[Senate Hearing 110-530]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 110-530
 
IS THE DEPARTMENT OF HOMELAND SECURITY TOO DEPENDENT ON CONTRACTORS TO 
                       DO THE GOVERNMENT'S WORK?

=======================================================================

                                HEARING

                               before the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 17, 2007

                               __________

        Available via http://www.access.gpo.gov/congress/senate

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs



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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

               JOSEPH I. LIEBERMAN, Connecticut, Chairman
CARL LEVIN, Michigan                 SUSAN M. COLLINS, Maine
DANIEL K. AKAKA, Hawaii              TED STEVENS, Alaska
THOMAS R. CARPER, Delaware           GEORGE V. VOINOVICH, Ohio
MARK L. PRYOR, Arkansas              NORM COLEMAN, Minnesota
MARY L. LANDRIEU, Louisiana          TOM COBURN, Oklahoma
BARACK OBAMA, Illinois               PETE V. DOMENICI, New Mexico
CLAIRE McCASKILL, Missouri           JOHN WARNER, Virginia
JON TESTER, Montana                  JOHN E. SUNUNU, New Hampshire

                  Michael L. Alexander, Staff Director
                         Troy H. Cribb, Counsel
     Brandon L. Milhorn, Minority Staff Director and Chief Counsel
                David A. Drabkin, Minority GSA Detailee
                  Trina Driessnack Tyrer, Chief Clerk


                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Lieberman............................................     1
    Senator Collins..............................................     3
    Senator McCaskill............................................    18

                               WITNESSES
                      Wednesday, October 17, 2007

John P. Hutton, Director, Acquisition and Sourcing Management 
  Team, U.S. Government Accountability Office....................     5
Elaine Duke, Chief Procurement Officer, U.S. Department of 
  Homeland Security..............................................     8
Steven L. Schooner, Co-Director, Government Procurement Law 
  Program, the George Washington University Law School...........    11

                     Alphabetical List of Witnesses

Duke, Elaine:
    Testimony....................................................     8
    Prepared statement...........................................    45
Hutton, John P.:
    Testimony....................................................     5
    Prepared statement...........................................    29
Schooner, Steven L.:
    Testimony....................................................    11
    Prepared statement...........................................    58

                                APPENDIX

Responses to Post-Hearing Questions for the Record from:
    Ms. Duke.....................................................    69
    Mr. Schooner.................................................    82
GAO Report submitted for the Record by Mr. Hutton, GAO-07-990, 
  ``Department of Homeland Security--Improved Assessment and 
  Oversight Needed to Manage Risk of Contracting for Selected 
  Services,'' dated September 2007...............................    84


IS THE DEPARTMENT OF HOMELAND SECURITY TOO DEPENDENT ON CONTRACTORS TO 
                       DO THE GOVERNMENT'S WORK?

                              ----------                              


                      WEDNESDAY, OCTOBER 17, 2007

                                     U.S. Senate,  
                           Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:34 a.m., in 
Room SD-342, Dirksen Senate Office Building, Hon. Joseph I. 
Lieberman, Chairman of the Committee, presiding.
    Present: Senators Lieberman, McCaskill, and Collins.

            OPENING STATEMENT OF CHAIRMAN LIEBERMAN

    Chairman Lieberman. Good morning, and thank you for being 
here this morning. I appreciate your indulgence. I just had the 
honor of introducing Judge Mukasey at his hearing before the 
Judiciary Committee.
    This morning in this Committee, we are going to examine the 
extent to which the Department of Homeland Security (DHS) 
relies on contractors to carry out its crucial mission to 
secure our homeland from terrorism and natural disaster. 
Plainly put, we will ask who is in charge at the Department of 
Homeland Security--its public managers and workers or its 
private contractors?
    Today this Committee is releasing the Government 
Accountability Office's (GAO) report, which we requested, in 
which GAO calls on the Department of Homeland Security to 
improve its oversight of contractors and better manage the 
risks associated with relying on contractors. The fact is that 
the GAO, in its report, expresses profound concern that there 
is inadequate oversight now of contractors and that there is a 
serious need to better manage the risks associated with relying 
on contractors.
    GAO examined 117 statements of work for the Department of 
Homeland Security service contracts and found that over half of 
those contracts were for services that closely support 
inherently governmental functions. GAO then examined nine of 
those contracts in detail.
    While GAO did not make any conclusions on whether DHS 
improperly allowed contractors to perform inherently 
governmental work, it did find that: First, DHS has not 
revisited its original justification for relying on 
contractors--which was the need of this new Department to stand 
programs up quickly--and has not conducted a comprehensive 
assessment of the appropriate mix of Federal employees and 
contractors.
    Second, DHS did not assess the risk that its decisions may 
be influenced by, rather than independent from, contractors.
    Third, most of the contract officials and program managers 
interviewed by GAO were unaware that Federal procurement policy 
requires heightened oversight when contractors perform these 
types of services.
    Fourth, six of the nine contracts called for the contractor 
to perform a very broad range of services or lacked detail. 
Without clearly specifying requirements for the contractor, the 
Department exposed itself, according to GAO, to waste, fraud, 
and abuse.
    And, fifth, none of the oversight plans reviewed by GAO 
contained specific measures for assessing contractor 
performance.
    Now, to bring this down to real-life examples, let me 
mention a few of the questionable uses of contractors that were 
uncovered by GAO.
    The Coast Guard hired a contractor to help manage its 
competitive sourcing program, meaning that it hired a 
contractor to help determine whether existing Coast Guard jobs 
should be contracted out.
    One $42.4 million contract to support the Department's 
Information Analysis and Infrastructure Protection Directorate 
was so broad that it covered 58 different and distinct tasks. 
This very large, all-encompassing umbrella of a contract 
covered such disparate items as acquisition support, 
intelligence analysis, budget formulation, and information 
technology planning. And how many DHS employees were assigned 
to help the contracting officer provide technical oversight of 
this enormous job? Just one.
    Another example: The contractor supporting TSA's employee 
relations office provided advice to TSA managers on dealing 
with personnel issues, including what disciplinary actions to 
take--the very same function that TSA employees were already 
being paid to perform themselves in that very office.
    GAO says that the Department of Homeland Security's 
reliance on contractors during the days when the Department was 
first being stood up post-September 11 was understandable, but 
they question whether it is now.
    Now, let me mention the Federal Acquisition Regulation 
(FAR), which governs procurement for Federal agencies, 
prohibits inherently governmental work from being performed by 
contractors. FAR allows contractors to perform work that 
``closely supports inherently governmental work,'' but does not 
allow contractors to perform ``inherently governmental'' work 
itself. The line between those two is, admittedly, hard to draw 
and something that perhaps this Committee and the Office of 
Management and Budget and separate departments like DHS should 
take a fresh look at. But the FAR says specifically, for 
example, that the government itself is supposed to determine 
agency policy, including regulations, not private contractors, 
and that the government itself must make, quite naturally, its 
own governmental contract arrangements.
    But GAO's report leads us to question whether DHS is in 
control of all the activities occurring at the Department or 
whether in too many cases the Department may be rubber-stamping 
decisions made by contractors.
    In fiscal year 2006, DHS spent $15.7 billion on goods and 
services. Of this, $5 billion, almost one-third, went to 
contractors providing professional and management support--
often sitting side by side with Federal employees performing 
similar work, if not the same work. This heavy reliance on 
contractors certainly suggests the requirements of the FAR are 
being ignored, and I want to raise two questions that come off 
of that.
    First, is the risk that the Department is not creating the 
institutional knowledge within itself that is needed to be able 
to judge whether contractors are performing as they should. 
That could mean vulnerability to overcharges and other forms of 
fraud and abuse.
    Second is, of course, the risk that the Department may lose 
control of some of its own decisionmaking. The danger is that 
the Department may become so dependent on private contractors 
that it simply does not anymore have the in-house ability to 
evaluate the solutions its private contractors propose or to 
develop options on its own accord. In that sense, the 
Department may lose some of the critical capability to think 
and act on its own for we the people of the United States.
    So these are serious questions, and GAO has done a 
critically important report, and we have an excellent group of 
witnesses to discuss that report.
    Senator Collins.

              OPENING STATEMENT OF SENATOR COLLINS

    Senator Collins. Thank you, Mr. Chairman.
    The theme of today's hearing is captured quite well in a 
handbook published by the Office of Personnel Management. It 
reads as follows: ``Managers need to keep in mind that when 
they contract out . . . they are contracting out the work, not 
the accountability.''
    That handbook, ``Getting Results Through Learning,'' was 
released in 1997. To judge from the GAO's report this morning, 
the government has yet to embrace that important lesson.
    The Department of Homeland Security offers a useful case 
study in the benefits--and the risks--of government contracting 
for services.
    There are many legitimate reasons for contracting work out: 
For example, helping with stand-up requirements, meeting 
intermittent or surge demands, and keeping agency staff focused 
on core responsibilities. The GAO report notes that DHS has 
faced many of these challenges over its short life, leading to 
the use of contracts to cover needed services. But GAO also 
notes, ``Four years later, the Department continues to rely 
heavily on contractors to fulfill its mission with little 
emphasis on assessing the risk and ensuring management control 
and accountability.''
    Despite OPM's admonition a decade ago, DHS has failed in 
numerous instances to ensure appropriate accountability for 
service contracts. GAO's report provides troubling evidence 
that DHS has not routinely evaluated risks in acquiring 
services by contract and has not properly monitored services 
that are closely related to ``inherently governmental 
functions.'' These examples of inadequate oversight are 
particularly troubling given the billions of taxpayer dollars 
that DHS used last year to procure professional and management-
support services.
    Some of GAO's findings are especially disconcerting:
    First, without sufficient oversight, contractors were 
preparing budgets, managing employee relations, and developing 
regulations at the Office of Procurement Operations, TSA, and 
the Coast Guard. As the Chairman has pointed out, these seem to 
be inherently governmental functions that should not be 
contracted out.
    Second, some DHS program officials were unaware that a 
long-standing Federal policy requires an assessment of the 
risks that government decisions may be influenced by a 
contractor's actions. Worse, even when informed of this policy, 
some DHS officials said they did not see the need for enhanced 
oversight.
    Third, in six of the nine cases studied by GAO, statements 
of work lacked measurable outcomes, making it difficult to hold 
contractors accountable for the results of their work.
    And, fourth, DHS has not assessed whether its contracting 
could lead to a loss of control and accountability for mission-
related decisions, nor has it explored ways to mitigate such 
risks.
    These concerns are very similar to many raised by the DHS 
Inspector General, who identified instances of poorly defined 
contract requirements, inadequate oversight, unsatisfactory 
results, and unnecessary costs. I would note that I think it is 
a very positive sign that DHS has brought an experienced 
procurement official, Elaine Duke, to the Department to try to 
improve its processes. But it is troubling that we are finding 
this pattern of problems.
    To address the reports of contracting failures like those 
identified in this and other GAO reports--and these failures 
are found in agencies other than DHS--Senator Lieberman and I 
introduced S. 680, the Accountability in Government Contracting 
Act of 2007, along with several of our colleagues, earlier this 
year. The bill was unanimously reported by this Committee at 
the beginning of August, and it would reform contracting 
practices; strengthen the procurement workforce; introduce new 
safeguards against waste, fraud, and abuse; and provide 
increased oversight and transparency in the Federal 
Government's dealings with its contractors.
    I want to highlight one other provision of the bill that I 
think is particularly important and would apply to some of the 
problems we found in DHS, and that is the bill would also limit 
the duration of non-competitive contracts. This has been a 
problem identified by GAO in this report, as many DHS service 
contracts were extended well beyond the original period of 
need.
    The GAO report that is being released today delivers a 
troubling judgment, especially when so much of DHS service 
contracting seems to come very close--and in some cases crosses 
the line--to the performance of ``inherently government 
functions.''
    So, Mr. Chairman, I appreciate your holding this hearing 
today and assembling a distinguished group of experts.
    Chairman Lieberman. Thanks very much, Senator Collins. 
Thanks for mentioning the legislation that we have cosponsored, 
the Accountability in Government Contracting Act, and just to 
say briefly, the focus today is on the GAO report on the 
Department of Homeland Security, which is troubling. But it 
raises questions that obviously go beyond the Department more 
broadly in our government.
    At this moment, there is much attention both from Congress 
and the public, the media, on the use of private security 
guards in Iraq and Afghanistan, which is understandable, apart 
from the rights or wrongs of those particular contracts and the 
contractors and their employees who are carrying them out. That 
is a separate question.
    It does raise exactly the same questions as raised here. 
What are ``inherently governmental responsibilities'' that 
ought to be carried out by public employees? Second, do we have 
sufficient public employees to carry out those 
responsibilities? And if we do not and, therefore, we determine 
that to get the job done to fulfill the responsibility that 
Congress has given an agency circumstances require that they 
have to use private contractors, then is the oversight 
adequate? And I think all of these questions that we will be 
discussing today about DHS have applicability broadly 
throughout the Federal Government, including in the particular 
case of private security guards in Iraq and Afghanistan. Of 
course, we hope that our legislation will help answer those 
questions in the right way in all of these cases.
    Our first witness today is John Hutton, Director of the GAO 
Acquisition and Sourcing Management Team. Mr. Hutton has had a 
wonderful career at GAO dating back to 1978 and has been 
instrumental in many of the reports that the office has 
prepared for this Committee on contracting issues, for which we 
are grateful. The report being issued today is one in a series 
that GAO is conducting for this Committee--it is not the last 
one--on contracting by the Department of Homeland Security, 
which, after all, is a major responsibility of oversight for 
this Committee as the Homeland Security Committee. Last fall, 
GAO reported to us on the Department's use of interagency 
contracts, and still to come are reports on performance-based 
contracting and on the acquisition workforce.
    Mr. Hutton, we thank you and your team for the 
extraordinary work that you have done for this Committee, 
indeed, for the public, and I now welcome your testimony about 
your latest report.\1\
---------------------------------------------------------------------------
    \1\ The GAO Report submitted by Mr. Hutton, GAO-07-990, 
``Department of Homeland Security--Improved Assessment and Oversight 
Needed to Manage Risk of Contracting for Selected Services,'' dated 
September 2007 appears in the Appendix on page 84.
---------------------------------------------------------------------------

   TESTIMONY OF JOHN P. HUTTON,\1\ DIRECTOR, ACQUISITION AND 
SOURCING MANAGEMENT TEAM, U.S. GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Hutton. Thank you very much. Chairman Lieberman, 
Senator Collins, and Members of the Committee, thank you for 
inviting me here to discuss our report today on work done for 
this Committee, as you note, on the Department of Homeland 
Security's reliance on contractors that perform mission-related 
services. As you know, when DHS was established over 4 years 
ago, it faced enormous challenges in setting up offices and 
programs that would provide a wide range of activities that are 
very important to this country's national security. And to help 
address this challenge, as we know, the Department relied on 
contractors, many for professional management support, and 
these are services that increase the risk of contractors' 
unduly influencing the government's control over programs and 
accountability for actions. And for this reason, longstanding 
Federal policy requires attention to this very risk.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Hutton appears in the Appendix on 
page 29.
---------------------------------------------------------------------------
    And I would like to point out also that the scope of this 
work was really focused on those activities that are closely 
supporting inherently governmental functions. We did not 
address specifically inherently governmental functions that may 
be performed by contractors. And that is a key point here 
because for services that closely support, you are getting real 
close to government decisionmaking, and that is where the 
decisions ought to be made--in the government.
    But my testimony today will highlight our key findings. 
First, I want to describe the types of professional management 
support services for which DHS has contracted and the 
associated risks. And, second, I will then discuss DHS' 
consideration and management of risk when contracting for such 
services. And, Senator Lieberman, I must say you did a nice job 
summarizing our methodology, so I will move on to some of our 
key points.
    DHS contractors performed a broad range of activities under 
the four types of professional management services that we 
reviewed, and most of the statements of work we reviewed 
requested contractors to support policy development, 
reorganization and planning, and acquisitions. And, again, 
these are services that closely support inherently governmental 
functions.
    For example, the Transportation Security Administration 
acquired contractor support for such activities as assisting 
the development of acquisition plans and hands-on assistance to 
program officers to prepare acquisition documents.
    The Office of Procurement Operation's Human Capital 
Services Order provided for a full range of professional and 
staffing services to support DHS headquarters offices, 
including writing position descriptions, assigning official 
offer letters, and meeting new employees at DHS headquarters 
for the first day of work.
    Now, as we drill down further into our case studies, we 
gained additional insights into the types of services being 
performed and the circumstances that drove DHS' contracting 
decisions. Many of the program officials we spoke with said 
that contracting for services was necessary because they were 
under pressure to get these programs and offices up and running 
quickly, and they did not have enough time to hire staff with 
the right expertise through the Federal hiring process.
    Given the decision that contractors were to be used, we 
then looked at DHS' consideration and management of the risk 
when contracting for such services. Federal acquisition 
guidance highlights the risk inherent in these services, and 
Federal internal control standards require assessment of risks.
    Now, in our nine case studies, while contracting officers 
and program officials generally acknowledged that such support 
services closely support inherently governmental functions, 
none assessed whether these contracts could result in a loss of 
control and accountability for policy and program decisions. 
Also, none were aware of the Federal requirements for enhanced 
oversight in such cases, and most did not believe enhanced 
oversight was need.
    Our nine case studies provided examples of conditions that 
needed to be carefully monitored to help ensure the government 
does not lose this control and accountability. For example, in 
seven of the nine cases, contractors provided services integral 
to an agency's mission and comparable to those provided by 
government employees. To illustrate, one contractor provided 
acquisition advice and support while working alongside Federal 
employees and performing the same tasks.
    In each of the nine case studies, the contractor provided 
ongoing support for more than 1 year. In some cases, the 
original justification for contracting had changed, but the DHS 
components extended or re-competed services without examining 
whether it would be more appropriate for Federal employees to 
perform the service.
    Third, in four of the case studies, the statements of work 
contained broadly defined requirements lacking specific details 
about activities that closely support inherently governmental 
functions. And, in fact, several program officials noted that 
the statements of work did not accurately reflect the program's 
needs or the work the contractor actually performed.
    Moreover, Federal Acquisition Regulations and policies 
state that when contracting for services, particularly for the 
ones we are speaking of, a sufficient number of qualified 
government employees are needed to plan the acquisition and to 
oversee the activities to maintain that control and 
accountability over their decisions.
    We found some cases in which the contracting officer's 
technical representative lacked the capacity to oversee 
contractor performance due to limited expertise and workload 
demands. For example, one technical representative was assigned 
to oversee 58 tasks ranging from acquisition support to 
intelligence analysis to budget formulation and planning, and 
these were across multiple offices and locations. Similarly, 
another technical representative assigned to oversee a 
contractor provide an extensive range of personnel and staffing 
services lacked technical expertise which the program manager 
believed affected the quality of oversight provided.
    Now, in prior work, GAO has noted that agencies facing 
these workforce challenges, such as lack of critical expertise, 
have used strategic human capital planning to develop these 
long-term strategies to achieve programmatic goals. While DHS' 
human capital strategic plan notes that the Department has 
identified some core mission-critical occupations and seeks to 
reduce these skill gaps, it has not assessed the total 
workforce deployment across the Department to guide decisions 
on contracting for selected services.
    We have noted the importance of focusing greater attention 
on which types of functions and activities should be contracted 
out and which ones should not while considering other reasons 
for using contractors, such as a limited number of Federal 
employees.
    In closing, until the Department provides greater scrutiny 
and enhanced management oversight of contracts for selected 
services--as required by the Federal guidance--it will continue 
to risk transferring government responsibility to contractors. 
To improve the Department's ability to manage this risk and 
help ensure government control, the report we are releasing 
today recommends that the Secretary of Homeland Security take 
several actions. These actions include: Establishing a 
strategic level guidance for determining the appropriate mix of 
government and contractor employees; assessing the risk of 
using contractors for selected services during the acquisition 
planning process; again, more clearly defining contract 
requirements, acquisition planning is of note there; and 
assessing the ability of the government workforce to provide 
sufficient oversight when using services.
    Mr. Chairman, this concludes my statement, and I will be 
happy to answer any questions you will have.
    Chairman Lieberman. Thanks very much, Mr. Hutton. We 
certainly have questions for you.
    We will next go to Elaine Duke, who is the Chief 
Procurement Officer at the Department of Homeland Security. Ms. 
Duke brings considerable experience with her to this position, 
having previously served as Deputy Chief Procurement Officer at 
DHS, Deputy Assistant Administrator for TSA, and for many years 
before that held a series of acquisition-related positions with 
the U.S. Navy.
    Since being appointed Chief Procurement Officer last year, 
2006, Ms. Duke has undertaken a number of initiatives to 
strengthen acquisition practices at the Department, which we on 
this Committee appreciate. But obviously, having heard Mr. 
Hutton and having read his report, I am sure you recognize that 
you have a tremendous challenge that you have found to improve 
acquisition management in a Department where the procurement 
needs are so vast and so complex.
    So, with that, we thank you for being here and welcome your 
testimony now.

 TESTIMONY OF ELAINE DUKE,\1\ CHIEF PROCUREMENT OFFICER, U.S. 
                DEPARTMENT OF HOMELAND SECURITY

    Ms. Duke. Thank you, Mr. Chairman, Ranking Member Collins, 
and Members of the Committee. I really appreciate the 
opportunity to be here this morning before your Committee for 
the first time.
---------------------------------------------------------------------------
    \1\ The prepared statement of Ms. Duke appears in the Appendix on 
page 45.
---------------------------------------------------------------------------
    Since it is my first time before you, I wanted to take a 
moment to talk about the priorities we are working on within 
the procurement program within DHS, and then I will 
specifically address the GAO report.
    We have three procurement priorities within the Department 
of Homeland Security. They are all essential for our 
stewardship of the taxpayers' dollars: The first is to build 
the acquisition workforce; the second is to make good business 
deals; and the third is to perform effective contract 
administration. I share these priorities with the heads of 
contracts in each of the components within DHS.
    Within the first priority, building the acquisition 
workforce, some of the initiatives we have undertaken over the 
last year include a Centralized Hiring Initiative, where we at 
the corporate level are recruiting and hiring for key 
acquisition positions throughout the Department of Homeland 
Security. We used direct hire authority extensively for this. 
As the Committee knows, the direct hire authority has expired, 
and we appreciate that being part of your proposed bill to 
renew that hiring authority. That is something we have used for 
well over 100 people just in the last 8 months, and we 
appreciate your efforts to reinstate that.
    We have in the President's budget for fiscal year 2008 a 
new centralized Acquisition Intern Program. We will essentially 
manage and fund interns for a 3-year period, rotating them 
throughout DHS to provide that continuity in one DHS field. 
This is a program that we think will bring a new workforce into 
the Department of Homeland Security and are very much looking 
forward to starting that in this fiscal year.
    We also in the President's budget have a centralized 
Acquisition Workforce Training Fund. We have partnerships with 
the Federal Acquisition Institute and the Defense Acquisition 
University to use for delivering these central training skills 
throughout DHS.
    Under the second priority, make good business deals, we 
have several policy and oversight initiatives in this area. We 
have a Homeland Security Acquisition Manual that addresses key 
aspects of a good business deal, including competition, 
acquisition planning, small business, contractor 
responsibility, lead systems integrator issues, and 
organizational conflicts of interest. This past June we issued 
DHS' first Guide to Source Selection to try to institute a 
culture of good source selection, best values throughout the 
Department.
    We recently received an actual kudos in a GAO report on 
Alaska Native use, and it said that DHS was one of the leaders 
in having good oversight policy and proper use of Alaska Native 
corporations. And this fiscal year, initial numbers have 
greatly increased our level of competition going from about 50 
percent in fiscal year 2006 to about 65 percent in fiscal year 
2007--still much room to improve, but a great improvement over 
1 year.
    Additionally, we are on the Office of Federal Procurement 
Policy working groups for some of the Federal initiatives, 
including how to do interagency agreements better and how to 
improve the use of performance-based service contracts--one of 
the focuses of the GAO report.
    Under the third priority, effective contract 
administration, we are working heavily with Defense Contract 
Management Agency and Defense Contract Audit Agency to augment 
with Federal employees DHS' workforce in these key areas.
    We have had a series of Excellence in Contracting workshops 
done by persons on my staff to target certain areas, such as 
government property management, COTR functions in many of the 
key areas.
    We also have cross-cutting initiatives that really cover 
all three of the priorities. I would like to specifically 
mention the achievements of my Office of Small and 
Disadvantaged Business Utilization. We were one of the few 
Federal agencies to receive a green in the Small Business 
Administration's first annual scorecard. During fiscal year 
2007, we conducted our first major on-site acquisition reviews. 
We reviewed FLETC, Office of Procurement Operations, FEMA, and 
U.S. Citizenship and Immigration Services in a comprehensive 
review, in addition to a number of targeted specialized 
reviews.
    One of the areas that I would like to distinguish that we 
are doing is expanding the authority and responsibility of my 
office from procurement to acquisition, and that may sound like 
a semantics issue, but it is not. Some of the issues we are 
talking about here, and as the GAO report identifies, we have 
to start with a good requirement, and that starts in the 
program office. And to wait until the end of the process, the 
end result, the procurement, is really just Band-aiding in or 
inspecting in a solution. So we are working with expanding both 
at my office and within the components to make sure we have the 
full range of acquisition competencies and people in place to 
manage these programs. I have selected a Senior Executive 
Service program manager that will lead this effort in my 
office, and we have the full support of the Under Secretary of 
Management, as you know, in this initiative.
    Now I would specifically like to address the GAO report, 
and it addresses the government's increasing reliance on 
government services. It has already been said that this is not 
just a DHS issue. It is a Federal problem. I think that was 
most evidenced by the Services Acquisition Reform Act, the SARA 
Acquisition Advisory Panel results, who devoted a whole chapter 
to this and made some recommendations, which we and OFPP are 
looking at to see what is the best answer for the Federal 
Government.
    I think there are two issues raised by the report. One of 
them is: Is DHS contracting out inherently governmental 
services? And the second, is it properly managing the service 
contracts that it has?
    We agree with the recommendations of the report. There is a 
risk in reliance on government contractors. We do agree that we 
have much more to do, but we do not agree that we have not done 
anything to start managing this risk.
    To keep in mind perspective, Mr. Chairman, you brought up 
the fact that we are building and executing at the same time in 
DHS. One other point to bring up is we are actually growing, to 
add another dimension of complication. Just a few years ago, we 
had about $2 billion worth of contracts. Last year, if you 
include interagency agreements our contracting officers had to 
execute, we had well over $17 billion worth of responsibility 
in contracting.
    So what are some of the things we have done to address the 
concerns of the GAO report? I issued a memorandum to all the 
component heads talking about DHS service contracting best 
practices, risks, things to look out for and enforce in the 
contracting. We brought to the attention of Defense Acquisition 
University, who does the COTR training for all the Federal 
agencies, the importance of the OFPP Letter 93-1 that was 
mentioned in the GAO report to make sure that the COTR training 
is modified to include the specific risk areas.
    We are focusing heavily on the requirements piece, as I 
said earlier. We really think that is the true solution, to 
have good requirements so that we can increase our use of 
performance-based contracting, decrease the risk. We are doing 
work in the areas of organizational conflicts of interest, both 
in awareness and training, to ensure that when we have a 
blended workforce, as was stated earlier, a contractor sitting 
next to a government employee, that the risks and the nuances 
between that is recognized and managed.
    And we are addressing staffing, and that is a big thing. At 
least in the near future, we will continue to have what is 
classified as nearly inherently governmental services necessary 
to accomplish our mission, but we have to make sure that we 
have the in-house government forces in the program office as 
COTRs and in the contracting officers to make sure we 
adequately manage that risk.
    We are currently looking at all our major programs under a 
``Quick Look'' review to assess risk of those programs, and 
then we are going to prioritize and target the programs for 
what we are calling ``deep dives'' based on those Quick Look 
reviews and an assessment of risk. And that has started now, 
and we are about halfway through our Quick Look reviews.
    We are increasing the certification of program managers. We 
have acquisition career certification standards for 
contracting, COTRs, and program managers. And we currently have 
about 250 certified program managers. They are not all in the 
right jobs, though, and that is another thing we are working 
on.
    So these are some of the efforts we are working on within 
the Department. I would also like to point out that seven of 
the nine most troubling acquisitions in the GAO report are no 
longer active contracts, so we are working in the right 
direction in that regard, too.
    Mr. Chairman, Ranking Member Collins, I really thank you 
for the opportunity to address this important issue and look 
forward to your questions.
    Chairman Lieberman. Thanks very much, Ms. Duke. We will 
obviously have questions for you.
    The third witness, who we welcome now, is Professor Steven 
Schooner, Senior Associate Dean for Academic Affairs, Associate 
Professor of Law--that is quite a title.
    Mr. Schooner. Too many titles.
    Chairman Lieberman. You are a busy man. And Co-Director of 
the Government Procurement Law Program at the George Washington 
University School of Law. Before joining the faculty at GW, Mr. 
Schooner was the Associate Administrator for Procurement Law 
and Legislation at the Office of Federal Procurement Policy at 
the Office of Management and Budget. So he is extremely well 
qualified to offer expert testimony this morning, which we now 
welcome.

  TESTIMONY OF STEVEN L. SCHOONER,\1\ CO-DIRECTOR, GOVERNMENT 
 PROCUREMENT LAW PROGRAM, THE GEORGE WASHINGTON UNIVERSITY LAW 
                             SCHOOL

    Mr. Schooner. Chairman Lieberman, Ranking Member Collins, 
and Members of the Committee, I commend this Committee for its 
focus on improving the procurement process, and I support many 
of the initiatives in the current version of S. 680, 
particularly the Acquisition Workforce Human Capital Succession 
Plan. I concur with the GAO report, and I echo the three 
priorities that Ms. Duke articulated for her organization.
---------------------------------------------------------------------------
    \1\ The prepared statement of Mr. Schooner appears in the Appendix 
on page 58.
---------------------------------------------------------------------------
    You asked me to comment on the benefits, challenges, and 
risks of DHS' increased reliance on contractors, so let me 
begin by saying the key benefit is that using contractors 
avoids failure where the government lacks the ability and the 
resources to perform its mission. Contractors also provide 
surge capacity. They can add resources quickly, efficiently, 
and effectively, and contractors also permit agencies to 
quickly employ superior technology and better talent.
    But I do not suggest and I take issue with those who do 
suggest that a primary benefit of reliance on contractors is 
merely the potential for cost savings.
    Of course, extensive contractor reliance creates 
significant challenges. To use contractors well, agencies have 
to plan, which means they need to understand what outcome they 
want and accurately describe that to the private sector. They 
need to select appropriate qualified contractors in a timely 
fashion. They need to negotiate cost-effective agreements, 
draft contracts that contain effective incentives in order to 
maximize contractor performance. Agencies then must manage 
those relationships to ensure that the government gets value 
for its money.
    Against that backdrop, the risks of relying on contractors 
are constrained only by your imagination. If a contractor 
fails, the agency can fail. Contractor failures, just like 
government failures, can result in harm being inflicted upon 
the public, the government, or others. Of course, also at risk 
is loss of confidence in the government and always excessive 
expenditure of scarce public funds.
    Now, you also asked me to comment on the adequacy of 
current laws and regulations concerning the acquisition 
process. There is always room for improvement, but the legal 
and regulatory regime generally is adequate. The lion's share 
of DHS' and the government's acquisition difficulties result 
from implementation of the laws, regulations, and policies, and 
the root cause of that is an inadequate acquisition workforce.
    Now, let me digress. One area where the legal regime is not 
adequate is the government's rather chaotic reliance upon 
private security. As recent events involving Blackwater make 
clear, the risks in this area are particularly grave. The 
existing legal and regulatory regimes are inadequate to address 
them, and the government has waited far too long to address 
them in a thoughtful and responsible manner.
    Now, as my testimony suggests, I think it oversimplifies 
the problem to suggest that DHS currently is too dependent on 
contractors. It is distinctly possible that under different 
circumstances, an outsourced and privatized DHS might best 
serve the government's interest, but that debate--how much we 
should outsource--is simply irrelevant here. We rely on the 
private sector because we have restricted the size of 
government and, more specifically, the number of government 
employees. It is true that the Bush Administration did not mask 
its preference for outsourcing, but that initiative is a 
statistically insignificant percentage of the new service 
contracts we see.
    We have no short-term choice but to rely on contractors for 
every conceivable task that the government is understaffed to 
fulfill. For example, in Iraq, the military relies on 
contractors not only for transportation, shelter, and food, but 
unprecedented levels of battlefield and weaponry operations 
support and maintenance. DHS cannot simply consolidate its 
mission, jettison a number of the tasks, start terminating 
contracts, and take on only the missions that it is 
appropriately staffed to perform. Nor can it wait as it embarks 
upon an aggressive program to identify, recruit, hire, and 
retain an extraordinary number of civil servants. And, frankly, 
it is quite unclear whether there is political will to grow the 
Federal workforce as we need to do. It is going to take years 
for DHS to have a significantly larger and, most importantly, 
cohesive organization.
    So, accordingly, DHS has to acknowledge that it is, 
frankly, a hollow agency and do its best to achieve its mission 
with the resources available. One oft-criticized practice, the 
use of Lead Systems Integrators--one of the most relevant 
examples here was Deepwater--is a direct result of the human 
capital gap. Similarly, contractors will continue to perform 
what historically has been perceived as inherently governmental 
functions. That is acquisition support, engineering and 
technical services, intelligence services, policy development, 
and reorganization and planning.
    All of which brings us to the inescapable conclusion that 
the government must devote more resources to acquisition. This 
is urgent following a bipartisan 1990s congressionally mandated 
acquisition workforce reduction. No empirical evidence 
supported the reductions, and the sustained reductions and 
subsequent failure to replenish them created a full 
generational void and devastated procurement personnel morale. 
Simultaneously, the government skimped on training, and 
contracting officers were facing increasingly complex 
contractual challenges. In addition--and this is critical--
despite the explosive growth in the reliance on service 
contracts, no emphasis was placed on retaining or obtaining 
skilled professionals to plan for, compete, award, or manage 
sophisticated long-term service contracts.
    The dramatic and now sustained increase in procurement 
spending since the September 11, 2001, attacks exacerbated an 
already simmering workforce crisis. Congress has been quick to 
call for more auditors and inspector generals to scrutinize 
contracting, and that is responsible. But the corresponding 
call for more contracting experts to proactively avoid the 
problems has been both delayed and muted. The workforce today, 
understaffed, underresourced, and underappreciated, desperately 
requires a dramatic recapitalization.
    We not only have too few people to do the work, many of the 
people we have lack the necessary qualifications. We need 
business-savvy professionals to promptly and accurately 
describe what the government wants to buy, identify and select 
quality suppliers, ensure fair prices, structure contracts with 
appropriate monetary incentives for good performance, and then 
manage and evaluate the contractors' performance.
    The Acquisition Advisory Panel report appropriately 
acknowledged, while the private sector invests substantially in 
a core of highly sophisticated, credentialed, and trained 
business managers, the government does not make comparable 
investments. It is a mistake. But acquiring that talent is not 
going to be easy. Senior procurement officials today 
increasingly bemoan that no young person in his or her right 
mind would enter government contracting as a career today.
    Let me wrap up with a symptom of the current acquisition 
crisis: The increased reliance on personal services contracts.
    Now, DHS already enjoys greater authorities than most 
agencies in that regard, but the longstanding prohibitions 
against personal services contracting have become dead letter. 
We have witnessed an explosive growth in what we refer to as 
``body shop'' or ``employee augmentation arrangements.'' As the 
name implies, the government uses these contracts to hire 
contractor personnel to replace or supplement civil servants or 
members of the military. This is the antithesis of the 
government's preferred approach, known as ``performance-based 
service contracting.''
    The worst-case scenario is where contractors work under 
open-ended contracts without guidance or management from a 
responsible government official, typically facilitated by an 
interagency contracting vehicle. Civil servants work alongside 
and at times for contractor employees who sit in seats 
previously occupied by civil servants. Unfortunately, no one 
ever stopped to train the government how to operate in such an 
environment, which we commonly refer to as a ``blended 
workplace.'' In addition to the potential conflicts of 
interest, the other human capital issue is that if we are going 
to try to attract and retain a qualified workforce, DHS may 
find it increasingly difficult to articulate why an individual 
should come and work for DHS rather than its contractors. This 
is particularly problematic where contractors use incentives, 
such as raises, bonuses, training opportunities, travel and 
entertainment, to reward their top talent. This is particularly 
troubling now that the market for talent is increasingly 
global, and we see, for example, a global shortage of 
engineers. Serious, long-term, far-reaching personnel reforms 
are needed to reverse the trend.
    So let me conclude by saying I agree with many of GAO's 
recommendations, but I am not optimistic that DHS can fully 
implement them. Yes, there is no higher priority for heavily 
outsourced agencies such as DHS than to assess program office 
staff and expertise necessary to provide sufficient oversight 
of its service contracts. DHS should assess the risks of 
relying on contractors as part of the acquisition process. And 
while DHS may have no choice but to rely on those contractors, 
the discipline will help control the risks. Surely, any 
additional energy devoted to acquisition planning will pay 
dividends during contract performance.
    But, in closing, let me be clear. More than 15 years of 
ill-conceived underinvestment in the acquisition workforce 
followed by a governmentwide failure to respond to a dramatic 
increase in procurement activity has led to a triage-type focus 
on buying with insufficient resources available for contract 
administration, management, or oversight. The old adage we all 
learned in kindergarten--``An ounce of prevention is worth a 
pound of cure''--rings true. A prospective investment in 
upgrading the number, skills, and morale of government 
purchasing officials would reap huge dividends for the 
taxpayers.
    I thank you for this opportunity, and I would be pleased to 
answer any questions.
    Chairman Lieberman. Thanks, Mr. Schooner. I have a very un-
senatorial response to your testimony, which is, ``Bingo.'' 
[Laughter.]
    You have made the case very well. I serve, as other Members 
of this Committee do, on the Armed Services Committee. I 
happened to have the privilege over the last several years of 
being either chair or ranking member of the Airland 
Subcommittee. The U.S. Air Force has had terrible acquisition 
problems, some cases of fraud--and, of course, some people have 
gone to jail--and also cases of waste and illogical judgments 
made. And you just come back to the fact that as the demand for 
acquisition went up, the acquisition workforce at the Air Force 
went down, and we are paying for it. So I think you state the 
case very well on that ultimate point, and I thank you for it.
    Do you think we are contracting out too many professional 
and management services in DHS or in the Federal Government 
generally?
    Mr. Schooner. In the short term, no, I honestly do not 
believe we have a choice. In terms of the long-term best 
approach for government, I do not think that there is any way 
for the government to maintain the institutional knowledge 
necessary for the government to make good long-term decisions 
if we, in fact, cede all of this authority to the private 
sector.
    Chairman Lieberman. Understood. And you say in the short 
term, no, and generally speaking--I presume that you are not in 
a position to comment on every private contract let out. 
Generally speaking, you think the private contractors are 
actually carrying out responsibilities that the various 
departments have to carry out.
    Mr. Schooner. Absolutely. I think it is just a common 
reflection of the fact that we have hollowed out the 
government, particularly among the most knowledgeable, skilled, 
and talented people that we need to rely on the most.
    Chairman Lieberman. And you said quickly in your testimony, 
but it is relevant here, that you do not believe that cost 
savings is a justification for private contracting. And I take 
it you meant that not only in the broader sense of 
institutional knowledge, but you are skeptical that we actually 
save money when we private contract out. Am I right?
    Mr. Schooner. I think the latter part of that is more 
accurate. What I was trying to communicate is I do not believe 
the primary justification for relying on the private sector 
should be cost savings alone. It troubles me when I hear people 
say that all that matters is the marginal dollar. The most 
compelling arguments for relying on the private sector are if 
you need surge capacity, if you need quality or talent that is 
not available to the government in the short term. The private 
sector can make the government better, more flexible, and more 
potent, but chasing only the marginal dollar, worrying about 
whether it is cheaper, does not make sense.
    Can I offer you a brief analogy or an example? If we look 
at the reliance on private contractors providing support for 
the military in Iraq, we could focus on whether it costs more 
or less than what the Army used to spend to take care of the 
people in the military.
    Chairman Lieberman. Right.
    Mr. Schooner. But the bottom line is if you bring in a 
contractor who can more quickly provide hot meals, showers, 
clothing, and a general quality of life to our troops, I am 
willing to pay more for that, and I believe the public is, too. 
So the marginal dollar is not the issue. The question is can 
they effectively provide a service that the government cannot 
do as presently constituted?
    Chairman Lieberman. OK. Then notwithstanding that, let me 
turn to you, Ms. Duke, and ask: Just looking at all of the 
contracts that Mr. Hutton has cited in his report on DHS, and 
actually noting that you have said that seven of the nine 
troublesome, inadequate, questionable contracts that the GAO 
report cites are no longer in existence, don't you think that 
the Department of Homeland Security is contracting out too many 
services now?
    Ms. Duke. I think it is an issue that we are looking at, to 
be honest. I think that you have inherently governmental 
services, and if you look at what is inherently governmental 
and what is commercial, they are very similar. One is deciding 
on the budget; the other is assisting with budget development. 
And so we are systematically looking through the numbers, 
contract renewal by contract renewal, to make sure that we do 
have those core competencies within the Department of Homeland 
Security. So when we do execute this inherently governmental 
function, such as signing a document, we have the knowledge to 
know what we are signing. It is not an administrative exercise. 
I think that is very important.
    Chairman Lieberman. OK. But I take it from your opening 
statement that you do believe--and you have come in relatively 
recently as the CPO--that the Department of Homeland Security 
is not exercising adequate oversight of these contracts, 
including particularly, if I heard you correctly, the initial 
requirements decision. In other words, is this something we 
want to contract out?
    Ms. Duke. I think that deciding if we are going to contract 
it out and clearly defining the requirement are the two up-
front actions that we need to focus on to manage risk. After it 
is awarded, what we need to focus on is making sure that the 
right COTRs, who are the ones that accept the services and 
monitor the services, that the right people are in place in the 
right numbers, in addition to the contracting officers. So I 
think there are actions on both ends of the timeline.
    Chairman Lieberman. Let me ask you finally in this round 
about competition for the contracts. In OMB's latest review of 
major agencies, the Department of Homeland Security actually 
ranks first--or last, depending on your point of view--in terms 
of the percentage of contracts entered without full and open 
competition. That means you are No. 1 in most of them. In fact, 
51 percent of DHS' contracts last year were awarded without 
full and open competition.
    I noted in your opening statement you cited fiscal year 
2007 numbers that put that number down to 35 percent--I believe 
that is correct--and that is an improvement, which I 
appreciate. But it still says that more than a third of the 
contracts, which involve billions of dollars, are being awarded 
without open competition. And, of course, this not only creates 
the risk that the Department does not get the best value for 
the taxpayers' money, but the perception and possible danger of 
a coziness between the Department and the contractors that will 
undermine confidence, both here in Congress and in the public, 
in the Department's work.
    So are you concerned about the questions that I have just 
raised? And if so, what steps are you taking to increase 
competition hopefully to as close to 100 percent as you can get 
it for contracts at DHS?
    Ms. Duke. I am always concerned about competition. That is 
one that, regardless of how high we get, we are not done yet. 
Competition clearly is the basis of our economy, and it works.
    Some of the steps we are taking is, I think, better 
defining the requirements, like I said earlier. We have 
instituted competition advocates with each of the components 
that are reviewing all the sole-source actions within the 
operating components of DHS so that we can look at these one by 
one. We have bolstered our acquisition planning so we get 
reports up front what people are planning on doing in the next 
fiscal year in addressing those.
    The other thing I think we have to do is systematically 
look at urgency. One of the things Mr. Schooner mentioned is we 
should not singularly look at cost. I really think that you 
have cost, you have schedule, and you have performance. And if 
any one of them is out of balance, then you really are going to 
get a poor result. And I think that because of the urgency in 
which DHS was started and then when Hurricane Katrina hit mid-
time between our beginning and current, an overreliance on the 
impact of schedule, which in essence minimizes the importance 
of competition, and so we have to get that back in balance.
    Chairman Lieberman. OK. My time is up. I take your answer 
to be that 51 percent of contracts awarded without full and 
open competition was unacceptable to you.
    Ms. Duke. Yes
    Chairman Lieberman. You got it to 35 percent, and I take it 
that your goal is to get it as close to zero percent as you 
can.
    Ms. Duke. Yes, sir.
    Chairman Lieberman. Thank you. Senator Collins.
    Senator Collins. Thank you, Mr. Chairman.
    Ms. Duke, let me pick up exactly where the Chairman left 
off because I, too, am very concerned about the Department's 
reliance on other than full and open competition.
    After Hurricane Katrina hit, the Department awarded four 
noncompetitive contracts to help with installing temporary 
housing throughout the Gulf Coast. Originally, each of these 
contracts had a ceiling of $500 million.
    Now, there may have been an initial justification to award 
noncompetitive contracts using the urgent and compelling 
exception under the Competition in Contracting Act. So I am not 
questioning that initial decision. What I am questioning is 
why, instead of competing the contracts later, they were, in 
fact, just extended. The ceiling for one of the contracts went 
from $500 million to, I think it was, $1.4 billion.
    Do you think that the Department should take a look at the 
duration of noncompetitive contracts when the urgent and 
compelling exception to competition is employed?
    Ms. Duke. Yes, I think the duration is important. With the 
specific Hurricane Katrina circumstance, the issue was there 
were many actions. We were not prepared in a contracting 
response in general, so those contracts were one of many 
problems where we had urgent issues, and so it did take longer 
to recompete those than it should have. But I do support having 
some restrictions on the length of an initial urgency 
justification in situations like the one you are speaking of.
    Senator Collins. And that is a provision of our bill as 
well.
    When I look at the Department, in addition to the FEMA 
contracts and the problems there, the other area that troubles 
me greatly is the Coast Guard's Deepwater contracts. I am such 
a strong supporter of the Deepwater program, I know firsthand 
of the need to recapitalize the assets of the Coast Guard. But 
there is no doubt that the entire acquisition procurement 
process for the Deepwater program was a disaster. And it led to 
cutters having to be scrapped. It led to the waste of millions 
of dollars, dollars that the Coast Guard desperately needs for 
new cutters that work and for new helicopters.
    Could you give us your analysis of what went wrong with the 
Deepwater program and what is being done now to get it back on 
track? It seems to me a fundamental thing that went wrong is 
that the Coast Guard just lost control of the program by 
putting too much responsibility on the contractors.
    Ms. Duke. The commandant, Admiral Allen, and I are aligned 
on many things. One of them is the accountability that we have 
when we are appropriated funds, and we believe that we maintain 
the accountability for that. We do believe in partnership with 
the contractor, but that means an effective working 
relationship. It does not mean transferring responsibility or 
accountability. And that is the primary function and the 
cultural change that is going to improve the continued 
administration of the Deepwater program.
    Some of the things that have been done is the blueprint for 
acquisition reform; we have put some key senior executives in 
those programs and flag officers that have significant 
shipbuilding experience. We moved a senior executive from my 
office to head contracts for the Coast Guard, who has a 
significant career with Naval Sea Systems Command to see that 
expertise. She does have to build a staff with the same 
expertise, but that is key. A senior executive for the 
Deepwater program has been selected, as well as one to be a 
deputy to Admiral Blore.
    Those key positions are important, especially on the 
civilian side, to make sure that this attitudinal change 
continues into the future and does not change with change of 
military members.
    I think the other area that we have improved the Deepwater 
is the alternatives analysis that is ongoing. It is a pause 
point for the Coast Guard to reassess. It had a major change in 
mission post-September 11. This is a pause point to really look 
at the mission need and do a true look at the alternatives and 
what major assets are needed to fulfill the Coast Guard's 
mission in the future.
    Senator Collins. Thank you.
    Chairman Lieberman. Thanks very much, Senator Collins. 
Senator McCaskill, good morning.

             OPENING STATEMENT OF SENATOR MCCASKILL

    Senator McCaskill. Good morning. Thank you, Mr. Chairman.
    Mr. Hutton, when you all were there--did you have any sense 
of how many of these contracts are definitized in terms of an 
appropriate level of the standards at GAO in terms of what is 
being asked? What percentage of these things are like a LOGCAP 
where we said, hey, tell us what we need and when we need it, 
and by the way, it is cost-plus so you tell us how much it is 
going to cost? How much of that is at DHS similar to what we 
have seen in----
    Mr. Hutton. I think of the ones that we drilled down in, 
there were several that were basically off of the GSA 
schedules. There are others like the Information Analysis and 
Infrastructure Protection Directorate contract. That was one 
that started with a fairly narrow scope. I think that was 
probably back in 2002 or 2003, but it was off of VA--they 
provided assistance, and they went off of GSA's schedule. But 
in that issue, you found that the requirements just expanded. 
Initially, I think the contractor had expectations to do a few 
things, but over time more and more things were added to their 
areas of services to be provided.
    But in terms of undefinitized contract actions, I could 
look at that for you, but I do not recall that being an issue, 
say, such as what work we might have done in Iraq where you saw 
that happening a lot.
    Senator McCaskill. Right.
    Ms. Duke, are there more contractors working at DHS now or 
at this time last year?
    Ms. Duke. I do not have information about the specific 
number of contractor employees, but in terms of percentage of 
dollars, there are slightly more in our current 2007 numbers 
than were in 2006.
    Senator McCaskill. Well, that is what I am really worried 
about. Because I think that we had a great excuse to take a 
short cut, because you all were stood up as a new Department 
and everyone understood the need for urgency and quick movement 
and everyone understood that you did not have the people on 
staff, a Federal employee workforce was not available for some 
of these functions.
    But the problem is that was at the beginning. Well, we are 
not at the beginning anymore, and it seems to me, what I have 
looked at, it just keeps growing, that there is absolutely no 
attempt, particularly in the area of overseeing the overseers. 
You have a number of contractors that have oversight 
responsibility, and the ones that bother me are the contractors 
that are overseeing companies that they work for. So it is 
incestuous.
    You have Booz Allen Hamilton who works for Boeing, who is 
now overseeing Boeing on the Secure Borders Initiative 
(SBInet). And when you have overseers that are supposed to be 
providing the government assurances that the work is being 
done, and the people they are checking on are also the people 
they work for, that is not a good business practice. I mean, 
that is an audit finding, is what that is.
    Can you speak to this phenomenon that you have where you 
are hiring people to perform the oversight function and they 
are overseeing people that they need in business relationships?
    Ms. Duke. Well, I think the core issue, again, is keeping 
inherently governmental the true oversight in Federal 
employees. That is clear and that is the way we have to go.
    In terms of some of the measures we have taken, for 
instance, in our EAGLE contract, which is our big DHS IT 
contract that we expect to probably have about $6 billion worth 
of work a year anticipated, we have a separate group, and if 
you are going to be doing independent verification and 
validation, meaning giving a third-party objective look, if you 
are in that category of EAGLE, you cannot bid on any actual 
work performance. So that is making a clear line. It is not 
leaving potential organizational conflicts of interest up to 
individual legal interpretations. It is saying if you are doing 
this, you are not doing performance.
    In the specific area of the SBInet, I did look into that 
because it was brought to my attention, and from a purely legal 
standpoint, Booz Allen is not overseeing. They are supporting 
the contract office. But I do understand, Senator, the issue 
that you bring in terms of appearance to not only our oversight 
but to the American people, and that is something we are 
looking at.
    So I really think what we have to do is we have to go 
program by program--I do not think there is a ratio. I do not 
think it is one in four. But we have to program by program look 
at the risk and make sure we have the right number with the 
right skills of government people dedicated to overseeing these 
contracts and manage them.
    Senator McCaskill. Well, the trend needs to go the other 
way than the way it is going, and I just want to close. I have 
some questions I want to ask on the record that I will have to 
submit, but I want some response on the DHS data breaches and 
the problem that is a very large contract. And I am concerned 
about these DHS data breaches, particularly because of the 
Chinese connection.
    But as my time is slipping away, I want to mention a 
comment from the DHS officials about this issue of the use of 
contractors. And one of the things is tightening acquisition 
training and requirements on contractors. The DHS spokesman 
said that part would be very difficult to achieve. Now, let's 
think about that--tightening acquisition training and 
requirements on contractors. There should be no uncertainty 
about our appreciation to be a good steward of taxpayer 
dollars, but this objective will be very difficult to achieve, 
and it is far too early to place a progress or a timeline on 
completion.
    Acquisition training and requirements on contractors, that 
is such a difficult goal that we cannot even talk about when we 
might be able to get it done? I think that is what makes the 
taxpayers shake their head and kind of go, ``Huh?'' How can we 
not accept that tightening requirements on contractors and 
acquisition training? I would like the Department to take 
another run at that as to what steps they are taking and can 
take immediately. I mean, we are not talking about completely 
changing out your workforce. We are talking about a core 
competency of government. And the idea that we cannot even put 
a timeline on completing it--when I read that in the paper this 
morning, I kind of went, well, that is a problem.
    So I would like someone to take another look at whether or 
not we cannot tighten acquisition training and requirements on 
contractors at some time without saying we have no idea when we 
would be able to do that. Thank you.
    Chairman Lieberman. Thanks, Senator McCaskill.
    Mr. Hutton, let me go to one of the examples that we cite 
just to elucidate our discussion with a little detail. I am 
speaking of the $42.4 million task order to support the DHS 
Information Analysis and Infrastructure Protection Directorate. 
The order included 58 tasks for the contractor to perform and 
support for over 15 program offices and 10 separate 
Directorate-wide administrative efforts. It was big. And as I 
indicated in my opening statement, there was only one DHS 
employee to serve as a technical representative to provide 
oversight.
    So let me ask you to step back and tell the Committee what 
in that case, in the best of all professional worlds, should 
DHS have done differently.
    Mr. Hutton. OK. That is a great question because the way I 
look at it, first of all--we have all been talking that there 
are times when there may be no way to meet an urgent mission 
need with existing resources, maybe even across the enterprise, 
and a decision is to go with a contractor.
    At that point, though, as part of the acquisition planning 
process, I think one would want to start thinking about, OK, 
what specifically do we need this contractor to do? What types 
of activities? How do those activities translate to types of 
services that closely support inherently governmental?
    If they do, what kind of oversight do we need, what kind of 
expertise do we need to ensure that the contractor is not 
performing inappropriate activities and that the government is 
able to maintain their independence and their decisionmaking?
    I think, Senator McCaskill and Senator Collins, you 
mentioned as well about urgent and compelling and the nature of 
that. I would argue that if that is the justification, at that 
point you probably already need to be starting to think ahead. 
What are you going to do? Because the initial contract will not 
go on forever. And yet I think you need to start thinking about 
where do we want to go with this? Do we want to continue to use 
a contractor? If we do and we feel we have to, then what kind 
of process are we going to put in place to make sure that we 
have a competition because competition is a bedrock, I think, 
ultimately to get the best possible service.
    I would just say that, to me, a lot of it is the front-end 
acquisition planning.
    Chairman Lieberman. Would you say that just self-evidently 
it was too big a contract? Or might there have been 
justification for having an umbrella contract that large?
    Mr. Hutton. Well, Senator, it is a hard thing because, as I 
mentioned earlier, it appeared that the types of activities 
that the contractor undertook kind of evolved over time. And so 
that was not an intended outcome, I do not believe, at the 
outset. That again, I believe, takes you back to more 
strategically where do we want to go with a contractor for 
providing these types of services.
    Chairman Lieberman. How about the oversight that should 
have been there from the Department in the best of all worlds? 
Let us assume that the contract was executed as it was. 
Presumably, one employee was not enough.
    Mr. Hutton. No, sir, and this is an issue that is just 
across government. Mr. Walker has been up here talking about 
systemic acquisition issues.
    Chairman Lieberman. Right.
    Mr. Hutton. And the policies require, what expertise do we 
need? If you assess the risk and you think about the 
vulnerabilities to the government decisionmaking, that is when 
you start thinking, what is the expertise of folks we need to 
ensure that the contractor is performing as required and that 
we are protecting the government's interests? It may be several 
people. It may be six people. But you have to go through that 
calculus, that thought process.
    Chairman Lieberman. Let me ask you to speak for just a 
moment or two in response to the general questions that I asked 
the two other witnesses in the first round. You are the GAO 
expert here. Why is there so much more contracting for services 
now than before? Is there too much? And if so, why?
    Mr. Hutton. To say whether it is too much, we do not really 
have criteria for that. You would have to look at it on a case-
by-case basis. But I do point out, Senator, that GAO has done 
some work looking at service contracting in a broad sense. And 
in that report we talked about the need to look at it from a 
strategic level, the enterprise-wide level, as well as the 
transactional level. And I think a lot of the things that we 
are talking about today were more at the transactional level, 
individual decisionmaking on a particular need, how do you meet 
that requirement.
    But when you loop back up to the strategic level, you need 
to have certain processes. You really need to know what you are 
buying, what kind of services are you buying, what are the 
contractors doing, and you have got to start thinking about 
where do I want to end up 5, 10 years from now. Do I want to 
have these types of services provided by contractors, or do I 
want to have a different mix? And how do I get there?
    Chairman Lieberman. Is it fair to assume that you agree 
with what Mr. Schooner said about the urgent need to improve 
and expand the Federal Government's acquisition workforce?
    Mr. Hutton. That is an issue that the SARA panel brought 
up. As you mentioned yourself, we are looking at it for DHS. I 
do not have any information that would be able to make that 
generalization, but I do point out there are even fundamental 
issues as to what do we mean by acquisition officials. There 
are different definitions out there. So how do you get a handle 
on that across all the different government agencies? And I 
think you would find it is probably a case-by-case situation. 
There may be some agencies that will not cross the line and use 
a contractor for a certain type of acquisition support, while 
others may. And I think that is where, again, the agency focus 
on what they are buying with these services and do they want to 
have the contractor perform certain ones or not.
    Chairman Lieberman. Generally, do you reach a judgment on 
the question of whether we save money when we contract out 
professional management services as opposed to spending more 
money than we would if the Federal employees did it?
    Mr. Hutton. That would be a hard generalization to make 
because, again, it is just case by case.
    Chairman Lieberman. OK. My time is up in this round. 
Senator Collins.
    Senator Collins. Thank you.
    Professor, you raised an interesting point, which I am 
going to ask Mr. Hutton about shortly, about whether there are 
shortages not just in the procurement workforce, which I think 
is widely accepted as being at risk right now, but generally 
across the Federal Government causing us to rely on private 
security firms in Iraq, to use your example, but also raising 
questions about inherently governmental functions being 
contracted out.
    Based on what you have seen, if we were to strictly enforce 
the inherently governmental requirement, would we see a massive 
expansion in the Federal workforce? Is it even possible to do 
that?
    Mr. Schooner. Let me take that on in two parts.
    First, you would have to experience a massive increase in 
the size of government if we are only doing government 
personnel head count, or you would have to restrain the 
ambition and the commitments of the Federal Government. You 
cannot really do both.
    I find it remarkable--and, again, this has been a 
bipartisan move. The public is very enamored with the concept 
of small government, and it is one of the reasons why I think 
Paul Light's work on shadow government is so important. It has 
been consistently represented in the annual budgets that the 
government is small, the line I always like, ``the smallest 
administration since the Kennedy administration.'' But we all 
know that government's reach is expanding, the amount of 
expenditure is expanding, the tasks that government takes on, 
the services that it hopes to provide for the public. 
Government has grown, but we have artificially constrained the 
size of the government. Maybe today there is no more example of 
how acute this problem is than the troop strengths we have 
placed on the military, and it has a direct result being that 
we have more contractors supporting the military in Iraq right 
now than we have members of the military and, more 
specifically, we have an extremely disconcerting number of 
arms-bearing contractors in the operational theater that do not 
necessarily work for the government, do not necessarily speak 
the same language, and, frankly, do not like each other. And 
that has to concern you not only if you are a member of the 
public but if you have any military experience whatsoever.
    Senator Collins. Mr. Hutton, based on the work that you 
have done generally, are agencies and departments essentially 
winking at the requirement that they are not supposed to 
contract out inherently governmental functions?
    Mr. Hutton. We do not have any indication, even in our 
drill downs. To be able to actually demonstrate that a 
contractor is performing an inherently governmental function 
oftentimes means that you have to show that the contractor 
actually made the decision and that the government really did 
not have any knowledge, did not have any understanding of the 
issues, and basically rubber-stamped. That is a very hard thing 
to do.
    To say that there is perhaps a winking at it, we did not 
get any indication of that case, but we do have serious 
concerns because, as we have all been talking here, there are 
more and more service contracts in government and they are 
performing many more services than they may have done in the 
past, perhaps for some of the reasons that Mr. Schooner 
mentions. But the key is, though, is this just happening or is 
it a managed outcome. I think it is just happening. And I think 
through some of the work that we have done in the service 
contracting more broadly, where we are advocating looking at it 
from a strategic as well as a transactional standpoint, is one 
vehicle and one way to help agencies get a better handle on 
what it is that they are actually requiring and what is the 
best way to fill that need.
    Senator Collins. Professor, I want to go back to the issue 
of the enormous noncompetitive contracts that were awarded in 
the wake of Hurricane Katrina. Do you think it is possible for 
DHS to plan for the unexpected--in other words, to have on-the-
shelf contracts that would be pre-negotiated, that if a storm 
hits, DHS could take those contracts, fill in the terms, make 
them specific? Is there a way around awarding huge 
noncompetitive contracts every time a disaster strikes? It 
seems like there ought to be. Even if you cannot define 
precisely where the storm is going to hit or how much 
assistance is going to be needed, isn't there a way to prepare 
contracts in advance?
    Mr. Schooner. I think the short answer is it is 
unequivocally feasible to create contingency contracts for 
almost any conceivable or even the inconceivable contingency. 
So you can plan for things. You can have a contractor in 
reserve ready to provide whatever it is you need--water, body 
bags, portable housing.
    But I think that the important thing to keep in mind is 
once the realm of what is feasible grows and you begin planning 
for contingencies past a certain point, the risk you run is 
that by pre-purchasing surge capacity, you are going to end up 
paying a very high premium for that. And, again, we get into 
some extremely complex economic arguments as to how many 
supplies need to be pre-positioned, what the capacity needs to 
be on hold, and what you have available because that costs the 
private sector money. And if we want it, we have to pay for it.
    Senator Collins. Ms. Duke, do you have any comments on this 
issue?
    Ms. Duke. I think it is not only possible, but it is 
necessary. And we have done a lot of work with FEMA since 
Hurricane Katrina in having pre-positioned contracts.
    The pre-positioned contracts or the in-place contracts are 
often national and large. I do think it is important to, as 
soon as possible, move to local contracts under the Stafford 
Act to revitalize the economy. But I do think that is 
important, and we have done a lot of work in that area.
    I also think the people issue and knowing how to deal with 
contingency operations--I know your proposed bill has an issue 
in it about contingency contracting officers, and we started 
that under the Office of Federal Procurement Policy Working 
Group that I co-chair. I think that is important to have the 
people that know how to use these pre-positioned instruments.
    Senator Collins. Thank you. I think having, as our bill 
proposes, a contingency corps of contracting officers who can 
be brought together from different agencies to help in an 
emergency would greatly increase the quality of contracts and 
allow for this surge approach. So I appreciate your comments on 
that as well.
    Thank you, Mr. Chairman.
    Chairman Lieberman. Thanks, Senator Collins. This hearing 
is not about the Blackwater situation or private security 
contractors, but while I have this expertise in front of the 
Committee, I do want to ask a couple of questions that will be 
immediately helpful, but also will guide us as to whether there 
is a constructive role this Committee can play in oversight, 
investigation, etc.
    Professor Schooner, let me start with you. You said, 
generally speaking, that you thought with regard to procurement 
that current laws were adequate, but their implementation was 
not, but that you did believe, if I heard you correctly, that 
some of the laws in the area of the government's use of private 
security contractors are insufficient. And I wanted to ask you 
to elaborate on that, if you would, and indicate whether you 
have specific areas of concern that you believe the Committee 
might constructively assess.
    Mr. Schooner. The short answer is yes, and if you will 
indulge me for just a moment, let me begin first with the legal 
regime, which is, at best, confusing and, at worst, inadequate.
    Chairman Lieberman. By legal regime here, what do you mean?
    Mr. Schooner. I am including the fundamental laws that we 
know, for example, the Uniform Code of Military Justice (UCMJ); 
Military Extraterritorial Jurisdiction Act (MEJA); the 
conventional approach that we take on these matters, which is a 
Status of Forces Agreement (SOFA); and then, of course, we also 
have the General Order 17 in Iraq, which complicates this all 
the more. But the bottom line is many of our arms-bearing 
contractors in Iraq fall into a vacuum, and to the extent that 
Congress has now repeatedly attempted to fix the legislative 
vacuum, we do not have the precedent and we surely do not have 
the regulatory structure in place to ensure that those legal 
regimes are going to work.
    A very important issue here is that there is a tremendous 
amount of expertise in terms of dealing with contractors in 
varying industries, but the government did not have that 
expertise in place at September 11, 2001. No one planned for 
the dramatic increased reliance on arms-bearing contractors. 
And we simply do not have sufficiently sophisticated 
regulations or policy in place for them.
    That process has begun, but, for example, the private 
security industry has been screaming for years, I think 
appropriately, begging to be regulated, begging to have quality 
standards in place. We should have an ISO that specifically 
indicates what we expect the credentials and qualifications of 
private military to be. Now, once we set those standards, we 
may be disappointed to find that many of the contractors we are 
relying on do not meet them.
    Then the last point on this--and I think this is the 
inherently obvious part of it--is that to the extent that we 
are using private military, all of the other acquisition 
workforce problems come to bear. We did not have the time to 
write the best possible contracts, and, therefore, the 
government has not always clearly communicated to the 
contractors what is particularly important and how they want 
their behavior to be constrained. And then the next part of 
that is we do not have sufficient people in place, in theater, 
to manage those contractors effectively once the contracts have 
been awarded.
    Chairman Lieberman. Let me ask you the prior question in a 
way, the baseline question, and I know you had experience in 
the military as well as your extensive procurement experience. 
And let me ask it with an edge to it. Isn't it an inherently 
governmental responsibility to provide arms-bearing security 
personnel in a war zone? In other words, is it appropriate to 
contract out such services?
    Mr. Schooner. It is a little bit more complicated, but let 
me give you what I believe the easiest answer first. I am very 
comfortable with a doctrine that says that government shall 
have a monopoly over the use of force. But as we all know from 
our experiences, there is any number of static security 
functions that contractors can do. Whether you want to call 
people rent-a-cops or the kind of people that provide security 
at the gates to military installations, that is all fine. But 
we used to be quite confident or comfortable with a doctrine 
that said private contractors do not engage the enemy in 
combat. And that is the line that is blurred. And where we see 
it as an extremely complicated issue is when we have a fuzzy 
battle area, where it is not so clear where the lines are 
drawn.
    Put yourself in the shoes of the military commander on the 
ground in Iraq, knowing that there are tens of thousands of 
people who are theoretically on our side, bearing weapons, who, 
first, do not necessarily work for the military commanders and 
do not even necessarily work for the military commanders' 
agencies or do not even work for the government because the 
largest population of arms-bearing contractors in Iraq are 
contractors that work for other contractors and do not even 
have a contract with the government.
    Chairman Lieberman. Right. In other words, the contractor 
providing food, for instance, or servicing of vehicles will 
retain private security guards to protect his personnel.
    Mr. Schooner. Absolutely.
    Chairman Lieberman. There is a story in the papers today, 
attributed to Secretary Gates, suggesting that he may have 
raised the question of whether all the private security 
personnel in military theater should come under Department of 
Defense control or oversight. What do you think about that?
    Mr. Schooner. I think that it is a solution. I do not think 
that it is a satisfactory solution, and I am not convinced it 
can be implemented in the short term. Let me just give you a 
simple explanation on that.
    I am very comfortable that anyone in uniform over there 
would much rather have all of the contractors under the thumb 
of the military because, again, it empowers the military 
commander.
    Now put yourself in the shoes of the State Department. One 
of the reasons that Blackwater is so exposed and has so raised 
the ire of the Iraqi people is they are not providing static 
security. They are guarding the most attractive targets that we 
have placed in the most dense urban environment, which is also 
the hottest area on the ground there. I am quite confident----
    Chairman Lieberman. Right, our State Department personnel 
and visitors, for example.
    Mr. Schooner. Sure, and the Ambassador and folks like 
yourselves. But I am quite confident the State Department does 
not want to be told by the military when they can and cannot 
move the Ambassador, where they can hold meetings, and the 
like. It is perfectly reasonable for the military to say, ``If 
we keep the Ambassador inside the protected area, he or she 
will not be harmed.'' Well, that is not the way the State 
Department operates.
    Chairman Lieberman. I am just going to take a quick moment 
on this. I am interested, Mr. Hutton, based on your extensive 
work experience in contracting oversight, whether you have 
anything to add to this discussion from a GAO historical 
perspective of the oversight of private security contractors in 
war zones.
    Mr. Hutton. Well, GAO has done work on oversight of 
contractors 10 years ago, back in the Balkans, but also more 
recently in Iraq, but Iraq is where you really see the heavy 
use of private security contractors. But in doing that work, we 
pointed out back in 2005 that there were obvious coordination 
problems between the military and the private security 
contractors, particularly in the early stages where a lot of 
those contractors were working more as it relates to the 
reconstruction and the civilian side of things. And so 
coordination was a big issue.
    Also, we looked at the fact that when units were going 
over, they were not getting insight and training and 
understanding or guidance as to how you work with the PSC, and 
that was pointed out as a particular issue.
    We are looking at private security contractors right now. 
We have some work just getting underway. And, one, we are 
looking at are the PSCs properly trained and vetted. We are 
looking at what are the processes in place to ensure that there 
is accountability over the actions of the employees. And we are 
looking at some cost issues as well. But it is a very 
interesting question.
    Chairman Lieberman. I appreciate it, and Senator Collins 
and I are going to be talking about whether there is a 
constructive role for a hearing or some oversight on this 
specific question of private sector security contractors in war 
zones.
    Senator Collins, do you have other questions or final 
comments?
    Senator Collins. No. Thank you.
    Chairman Lieberman. I want to thank the witnesses. I want 
to thank you, Mr. Hutton, for another excellent report.
    Ms. Duke, it is obvious that this is a tough report and it 
is a critical report about DHS. You have the benefit of coming 
to this Chief Procurement Officer position relatively recently. 
Senator Collins and I never want to play a ``gotcha'' game 
here. We really believe in the Department, and we want to work 
together with the personnel of the Department to make it work.
    This report is troublesome, and I hope you will respond to 
it with the attitude that I saw here today, which is that you 
have some work to do as the Chief Procurement Officer to make 
this situation of contracting at the Department of Homeland 
Security a lot better, more competitive, and with more 
oversight than exists today. Thank you very much.
    The hearing record will remain open for 15 days for 
additional questions or comments from the witnesses. Again, I 
thank you.
    The hearing is adjourned.
    [Whereupon, at 12:05 p.m., the Committee was adjourned.]


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