all, I have three other committee meetings, Mr. Chair, at 10. 
We've had that happen before. So I'm not going to be able to 
stay.
    Before I begin, I also want to take my privilege to 
recognize the leader of the Democrats in the Ohio Senate who is 
visiting with us today, Senator Lee Harrington. Thank you very 
much for your presence.
    Mr. Chairman, today's Washington Post contains an OpEd 
piece. I'll just quote from one paragraph, because in a sense 
it helps to frame the challenge which is before this 
subcommittee and the IG's office. It says, ``The Pentagon 
remains the largest source of waste, fraud, and abuse in the 
Federal Government. Its bookkeeping makes Enron look 
transparent. It still cannot track what it has spent money on, 
what it has purchased, and what it has stored.'' That's from an 
article in today's Washington Post OpEd piece by Robert 
Borsage.
    As this subcommittee has repeatedly heard, the financial 
disarray within the Department of Defense has reached epic 
proportions. Last year we heard testimony from David Walker, 
the Comptroller General of the United States, regarding the 
high-risk nature of DOD operations, including logistics, 
acquisitions, planning, contracts, and management, just to name 
a few. The problems were highlighted when the Inspector General 
issued a report with some astonishing language. In fiscal year 
2000, alone, ``1.2T--'' for trillion. And just to make sure the 
people are transcribing this, ``1.2T--'' for trillion--``in 
Department-level accounting entries were unsupported because of 
documentation problems or improper because the entries were 
illogical or did not follow generally accepted accounting 
principles.'' That was $1.2 trillion worth of improper or 
illogical expenditures. This is a figure that is beyond 
disgraceful. It is beyond unbelievable.
    Contributing to these problems is the Department's failure 
to manage its contracts properly. The Department of Defense 
spends over $130 billion for goods and services each year, but 
in 1992 and every year since the General Accounting Office 
designated Department of Defense's contract management as one 
of the largest high-risk areas within the Federal Government.
    Although the Department of Defense has tried to remedy this 
by initiating a new standard procurement system, GAO reports 
that this effort is nearly $1 billion over budget, 3\1/2\ years 
behind schedule, and is not meeting its objectives.
    Yesterday, the President requested a $45.3 billion increase 
in military spending, for a total Pentagon budget of $379 
billion--I might add, more than the combined military budgets 
of the next 24 largest-spending countries. In fact, the 
increase alone is larger than any defense budget in the world 
but Japan's. It is also the largest 1-year increase in military 
budget authority since 1966, for a total budget 15 percent 
above the cold war average.
    Now, given the Pentagon's legendary accounting problems, 
I'm asking how can the taxpayers be sure that the Department 
will spend this extra money on measures that will, in fact, 
increase security? No major part of the Defense Department has 
ever passed the test of an independent audit. As ``Business 
Week'' has put it, ``The Pentagon makes Enron and Arthur 
Andersen look like paragons of number crunching.'' That's the 
``Business Week.''
    No sane investor would sink $45 billion extra into a firm 
with this kind of performance. You have to wonder why the 
American taxpayer should be asked that.
    We're told that the extra money is needed to pay for war, 
but in reality the proposed Defense funds are largely devoted 
to the same weapons acquisition programs that GAO has decided 
are at risk of waste and abuse, programs that are of little 
utility in defending the Nation against the sort of attack we 
confronted in September. These include the F-22, the most 
expensive fighter ever, which, as this subcommittee has heard, 
has racked up more than $9 billion in cost overruns, and 
includes the crusader mobile howitzer artillery weapon, which 
at 90 tons is so immobile that the military's largest transport 
plane can't lift it without violating flight rules. The 
Administration plans to spend $11 billion to purchase 480 of 
these, and include the B-1 bomber, which even the Secretary of 
Defense admits is headed toward expensive obsolescence.
    This budget rewards our Defense establishment for its 
fiscal mismanagement, and the allocation of this money follows 
the same wasteful high-risk patterns of spending that lavish 
politically influential military contractors with large sums to 
produce weapons geared toward obsolete cold war era threats. 
Protecting our country, our Service members, and our people is 
a very pragmatic endeavor and it takes practical effort. It 
sometimes requires some very mundane but essential tasks, such 
as demanding that DOD pass an audit, demanding that DOD 
efficiently manage its contracts, and demanding that DOD 
dutifully seek the best value for every dollar Congress 
appropriates.
    I hope that after concluding this hearing on standard 
procurement system that this subcommittee will endeavor to take 
up oversight of programs such as the $200-plus billion national 
missile defense system, the $250 billion joint strike fighter, 
the $70 billion F-22, the $56 billion DD destroyer, the $45 
billion C-17, the $37 billion V-22, and the $11 billion 
howitzers.
    The reason is simple. Is America getting the best defense 
money can buy, or are defense contractors feasting at 
taxpayers' expense? The question is the essence of procurement 
and financial management oversight.
    I hope this subcommittee will schedule hearings and devote 
its attention to this question where these large and 
significant procurement programs are concerned.
    I thank the chair.
    Mr. Putnam. I thank the gentleman for his opening 
statement.
    Before you leave, Mr. Kucinich, I'd ask unanimous consent 
to put into the record the written statement of Deidre Lee, 
Director, Defense Procurement Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics, without 
objection.
    [The prepared statement of Ms. Lee follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    
    Mr. Putnam. I ask unanimous consent that all members of the 
subcommittee be permitted to place any opening statement in the 
record and the record remain open for 3 days for that purpose. 
Without objection, so ordered.
    I ask further unanimous consent that all witnesses be 
permitted to include their written statements in the record. 
Without objection, so ordered.
    I welcome to the committee the real chairman of the 
subcommittee, Mr. Shays from Connecticut.
    Would you like to make a statement?
    Mr. Shays. Yes, thank you. Just a very brief one.
    I'd like to thank our witnesses and guests for being here. 
I think this is a very, very important hearing. Mr. Kucinich 
had some basic points right on target. It is astounding that 
you would have $1.2 trillion worth of transactions that you 
couldn't verify as an auditor. It has come down from a few 
other trillion. You could look at it positively. But there is 
really no part of the Defense budget the is auditable, and I 
think we all know why. We all know why, because we don't have a 
choice when it comes to Defense to appropriate the money, and I 
think, therefore, the Defense Department has gotten used to the 
fact that, ``You can't do without us, so we'll focus our 
attention on other concerns.''
    This borders on the line of being criminal because we are 
wasting billions of dollars. There has to be tremendous amount 
of theft, and so on, and misuse, and it has to be corrected, 
and it has to be corrected now--I mean now in the next few 
years. Over time it has to definitely change.
    One of the points that I would have made to Mr. Kucinich is 
that this committee is dedicated to helping the GAO and others 
to see that happens.
    I'm not chairing this hearing because I had requested the 
Subcommittee on Energy Policy, Natural Resources and Regulatory 
Affairs of the Government Reform Committee to hold a hearing on 
Indian gaming and Indian recognition, and since I'm the one 
that requested it I feel that I need to be there, so I will be 
in and out of this hearing. I thank the gentleman from Florida 
for chairing this hearing, but I hope to be back and I hope, 
obviously, to listen to the first part of the panel discussion.
    So I thank you very much and I thank our witnesses.
    [The prepared statement of Hon. Christopher Shays follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Putnam. Thank you, Mr. Chairman. And thank you for the 
opportunity that you've given me to participate in this 
committee.
    At this time we will swear in our first panel. Please rise 
and raise your right hand.
    Do you solemnly swear or affirm that your testimony you 
will give before this subcommittee will be the truth, the whole 
truth, and nothing but the truth?
    Mr. Willemssen. I do.
    Ms. Jackson. I do.
    Mr. Lieberman. I do.
    Mr. Putnam. Not for the record that the witnesses have 
responded in the affirmative.
    At this time I'd like to ask Mr. Joel Willemssen, managing 
director of information technology systems issues from the U.S. 
General Accounting Office to begin with your opening testimony.
    You are recognized, sir. Welcome.

 STATEMENTS OF JOEL WILLEMSSEN, MANAGING DIRECTOR, INFORMATION 
  TECHNOLOGY SYSTEMS ISSUES, U.S. GENERAL ACCOUNTING OFFICE, 
ACCOMPANIED BY CYNTHIA JACKSON, ASSISTANT DIRECTOR, INFORMATION 
TECHNOLOGY SYSTEMS ISSUES, U.S. GENERAL ACCOUNTING OFFICE; AND 
   ROBERT J. LIEBERMAN, DEPUTY INSPECTOR GENERAL, OFFICE OF 
            INSPECTOR GENERAL, DEPARTMENT OF DEFENSE

    Mr. Willemssen. Thank you, Mr. Vice Chair, Mr. Chairman. As 
requested, I'll briefly summarize our statement.
    Accompanying me is Cynthia Jackson, Assistant Director.
    DOD launched SPS a little over 7 years ago, with the goal 
of replacing 76 existing procurement systems with a single 
Department-wide system that would more effectively support 
contracting processes. At that time estimated costs were about 
$3 billion over a 10-year period.
    For information technology projects such as SPS, the 
Clinger-Cohen Act and Office of Management and Budget guidance 
emphasized the need for investment management practices to help 
ensure that projects are being implemented at acceptable cost 
and within reasonable and expected timeframes, and that they 
are contributing to tangible improvements in mission 
performance. For SPS, we reported to you last year that the 
Department had not met these investment and management 
criteria.
    First, the Department had not economically justified its 
investment in the program. In fact, its recent analysis showed 
that the system, as defined, had estimated costs that exceeded 
anticipated benefits.
    Second, it had not effectively addressed the inherent risks 
associated with a program as large and lengthy as SPS because 
it had not divided the program into incremental investment 
decisions that coincided with incremental releases of system 
capabilities.
    Third, the Department had not met key program commitments 
that were used to justify the program. For example, the 
Department committed to implementing a commercially available 
contract management system. However, because it had modified so 
much of the foundational commercial product, SPS evolved into a 
customized DOD system. Also, although the Department committed 
to fully implementing the system by March 2000, this target 
date has now slipped to September 2003, and program officials 
have recently stated that this date will also not be met.
    Fourth, the Department did not know if it was meeting other 
key program commitments. For example, the Department had not 
measured whether expected system benefits were being realized. 
Further, DOD was not tracking actual program costs, so it does 
not know how much has been spent on this program.
    Because of these many problems with SPS, we made several 
recommendations, including that investment in further 
enhancements to the system be made conditional on the 
Department first demonstrating that the system was producing 
benefits that exceed costs, and that future decisions be based 
on complete and reliable economic justifications.
    In commenting on a draft of our report, DOD generally 
disagreed with our recommendations, noting that they would 
delay development and implementation of SPS. Since that time, 
however, the Department has either initiated or stated its 
intention to initiate steps that are consistent with our 
recommendations.
    For example, officials have stated that the Department will 
prepare an economic analysis before investing beyond already 
executed contractual commitments and that it will assess the 
extent to which the Department is deriving benefits from SPS. 
These are positive steps. Nevertheless, much remains to be done 
before the Department will be in a position to make informed, 
data-driven decisions about the system. To increase the chances 
of program success, we believe the Department must follow 
through on stated commitments and implement our 
recommendations. Doing so means that the Department should 
commit to specific tasks and milestones for completing those 
tasks. If it does not, the Department runs the risk of 
continuing to spend an unknown amount of money on a system with 
unknown results.
    That concludes a summary of my statement, and I would be 
pleased to address any questions you may have.
    Mr. Putnam. Thank you very much.
    [The prepared statement of Mr. Willemssen follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Putnam. Thank you very much. At this time I'd ask Mr. 
Robert Lieberman, Deputy Inspector General, Office of Inspector 
General, Department of Defense, to give your opening statement.
    You are recognized, sir.
    Mr. Lieberman. Thank you, Mr. Chairman.
    As requested in your invitation letter, my written 
statement focuses primarily on results of my office's three 
audits on the standard procurement system. To put our findings 
in a broader context----
    Mr. Putnam. Could you move the microphone a little bit 
closer?
    Mr. Lieberman. To put our findings on the SPS in the proper 
context, I believe it is important to recognize the fact that 
information systems are the primary tools that we put into the 
hands of DOD employees to carry out the internal business 
processes of the Department--things such as contracting, 
contract administration, paying contractors, and accounting.
    As I reported to you in a hearing last March, the DOD has 
had chronic difficulties in fielding information systems that 
are up to par in terms of meeting cost, schedule, and 
performance expectations.
    The SPS is no different from many other system acquisition 
initiatives in the Department that have had problems. It is not 
uncommon for information system acquisition projects to have 
the kinds of problems that SPS has encountered. In fact, most 
studies indicate that fewer than one in three large information 
system projects in both the public and private sector meet 
expectations in terms of cost, schedule, and performance. This 
is not an excuse, but I do think we need to recognize how 
inherently difficult a large information system development 
project is.
    We support the basic concept of SPS. The idea of 
modernizing the information system tools in the hands of 
contracting personnel and rationalizing the jumble of legacy 
systems that we have in the Department, none of which are 
really adequate to meet user needs, and few of which talk to 
each other in any rational way, is a compelling need.
    Our criticisms of the SPS project have to do with its 
planning and management, not with the basic concept of 
achieving as much standardization as possible. Even a total 
standardization is probably too ambitious a goal.
    Turning now to the results of our findings, in 1996 we 
reported poor planning from the standpoint of identifying user 
needs, providing for rigorous testing, and otherwise managing 
what we felt were obvious developmental risks in this project. 
I want to make it clear that we certainly were never against 
the idea of acquiring a commercially available system and 
modifying it to Defense Department needs. We certainly support 
the idea that the private sector has leading IT technology and 
the Department needs to get access to those products.
    What we criticized, though, was the idea that you can 
merely transplant a commercially available system to DOD 
processes without massive changes to either the system or the 
processes or both. Any time you attempt to do something like 
that, you are automatically incurring a lot of risk and you are 
very much in a developmental mode, as opposed to just buying 
something off the shelf that has very little risk. We never 
felt that the SPS project adequately recognized the risks that 
were being taken, and therefore we criticized what we would 
characterize as the risk management in the program.
    In response to the 1996 auditors--audit, managers generally 
agreed that the program carried risk and took various measures 
to formalize the testing requirements, limit the Government's 
financial exposure, and provide ongoing monitoring. Most 
importantly, we were assured that each future acquisition 
milestone decision would be accompanied by a rigorous review of 
system functionality, contracting method, testing, and risks. 
In retrospect, it seems to me the managers remain preoccupied 
with maintaining system deployment schedules instead of 
focusing on the functionality of the system.
    It is clear that not enough was done to keep the commitment 
expressed by the Defense Logistics Agency in response to our 
report, which was that, ``SPS will not be deployed to any DOD 
procurement site wherein we cannot provide equal to or better 
than existing functionality.''
    Because we lacked confidence that the program was on track, 
we performed a followup audit during 1998. We raised or 
reiterated a number of concerns, which are listed in my 
statement on pages six and seven. The management responses were 
mixed. By and large, program managers appeared to believe that 
the latest version of the system would correct the performance 
problems that we had found.
    In late 1999, the House Budget Committee received a number 
of complaints from SPS users in the Department of Defense about 
the cost and usefulness of the system, so we did a user survey. 
We reported on the results of that survey in March 2001. Its 
results are summarized in pages eight and nine of my written 
statement. Basically, user dissatisfaction levels were still 
very high--abnormally high in such a late stage of the program. 
We also reported that the licensing arrangement for the 
software was inefficient, and we concluded that the program 
needed better performance measures to control risk and enable 
management to make informed decisions in how to proceed in the 
road ahead.
    To sum up, we believe that SPS was a good idea, remains a 
good idea, will result in more efficient contracting and 
related processes such as financial management, but the program 
needs restructuring at this point. We understand that is being 
done. I would defer to the second panel to provide you the 
particulars. I remain cautiously optimistic that SPS will end 
up being at least a partial solution to the Department's 
information system problems in this area, but we shouldn't be 
naive and think that the road ahead will be smooth. Several 
important decisions need to be made about the exact scope of 
the project, and it needs to be adequately resourced to get 
from here to there.
    Thank you for considering our views.
    That concludes my statement.
    Mr. Putnam. Thank you very much, Mr. Lieberman.
    [The prepared statement of Mr. Lieberman follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Putnam. Let me just apologize to everyone for the 
temperature in this room, although it is getting better. This 
is Florida day in Congress, and so we are trying to make it as 
hot and muggy as possible in here.
    Mr. Willemssen, Mr. Lieberman just concluded that, the its 
core, SPS is a good idea and is a functional program that is in 
need of additional resources and restructuring. Do you agree 
with that basic premise?
    Mr. Willemssen. I think much of what Mr. Lieberman 
mentioned in terms of standardization at its core could be 
beneficial, but, in and of itself, we still need to identify 
exactly what the benefits are and what the contributions are to 
improve mission performance.
    Does it mean that we are going to be able to get rid of 
some of the 76 systems, for example, that SPS was intended to 
replace? If so, then there are tremendous benefits associated 
with that. Does it mean that on the battlefield that our troops 
will be able to procure systems immediately and get the article 
delivered to them? Could be tremendous benefits. We haven't 
seen that analysis, though, demonstrating that SPS is going to 
necessarily deliver those kind of--has delivered those 
benefits, so what we are asking for right now is, before there 
are further investments beyond existing contractual 
commitments, let's make sure of what we are getting for our 
money. How much have we spent? And what are the associated 
benefits? Let's make some assessment of that, and then let's go 
forward and see what additional benefits we can get for our 
money.
    Mr. Putnam. Have any of the 76 systems been replaced or 
partially replaced thus far?
    Mr. Willemssen. Let me defer to my assistant director. I 
believe there are a couple that have been replaced at this 
point.
    Cynthia.
    Ms. Jackson. Yes. At this point two have been fully retired 
as a result of SPS and two partially retired, meaning they will 
still be used--they are still being used by some of the other 
Defense agencies at this time.
    Mr. Putnam. Can you assign a percentage of implementation 
that SPS is at this stage? Is it 50 percent in place, 80 
percent in place?
    Mr. Willemssen. I think it would be difficult to assess a 
percentage until you define exactly what the program is going 
to be. And I--our view would also be that now is a good time to 
take a pause and understand where the Department is at with SPS 
before it decides to move forward. There are releases out there 
that are being used that, of course, don't provide the full 
functionality that was envisioned for SPS, but I think it would 
be prudent to make that kind of an assessment at this point.
    Anything you want to add, Cynthia?
    Ms. Jackson. No. Not at this time.
    Mr. Putnam. Mr. Lieberman, did you want to add anything to 
that last question?
    Mr. Lieberman. No, sir. I think the second panel is most 
qualified to tell you where this reassessment stands, but I 
think they do have a responsive story to tell in terms of what 
has been done in response to our reports and GAO's.
    Mr. Putnam. How will the--when totally implemented, how 
will it help assure total asset visibility, that we'd have a 
handle on everything that is in the DOD inventory?
    Mr. Lieberman. I don't think that total asset visibility is 
one of SPS's features. It is not an inventory management 
system. There are separate logistics systems that do that. This 
is a system that connects with those inventory management 
systems, rather than one that is intended to do inventory 
management, itself. This is a system for identifying what needs 
to be procured for helping people select the right contracting 
mode, write the contracts, put all the right clauses in, 
administer the contracts, get them placed, pay the contractor, 
or at least provide the information to the finance people to 
pay the contractor, and that sort of thing, but it is not a 
supply management system.
    Mr. Putnam. How will it interface with that payment 
process, that payment portion of the equation?
    Mr. Lieberman. The finance centers will have--they get 
information from the contracting community on what to pay 
contractors and how to deal with the invoices that they 
receive, so there are elaborate interfaces. In fact, that's one 
of the primary challenges of a system like this--being able to 
connect efficiently to the finance systems so that the 
contractors can be paid correctly and we won't have the kind of 
overpayments or payments from the wrong accounts that we've had 
in the past because of poor information coming into the finance 
centers, among other things. And also the accounting systems, 
keeping track of what funds have been spent out of each 
account, need to interface into these systems, also.
    Therein lies the challenge. In the commercial sector you 
don't have nearly as many different systems. It is a much more 
integrated picture. That's why it has been very hard to just 
transplant an off-the-shelf commercial system to the Government 
process.
    Mr. Putnam. Are the payment systems and inventory 
management systems among the 76 that this was to phaseout, or 
are we talking about even more systems than that? To whomever 
can answer that.
    Mr. Willemssen. We're speaking of more systems than that.
    Mr. Putnam. OK. It's just me and you all now. Work with me 
here. Nobody else wanted to come.
    How--you know, I guess all this begs the core question. How 
and when will we know whether SPS has met the hype, the 
expectations, the objectives? I mean, we're 5 years into an 8-
year program, I assume, and we're not doing so hot so far, so 
when can we have some expectation or some basis for 
understanding whether or not we're still headed in the right 
direction after all this investment?
    Mr. Willemssen. Well, I would answer the question in this 
fashion, Congressman--and, again, somewhat similar to what Bob 
said in terms of the second panel, but it is incumbent upon the 
Department to commit to milestones and the tasks associated 
with those milestones to implement, we think, our 
recommendations focused at exactly the question you are 
asking--when are we going to know how much this system costs 
and what we are getting for that money?
    Right now I would submit we don't know for sure what we're 
getting, and that's why we think it important for the 
Department to commit to taking those actions and commit to you 
to when those steps are going to be completed. Without 
milestones to get it done, this can continue on for several 
more years.
    Mr. Putnam. Mr. Lieberman, do you want to----
    Mr. Lieberman. I certainly agree that more explicit 
documentation of where we are going and where we are is 
extremely important. When we talk about the lack of performance 
measures, it may be sort of an esoteric term, but basically 
we're saying the same thing. In order to measure whether we 
have achieved success or not, we need some very specific 
parameters laid out as to what success constitutes, and we 
really don't have that right now in this program.
    There are some positive signs. It was used recently during 
a military exercise in Thailand where people plugged into the 
system from over there and were able to place purchase orders 
all over the world to buy supplies that they needed, and the 
feedback from that was very positive. The system seems to work 
well for small, local-level purchases.
    The big question with it is: is it simply too much to ask 
for the same system to handle all those millions of small 
purchases and then those gigantic weapons systems contracts 
also? That's probably a bridge too far, and I would predict 
that the Department will probably decide to let SPS concentrate 
on the small-and medium-sized purchases and deal with its 
problems in the weapon systems and the inventory control points 
with a different system some time in the future.
    Mr. Putnam. Just out of curiosity, in a $350 billion budget 
what is a medium-sized purchase?
    Mr. Lieberman. Well, there's a definition of micro 
purchases, which is $2,500 or less, so those are the little, 
bitty ones. I don't know where large starts. In Defense terms, 
everything is relative. But the weapons systems contracts 
normally are tens of millions of dollars, and in some cases 
even much greater than that, so they are clearly the high end 
of the spectrum in terms of individual dollar value. In terms 
of numbers, those small procurements are 95 percent of the 
contracting activity.
    So if SPS can support those smaller type of purchases well, 
it will be dealing with 90 percent of the number of contracting 
actions that we place, which will be a considerable 
achievement.
    Mr. Putnam. Mr. Willemssen, would that type of bifurcated 
process achieve some efficiencies?
    Mr. Willemssen. It very well could, and on the surface that 
sounds reasonable. All I would add is to have the decisions be 
data driven. It may, indeed, prove that through the next 
release, which will focus more on the small and medium 
contracts, that's where you get a lot of the benefits. That's 
where you get a lot of your efficiencies. And if we looked 
forward on the later phases of the original planned SPS with 
the larger and more complex efforts, that may not be worth the 
effort, worth the cost to do because you're not going to get 
the same return on investment that you could with these first 
increments, so I think that's--it very well could be the 
outcome. My only caveat would be--is have the decision be data 
driven, not what we think it looks like.
    Mr. Putnam. But the 10 percent that would be remaining is 
what percent of the money?
    Mr. Willemssen. Well, it's a large percent of the contract 
money, but it is not necessarily as large a percent of the 
activity associated with managing contracts, the steps you have 
to go through from cradle to grave in contract management, 
which there's a lot of resources associated with just doing 
that.
    What you may find--and I think what program managers have 
already found--is when you get into the larger, more complex 
contracts there tends to be a lot more unique features that a 
standardized system may not map well to, and it could be a 
little bit more difficult to standardize in that regard. A lot 
more complexity.
    Mr. Putnam. Who is ultimately responsible for achieving the 
SPS mission objectives?
    Mr. Willemssen. Responsibility for the program--there is a 
program office that has responsibility, and then also, because 
this is considered a major system acquisition, C3I office, the 
Chief Information Officer has a major role at key decision 
points along the way of the life cycle of the system to make 
sure that it is being kept on track.
    Mr. Putnam. Did your report evaluate the level or quality 
of oversight that office has provided in this program?
    Mr. Willemssen. We looked at it from the perspective, not 
so much individualizing the organizations, but what kind of key 
tenets of effective investment management should be done, and 
in the case of SPS they were not done as they should have been.
    Mr. Putnam. Thank you.
    At this time the Chair recognizes the gentleman from 
Massachusetts, Mr. Tierney.
    Mr. Tierney. Thank you, Mr. Chair.
    Just two brief questions. One is: if you were to project 
forward on this thing, just how many years behind schedule do 
we anticipate this will run? And how much over budget?
    Mr. Lieberman. Sir, that depends on the outcome of the 
Department's current deliberation on where to go from here. 
They have not made an irrevocable commitment that SPS will be 
used for every kind of contract. So if you cutoff large 
segments of the problem here, SPS could end up having a much 
smaller scope than was originally envisioned, and I think that 
there will be various options in terms of how much more to try 
to do with SPS and how much that is going to cost.
    Mr. Tierney. Do we have a range?
    Mr. Lieberman. I don't.
    Mr. Tierney. You don't?
    Mr. Lieberman. No, sir.
    Mr. Willemssen. The end date on the full program was late 
2003, but then program officials told us they were not going to 
be able to meet that either, so what the end date is for the 
full-blown program I think is up in the air right now, and it 
goes back to what Mr. Lieberman said. They're going to have to 
make a decision about whether we are going to do the full 
system or just significant pieces of it.
    Mr. Tierney. OK. Mr. Lieberman, a somewhat unrelated issue 
but similar on that. About a year or so ago you shared with us 
the fact that you thought there was over $1 trillion 
unaccounted for in the Department of Defense budget. Have we 
made any progress in locating any of that money?
    Mr. Lieberman. Well, you're referring to the $1.3 trillion 
worth of unsupported adjustments to the year-end financial 
statements.
    Mr. Tierney. Right.
    Mr. Lieberman. It is impossible to retroactively figure out 
those accounting adjustments. The way the financial statement 
auditing works is that each year the Department creates new 
end-year statements, and each year we audit those. The reports 
on the end-year statements for fiscal year 2001 are due later 
this month. I don't candidly expect that you are going to see 
much difference in terms of the audit opinions. We will still 
find all of the major financial statements, with the exception 
of the military retirement fund, which is in good shape. We'll 
find the rest to be unauditable. And the unsupported adjustment 
figure will still be very high, probably less than it was last 
year because the Department has been trying to fix the reasons 
why those kinds of adjustments have to be made and improving 
the audit trail so that the auditors don't deem them to be 
unsupported.
    I should explain that what we're talking about is the 
ability to portray financial statements in the year-end 
statements. Saying that there are unsupported adjustments in 
those statements does not necessarily mean that the Department 
doesn't know where the money is, but it can't--the information 
on where the money is is down in the roots of the Department, 
and we have no efficient way to summarize that information and 
portray it at the end of the year in the financial statements.
    Mr. Putnam. Is there a plan to do just that? Is there a 
guide which Department people or personnel could follow to get 
to that point some time soon?
    Mr. Lieberman. Yes, there is. The Department is currently 
spending $100 million that the Congress just appropriated to it 
to lay out a road map on what has to be done to overcome that 
problem, plus a lot of money is being spent--we're not quite 
sure how much, but we are in the multi-billion-dollar range--on 
financial management system improvements, all of which are 
designed to, among other things, create auditable financial 
statements.
    Mr. Tierney. Thank you.
    Thank you, Mr. Chairman. I have no further questions.
    Mr. Putnam. Thank you, Mr. Tierney.
    Mr. Willemssen, in the GAO report and in your testimony you 
state that, ``In commenting on a draft of our report, DOD 
generally disagreed with our recommendations, noting that they 
would delay development and implementation of SPS. Since that 
time, however, the Department has either initiated or stated 
its intention to initiate steps that are consistent with our 
recommendations.'' To what do you attribute the change of 
heart?
    Mr. Willemssen. A couple factors come into play, not the 
least of which is congressional oversight. To the extent--and 
I've seen--witnessed this beyond Department of Defense, but 
when congressional committees and subcommittees exert oversight 
over the activities, or major information systems, in this 
case, of a particular department, they get a lot more attention 
at the department level when they know that congressional 
subcommittees such as yours are actively engaged in oversight, 
so that is a key factor.
    Second, I think when you look at the facts of the 
Department can't tell us how much in total it has spent on SPS 
and they can't tell us what they've got for their money, I 
think that's a hard position to defend indefinitely.
    Mr. Putnam. Mr. Lieberman.
    Mr. Lieberman. I totally agree. I think that, as I 
mentioned in my opening statement, unfortunately, the kinds of 
problems we see in the SPS project are the kinds of problems 
that we find in most of the audits that we do of DOD 
information acquisition projects. We need a more-disciplined 
process, and the Department has been working on that for 
several years, but progress has been slow and I think any 
objective assessment would still have to say that we're a long 
way away from achieving the goals of the Clinger-Cohen Act.
    Mr. Putnam. We began this questioning with your statement 
about the fundamental--your fundamental support of SPS, but 
certainly stating that it was in need of restructuring. Would 
you like to elaborate on some of the restructuring 
recommendations that you have?
    Mr. Lieberman. Well, I should preface anything I say by 
making it clear that we have not been into this program for 
over a year now. But I think, in general terms, the question of 
whether to try to push SPS into the inventory control points, 
where we buy a centrally managed item like aircraft repair 
parts and things like that, and to push it into the weapons 
systems contracting world, which is so radically different from 
what the current version of SPS can support, that's really, I 
think, where serious consideration has to be given to drawing 
the line and saying this is too much for one system to handle 
and we're going to explore another option.
    Mr. Putnam. Mr. Willemssen, what recommendations for 
restructuring have you all made? And, of those, which have been 
implemented?
    Mr. Willemssen. Among the recommendations that we would 
have for restructuring within that realm is, before the 
Department invests in future releases of SPS, that it be made 
conditional on the fact that they can demonstrate that what's 
out there to date is providing results that exceed the amount 
of money that has been spent, and DOD has told us that they 
plan to do that.
    Second, that those future investment decisions be based on 
reliable and complete economic analysis. Again, the Department 
has said they are going to do that. And also to determine--we 
think it is important to determine the current status of 
program commitments, and the Department has said that they 
would do that, in terms of where each of the releases of the 
system are and what they are getting for that.
    We also think it is important that the Department look at 
this system in retrospect and identify lessons learned and 
report on those lessons learned so it can use them for 
subsequent systems. This is not the way to go about managing a 
multi-billion-dollar IT project.
    And Mr. Lieberman is correct. There are many other examples 
of where this has occurred. In fact, the reason Clinger-Cohen 
was passed in 1996 is, frankly, the Congress became fed up with 
repeated stories of major information technology projects that 
failed. You can look at FA advanced automation system--couple 
billion dollars; Internal Revenue Service tax system 
modernization, $3 billion--and the list goes on. That's why 
Clinger-Cohen was put in. It was to say, ``We want cost 
benefits and risks managed, not just at the beginning of a 
project, but throughout its life cycle, so that if this project 
starts going off-track, we want management in there to say, 
`Hold it. We've got to take action.' '' That's what needs to 
occur with SPS.
    Mr. Lieberman. Sir, could I add something to that?
    Mr. Putnam. Mr. Lieberman.
    Mr. Lieberman. One of the recommendations we made in one of 
our reports was that DOD issue guidance on how to buy 
commercial software. The Congress strongly encouraged doing so 
with acquisition reform legislation in 1994, and as late as the 
year 2000 DOD still had not put out guidance to its contracting 
and program management people on how to do that and what 
pitfalls might exist and how to avoid them, so we recommended 
that be done, and it was done with a white paper issued in July 
2000. That is really an excellent document, in terms of what to 
do and what not to do when buying COTS products. Now the 
challenge is to get people to read it and apply it to their own 
program.
    Mr. Putnam. And, finally, for the entire panel, what is the 
likely outcome of the Department continuing with current plans 
for this acquisition of SPS without implementing the 
recommendations? What's the--what types of consequences can we 
expect if this continues?
    Mr. Willemssen. Namely, the Department, if they didn't 
implement the recommendations--but I believe they will, but if 
they didn't I think they'd continue to limp along year after 
year, spending money on a program, an unknown amount of money 
with an unknown set out outcomes about what we're getting for 
that investment. But I don't think that's going to be the 
outcome. I think the Department is going to move in the right 
direction and make an assessment of where they're at and either 
decide to, as Mr. Lieberman said earlier, either essentially 
cutoff after the next release or go forward with future 
releases.
    Mr. Putnam. Do you agree, Mr. Lieberman?
    Mr. Lieberman. Yes, I do. I think the Congress has already 
expressed dissatisfaction with the current plan through a major 
cut to the appropriate for SPS for 2002. The Department can't 
expect the Congress to support the old program plan in future 
budgets, so it is going to have to be restructured, and that 
restructuring is underway. So, as I said, I remain cautiously 
optimistic that SPS can fulfill a large part of the 
requirement.
    Mr. Putnam. Very good. Mr. Lieberman, Mr. Willemssen, Ms. 
Jackson, I am very appreciative for your time and your talents 
this morning in sharing this with us.
    We are going to recess for me to run and go vote before we 
seat the second panel, so at this time everybody can just enjoy 
this summer weather and I'll be back in just a few moments.
    This subcommittee is in recess.
    [Recess.]
    Mr. Putnam. The subcommittee will reconvene.
    I'd like to welcome our second panel. I look forward to 
your testimony and to helping us fill in some of the gaps from 
the first panel. There were several references to the second 
panel may be able to answer that a little better, and so we 
look forward to that.
    We will begin our second panel testimony by swearing you 
all in, so if you will please stand and raise your right hand, 
do you solemnly swear or affirm that the testimony you give 
before this subcommittee will be the truth, the whole truth, 
and nothing but the truth?
    Mr. Thurston. I do.
    Colonel Haynes. I do.
    Ms. Myers. I do.
    Mr. Putnam. Thank you. Note for the record that the 
witnesses responded in the affirmative.
    We will begin the second panel with Dr. Margaret Myers, the 
Deputy Assistant Secretary of Defense, Command, Control, 
Communications, and Intelligence.
    Welcome. You are recognized.

  STATEMENTS OF MARGARET MYERS, DEPUTY ASSISTANT SECRETARY OF 
  DEFENSE, COMMAND, CONTROL, COMMUNICATIONS, AND INTELLIGENCE 
 [C3I], DEPARTMENT OF DEFENSE; GARY THURSTON, DEFENSE CONTRACT 
  MANAGEMENT AGENCY, DEPARTMENT OF DEFENSE; AND COLONEL JAKE 
HAYNES, PROGRAM DIRECTOR, SPS PROGRAM OFFICE, DEFENSE CONTRACT 
            MANAGEMENT AGENCY, DEPARTMENT OF DEFENSE

    Ms. Myers. Good morning. Mr. Chairman, the director of 
defense procurement, Ms. Lee, regrets not being here today, but 
she had a previous commitment to host the DOD-sponsored SPS 
users' conference.
    Mr. Putnam. We won't hold it against her. Nobody would have 
been here to listen, anyway, except me.
    Ms. Myers. All right. Well, I appreciate the opportunity to 
discuss the DOD chief information officer's oversight of SPS. 
My organization is responsible for acquisition and Clinger-
Cohen Act oversight of the SPS.
    The DOD CIO, Mr. John Stenda, is the milestone decision 
authority for SPS. A key part of this responsibility is 
ensuring that the program complies with the Department's 
acquisition policies and the Clinger-Cohen Act. The 1994 
initiative of SPS as an acquisition program occurred prior to 
the Clinger-Cohen Act. By mid 1997, however, we began to 
retrofit SPS to meet the act's requirements. One particularly 
bright spot is the procurement community's initiative to 
document the as-is and to-be end-to-end procurement processes 
consistent with the Clinger-Cohen Act mandates for enterprise 
architectures and business process reengineering.
    In mid 1998 the Department set two performance goals that 
significantly impacted SPS. These were a successful Y2K 
changeover and a transition to paperless contracting. As a 
result of senior leadership emphasis, both outcomes were 
achieved by January 2000. SPS played a critical role in 
retiring non-compliant legacy procurement systems and in making 
the contracting process over 80 percent paperless.
    In spite of intensive management oversight, however, the 
SPS program experienced some problems during this period, and 
we took appropriate risk management actions, such as directing 
the program manager to re-baseline the program.
    We are aware that the SPS program still has issues that 
need attention. Nearly a year ago, my boss formally asked the 
director for Defense procurement to conduct a program review. 
As a result, she sponsored two independent reviews, and we are 
in agreement with the findings.
    The director for Defense procurement and I will continue to 
review the program with the stakeholders to ensure that the 
acquisition direction is properly executed. We look forward to 
working with the committee to ensure that this program is a 
success.
    Mr. Chairman, this concludes my testimony. I would be happy 
to answer any questions you may have.
    Mr. Putnam. Thank you very much, Dr. Myers.
    [The prepared statement of Ms. Myers follows:]


    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

    
    Mr. Putnam. Thank you very much, Dr. Myers. At this time 
I'd recognize Mr. Gary Thurston, Defense Contract Management 
Agency, Department of Defense.
    You are recognized.
    Mr. Thurston. Good morning, Mr. Chairman. I appreciate the 
opportunity to be here today to discuss the standard 
procurement system. I will summarize my submitted testimony 
with a review of some of the history of this program, outline 
the progress through August 2001, and address some of the 
concerns that have been raised about the system.
    As the director of Defense procurement stated in her 
written testimony, the Department initiated the program in 
1994. Most of the Department's contract writing and invoice 
payment systems were then approaching the ends of their useful 
lives and would soon need replacement. The Department decided 
that it would be far more cost effective to develop just one 
standard system to create and manage contracts and make invoice 
payments than to separately replace each of the systems being 
used. That way the Department would save on systems development 
costs and also enjoy considerable additional savings by 
updating and maintaining only one system instead of many. 
Thousands of users at 777 locations are using the standard 
procurement system worldwide. Roughly one-third of the 
Department's contracting actions in both numbers and dollars 
are being accomplished by the standard procurement system. Four 
existing major contracting systems needing replacement have 
been retired, and plans are on hand to replace ten more such 
major systems.
    As regards to the economic value of this program, I 
understand the General Accounting Office has criticized some of 
the methods and assumptions used in the Department's two 
analysis of the value of the standard procurement system. I 
will only note here that my staff, as well as staff from the 
Office of the Department of Defense Chief Information Officer, 
have all reviewed the latest economic analysis and have assured 
me that the program, despite its increase in cost and schedule, 
still has a net positive return. That makes sense to me, given 
what I know about the size and complexity of some of the 
elderly contracting systems now in use. They would have to be 
replaced separately if it were not for the fact the standard 
system will replace them all.
    I also suggest an additional value not yet fully accounted 
for in any analysis will become apparent in the timeliness and 
accuracy of the management information available to the 
Department once all the new systems in the end-to-end 
procurement process model are on line and fully operational.
    In summary, we began the program with an open competition 
of a commercial item from industry sources. We did a two-phase 
selection process. We used user assessment criteria and 
financial criteria for selecting the most-qualified vendor. We 
justified investment in the program. We have one-third of the 
Defense work force using the standard system. Procurement 
professionals in the Army, Navy, Air Force, and Defense 
agencies are performing their operational mission with the 
standard procurement system. We are improving the software to 
respond to user concerns. The SPS acquisition is a major 
undertaking to revolutionize the procurement processes and 
systems operating with the Defense Department.
    In response to your question--can the DOD procurement 
process be standardized--I believe it can. The SPS software is 
only one facet, though. Users' willingness to change is also 
vital to the standardization of the DOD procurement process.
    That concludes my opening remarks. I look forward to 
answering any questions you may have.
    Mr. Putnam. Thank you very much, Mr. Thurston.
    [The prepared statement of Mr. Thurston follows:]

    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Putnam. At this time I would like to call upon Colonel 
Jake Haynes, the program director for the SPS Program Office, 
Defense Contract Management Agency, Department of Defense.
    Colonel, welcome to this committee.
    Colonel Haynes. Mr. Chairman and members of the committee, 
good morning. I appreciate the opportunity to appear before you 
today to discuss the SPS program and its crucial role in 
standardizing Defense procurement practices. This program has 
tremendous importance for our ability to meet the needs of our 
servicemen and women and, consequently, has a vital impact upon 
our overall military readiness.
    On 6 August of last year, I assumed the position of program 
manager for the SPS system. As a result, other witnesses before 
this committee can better address the history and the 
background of the SPS program. I believe my testimony will 
avoid repetition of other witnesses and contribute to the 
committee's understanding of the SPS program by focusing on 
three major areas.
    First, I would like to contribute my initial impressions of 
the SPS program upon assuming my current position.
    Second, I would like to offer my perspective on some of my 
current concerns expressed about the SPS program.
    Finally, I would like to make a few comments about the 
actions that can help facilitate greater acceptance of the SPS 
program throughout the Defense procurement community.
    Upon assuming my current position, I was struck by the 
enormity of the SPS program. In many ways, it was unprecedented 
step from both the Department of Defense procurement community 
and information technology within the Department of Defense. 
This initiative was designed to replace several dozen existing 
legacy systems with a single system based upon commercial, off-
the-shelf COTS business software. Its reach included the entire 
Defense professional procurement community--over 43,000 
different users in all services and Defense agencies.
    Finally, the comprehensive approach included both 
standardization of existing procurement functions as well as 
the inclusion of enhanced contract management tools that will 
ultimately result in end-to-end integrated processes with 
interoperability across the entire Department of Defense. When 
I fully understood the scope of the SPS program, I was 
impressed by the progress reached prior to my arrival.
    SPS has now been deployed to 21,900 procurement 
professionals at 773 sites, reaching over half of all intended 
users and over two-thirds of intended sites. In fiscal year 
2001, Defense procurement professionals used SPS for over 
480,000 contracting awards, procuring more than 36 billion in 
goods and services. The fact that such a massive undertaking 
has advanced to the current level of implementation is a credit 
to the numerous Defense officials, including my colleagues on 
this panel.
    At the same time, I was also impressed by the enormous 
benefits offered by standardizing of Defense procurement 
practices in general and the potential advantages of the SPS 
program, in particular.
    A single, integrated procurement process would allow the 
Department of Defense advantages almost too numerous to 
mention, including greater financial accuracy, improved 
operational efficiency, and substantial cost savings. 
Implementation of this program will provide the Department with 
greater resource visibility needed to optimize spending and 
track funding, improve management and oversight capabilities, 
and ultimately provide better support to America's war 
fighters.
    It will be accomplished--these objectives, by reducing 
administrative time required for contract management and 
allowing procurement personnel to focus on quality of goods and 
services, as well as eventually reducing administrative or 
overhead costs associated with contract management and freeing 
more appropriated funding to go to the needs of the war 
fighter.
    SPS will also enhance productivity and interoperability of 
our procurement work force. This standardization will be an 
important component in the Department's ability to comply with 
the requirements of the Chief Financial Officer Act and balance 
his books.
    In summary, SPS is transforming the Defense procurement 
community, and its full benefits are just beginning to be 
recognized. An appreciation of the size of the SPS program, 
both in terms of the number of users and breadth of procurement 
functions, helps one understand the likelihood, if not 
inability, of challenging in implementation phase. As I began 
reviewing various reports and talking to numerous people 
involved in the program, from supervisory officials to end 
users, I developed an understanding of both the concerns 
expressed by this committee and the GAO and the actions being 
taken to address them.
    In reviewing comments on the SPS program to date, many have 
focused on the lack of user satisfaction with the new system. I 
fully appreciate the importance of acceptance of SPS within the 
user community and would like to address the situation in a 
number of different respects.
    First, the Inspector General Audit on Standardized 
Procurement System Use and User Satisfaction Report, number 
D2001-075, dated March 13, 2001, noted many users--many areas 
for training enhancements and improvement throughout the 
program. The current program budget includes extremely limited 
funds for exchange management activities, which include 
training, business process reengineering, and dedicated 
communication activities dedicated at end users. All parties, 
including the PMO, services, agencies, and contractor believe 
that the program requires additional training efforts. We will 
be engaged in a continuing effort to identify means and 
resources to enhance the quality and amount of training 
available to end users.
    I would also like to stress the broader concept of change 
management with regard to end user acceptance of the SPS 
program. Communication and an understanding of the ultimate 
objectives of any business change or technology implementation 
is critical for success. The evolving nature of the program and 
the focus on the technical and software resulted in less than 
clear communication to the end users regarding the goals of the 
program and its impact on the procurement work force, which, in 
turn, led to unmanaged and often unrealistic expectation for 
both the SPS program and the implementation process.
    Greater communication on the broader goals of the SPS 
program and the upcoming deployment of SPS version 4.2, with 
its improvements and add-in functionality, would help remedy 
their situation.
    Nonetheless, we also recognize the absolute importance of 
being responsive to the user needs and taking positive actions 
to meet user expectation for the SPS program. My No. 1 focus is 
on user satisfaction with SPS. As described in the testimony of 
Director Lee, the Department has undertaken a number of steps 
designed to ensure overall customer satisfaction with regards 
to all aspects of the SPS program.
    The Department has fully committed to taking actions to 
ensure that end user needs are met by both the operational 
capabilities of the new SPS version 4.2 and the overall 
deployment process.
    I would like to address some of the new measures we have 
taken within the Program Management Office to implement our new 
focus on the end user satisfaction. We have adopted a two-prong 
approach that involves improving both PMO processes and 
communications with the SPS users. Within the PMO, we have set 
up and are enforcing discipline processes to handle all aspects 
of the SPS program, including the requirements process for the 
new version 4.2. In this area, as in all areas of the SPS 
program, we are focusing on the SPS user. I also have a strong 
new management team in place within the PMO with a defined set 
of responsibilities and priorities, including monitoring and 
reporting on user satisfaction issues.
    We are also taking steps to increase communications with 
users about the SPS program in both directions. First, we are 
continually stressing to users the importance of their programs 
and the many means of communications devices available to them. 
For example, my first contribution to the SPS program 
newsletter stressed our goals of addressing users' concerns in 
improving communication. We have also initiated an SPS 
communication survey that we expect to provide the PMO with 
both substantive comments on the SPS program and ideas on how 
we can continue to improve our communications with the SPS 
users.
    Finally, this very week we have been conducting the SPS end 
users conference sponsored by the PMO with the support of the 
program contractor. I am confident this dialog would benefit 
the program. At the same time, a vital part of the PMO dialog 
with users must involve continuing efforts to explain why the 
SPS program is so important to the future of the Department. We 
understand the perspective of a user being faced with a 
challenging--a challenge of learning a new system that does not 
seem to offer obvious advantage to their legacy systems. Once 
users better appreciate the Department's commitment to the end-
to-end model and the critical importance of linking 
procurement, financial, and logistics communities in an 
integrated process, we believe that users will then understand 
the need to implement the SPS program.
    Since I assumed my responsibilities as program manager for 
the SPS program, I believe that we have made major strides in 
restoring focus to the basic and crucial task of making SPS 
work at the user level. I am convinced that the commitment of 
the Department's team to identify and implement actions more 
oriented toward user satisfaction will have beneficial effects 
throughout the SPS program.
    I am also pleased to report that the program contract is 
fully supportive of the need to increase end user satisfaction 
within the SPS program and has cooperated fully with the 
efforts recently undertaken to devise an improved approach to 
resolving these issues.
    In summary, the Department recognizes both the importance 
of the SPS program and the continuing need to address the 
concerns expressed to this committee. Achieving greater 
efficiency in the Department's business practices is a crucial 
means of meeting modern procurement challenges and enhancing 
overall readiness to meet 21st century missions. We recognize 
that we can only achieve our goals through a more-focused 
effort to maximize our greatest resource--the skilled and 
dedicated professionals who serve our Nation at all levels.
    We will be working to provide the committee with confidence 
that ultimately standardization of the Department of Defense 
procurement process can and will occur in the years ahead and 
that our national security will be improved as a result.
    Thank you for the opportunity to appear before this 
committee. I will be pleased to answer any questions at this 
time.
    Mr. Putnam. Thank you very much, Colonel Haynes. We 
appreciate your being here.
    [The prepared statement of Colonel Haynes follows:]



    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
    
    Mr. Putnam. At this time the Chair recognizes and 
acknowledges for the record that the gentleman from 
Massachusetts, Mr. Lynch, has arrived, and we welcome him to 
the subcommittee.
    Mr. Lynch. Thank you, Mr. Chairman. I can say on this 
committee I am very proud to serve and I'm here to learn, here 
to listen, so I thank you for your testimony.
    Mr. Putnam. And the distinguished gentleman from New York, 
the chairman emeritus of the International Relations Committee, 
Mr. Gilman.
    Mr. Gilman, I understand you have a statement. You are 
recognized.
    Mr. Gilman. Thank you very much, Mr. Chairman. I am being 
called to another meeting, and I appreciate your calling on me 
at this time, and I want to welcome our panelists on a very 
important issue and thank you for convening today's hearing to 
examine the status of the standard procurement system for the 
Department of Defense.
    The oversight of Federal agencies is an extremely important 
congressional responsibility, and, of course, this committee 
carries out that responsibility. Nowhere in today's climate is 
it more important than to make certain our Defense Department 
has the ways and means to do whatever they need to do.
    Given the current military environment in which we find 
ourselves, it is prudent and appropriate that we work to make 
certain that the Department of Defense is getting the best 
value for the money it spends on new equipment, and with the 
increased budget it becomes even more important.
    In 1992, the GAO listed DOD contract management as a high 
risk component that required additional senior management 
oversight. This led the Department of Defense to initiate a 12-
year program to create and implement a standard procurement 
system, the SPS, which we are examining today to replace a 
myriad arrangement that evolved over 35 years, and when I take 
a look at DOD's chart on--GAO's chart on DOD's current systems 
environment for contract and vendor pay, I wonder how anyone 
can keep up with all of those crossed lines that take place and 
all of the other agencies that are involved.
    We are now 7 years into that progress, and we've already 
missed the original target date of March 2000, for full 
implementation of this system. And the Defense Department 
revised its target date, as I understand it, by 3\1/2\ years to 
September 2003--is that correct?
    Colonel Haynes. Yes.
    Mr. Gilman. But that new goal may also be further delayed, 
as I understand it.
    Given the Administration has requested historic increases 
in Defense spending over the next 5 years, it makes sense then 
for the Congress to require that the DOD's procurement system 
be as streamlined and as efficient as possible as we perform 
our oversight responsibilities.
    Just two quick questions before I have to run.
    What cost savings have been realized to date as a result of 
implementing SPS? I address that to any of our panelists who 
could tell us that.
    Mr. Thurston. We did a productivity study last summer, and 
we have documented, we believe, around $75 million on an annual 
basis.
    Mr. Gilman. And that has been the accumulation of savings 
each and every year?
    Mr. Thurston. That was just during 2001 with the 
deployments that happened from 1997 through 2001. We expect 
that number to grow as more deployments would happen and more 
use would happen.
    Mr. Gilman. And how do you determine those cost savings?
    Mr. Thurston. We took a team and went out to 50-some sites 
and actually conducted interviews with the people who were 
using the system and went through a list of productivity 
factors that we had.
    Mr. Gilman. Now, can the panelists tell me about the 
justification that exists for the Department's continued 
investment in SPS? Any of the panelists? Is there 
justification? I notice that GAO has raised some issues about 
the continued investment, and they say it has yet to be 
justified. What are your thoughts?
    Ms. Myers. The SPS has followed all of the Defense 
Department's acquisition policies, to include doing an economic 
analysis. I believe the disagreement comes in that the GAO 
doesn't like the way we did the economic analysis.
    I heard the number cited earlier of this is a $1 billion 
program. From our perspective, it is about a $300 million 
program. The difference comes in that the GAO would like us to 
account for infrastructure and program cost.
    Let me give you an example. If I have a computer on my 
desktop and somebody comes to me and asks me to load SPS so 
that I can write a contract, or whatever, we would not count 
the cost of that computer on my desk. We would consider it part 
of the infrastructure that's already there. It would be subject 
to normal upgrades with all desktop automation, as is normal. 
The GAO believes that we should have counted all that 
infrastructure, and if you do count it, that's where they get 
up to $1 billion.
    Mr. Gilman. Let me ask, then, if the program costs over 
$300 million, is that right, and you're getting a savings of 
$75 million----
    Ms. Myers. Per year.
    Mr. Gilman. Yes. Where is the cost--where is the benefit of 
that system? Where is the actual benefit in dollars?
    Mr. Thurston. The $300 million cost was from 1995 when we 
started the program through 2005, a 10-year program cost. And 
what I was suggesting was a $75 million on an annual basis. So 
the accumulation over once we started the full-scale deployment 
from 1999 and on, you will have a 75 million, so in 4 years you 
would recoup that investment.
    Mr. Gilman. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Putnam. Thank you, Mr. Chairman.
    Dr. Myers, my understanding is your office is in charge of 
the milestones. What is the next milestone for SPS and when 
will we know whether it has been achieved?
    Ms. Myers. We have directed the program manager to take 
what we've called a ``strategic pause,'' and he has, at this 
point in time, some number of requirements that he has 
assembled that will comprise release 4.2. He has also taken a 
cut in his budget for this fiscal year. So we have asked him to 
baseline or re-baseline release 4.2 based on the funding that 
is available and determine what requirements he can deliver 
with that funding and how long it will take. His current 
schedule looks like we're talking this would happen roughly in 
the next year.
    That is essentially part one is baseline 4.2, and we will 
do the economic analysis that the GAO has requested for that 
increment.
    Anything beyond that we consider part of release 5.0, and 
we have directed the procurement users community to identify 
and to essentially re-look the requirements for release 5.0. 
This is where we got into the discussion in the last panel of 
the major weapons systems. So we, the acquisition community, 
have asked the functional owners of this process to take a look 
at their requirements and reassess whether it is prudent to 
proceed with 5.0. It is entirely possible that they will do 
that analysis of alternatives and come back and say that we 
will stop this program at the end of release 4.2. They may come 
back and say, ``No, we want to proceed.'' They may come back 
and say, ``We found a system in the Air Force that we think we 
could adopt.'' At this point, they are just beginning that 
analysis.
    Mr. Putnam. These milestone 4.2 and 5, those are versions?
    Ms. Myers. Yes.
    Mr. Putnam. OK.
    The gentleman from Massachusetts, Mr. Lynch, is recognized.
    Mr. Lynch. Thank you, Mr. Chairman.
    Given the significant increase in Defense spending--and 
certainly we all want to support this President, and especially 
under today's circumstances--I think it would be important, 
however, to make sure that we are spending all this money 
wisely.
    One of the things that I find disturbing in the GAO 
report--and I don't accept it all as gospel, but they certainly 
know when they're not getting information that they request, 
and that's one of the troubling parts of their report is that 
they, when they asked for information, they didn't get it. And 
I want you to address that concern, as well as the GAO's 
assessment that there was no system of accountability to know 
whether we are meeting certain goals along the way. That is 
troubling, as well. So I don't know which of the panelists 
would like to address the GAO's concerns, and if you can't 
address those specifically, then suggest to me what the source 
of the GAO's concerns are or why they would take this position.
    Colonel Haynes. Sir, I would like to address it.
    Mr. Lieberman. Sure.
    Colonel Haynes. From 6 August as the new program manager or 
the program manager of the system, I can say that we have 
engaged fully with GAO to address their concerns, to provide 
the information that they have requested in a timely manner, 
and we have a track record of everything that we've released to 
them.
    In addition, we have invited GAO to come in and be a part 
of our integrated process, our reviews where we go through 
every aspect of the program addressing the processes normalized 
in software development, and they have been a part of that.
    Approximately 2 weeks ago members of the GAO staff came and 
spent approximately 8 hours in the office to better understand 
our path forward, our get well plan, and the processes that we 
currently have in place to ensure that the quality of the 
software meets the users' needs.
    So I can only speak from 6 August and to the current time, 
and I can attest to the fact that we have been fully engaged 
with GAO and very cooperative in their requests.
    Mr. Lynch. Thank you, Colonel.
    What of the other sense that there was not a reliable 
system of----
    Mr. Putnam. Mr. Lynch, I think Mr. Thurston wanted to 
answer your first question.
    Mr. Lynch. Sure. That would be great.
    Mr. Putnam. I didn't mean to cut you off, but----
    Mr. Lynch. All right.
    Mr. Putnam [continuing]. I wanted you to get a full----
    Mr. Lynch. Thank you, Mr. Chairman.
    Mr. Thurston. Since the report was on my watch, I wanted to 
respond about not getting the information that they were 
requesting.
    I'm not sure exactly what specific text. If it was in the 
area that we were not able to supply actual cost of the 
program--was that related to----
    Mr. Lynch. That would do it. Yes.
    Mr. Thurston. OK. That's a difficult job in our Department 
when we look at implementing an information technology system. 
As Dr. Myers talked about, when we have 700 sites and 20,000 
users, what expense has been spent at each of those sites on 
the IT information was not something that us, as a program 
office, could go out and collect, nor, when we asked for that 
from the military departments, we were provided some ballpark 
information, but, again, it is a tiering or layering effect of 
how a site through a command into a military department. So 
when they asked why we could not report actual cost, we had no 
way to collect actual cost. That's one of our issues in the 
Department.
    Mr. Lynch. So no one is tracking that?
    Mr. Thurston. Well, not to say that no one is tracking it. 
When you look at the whole Department and try to understand, in 
all the different pieces that we were touching, it was not 
obtainable. I think even Mr. Lieberman talked about it is not 
that it's illogical in an audit statement, but to go down to 
the very specifics is an issue for the Department, that it's 
tracked about many different levels.
    Mr. Lynch. OK. Well, at least you're honest. Thank you. 
That will undoubtedly shake the confidence of some Members who 
would otherwise be willing to vote for--you know, go to 
appropriations. If we don't have a reliable system of 
accounting for when and where and how these dollars are being 
spent, it's sort of a blank check, don't you think?
    Mr. Thurston. I don't see it as a blank check, sir. I think 
it is the scope of what the GAO is requiring us to obtain 
information on as a program office. Just as Dr. Myers talked 
about, trying for us as a program office to track all the 
individual expense at each of the sites of what they're 
spending on information technology--their personal computers, 
their servers, their communication lines--where I'm just 
providing software to that operation to perform their mission, 
but I'm not out there collecting all the information on all of 
their finances of putting in support infrastructure.
    Mr. Lynch. But as a business practice, building in 
accountability, that would be an important part of that.
    Mr. Thurston. Well, that's a part that we're heading down 
with the standardization for the procurement community and the 
standardization of the finance community and the 
standardization of the logistics community that have all of 
these systems that can interact and flow data to provide those 
type of an accounting process.
    Ms. Myers. I believe there is a nuance here in that the 
Army, Navy, and Air Force, and the Defense agencies account for 
what they spend on information technology infrastructure, so 
they know what they spend. The program office doesn't know what 
the Navy spent to put--to upgrade the computers on people's 
desktops that they might have upgraded anyway and SPS happens 
to be one of the applications running on those computers.
    Mr. Lynch. I understand what you're saying in a general 
sense, but I don't--I mean, what--apparently what the GAO was 
looking for was a breakdown on a per-site basis, what we're 
spending here, and, at least in their report that I have here, 
they're not satisfied that anybody knew what these things cost 
and, you know, there's no sense of accountability. So that 
would appear to be a problem.
    Ms. Myers. I think the issue----
    Mr. Lynch. From up here, anyway.
    Ms. Myers [continuing]. Is different channels of 
accountability, and that we do not have an easy means to marry 
up what is spent through one channel in IT infrastructure with 
what the program manager was spending on SPS.
    Mr. Lynch. I must be honest with you. I find this 
conversation surprising. It just--it would appear that, given 
the size of the budget, there would be a greater level of 
accountability and a more precise response to the GAO, that 
someone would find a way to respond to them so that they could 
do their job. That's all I'm saying.
    That's all I have.
    Mr. Putnam. Thank you, Mr. Lynch.
    The Clinger-Cohen Act and OMB guidance provided framework 
for IT investment management by setting the requirements for 
economically justifying proposed projects on the basis of 
reliable analysis of life cycle cost, benefits, risk, using 
those analysis throughout the project's life cycle, and doing 
so for large projects by dividing them into a series of smaller 
incremental sub-projects or releases.
    Now, in doing that the risk associated with these huge 
investments ought to be able to be effectively measured against 
cost, schedule, capability, and our benefit expectations.
    Now, we've heard testimony that DOD has not followed this 
incremental approach for funding and cost/benefit analysis. You 
represent those who are--those positions that are responsible 
for this, so how do you respond to the criticism that it is not 
being acquired and deployed under the specific guidance of 
Clinger-Cohen?
    Ms. Myers. I think there are a couple of reasons here. No. 
1, the program was initiated before the Clinger-Cohen Act was 
passed, so that it was--to as great as an extent as we could, 
we tried to retrofit the incremental strategy, but, again, it 
was difficult to change--to make significant changes. We did, 
at the beginning of the SPS program, require a thorough 
economic analysis, so the implication is that none was done. 
There was one done. The issue is the GAO would like to see a 
follow-on analysis for each increment.
    We, in fact, had a difference of opinion with the GAO on 
whether that was required. There were within my office several 
people who worked on Senator Cohen's staff at the time that the 
legislation was written, and they believe that our 
methodology--our people believe that our methodology was 
appropriate. GAO felt otherwise.
    We just found out last week--we asked GAO to go back and 
verify that, and their lawyers determined, I heard last week, 
that they thought they were right, so we have agreed and the 
program manager will follow their guidance for doing any--an 
economic analysis for increment 4.2.
    Mr. Putnam. Anybody else want to pitch in on that one?
    Colonel Haynes. I'd like to also add that this, the EA, a 
scalable EA to support incremental releases is something that 
we feel is in concert with the GAO's vision. More importantly 
is that the EA is not used to satisfy a requirement but used in 
our business case analysis to determine what the future of the 
program and how we build version four, our user community.
    So it is a--we've taken a very proactive stance, and we'll 
feed the data in real time to GAO and all of the other bodies 
that help support the program, to include OSD and the 
integrated process team that provides oversight to our program 
prior to a milestone decision.
    Mr. Putnam. Colonel, you've testified that 22,000 people in 
two-thirds of the desired sites, half the users are equipped 
with the SPS system, and last year it was used to purchase $36 
billion worth of whatever.
    Colonel Haynes. Yes, sir.
    Mr. Putnam. How much--if we're that far along in the 
process on the ground, if two-thirds of the sites already have 
it and half the people have it, then why at the macro level 
does it appear to be so far behind, and why is there such a 
high level of dissatisfaction amongst those who are using it?
    Colonel Haynes. Sir, I'd like to answer the question in two 
parts. First, I'd like to start with the latter part of your 
question. I mentioned in my testimony that when we deployed SPS 
to the user community we, at the Department, did not 
communicate the overall benefits to the Department to the 
actual users on the ground, and we could have done a better 
job, and we're currently doing that through our communication 
process to the users. Ms. JoAnn Patell for DFAS, for example, 
is a keynote speaker at the SPS conference in San Diego, 
ongoing as we speak.
    Once the users understand what the benefits of the 
Department from an end-to-end perspective, they then understand 
that the additional keystrokes or the source edits that we 
enforce on the front end of SPS satisfies a greater need.
    Initially, most of the users thought that SPS would replace 
their legacy system one for one, and that was not the case. The 
power of SPS in providing end-to-end through EDI is much 
greater than any legacy system that they currently have.
    So as we communicate to our users, we are finding that the 
user satisfaction is increasing through that process.
    On the second part of the question, on the remaining one-
third, which does represent some of the weapons system 
community and the ICP community, the original strategy to wait 
for 5.0 and 5.1 to deploy to those sites we have found was 
probably a flawed strategy in that it was a good deployment 
strategy, but for incremental releases it is functionality that 
is required throughout the entire SPS community.
    We have seen some success in the weapons system community 
with the current 41E version that's currently in the Navy today 
in the NAV-AR community. So we are starting to see SPS moving 
to the other communities and satisfying some of those 
requirements.
    Mr. Putnam. Another key SPS program commitment which was 
indicated DOD failed to attain was to use commercially 
available software, and this was discussed a little bit in the 
first panel. The contractor has modified the commercial product 
extensively in an attempt to tailor it to meet your needs. As a 
result, it has become a DOD unique solution rather than a truly 
COTS product, and I've got to tell you that all these acronyms 
sounds like a ``Saturday Night Live'' skit. According to the 
program manager, SPS as a commercial product provided 45 
percent of the functionality that you need, but according to 
the industry best practices, software modifications to a 
commercial product should have 90 to 95 percent functionality. 
Since it is now essentially a DOD-specific solution, the 
Department will not be able to take advantage of the reduced 
risk associated with using proven technology that a wide 
consumer base participates in. As a result, DOD may not accrue 
the reduced costs and greater benefits associated with the use 
of a COTS product.
    Now, recognizing, of course, that there isn't really 
anybody else in the world out there like the Department of 
Defense, and so I stipulate that, was it ever intended to be a 
true COTS product, and why has it had to be modified so 
extensively after the original choice was made that particular 
program was what met your needs?
    Mr. Thurston. I'd like to respond to that. In 1994 the 
Department was assessing what to do to standardize its 
different business communities. Each of the different business 
communities took an approach of whether to do development for a 
unique system or go to a commercial and determine which would 
be the best.
    We did a request to industry, and they delivered about 
eight different systems that we looked at, and we found out 
that there were systems that could do procurement. So when we 
ran the competitive process, we found that the best system 
could only do 45 percent, and none of the other systems were 
even above that, so we knew we were starting with a commercial 
base that did have a proven technology that could operate, but 
we knew that it would only perform a piece of the Defense 
method of doing procurement.
    Most of the standardization has been about connecting all 
the systems, as Mr. Gilman pointed out, among the different 
finance and logistics systems. That is where a lot of the 
development has been. There has been some development in 
tailoring the way we do procurement, because, as you know, 
there is a Federal acquisition regulations and then there is 
the Defense Federal acquisition regulations, and so we knew 
that we would be commercially derived but that we would have to 
do development to meet the full DOD commitment of procurement.
    Mr. Putnam. Dr. Myers, did you want to add anything to 
that? I'm not putting you on the spot.
    Ms. Myers. No, thank you.
    Mr. Putnam. Colonel.
    Colonel Haynes. No, sir.
    Mr. Putnam. Are all DOD components and agencies required to 
acquire and deploy SPS?
    Colonel Haynes. As part of our deployment strategy, the 
43,000 users that is the target audience for SPS will 
accommodate all of the DOD and the majority of the other 
Defense agencies.
    Mr. Putnam. At this time we are going to have another vote. 
I would ask the commitment from each of you to submit answers 
to questions that the subcommittee may present to you in 
writing. I appreciate that commitment and I thank you very much 
for your time. I apologize that we're cutoff and aren't able to 
more fully explore these and give you an opportunity to be more 
fully heard. It is a crazy congressional schedule and I 
apologize for that, but we thank you again for being here. We 
thank the first panel. We thank our guests. With that, the 
subcommittee stands adjourned.
    [Whereupon, at 11:38 a.m., the subcommittee was recessed, 
to reconvene at the call of the Chair.]

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