[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                         [H.A.S.C. No. 111-44] 

             MEASURING VALUE AND RISK IN SERVICES CONTRACTS 

                               __________

                                HEARING

                               BEFORE THE

                  PANEL ON DEFENSE ACQUISITION REFORM

                                 OF THE

                      COMMITTEE ON ARMED SERVICES

                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD

                             APRIL 23, 2009

                                     
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                  PANEL ON DEFENSE ACQUISITION REFORM

                  ROBERT ANDREWS, New Jersey, Chairman
JIM COOPER, Tennessee                K. MICHAEL CONAWAY, Texas
BRAD ELLSWORTH, Indiana              DUNCAN HUNTER, California
JOE SESTAK, Pennsylvania             MIKE COFFMAN, Colorado
                Cathy Garman, Professional Staff Member
               Jenness Simler, Professional Staff Member
                     Alicia Haley, Staff Assistant














                            C O N T E N T S

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                     CHRONOLOGICAL LIST OF HEARINGS
                                  2009

                                                                   Page

Hearing:

Thursday, April 23, 2009, Measuring Value and Risk in Services 
  Contracts......................................................     1

Appendix:

Thursday, April 23, 2009.........................................    31
                              ----------                              

                        THURSDAY, APRIL 23, 2009
             MEASURING VALUE AND RISK IN SERVICES CONTRACTS
              STATEMENTS PRESENTED BY MEMBERS OF CONGRESS

Andrews, Hon. Robert, a Representative from New Jersey, Chairman, 
  Panel on Defense Acquisition Reform............................     1
Conaway, Hon. K. Michael, a Representative from Texas, Ranking 
  Member, Panel on Defense Acquisition Reform....................     3

                               WITNESSES

Baldwin, Laura, Director, Resource Management Program, RAND 
  Project AIR FORCE..............................................     5
Parsons, Jeffrey P., Executive Director, U.S. Army Contracting 
  Command, U.S. Army Materiel Command............................     9
Solis, William M., Director, Defense Capabilities and Management, 
  U.S. Government Accountability Office, and John Hutton, 
  Director, Acquisition and Sourcing Management, U.S. Government 
  Accountability Office..........................................     7

                                APPENDIX

Prepared Statements:

    Baldwin, Laura...............................................    35
    Parsons, Jeffrey P...........................................    69
    Solis, William M., joint with John Hutton....................    43

Documents Submitted for the Record:

    [There were no Documents submitted.]

Witness Responses to Questions Asked During the Hearing:

    Mr. Andrews..................................................    85

Questions Submitted by Members Post Hearing:

    Mr. Andrews..................................................    89
    Mr. Cooper...................................................    97
             MEASURING VALUE AND RISK IN SERVICES CONTRACTS

                              ----------                              

                  House of Representatives,
                       Committee on Armed Services,
                       Panel on Defense Acquisition Reform,
                          Washington, DC, Thursday, April 23, 2009.
    The panel met, pursuant to call, at 8:00 a.m., in room 
1310, Longworth House Office Building, Hon. Rob Andrews 
(Chairman of the panel) presiding.

OPENING STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM 
   NEW JERSEY, CHAIRMAN, PANEL ON DEFENSE ACQUISITION REFORM

    Mr. Andrews. Ladies and gentlemen, good morning. The panel 
will come to order. We appreciate your attendance this morning, 
ladies and gentlemen of the public, and especially our 
witnesses.
    The reason we start at an uncommonly early hour in the 
morning is, as you know, the Congress squeezes a lot of 
activities into a couple of days each week, a lot of hearings 
and markups and floor activity, and we think the work the panel 
is doing, your work, really bears attention. So we schedule 
these hearings early so that members can really listen to what 
you have to say and then get on to the rest of the bedlam of 
our day. So thank you for accommodating us in that respect.
    The panel began our inquiry by asking how we might discern 
good measurements of the gap between what we pay and what we 
get, what value we get. And we first looked at weapons systems. 
Today we are going to look at the area of services that the 
Department of Defense (DOD) purchases. And what we do know 
about services is we buy a lot of them, we buy a lot more of 
them than we used to, and measuring what we spend on services 
is a very different project than measuring what we spend on 
major weapons systems and other pieces of hardware.
    The data show that we are spending approximately $200 
billion a year in buying services through the Department of 
Defense. That is about 60 percent of what we buy. So we are 
spending more on services than we are on hardware, so it 
certainly merits scrutiny. It also is a rising portion of the 
defense budget. It is about twice what we spent a decade ago. 
So we are buying more through services, we are spending a lot 
of money, and it is certainly an important question to ask 
whether the taxpayers and the service personnel and their 
families are getting value.
    I don't want to prejudge the answer to that question, but 
there are some disturbing trends which we can already discern 
in large part through the terrific work of the people of the 
Government Accountability Office (GAO). In 2007, the GAO 
reported that in a phenomenon which only the Defense Department 
could come up with this phrase, ``undefinitized contracts,'' 
which in plain language means you start paying someone before 
you have agreed how much the contract is going to be. So I pay 
you to mow my lawn, and when it is half mowed, we will decide 
how much I am going to pay you. And that is a rather odd 
concept, and it is supposed to be used, I would take it, in 
emergency circumstances. The GAO found that in one instance the 
DOD had paid contractors nearly $221 million in questioned 
costs in one of those arrangements. So the fact that these 
vehicles are being used in and of itself merits inquiry.
    In fiscal 2005, the DOD obligated nearly $10 billion for 
professional administrative management support and other 
services under what are referred to as time and materials 
contracts, which are contracts where there is really no 
effective incentive for the vendor to hold down costs. Now, 
again, these are contracts that are supposed to be let only in 
unique circumstances where there is no other vehicle available 
that would make sense under those circumstances. So there is a 
question as to whether that vehicle is being used too often, 
unwisely and what have you.
    And then in the 2008 review, the GAO found that there were 
incomplete contract files at some Army contracting offices 
which is hindering the administration's ability to discern 
facts and patterns.
    So we already know there are some disturbing indicia. What 
we are going to focus on this morning, though, is how do we 
construct metrics that help us properly understand whether 
taxpayers and service personnel are getting full value for the 
money that is spent?
    The other point that I say we can sort of discern that is 
self-evident is that measuring the answer to that question in 
the service-contracting area is quite different than it would 
be in the weapons-acquisition area. The word ``service 
contract'' implies a huge diversity of things, everything from 
day care centers to catering services to legal and health care 
services. So you are measuring a much more diverse body of 
purchases. Very often these are short-term rather than long-
term. Very often they are done in very small tranches or very 
small amounts. So it is a very different measurement project 
than the other one. But as I say, it is very important. The 
taxpayers are paying in excess of $200 billion a year.
    There are some early indicia that there are trouble 
problems for us to look at. And the good news is there is some 
excellent work that has been done. In the area of the Air 
Force, Ms. Baldwin is going to talk about some innovations that 
have happened there. Mr. Parsons is going to talk about 
progress that has already been made in the Army very recently. 
So we are going to try to come away this morning with a better 
understanding of how we might measure the difference, the 
difference, if any, between value and expenditure in these 
areas.
    So we welcome the witnesses.
    I want to ask my friend and the ranking Republican Mr. 
Conaway for his comments.

  STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM 
   TEXAS, RANKING MEMBER, PANEL ON DEFENSE ACQUISITION REFORM

    Mr. Conaway. Thank you, Mr. Chairman.
    Today's hearing is an appropriate follow-on to the panel's 
first hearing, which focused on how DOD and GAO currently 
assess performance of major weapons systems. Quite often these 
are the programs that grab the headlines in the media and 
consume a great deal of our time. This is quite reasonable. It 
is easy to understand why a fighter aircraft or a satellite 
might be so costly. These are exquisitely engineered mechanical 
structures that perform under conditions that most of us would 
never envision even using our cars and televisions in. 
Nevertheless it is actually services, not hardware, that 
consume the majority of defense dollars.
    Today the DOD obligates $200 billion for contractor-
supported services, a nearly twofold increase in spending in 
services in last several years. This increase in spending is 
largely, but not entirely, the result of ongoing contingency 
operations in Iraq and Afghanistan. In fact, this increase in 
spending on services is not unique to DOD. On a government-wide 
basis, over 60 percent of total contracting spending is on 
services.
    I think we often take for granted the breadth of services 
required, as the Chairman mentioned earlier, by DOD. The 
Department issues contracts for commercial services ranging 
from insurance to construction to dining, child care moving, 
mortuary and to travel. The Department also issues a variety of 
contracts for non-commercial services such as engineering, 
research and development, security information technology.
    As challenging as it is to measure performance against the 
plan for the development of a piece of technology, it could be 
infinitely more difficult to measure performance against a 
fluid requirement such as advisory or assistant services. I 
hope we hear more today about how the Department is meeting 
this challenge and what additional recommendations our 
witnesses can provide for improving our performance measures 
for service contracts.
    Similarly it is often impossible to precisely define the 
requirements for services in advance. For example, how does one 
precisely define the number of meals that have to be served at 
a dining facility in a yet to be established forward-operating 
base, or the number of hours it will require to solve an 
unanticipated engineering problem? Therefore the type of 
contract used plays a critical role in determining the value 
received by our government.
    As we have spent significantly more money on services, what 
lessons have we learned to optimize the value to the taxpayer?
    Lastly, since many of these services are commercial in 
nature, one may conclude that consolidating contracting for 
services might increase the government's buying power and 
improve the dissemination of best practices. On the other hand, 
increasing the use of centers of excellence for services 
contracting may remove the contracting officers from the place 
of execution, making it more difficult to share contractor 
performance data. I would be interested to learn more about the 
benefits and drawbacks to centralizing the award of services 
contracts.
    I also encourage our witnesses to share their views on 
existing laws and regulations that are particularly helpful or 
not helpful to the Department's efforts to obtain the best 
value and capability for our warfighters from service 
contracts.
    With that I conclude and again thank my fellow members and 
you, Mr. Chairman. I look forward to our witnesses' testimony.
    Mr. Andrews. Thank you very much.
    I am going to read brief biographies of our witnesses, and 
we are going to get to the testimony. I think you are all 
veterans of testimony here on the Hill, but I will remind you 
that your written statements, without objection, have been 
entered into the record of the hearing. We would ask you to 
synopsize those written statements in a five-minute oral 
statement. We would like you to try to stick to that five 
minutes so the members have ample opportunity for give-and-take 
with you.
    Laura Baldwin is the senior economist at the RAND 
Corporation. She has been with RAND since 1994, after 
completing a Ph.D. in economics from Duke University. In 2007, 
she was named Director of the Resource Management Program 
within Project AIR FORCE. And prior to that she was Associate 
Director of the program.
    Dr. Baldwin's research has addressed a variety of Air Force 
logistics and acquisition challenges associated with staffing, 
the structure of transfer prices, many of the issues that we 
are looking at here today. In addition to her program 
management and research responsibilities, Dr. Baldwin is a co-
organizer of RAND's defense economic sessions at the annual 
Western Economic Association International professional 
meetings.
    Welcome, Dr. Baldwin. We are glad that you are here.
    Mr. William Solis serves as the Director in the Defense 
Capabilities and Management Team at the U.S. Government 
Accountability Office, GAO. The Comptroller General of the 
United States appointed Mr. Solis to this senior executive 
position in July of 2002. Prior to this appointment, he has 
worked on a variety of engagements that cover topics such as 
military readiness, training, weapons systems effectiveness, 
housing and military doctrine. As the director, he is 
responsible for a wide range of GAO program evaluations in the 
area of defense logistics and warfighter support involving each 
of the military services, the Defense Logistics Agency, as well 
as the Joint and Office of Secretary of Defense program 
offices.
    Over 30 years of service at GAO, Mr. Solis has served in a 
wide variety of positions. Most recently he was selected to 
receive the 2008 GAO award for distinguished service.
    Congratulations on that, Mr. Solis. We are glad that you 
are with us.
    John Hutton is a Director also of the U.S. GAO, working for 
the Acquisition and Sourcing Management Team. In this capacity, 
he provides direct support to congressional committees and 
members on a range of acquisition and sourcing issues aimed at 
improving federal agencies' ability to buy products and 
services efficiently and effectively.
    You are the guy that was invented for this hearing this 
morning.
    Mr. Hutton is a native of Chicopee, Massachusetts; received 
a B.A. in public administration from American International 
College, a master's in public administration from Syracuse 
University's Maxwell School, and a master's in national 
security strategy from the National War College in 2002. He 
attended the Senior Executive Fellows Program at Harvard in 
2005. And he has also received numerous awards at GAO for 
outstanding performance, including the GAO's Meritorious 
Service Award.
    Thank you, Mr. Hutton, for your service and being here this 
morning.
    Mr. Jeffrey Parsons is the Executive Director of the U.S. 
Army's Contracting Command, a new major subordinate command of 
the U.S. Army Materiel Command, AMC. Prior to assuming his 
current position, Mr. Parsons served as the Director of 
Contracting for the Office of Command Contracting, 
Headquarters, AMC, at Fort Belvoir, Virginia.
    Mr. Parsons received his bachelor's degree in psychology 
from St. Joseph's University in Philadelphia--the hawk will 
never die, is that right, Mr. Parsons--and holds two masters 
degrees, one in administration with a concentration in 
procurement and contracting from the George Washington 
University, and the other in national resource strategy from 
the National Defense University.
    We are very fortunate to have four individuals of such 
skill and commitment to address these issues this morning.
    Ms. Baldwin, we will begin with you, and we enjoy hearing 
your testimony.

   STATEMENT OF LAURA BALDWIN, DIRECTOR, RESOURCE MANAGEMENT 
                PROGRAM, RAND PROJECT AIR FORCE

    Ms. Baldwin. Chairman and distinguished Members, thank you 
for inviting me to testify at this panel on measuring value and 
risk in service contracts. I am a senior economist at the RAND 
Corporation, and I currently serve as the Director of the 
Resource Management Program within Project AIR FORCE.
    For more than a decade, RAND has conducted a broad 
portfolio of research on implementing best purchasing and 
supply management practices within the Department of Defense. 
My testimony today will describe research that I co-led along 
with my colleague John Ausink, who is here today, that examines 
successful commercial practices for managing service 
acquisition, and that is focused on performance metrics to 
improve contract outcomes. I have a copy of the report with me. 
This research was sponsored by the Air Force Deputy Assistant 
Secretary for Contracting and was conducted during fiscal year 
2003.
    [The information referred to is retained in the committee 
files and can be viewed upon request.]
    I will begin by providing some context from the research, 
followed by a discussion of what we did, what we found, and how 
it is relevant to the U.S. Air Force. In terms of context, the 
Department of Defense purchases many services, including 
commercial services for its facilities and installations, such 
professional services as consulting and engineering support, 
and such weapons systems-oriented services as research and 
development and test and evaluation.
    In response to emphasis on improving services acquisition 
within the fiscal year 2002 National Defense Authorization Act, 
RAND's Project AIR FORCE was asked to develop a portfolio of 
overarching measures to allow the Air Force to assess the 
health of its service acquisition activities, to diagnose 
problems and to target improvement efforts. To develop this 
portfolio of metrics, we conducted a series of interviews with 
commercial-sector purchasing professionals who are respected by 
their peers for successfully creating and implementing what are 
widely accepted as best purchasing and supply management 
practices, focusing on their application to service 
acquisitions. The services discussed in our data sources are 
similar to commercial like services purchased by the Air Force, 
including facilities services, telecommunications services and 
other support activities.
    Our primary finding is that commercial firms are shifting 
away from uncoordinated purchasing at lower levels of their 
organizations and moving towards a corporate approach to 
managing their service acquisitions in much the same way as 
they manage their acquisition of direct materials. Commercial 
firms are increasingly using commodity councils, which are 
centralized cross-functional teams, to develop organization-
wide purchasing and supply management strategies for services. 
And moreover, such firms are developing and using performance 
metrics, similar to those used for goods, to manage their 
purchased services and their purchasing organizations that 
support those strategies.
    Here I will focus on our findings related to performance 
metrics. To inform decisionmaking, our interviewees recommended 
results-oriented metrics, both forward-looking and 
retrospective, that focus on how acquisition activities support 
both short-term and long-term corporate objectives. The most 
frequent results-oriented metrics include cost, quality, 
supplier satisfaction, implementation of new initiatives such 
as supplier development, and special interest items such as 
small business participation.
    Cost metrics were typically oriented towards measuring cost 
savings over time, often adjusting for exogenous market 
factors. Quality, which is more difficult to quantify for 
services than for goods, was typically measured in terms of 
user satisfaction or service reliability. Supplier satisfaction 
was used as a forward-looking indicator of whether the buying 
firm will be able to continue doing business with the best 
providers. Metrics for implementing new initiatives were a 
mixture of forward-looking process measures and retrospective 
outcome measures. Commercial firms indicated that they also 
used metrics such as internal customer satisfaction, personnel 
training and retention, and ethics violations to manage the 
internal purchasing organization. Although the Air Force is not 
a commercial firm, it can learn from commercial firms' 
experiences in managing its own service acquisitions.
    Our findings recommend a balanced portfolio of performance 
metrics, representing both short- and long-run considerations 
and internal and external activities. These recommendations are 
based on the six major categories of metrics discussed earlier: 
cost, quality, supplier satisfaction, new initiatives, special 
interests and internal management.
    The Air Force will find it challenging to populate some of 
these metrics. While some data such as contract costs are found 
in Air Force data systems, others such as supplier and customer 
satisfaction will require implementation of new data-collection 
procedures for effective implementation.
    More broadly, our analyses suggest that good metrics are 
necessary, but not sufficient to extract maximum value from 
purchase services, that they are most powerful when implemented 
in a centralized management framework.
    This concludes my oral remarks. Thank you, and I welcome 
any questions you might have.
    Mr. Andrews. Thank you, Dr. Baldwin. As I said your full 
statement is entered into the record.
    [The prepared statement of Ms. Baldwin can be found in the 
Appendix on page 35.]
    Mr. Andrews. Mr. Solis, Mr. Hutton, welcome. We appreciate 
the great work GAO does on so many issues, and we are glad you 
are with us this morning.

 STATEMENT OF WILLIAM M. SOLIS, DIRECTOR, DEFENSE CAPABILITIES 
AND MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, AND JOHN 
  HUTTON, DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, U.S. 
                GOVERNMENT ACCOUNTABILITY OFFICE

    Mr. Solis. Thank you very much. Chairman Andrews, Ranking 
Member Conaway, members of the panel, I appreciate the 
opportunity to be here along with my colleague, John Hutton, to 
discuss the challenges DOD faces in ensuring it gets good value 
for the taxpayers' dollars and attains quality contractor 
services in a cost-efficient and effective manner. Many of 
these challenges are longstanding, but they have become 
increasingly important as the Department's reliance on 
contractors for services has grown in size and scope to the 
point that DOD officials have acknowledged their inability to 
perform their mission without contractor support.
    My statement today will focus on two areas, first 
challenges DOD faces in consistently following sound 
contracting and contract management practices, and, second, 
recent actions DOD has taken to improve its management of 
services contract.
    From the outset, I think it is important to recognize that 
the issue is not whether the Department should contract for 
services, for it must. The issue is to what extent it should, 
and how best to provide oversight when it does. Our previous 
work shows that it is essential that DOD employ sound practices 
when using contractors to support its missions or operations to 
ensure that the Department receives good value. These practices 
include clearly defining requirements, using an appropriate 
contract type, and properly overseeing contract administration.
    Further, an overarching issue that impacts DOD's ability to 
properly manage its growing acquisition of services is having 
an adequate workforce with the right skills and capabilities.
    I would like to spend a few moments to elaborate what we 
have found with regard to these challenges. First, properly 
defining requirements are a prerequisite to obtaining value, 
both at the DOD-wide level and at the contract level. At the 
Department of Defense level, the Department should have an 
understanding of what it needs to contract for and why. 
However, the Department does not currently have complete and 
accurate information on the number of services contracts in 
use, the services being provided by those contracts, the number 
of contractors providing those services and the number and 
types of contracts awarded.
    At the contract level, poorly defined or changing 
requirements have contributed to increased costs as well as 
services that do not meet the Department's needs. The absence 
of well-defined requirements and clearly understood objectives 
complicates efforts to hold DOD and contractors accountable for 
poor acquisition outcomes.
    Second, we have found that DOD does not always use the 
contract types or business arrangements that would result in 
the best value to the government. Selecting the appropriate 
contracting arrangement is important because some contracts 
increase the governments's cost risk. For example, in January 
2008, we reported on a cost-plus, fixed-fee provision of a task 
order to repair military equipment for use in Iraq and 
Afghanistan required the Army to pay the contractor to fix 
equipment that had failed to meet quality standards established 
in the task order.
    Third, we have reported on numerous occasions that DOD did 
not adequately manage and assess contractor performance, 
putting the Department at risk of being unable to identify and 
correct poor contractor performance in a timely manner.
    Collectively these problems expose DOD to unnecessary risk 
and make it difficult for the Department to ensure that it is 
getting good value for the dollars spent.
    In response to congressional legislation and numerous GAO 
recommendations on contract management and the use of 
contractors to support deployed forces, DOD has taken a number 
of actions including issuing guidance to address contracting 
weaknesses and promote the use of sound business arrangements, 
establishing a framework for reviewing major system 
acquisitions, promulgating regulations to better manage its use 
of contracting arrangements that compose additional risk for 
the government, and begun efforts to identify and improve the 
skills and capabilities of its workforce. These efforts include 
steps to improve training of military commanders and contract 
oversight personnel.
    These are positive steps, but in order to improve contract 
outcomes on the whole, DOD must ensure that these policy 
changes and other efforts are consistently put into practice 
and reflected in the decisions made on individual acquisitions. 
For example, in the near term, DOD must act forcefully to 
implement the new procedures and processes in a sustained, 
consistent and effective manner across the Department. Doing so 
will require continued sustained commitment by senior DOD 
leadership to translate policy and practice and to hold 
decision makers accountable.
    At the same time, many of the actions DOD is taking, such 
as the Army's efforts to increase its acquisition workforce, 
will not be fully implemented for several years. DOD will need 
to continue to monitor such efforts to ensure intended outcomes 
are achieved.
    At the department-wide level, DOD has yet to conduct the 
type of fundamental examination or reexamination of its 
reliance on contractors that we called for in 2008. Without an 
understanding of the depth and breadth of contractor support, 
the Department will be unable to determine if it has the 
appropriate mix of military personnel, DOD civilians and 
contractors. As a result, DOD may not be totally aware of its 
risk it faces and will therefore be unable to mitigate those 
risks in a cost-effective and efficient manner.
    The implementation of existing and emerging policy, the 
monitoring of the Department's actions, and the comprehensive 
assessment of what should and should not be contracted for are 
not easy tasks, but they are essential if DOD is to place 
itself in a better position to deliver goods and services to 
warfighters. Moreover, with the increase of forces in 
Afghanistan, the urgency for action is heightened to help the 
Department avoid the same risk of fraud, waste and abuse it is 
experiencing in using contractors in support of Operation Iraqi 
Freedom (OIF).
    This concludes my statement, and we will be happy to answer 
your questions.
    Mr. Andrews. Mr. Solis, thank you very much.
    [The joint prepared statement of Mr. Solis and Mr. Hutton 
can be found in the Appendix on page 43.]
    Mr. Andrews. Mr. Hutton, are you adding something? You are 
certainly welcome to.
    Mr. Hutton. Mr. Chairman, Mr. Solis has covered both sides 
of the issue.
    Mr. Andrews. Very well. As I say, the joint statement that 
you wrote is already part of the record.
    Mr. Parsons, welcome. We are looking forward to hearing 
from you.

STATEMENT OF JEFFREY P. PARSONS, EXECUTIVE DIRECTOR, U.S. ARMY 
        CONTRACTING COMMAND, U.S. ARMY MATERIEL COMMAND

    Mr. Parsons. Thank you. Chairman Andrews, Congressman 
Conaway and distinguished members of the Defense Acquisition 
Reform Panel, thank you for this opportunity to discuss the 
processes used by the Army Materiel Command to measure value 
and risk in service contracts. We are pleased to report that 
these processes enable our contracting mission to be agile, 
expeditionary and responsive to our warfighters, while ensuring 
proper fiscal stewardship of taxpayer dollars.
    We are pleased to report to you that we have increased the 
resources devoted to oversight of service contracts and have 
also developed improved techniques for evaluating and managing 
those contracts to provide good value to the taxpayer and 
effective support to deployed warfighters. The Army Materiel 
Command has improved its Contracting Officer Representative 
Program, has a plan in place to increase the number of 
personnel in the contract administration area, and has improved 
its ability to inspect the world-wide contracting offices that 
execute the Army's acquisition programs.
    In addition, the Army has increased the rigor of its 
acquisition process to focus on obtaining better values from 
the service contracts it awards.
    Recent RAND studies and GAO reports state that the 
Department of Defense needs to become more strategic in the way 
it buys and manages services. Trends in Army service 
contracting support the fact that the Army has embraced this 
concept. On major service contracts over $500 million, a panel 
of senior experts in contracting, finance and law, as well as 
the senior representatives from the technical areas that are 
the focus of the acquisition, review the acquisition strategy 
to ensure that the planned contract will provide an efficient 
and effective solution to the Army's needs, and that there are 
strong metrics that will enable the Army to track the value 
delivered by the contractor that ultimately receives the 
contract.
    One of the interesting side benefits of the senior review 
is the evolution of a deliberate strategic sourcing movement 
that focuses on establishing Army-wide contracts for common-use 
supplies and services. For example, we now have an Army-wide 
contract for cell phone service that has achieved substantial 
discounts from Government Services Administration (GSA) 
contract prices and provides better controls over who is given 
a cell phone and what type of calling program they may use. Net 
effect is the cost avoidance is $79.2 million per year. The 
centralized agreements provide consistent enterprise terms and 
conditions; eliminate activation, deactivation and other fees; 
and provide aggressive prices on both cellular devices and 
service plans.
    This approach is not limited to commercially available 
services. The Army uses suites of multiple-award, indefinite-
quantity contracts to support all types of operations 
leveraging our service spending. The Field and Installation 
Readiness Support Team, commonly known as ``FIRST,'' provides 
logistical support requirements including logistics program 
management, repair and maintenance support, supply chain 
management, quality assurance support, logistics training 
support and transportation support in both the Continental 
United States (CONUS) and Outside the Continental United States 
(OCONUS) locations. The first program metrics include how well 
small business and competition requirements are being met, as 
well as goals for reducing logistics burdens, customer 
satisfaction, timeliness of performance, cost control and 
reliability.
    The Global Maintenance and Supply Program metrics include 
how well the contractor met the technical requirements of its 
individual task orders. Currently we are at 99.7 percent, which 
is an improvement over previous lows of 69 percent. Cost and 
schedule performance are evaluated on a program level across 
all task orders.
    We continue to search out even more opportunities to better 
leverage Army's purchasing power. For example, we are reviewing 
alternative ways to support the Army's installation maintenance 
support contracts; $438.2 million worth of work is performed by 
37 contractors under 41 contracts. Under the AMC Materiel 
Enterprise approach, we will eliminate redundancy in contracts 
and capabilities, and thereby gain efficiencies across the 
Army. This is an example of how we strive every day to improve 
the value the Army and the taxpayer receive from Army 
contracts.
    The Army has made great progress in providing training and 
tools for overall contracting activities and expeditionary 
operations. This includes improvements in contractor oversight 
and tracking value realized under contracts.
    We have also shared expectations for contingency 
contracting support and are increasing our oversight of 
deployed contracting officials. The Army uses a pocket-sized 
joint contingency contracting handbook to equip contingency 
contracting officers with the necessary tools for joint service 
operations. This handbook has been incorporated in new training 
material for the Expeditionary Contingency Force structure. We 
will soon also field the Virtual Contracting Enterprise that 
will move existing contracting tools to a Web-based environment 
allowing for the sharing of contract information and enhanced 
oversight in a paperless environment, including the tracking of 
contract performance information.
    As stewards of the taxpayers' dollars, the Army is 
committed to excellence in managing and documenting contractor 
performance and the overall discipline of contract 
administration services. With service contracts representing an 
ever-increasing percentage of our overall contract dollars, 
greater emphasis is rightfully being placed on their management 
and oversight. This includes documenting contractors' current 
and past performance, and developing key metrics related to 
cost, schedule and performance during acquisition planning that 
focus on value delivered to the Army, and tracking those 
metrics as part of contract administration and oversight.
    Those metrics are key early warning signals to program 
officials as they are the first indicators that a program is in 
trouble, be it from technical difficulties beyond the 
contractors' control due to changes in the operating 
environment caused by war-related issues or problems directly 
related to contractor performance.
    Despite exceptionally hard circumstances, the Army's 
contracting and acquisition staff has made improvements in the 
strategic management of the Army requirements, and specifically 
has better insight into the values being delivered under key 
service contracts. We believe with improved staff levels and 
contract administration, this trend will continue. The Army is 
dedicated toward executing its warfighting mission while 
simultaneously protecting the taxpayers' interest. It is my 
honor to lead the Army Contracting Command as we persevere to 
achieve those goals.
    This concludes my statement, and I welcome any questions 
you may have.
    Mr. Andrews. Thank you very much, Mr. Parsons.
    [The prepared statement of Mr. Parsons can be found in the 
Appendix on page 69.]
    Mr. Andrews. And I thank each of you for your contribution 
this morning.
    In reading your testimony, it appears to me that although 
it is by no means the exclusive cause that one of the major 
causes of any gap that we have in the value between what we get 
and what we pay is a flawed requirements process, that we don't 
really understand what is going on in it, and we don't handle 
it very well. And I wanted to emphasize an example of a process 
that evidently didn't work very well and then one that did, to 
learn more about that.
    On page five of the GAO report, the GAO written testimony, 
Mr. Solis and Mr. Hutton, you tell us about a problem in Iraq 
where the Defense Contract Audit Agency (DCAA) had a dispute 
with a contractor on providing meals for the soldiers in Iraq 
that resulted in $171 million in questioned costs. Do you have 
the document I am referring to? It is page five of the 
testimony document here.
    I want to make sure I understood this correctly. It says 
that negotiations resulted in a settlement whereby $36 million 
would not be paid to the contractor. Does that mean that $135 
million was?
    Mr. Hutton. Yes, I believe that is correct.
    Mr. Andrews. And if I understand correctly, the dispute was 
whether or not the contract required us to pay on the basis of 
the scope of work in the document or the actual head count at 
the base.
    Now, do you know whether the contract answered that 
question in advance? In other words, did this dispute come up 
because the contract was vague and ambiguous, or did it come up 
because there was a dispute about the factual meaning of it?
    Mr. Hutton. It is my understanding, sir, that the dispute 
centered on the statement of work and differing views.
    The Chairman. I am sorry?
    Mr. Hutton. I am sorry. My understanding is that the 
dispute centered on the statement of work and how that was 
written.
    Mr. Andrews. So, Mr. Parsons, do you know the answer to 
that question? Was the contract just ambiguously worded?
    Mr. Parsons. Sir, I think the contract they are making 
reference to is the Logistics Civil Augmentation Program, 
especially the early days of the operation, and that was part 
of the issue, and it gets to the heart of the matter and being 
able to really identify clearly what the requirements are, 
especially in a service contract.
    Mr. Andrews. Can I say something? I am not a very good 
lawyer. I went to law school. One thing I did learn, if you are 
writing a contract, one of the basic things you put in there is 
are we going to pay on the basis of number of people who show 
up to get fed or some other basis?
    How did the contract get written so ambiguously in the 
first place? Who dropped the ball on that? Do we know?
    Mr. Hutton. I can't point to that, sir, but what I can 
point to again, though, is one thing that we have noticed is, 
particularly in this environment, sometimes that people act to 
move very swiftly to get something under contract, and when you 
do that, these types of problems arise. And I think that is one 
of the things----
    Mr. Andrews. I think that is a valid excuse if it is the 
issue that they were supposed to deliver a certain kind of food 
and couldn't do it because of refrigeration problems. But it is 
pretty basic that, you know, if you have ever planned a sweet 
16 party for your daughter, we are going to pay the caterer on 
the basis of either the number of people who show up, or we are 
going to pay them for 200 people. It is kind of self-evident 
that you write that in the contract from the beginning.
    Now, let's talk about apparently a successful story. Mr. 
Parsons, you talked about the cell phone initiative that you 
say saved us $79.2 million. Can you tell us a little bit more 
about that, what you did and how you did it?
    Mr. Parsons. I would be happy to, sir. And one of the 
things that we really noticed when we started taking a lot the 
cell phone service is that there were people across the Army 
writing their own contracts or entering into agreements for 
cell phone services. So we really weren't leveraging the total 
dollar value of cell phone service. So we were able to convince 
the Chief Intelligence Officer (CIO) of the Army that we need 
to find a way to write a single contract or a single series of 
contracts that would allow us to leverage that spend. Then we 
also found that the terms and conditions of the contracts 
varied, and again, by bringing all those dollars together, we 
were able to negotiate with the vendors a more favorable 
pricing plan than what was currently in the GSA contracts.
    But more importantly, I think, and this again gets back to 
the requirements issue, it alerted a lot of organizations to 
the extent of the cell phones that they had out there. And they 
started asking questions like, well, why does everybody need a 
cell phone? And then they started putting some policies in 
place on who would have them, what they were authorized for. 
And we found that by reducing the requirements that weren't 
well defined, we saved as much money through reducing 
requirements as we did in the actual pricing.
    Mr. Andrews. So the savings really came from two 
achievements, right? The first was leveraging our purchasing 
power, the Sam's Club approach, right? We bought more of it, so 
you get a better price. And the second was the various decision 
makers started to do an inventory of how many cell phones they 
had out there, and they said, how come we have so many out? 
Maybe we need fewer than we have. Why did that happen? Is that 
because your organization got stood up and caused that? What 
was the causal phenomenon that caused that good development to 
occur?
    Mr. Parsons. I wouldn't attribute it to the standup of the 
Army Contracting Command, although one of the things we have 
developed within our command is what we call a Strategic 
Sourcing Branch. Really what we have been doing is capitalizing 
on a lot of the work that RAND did back in the late 1990s and 
early 2000.
    Mr. Andrews. In this instance did this sort of 
spontaneously combust, or did someone--who made a decision that 
said, you know what, we have to bring all these contracts under 
a centralized authority and get more bang for our buck or more 
minutes for our dollar in this case?
    Mr. Parsons. It was initiated out of the Army Acquisition 
Office. Lieutenant General Thompson, who is the military deputy 
for the Army acquisition executive, who is a strong supporter 
for strategic sourcing and encouraged us and all the 
organizations within the Army to start taking a look at their 
service spend to see how we can get our arms around that to 
better leverage it----
    Mr. Andrews. I want to be sure we move on to my colleagues. 
But I did want to just ask one more question, and I assume the 
GAO witnesses would be the best to know, perhaps Mr. Parsons 
and you, Ms. Baldwin. Is there one person in the Department of 
Defense who can answer this question: What do your data show 
that of the $200 billion that we spend, how much might it be--
how much of that might be wasted? Is there a person who could 
say, yeah, you know what? Based upon the data, I think we 
probably could recover $15 billion of that and do a better job; 
or, all of it is fine. Is there a person who is in charge of 
answering that question? Mr. Hutton.
    Mr. Hutton. I do not believe there is a person that can 
answer that question. That is in part one of the points that we 
made in our 2006 report was the need to look at service 
contracting from a strategic as well as a transactional level, 
meaning at the contract level. The important thing right now is 
does DOD know exactly what they are buying, what they are 
paying, how many contractors do they have and----
    Mr. Andrews. The answer is no.
    Mr. Hutton. I think what Mr. Parsons was talking about 
strategic sourcing is one opportunity of centralized 
procurement----
    Mr. Andrews. But the answer to your rhetorical question is, 
no, they do not, they do not have that complete database?
    Mr. Hutton. People that assign a percent to how much is 
wasted, no.
    Mr. Andrews. Ms. Baldwin, in your analysis of the private 
sector, would the answer to my question, the private sector, 
typically be yes, that at Microsoft or--I was going to say Bank 
of America, I guess I shouldn't--at a large private-sector 
institution that there would be an officer who would be able to 
say, this is what we spend on services, and I can assure you 
that we are getting what we should; or, I am troubled that it 
might be five or six percent off? Does the private sector 
typically have the data and have such a person?
    Ms. Baldwin. Certainly the goal of setting up the strategic 
corporate-wide offices to manage purchasing more broadly, 
services in specific, commercial firms struggle with this, too, 
is what we found. Even the leading firms that we interviewed 
for this particular study, they were still in the process of 
gathering the right data, creating the right systems to be able 
to get the information they need to better manage this. But, 
yes, the goal is for them to be able to look broadly----
    Mr. Andrews. Are they closer to achieving the goal than we 
are?
    Ms. Baldwin. I can't speak for the other services, but our 
work in the Air Force suggests that some in the commercial 
sector are ahead of that, in that capability. I wouldn't say 
that broadly. Commercial firms have the same issues that the 
Air Force and other services have.
    Mr. Andrews. Thank you all very much.
    Mr. Conaway.
    Mr. Conaway. Thank you, Mr. Chairman. I have a couple of 
just relatively insignificant questions to start with.
    Ms. Baldwin, you mentioned supplier satisfaction at least 
twice. What does that mean?
    Ms. Baldwin. It means, broadly, how the supplier views the 
working relationship with the customer firm. So do they feel 
like they have a good working relationship? Can they talk with 
them? Do they feel like they are being treated fairly?
    Mr. Conaway. So you would put that in the matrix of--where 
in the matrix indicia, where would that go? Bottom? Top?
    Ms. Baldwin. That would be--well, it is one of the three 
measures that the firms we interviewed said that they reported 
that to high-level management. So I would think it would rank--
--
    Mr. Conaway. What do they do with that data if someone 
says, I really don't like working for you? It is a rhetorical 
question.
    Ms. Baldwin. I can't answer that question specifically.
    Mr. Conaway. Mr. Parsons, listening to your statement, it 
sounds like you have it going totally in the right direction, 
you have everything solved, which is generally the kind of 
testimony we get from folks. You mentioned a consolidation of 
contracts for facilities management, almost $500 million in 
services. Where is that? What progress have you made on getting 
that done?
    Mr. Parsons. Sir, just recently the Army Materiel Command 
and the Installation Management Command have agreed to transfer 
the maintenance functions at the installation level over to 
Army Materiel Command. When we started that process, what we 
found was that over 30-some installations, we had 40-some 
contracts, with 37 different contracts valued at $438 million 
for essentially the same types of services being performed for 
maintenance. But there is no standardization of requirements, 
inspections and those types of things. And so now what we are 
doing is we have done an inventory of all those contracts and 
are assessing how can we strategically source those. Do we 
really need 40-some contracts, or do we need maybe 3 or 4 on a 
regional basis and then try to standardize the terms and 
conditions and the way that we will oversee the management?
    Mr. Conaway. When are you going to report back to us that 
that has saved us X amount of money or has done what you wanted 
it to do?
    Mr. Parsons. When can we report back? Sir, we just 
initiated this action. I would say probably another six months 
to a year before we will be able to report what type of savings 
we are going to see out of that.
    Mr. Conaway. Thirty installations, that is the total in the 
Army? Or is that just CONUS?
    Mr. Parsons. It is just CONUS, does not include OCONUS, and 
it only includes maintenance that was being performed out of 
what they call the Directorate of Logistics.
    Mr. Conaway. So it is relatively narrow. If you look at the 
risks of loss to the taxpayer, obviously the full-flown 
strategic, use all the buzzwords you guys use, kind of a 
management system to make all this work, at what level does it 
make sense to begin applying those, and at what level below 
which it doesn't make sense? I mean, you spend more time in 
management and oversight and reporting than you do on actually 
buying the stuff that you are trying to get provided. Is there 
a de minimis amount? Is there some line that you put in the 
deal?
    Mr. Solis.
    Mr. Solis. Last year, for example, the Congress put in 
legislation, section 807, which required the Department and the 
services to begin to do an inventory of all the contracted 
services to develop a baseline of what exactly was being 
contracted out, how many contractors you are using, the cost of 
those contractors and the type of services provided. I think 
that is the kind of thing at the strategic level that will help 
not only to look at it from a procurement function, but from a 
human capital or blended workforce in terms of what am I going 
to need, how am I going to do that?
    I think at the other end, I think in looking at different 
contracts and going back to your issue of risk, I think 
particularly for deployed, when you have contracts in a 
contingency or a deployed location, I think your risk is going 
to probably be higher because of the things you have to do in 
terms of providing oversight and getting out and seeing how 
those things are working. And I think it becomes, you know, in 
terms of looking at what you are going to spend your time in 
terms of oversight, those are the kinds of decisions that you 
have to look at, where are my risks at, what is the potential 
for fraud, waste and abuse, and I think that is where you 
probably need to focus what kind of attention in terms of 
oversight you are going to do versus something back here 
possibly in CONUS, I will just say some service like grass 
cutting or some of the things you can monitor more easily. But 
I think the different types of contracts, and more complex 
contracts particularly, for like intel services and maintenance 
services, you have to spend your time to look at those things 
more.
    Mr. Conaway. Are the recommendations that you are making 
and Mr. Parsons and Ms. Baldwin, is that concept reflected in 
how you set your system up; in other words, is it more of a 
risk-based arena? If you have a contract to cut the grass 
around this building, relatively little exposure to the 
taxpayer of major waste, fraud and abuse. We don't want any, 
but, Mr. Parsons, Ms. Baldwin, does that fold in with what you 
guys recommend?
    Ms. Baldwin. Yes, that is exactly what we have seen in the 
commercial sector, that they first look broadly to understand 
how much are we spending in these individual areas, looking at 
a service across an organization, not specific contracts, and 
then they make those decisions based on dollar value and their 
risk of poor performance.
    Mr. Conaway. Mr. Parsons.
    Mr. Parsons. Sir, we actually take a look and stratify our 
service contracts on the level of oversight they will review. 
In fact, the Department of Defense does that as well. Any 
service contractor over $1 billion is actually reviewed by what 
they call a peer review at the Office of the Secretary of 
Defense (OSD) level now where we have got senior-level service-
type people that review certain acquisitions over $1 billion. 
Within the Army----
    Mr. Conaway. Is that on services or----
    Mr. Parsons. Services and hardware, but they are doing it 
both. In the Army they do it at the $500 million. At my level I 
do it at $250 million----
    Mr. Conaway. One final one. It is a bit broad. There has 
been a recommendation that we create these centers for 
excellence for purchasing. I have great confidence that center 
will work wonderfully to make sure the Pentagon has everything 
it needs. How confident are we that that consolidated 
purchasing will make sure that some warfighter in a trench in 
the Horn of Africa gets what they need?
    Ms. Baldwin. I think that what you are highlighting is the 
need to have user involvement in those decisions. And certainly 
our research suggests that in the commercial sector purchasing 
professionals are a key part of this process, but they are only 
one player. The user has to be directly involved, and you have 
to have industry experts as well. So you have to have that user 
representation, that warfighter representation.
    Mr. Hutton. Mr. Conaway, I would add that what you just 
pointed out, the centralized procurement organization, I think 
you get--you can get some efficiencies, and you can leverage 
perhaps even your workforce in a certain way. But I would like 
to take it back to, though, to be sure that you are getting 
good outcomes, you have to make sure you have sufficient people 
to oversee the actual execution of that contract, and that 
means having people assigned up front like a contracting 
officer representative and having them there in sufficient 
numbers, sufficiently trained to make sure that you are getting 
that outcome.
    Mr. Conaway. Thank you, Mr. Chairman.
    Mr. Andrews. Thank you, Mr. Conaway.
    Mr. Cooper.
    Mr. Cooper. Thank you, Mr. Chairman. I thank the witnesses.
    In any organization, mistakes are going to happen. And the 
real question is how you deal with those mistakes? Like in a 
hospital you might get the doctors together to confer about 
what happened with the bad outcome. Sometimes there are after-
action reports in other contexts.
    I would be curious, particularly for Mr. Parsons, to 
understand mistakes that you have personally seen so that we 
can get some raw data on which to kind of build an 
understanding.
    Mr. Parsons. Sir, are you asking whether we have raw data 
to----
    Mr. Cooper. No. I want your personal recollection of 
mistakes that you have seen in your tenure, and then we can 
talk about what we did about them, a bad contract, a bad 
contractor, those sorts of things.
    Mr. Parsons. As far as the performance? I have a hearing 
difficulty. So I am not following you completely.
    Mr. Cooper. As far as the government and the taxpayer not 
getting value for the money that was expended. And it might be 
performance. It might be price. It might be all sorts of 
things. But you gave us some of the most cheerful testimony I 
have ever heard. It almost didn't seem to apply to this topic. 
So I am interested in the horror stories.
    Mr. Parsons. Certainly I think there are instances of what 
are perceived to be horror stories out there.
    Mr. Cooper. Give us those instances.
    Mr. Parsons. I think in reference to the GAO testimony in 
reference to the early days of Logistics Civil Augmentation 
Program and how well or how well we did not define those 
requirements are an example of, you know, where we can get 
ourselves in a position where we are not getting the best value 
for the taxpayers.
    Mr. Cooper. Give me some examples.
    Mr. Parsons. Specific examples?
    Mr. Cooper. Yes.
    Mr. Parsons. Well, sir, I think the dining facility is one 
that----
    Mr. Cooper. That is from their report. I want examples that 
you have seen.
    Mr. Parsons. I think another example--and, again, this was 
one that Ms. Harman was aware of--is our global maintenance and 
support services contract where we did not have proper 
oversight of the High Mobility Multipurpose Wheeled Vehicle 
(HMMWV) repairs that were taking place in Kuwait. We had very 
poor first-pass yields. A lot of the work was being rejected, 
and the contractor was redoing the work. The way the contract 
was structured, we ended up paying for that rework again. So I 
think that is an example of a horror story where we had a 
poorly defined requirement. We didn't have the right type of 
contract vehicle in place, and we did not have adequate 
oversight.
    Mr. Cooper. So we paid twice for vehicle repairs in Kuwait 
because we had a poorly defined requirement that didn't specify 
they should be repaired properly the first time?
    Mr. Parsons. Correct. When we would inspect the vehicles, 
there was a reject of anywhere from 30 to 40 percent. But the 
way the contract was written, essentially the contractor, when 
they were directed to redo the work, was allowed to bill the 
government again.
    Mr. Cooper. Who wrote that contract? This gets back to Mr. 
Andrews' question about per capita or fixed price. Who would 
write a contract saying that a 30 or 40 percent failure to 
repair rate could be acceptable?
    Mr. Parsons. Nobody.
    Mr. Cooper. Well, someone wrote the contract.
    Mr. Parsons. The contracting officer is the one that wrote 
the contract out of Rock Island, our Rock Island contracting 
center. But it was a good example of where we did not have 
adequate controls or proper metrics in place to make sure we 
are getting value.
    Mr. Cooper. Give another example other than the one you 
just gave.
    Mr. Parsons. Sir, the other area where I know that we have 
a lot of challenges is in the area of what we call advisory and 
assistance services, where you really are buying contractor 
support to help manage your operation. And while I can't give 
you a specific example, I know that one of the areas we have 
been looking at very hard is do we really need all of these 
contractors providing some of the services and support services 
within our operations?
    Oftentimes what you find is that the requirements are not 
well defined, and many times we aren't even sure totally what 
the value is that those contracts are providing, certainly in 
the area of advisory and assistance services. So the DOD has a 
very strong initiative right now to take a very hard look at 
that. Any of those types of services that are enduring we are 
looking at trying to reconvert to civilian positives. And then 
for those that are contractor is to put in proper oversight and 
metrics to evaluate their performance.
    Mr. Cooper. Who initiates the purchase of services that the 
government does not want?
    Mr. Parsons. What was that again, sir?
    Mr. Cooper. Who initiates the purchase of services that the 
government does not want?
    Mr. Parsons. Who does that?
    Mr. Cooper. Is this Rock Island again who does this?
    Mr. Parsons. Sir, I have 115 different contracting 
locations, all of them which buy services to some degree. And 
as I mentioned earlier, what we are trying to do in our 
contracting community is to establish a strategic sourcing 
organization that looks at all that service spend to find ways 
to do this better, be more consistent in our terms and 
conditions and our oversight.
    Mr. Cooper. I see that my time has expired, Mr. Chairman.
    Mr. Andrews. Thank you very much, Mr. Cooper.
    Mr. Coffman is recognized.
    Mr. Coffman. Thank you, Mr. Chairman.
    It seems if we go back, say, from the post-World War II 
environment until now, that there has been an expanded role of 
outside contractors in what may have been deemed traditional 
military functions in a post-World War II environment to the 
present, that evolution.
    So it seems to me that maybe it falls in two categories. 
There is the one category of the more routine items that are 
fairly transparent, that are easy to come up with what the 
requirements are, and that can be competitively bid, and there 
is some certainty going in as to what the costs are going to 
be. And then you get into this I guess what I would call a 
murkier area, and that is, say, using contractors in a deployed 
environment where it seems to be more of a cost-plus structure 
to--that it is harder to define the requirements, that they are 
not as routine.
    And so it seems to be that--first of all, maybe from 
anybody on the panel, is that an accurate description of where 
we are today in those two categories of contracts, that the 
cost-plus one being more for the irregularity and uncertainty 
of, say, having a contractor in a deployed environment versus 
somebody in CONUS, in the United States, cutting the grass as 
an example? Can anybody comment on that.
    Mr. Parsons. Sir, I think definitely, you know, where the 
requirements are fairly known and can be defined, we tend to 
use fixed-price contracts, and it reduces the government's 
overall risk.
    Where the requirements are less defined, where conditions 
are changing, we typically do use the cost-type contracts, and 
that is where we assume more risk. And as the GAO noted, that 
is where we need to provide more contract oversight, when we 
use those types of instruments.
    Mr. Coffman. Have we gone too far in that process? I mean, 
have we set ourselves up for failure by virtue of outsourcing 
too much? Have we gone too far in this continuum of things that 
were done by the military, that aren't done by the military, 
that maybe we should look at returning to having the military 
perform some of these functions and not having contractors?
    Mr. Solis. I would offer, one of the things that Admiral 
Mullen initiated I think last year was to begin to look at, for 
future operations based on what has happened in Iraq and 
Afghanistan, to look at future operations to look at the 
reliance on contractors. And I think for future operations they 
are going to be looking and planning from the get-go to see, is 
this where we want to be, is this what we are going to have to 
do in terms of contracting out, or is it better to bring it 
back in-house, either a uniformed military member or DOD 
civilian.
    So I think that kind of examination is the kind of thing 
that I think we have said should be done, and I think the joint 
staff and the combatant commands are starting to do this.
    And I also mention the provision of 807, which begins to 
look at what exactly is the Department and the services 
starting to contract--what are they contracting, to get a 
baseline to see if that is where the Department wants to be, 
whether it is for grass-cutting, intel services, interrogators, 
private security contractors. And I think that is the kind of 
examination that will hopefully begin to answer the question 
that you are asking: Have we gone too far?
    Mr. Coffman. Okay.
    Yes?
    Mr. Hutton. Sir, I might just add to that, as Mr. Solis 
said, knowing what you are buying is important, and in making 
those specific decisions as to what you want to make sure is a 
core capacity of the military or a civilian person can do it.
    But part of that is you really don't know if you are over-
relying on contractors until you know what you are contracting 
for. And there is an aspect of it that I think is important. 
There are certain activity you might be asking a contractor to 
do that might be very sensitive or activities that are closely 
supporting, say, an inherently governmental function. And when 
you are in that arena, I think it is important that the 
government has the capacity to understand and oversee that 
contractor in those situations.
    They also have to think about whether that is something 
that they prefer to use a government person or not. But if they 
have to use a contractor because of the mission expediency, and 
they want to use the government, at that point they have to be 
thinking and doing advanced planning of how they are going to 
bring in the people to be on the government side, if that is 
their policy choice.
    So the government has to have capacity to be able to 
oversee that contractors. And if that number, that ratio gets 
out of balance, I think the government is at risk.
    Mr. Coffman. Okay.
    I served with the United States Marine Corps in Iraq, and I 
think the contractors did a great job. But I don't know if it 
was cost-competitive. I have no idea, just being the end user.
    But there was some criticism, certainly, that I read about 
back home about sole source contracts not bid out on a 
competitive basis, extremely large contracts like Halliburton. 
And I wonder if any of you can comment on that.
    Mr. Parsons. Well, sir, I think the Army recognized that, 
within a few years after the extended operation, that being in 
a position where we just had one contractor providing those 
types of services presented some risk to us. So that is why we 
moved to Wildcat IV, Logistics Civil Augmentation IV, where we 
now have three contractors that compete for that work at the 
task order basis.
    So another lesson learned as we go forward in this is, in 
the future, we should have vehicles that allow multiple 
contractors to perform that work. And then capitalizing upon 
what Mr. Hutton said is, we also need to make sure we have got 
the right number of folks that are available to provide 
oversight of that contractor effort.
    And I think that was the biggest lesson learned that we had 
in Iraq and Afghanistan, is that while you can probably debate 
on whether it is too much contracting or too many contractors, 
I think it was clear we didn't have enough people to do the 
oversight of what we were contracting for. And that is where we 
are working hard to reverse that.
    Mr. Coffman. Okay.
    In this situation that you mentioned with the Humvees, I 
mean, in Kuwait, I think probably you wouldn't have to go that 
far back to where an upper echelon of maintenance would have 
been performed by a maintenance command, in-house military 
organization. And, you know, somebody would have been relieved 
if they had a fail rate at that level in place with somebody, a 
competent military commander.
    Mr. Parsons. Sir, the level of maintenance that was really 
taking place there in Kuwait was above what you find in a 
typical maintenance unit. But you are exactly right, we do have 
experience in doing major overhaul and repair. We weren't 
taking those practices that we use here in the States and 
applying them in an overseas condition, which we have reversed 
since then.
    Mr. Coffman. Okay.
    Thank you, Mr. Chairman.
    Mr. Andrews. Thank you, Mr. Coffman.
    Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Mr. Chairman.
    And thank you to our witnesses.
    I have heard for years, for a long, long time, that 
government ought to run more like a business. I guess my first 
question is to you, Mr. Parsons. And thanks for being here. I 
know it seems like you are the one catching the brunt of this, 
and I apologize for that.
    The cell phone example, when did that initiative begin? 
When did that occur in time, that you had this savings?
    Mr. Parsons. Sir, I don't know the exact date, but I think 
it was in 2006, 2007.
    In fact, there is a report that was sent to the Office of 
Management and Budget (OMB) by OSD in fiscal year 2007 that 
captures a lot of these different initiatives we have in 
strategic sourcing, including the cell phones. So, if the panel 
is not aware of this report, I would recommend that you take a 
look, because I think it has some great examples of where the 
Department has been trying to move in strategic sourcing for 
the last several years.
    Mr. Ellsworth. And I appreciate that, and I applaud those 
efforts. I was just trying to think, when we said that, and we 
didn't bring up the date, I can remember on a much smaller 
level at the Vandenberg County Sheriff's Office, 300 officers, 
we did that same thing when the phones were in big black bags. 
If you remember, we had the antenna on the side that you 
flipped up. And we looked at the cost of phones, and did the 
narcotics officer need it, and how many minutes. I know it is a 
much bigger scale for the United States Army. But we were doing 
those kind of things in 1985 with bag phones. And then, as it 
progressed--and we were just a small sheriff's department.
    And I guess that is my point. Does anybody remember what 
year we were talking about the $400 hammers and the toilet 
seats? Anybody remember what year?
    Mr. Parsons. 1985.
    Mr. Ellsworth. You know, we have been talking about these 
kinds of things for a long, long time. And we are bragging, and 
that is good. I am all for saving $171 million. But 2006, 2007 
on phones, and they are just figuring out that we need to maybe 
work contracts on the cell phones? So maybe we do need to run 
more like a business, not to make a profit, but if businesses 
ran like government did, this economy would be in a lot worse 
shape than it is now.
    I guess my next thing would be: During your testimony, Mr. 
Solis and Mr. Parsons, your poker faces weren't exactly--you 
weren't putting them to use.
    Ms. Baldwin, you did a great job.
    But when you were listening, there were, just in facial 
expressions, Mr. Solis, things that you heard Mr. Parsons say 
during his testimony. Anything you want to bring up, comments 
to what he said?
    Then I will give Mr. Parsons the same chance, because you 
had a few reactions to some of the things Mr. Solis said in 
his.
    And so, any things that you heard in the testimony you 
would like to say, ``Well, that is not exactly right,'' or, 
``We see it a different way?'' And don't fight, please.
    Mr. Hutton. Because I am in the middle.
    Mr. Ellsworth. Yeah, that is right.
    Mr. Solis. I don't know that I would necessarily debate 
what he said. I think, again, what I have seen, not just in 
contract services, but when the Department says, ``We are 
making changes, we have policies in place now,'' I think the 
key is going to be execution and can they pull those things 
off. We talk about the need for more oversight and continued 
oversight, particularly in deployed locations. Is that really 
going to happen?
    And I mentioned at the end of my testimony about 
Afghanistan, there is going to be probably--and there already 
is--a substantial amount of contract support that is going in 
for Afghanistan. Given that we still have a large contractor-
supported force over in Iraq, where are we going to find the 
folks and how are we going to do the oversight in Afghanistan? 
I think the Gansler report said it is going to take a number of 
years to build the acquisition workforce.
    So, again, I think we are at a point where I think a lot of 
people have gotten religion that we need to do better jobs on 
this. The question is, a couple of years from now, a year from 
now, are we going to be in any better shape? What is the 
Department really going to be able to do about that?
    I think if you look even going back to the increases in 
forces that the military has, how many of those folks are going 
be in the acquisition workforce? How are you making provisions 
for those things?
    So there is a lot of work to be done. And I have seen those 
kinds of things, and I think they are promising things, but 
will it be sustained, and can the leadership continue that? I 
think that is the key.
    Mr. Ellsworth. And I think, Mr. Parsons, in your own 
comments on page six about the Global Maintenance and Supply 
Services (GMASS), it says, ``We are beginning to get a handle 
on.'' And you have been at this since 1977. I am just picking 
on you because you are here. But, you know, if we are just now 
beginning to get a handle on this in 2009, where we have been? 
We have been procuring for quite a long time.
    But I would give you a chance. And I know we got the red 
light, but they may give us a second.
    Mr. Parsons. Yeah, well, when I say we are beginning, I 
think really what we are doing is we are taking the lessons 
that we learned out of that GMASS and really now applying that 
across the board when it comes to contract oversight.
    You know, actually, especially from my personal 
perspective, having the GAO go out and identify these 
shortfalls has really been helpful in getting the Department, 
especially the Department of the Army, to realize that this 
contracting business is serious; we are very dependent upon 
contractor support. And we need to put the right type of focus 
on this to make sure that we are doing this properly, not only 
to get the support to the warfighter, but also to make sure 
that we are executing the taxpayer dollars responsibly.
    And, you know, I think we have worked very closely with the 
GAO. I know that Major General Radden, who had responsibility 
of the GMASS contract, followed up with the GAO on the 
improvements we have done there. We have now taken those 
improvements and are spreading that across the command.
    In relation to Afghanistan, I think that the Department 
also recognizes that there is going to be a large contractor 
support mission there. We have the operational commanders 
recognizing that they have to play in that, from the standpoint 
that they have to provide CORs, contracting officer 
representatives. We have recently published a Contracting 
Officer Representative Handbook that goes to all of our 
deployed forces. And, most recently, the commander in 
Afghanistan issued direction to all of his brigades, all of his 
commanders, that they will provide people and get them trained 
to do proper oversight of contracting.
    So I think we are on the right path. And I agree, it is 
frustrating that it has taken as long as it has. But I think as 
long as we keep this focus and continue to get the support out 
of panels like yours in Congress so that we don't fall back 
into the past practices, I think that the warfighter and the 
taxpayer will be better off in the long run.
    Mr. Ellsworth. Thank you all.
    Thank you, Mr. Chairman.
    Mr. Andrews. Thank you, Mr. Ellsworth.
    Mr. Conaway, I think Mr. Cooper had a follow-up question. I 
would obviously offer you the same opportunity, if you would 
like.
    Mr. Conaway. Mr. Parsons and everyone has talked about the 
shortage of personnel in the system. Do you track the number of 
people that you want versus the number of people you have in 
place? And do you have a plan that says, by six years out, five 
years out, whatever it is, you will have those folks fully 
populated? Do you have the resources to do that?
    It may be somewhat dynamic, but how shorthanded are you in 
your system, which, as I suspect--we heard the same thing about 
the weapons systems. They don't have the right number of 
people, as well. So how many people are you short, and how are 
you going to manage to get to that right number? And how long 
will it take?
    Mr. Parsons. When we established the Army Contracting 
Command, if you recall, the Gansler Commission also recommended 
increasing the number of contracting officials we had, both on 
the military and on the civilian side. And this command will 
add about an additional 1,000 civilians and about an additional 
400--700 military.
    Mr. Conaway. 400 to 700?
    Mr. Parsons. 700 additional military.
    Mr. Conaway. What was the 400? You said 400.
    Mr. Parsons. That was a mistake. The total is 700 
additional.
    At our end state, which should be about 2013, between the 
active, the reserve, and the guard, we should have over 1,000 
soldiers that have contracting expertise, which is a three-
fold, four-times increase over what we had at the early days of 
Operation Enduring Freedom (OEF) and Operation Iraqi Freedom 
(OIF). So that will be a marked improvement and will be able to 
give us the type of individuals we need to deploy in 
environments like Iraq and Afghanistan.
    Mr. Conaway. Okay. In order to maintain that end strength, 
though--I mean, those folks get out. You are going to have to 
have a pipeline of folks that would provide that level of end 
strength. Is that possible to do? Is it rational to do?
    Mr. Parsons. Sir, we have a disciplined accessions plan 
that brings a certain number of new officers and new non-
commissioned officers (NCOs) into the contracting workforce 
each year. So we plan that. We know what our exit rates will 
be, our attrition rates, and we plan for that for the new 
accession. So we will have a constant pipeline.
    Mr. Conaway. So why are you shorthanded on the civilian 
side?
    Mr. Parsons. On the civilian side, we are doing the same 
thing. I have hired, out of the additional 1,000, I have about 
400, 450 additional civilians on board since last March.
    Mr. Conaway. So when will you have the other 550?
    Mr. Parsons. Our plan is to try to have those in the next 
two years.
    To be honest with you, our challenge right now is trying to 
hire what we call mid-grade level folks, you know, people that 
have between 5 and 15 or 5 and 20 years of experience. There is 
such a shortage of those across the Federal Government, all the 
federal agencies are competing for them. So what we find 
ourselves doing is hiring a lot of new people, entry-level 
people, and it is going to take time to get them trained and 
experienced.
    But approximately 30 percent of my workforce today on the 
civilian side has less than 5 years of contracting experience.
    Mr. Conaway. You can only hire mid-grade folks who are 
already in the system? You can't hire from the private sector 
at those levels, with equivalent experience?
    Mr. Parsons. It is a challenge to hire them.
    Mr. Conaway. But you can. I mean, there is no restriction 
of hiring somebody in the middle from outside the system.
    Mr. Parsons. Well, if they are outside of Federal 
Government contracting and don't have Federal Government 
contracting experience, it is hard to bring them in at the mid-
grade level. You have to, again, bring them in at entry level, 
unless they have some kind of procurement or purchasing 
experience.
    And I will give you an example. Out at Warren, Michigan, 
near Detroit, where I have a contracting office, we have hired 
a number of former buyers from the auto industry and have 
brought them in and get them up to speed rather quickly.
    Mr. Conaway. Okay. So there is no legislative or regulatory 
restriction to doing that. It is just finding the right people.
    Mr. Parsons. Correct.
    Mr. Conaway. Okay.
    Thank you, Mr. Chairman.
    Mr. Andrews. Mr. Cooper, did you have a follow-up question?
    Mr. Cooper. Thank you, Mr. Chairman. I just wanted to give 
Mr. Parsons another chance, given his 32-year career in 
contracting, to help us find some more horror stories.
    Mr. Parsons.
    Mr. Parsons. Sir, I am a little bit perplexed on how to 
answer the horror stories. I mean, my experience over the 32 
years is that we aren't always as efficient as we should be in 
the way we acquire goods and services. But I think as the GAO 
has pointed out, and I think based on my experience, it really 
starts with the requirements definition. And do you really know 
what it is you are buying? Do you really understand what it is? 
And then how best do you execute that?
    Mr. Cooper. Thank you, Mr. Parsons, but those are 
generalities. How many contractors have been banned from doing 
DOD work in cases that you have supervised?
    Mr. Parsons. Cases that I supervised.
    Mr. Cooper. Or been directly involved with or knowledgeable 
about.
    Mr. Parsons. In 32 years, I would just say a handful that I 
have been involved with----
    Mr. Cooper. Can you remember the details of any of those 
cases?
    Mr. Parsons. Well, certainly the one that I have testified 
before, having to do with A.E. Yates Ltd. (AEY) delivering 
ammunition to the Afghanistan army, is one that I was 
personally involved with.
    Mr. Cooper. So you were involved with that? Faulty 
ammunition. This was faulty World War I or II ammunition?
    Mr. Parsons. This was a situation where the contractor was 
delivering ammunition that had its origins in China, which was 
prohibited by contract and prohibited by law.
    Mr. Cooper. And these were two young people who had been 
given this government contract with little, if any, prior 
experience, if the newspaper reports were correct?
    Mr. Parsons. Correct.
    Mr. Cooper. How were they chosen as a suitable contractor?
    Mr. Parsons. Sir, the process, the acquisition process, 
does not discriminate based on age. It does not discriminate 
based on the extent of contracts they have had before. There 
was a deliberate process that went through. There were some 
gaps in that process. The contracting officer was not aware of 
some poor performance by that contractor. I think----
    Mr. Cooper. They had no experience, right? They were two 
college kids who, like, thought they would get in the business.
    Okay, that is two examples you have given us. Is there a 
third?
    Mr. Parsons. Sir, really, you know, again, if I gave it 
some thought, I am sure I could come up with some other 
examples of where I have seen some poor----
    Mr. Cooper. Well, maybe we can hold the record open so you 
can supply us some written examples.
    [The information referred to can be found in the Appendix 
on page 85.]
    Mr. Parsons. Okay.
    Mr. Cooper. Final point, if the chairman would indulge me. 
I would be curious, especially from our GAO friends, about how 
many pages of regulations regarding purchasing that there are. 
Like, is it possible for a human being in any one of Mr. 
Parsons's 115 contracting locations to completely master the 
material?
    Mr. Hutton. I can't tell you how many pages, but I believe 
it is a very thick--if you are talking about the Federal 
Acquisition Regulations, it is very thick. It is probably 
thousands of pages.
    But if I can make one comment, because you are asking for 
horror stories, my observation would be it is difficult because 
you don't know--you wouldn't know any horror stories unless you 
have real good contractor surveillance. And that has been one 
issue that we have been pushing on. Typically, the examples are 
coming because auditors have gone in later and identified some 
of these.
    I would like to loop back, though, to what the DOD is 
trying to do, which I hope will either prevent horror stories 
or help them find them themselves and be able to take 
corrective actions. That would be when they are looking at the 
pre-award and post-award as part of their peer review process, 
where they bring people in and look at how they are defining 
their requirements, are they getting sufficient competition, 
things like that, before the award, and then in the post-awards 
where you go evaluate.
    And that is where I think your question about value comes 
in, too, in their post-award peer review--and this is all new. 
I don't know to what extent they have executed this yet, but it 
is in their 5000.2 directive on acquiring acquisitions. It is 
in the post-award review where I think you are going to start 
seeing, if it is executed, you start getting insights: Did we 
get value? Did we get what we paid for? And are there lessons 
learned? And you loop it back to the pre-award.
    So I think, conceptually, those are key factors. But I am 
not surprised he might be hard-pressed, because we have been 
saying time and time again that surveillance of contractor 
performance has been a weakness.
    Mr. Cooper. With the Chairman's continued indulgence, this 
is pretty amazing. It is like quicksand. To find out more about 
service contracting, we have to have more service contractors. 
And already the body of knowledge is so great, it is probably 
difficult for any individual to master.
    I am almost wondering, what if we repealed all those regs? 
What if we paid Mr. Parsons on commission to do a good job? 
That might completely change the incentive structure. Because 
today we have an extremely paper-intensive, bureaucratic, where 
it is difficult to even, after 32 years of experience, to list 
more than two examples of things that kept you up at night, 
things that were embarrassing for the government or the 
taxpayer. Not that it is Mr. Parsons's fault or anyone's fault, 
but were these Afghan munitions contractor kids, are they still 
eligible to contract for the Federal Government?
    So those are two folks who were banned, okay.
    It is just, you know, most people in a business career 
would have a lengthy list of things they wish they had done 
differently. And we seldom, if ever, hear about those things. 
Occasionally we read about them in the newspaper. But there has 
to be a better system.
    We have attempted to reform this 130 times since World War 
II. We haven't gotten it right. So what is it going to take new 
to do it right? We haven't even been able to get Ms. Baldwin's 
information transferred to the other services. You know, it is 
just like--it is a quagmire. So how do you wiggle your way out 
of a quagmire? I am not finding good proposals.
    Mr. Andrews. Well, that is a good place to segue because I 
was going to ask the panel, both to tell us now and then we 
will keep the record open for written recommendations, as to 
what legislative changes you might like to see us enact to 
address the problems we heard about this morning.
    Ms. Baldwin, do you have any ideas for us?
    [The information referred to can be found in the Appendix 
on page 85.]
    Ms. Baldwin. I have ideas. I am not sure how to turn them 
into legislation in a way that would be most effective.
    But I think there are several themes coming out of these 
discussions. One is the problems with requirements for setting 
the right kinds of contracts for managing these service 
acquisitions in the right way.
    And I think a key point that hasn't come up in discussion 
today is the need for the military departments to really 
understand the nature of the industries that they are dealing 
with, to have people who understand the services they are 
buying, who have worked in those industries, for example, who 
understand how to write requirements; what are the key points 
that the contractor needs to know? How to write contracts in 
the best way; what are the typical kinds of contracts that are 
used? What are the pitfalls associated with different options? 
And how to evaluate performances of those services in the right 
way; what do we look for when we are evaluating whether or not 
a contractor has performed well?
    So I think that is a key part of this process that the DOD 
is still struggling with and needs to be able to move forward 
with, but I don't know how to write that into legislation.
    Mr. Andrews. Well, as I say, we would keep the record open 
for any ideas you would have as to how to pursue that.
    Mr. Solis, Mr. Hutton, does the GAO have some legislative 
recommendations?
    Mr. Solis. Well, looking at what the Congress has already 
done, I think there is already quite a bit out there. And I 
think it is probably a good time maybe to even sit back and 
say, what has the Department responded to?
    And, again, I keep coming back to 807. The Army has begun 
to provide some of that type of information. The Navy and the 
Air Force have yet to do that. And I don't know exactly where 
they are at. But I think that would be a key in following up on 
a lot of the legislation that is already in existence to make 
sure that the Department is complying. Because I think then you 
are going to begin to get some of the answer to your questions, 
I believe.
    And I guess there are other policies that are already out 
there that the Department has begun to do. And I think 
following up to making sure that those are executed, I think, 
are the key.
    Mr. Andrews. Mr. Hutton.
    Mr. Hutton. The only thing I would add is that oftentimes 
when we do our work and GAO tries to prepare itself when we go 
in and look at contracts--and, as I mentioned earlier, the 
Federal Acquisition Regulations has a lot of practices and 
guidance as to how things should be done. And what we find is 
that oftentimes the guidance is there but it is just not done.
    And I think that is, again, how do you translate policies 
and regulations into execution? Is it a matter of sufficiently 
amount of trained acquisition professionals, for example?
    The only way I think--one way you can get to good 
requirements, particularly in an area of service contracting 
where it is a little more difficult to define the requirements, 
you have to make sure you allow yourself some time and you have 
the right folks together talking about how you write that 
requirement.
    As I mentioned earlier, it is a fact that oftentimes it is 
the rush to get the contract award, and there is a little less 
focus on the requirements and the back end on oversight.
    Mr. Andrews. Thank you.
    Mr. Parsons, what do you think?
    Mr. Parsons. Sir, I have to agree with the General 
Accountability Office here. I don't think there is a real need 
for additional legislation, because I think the Congress has 
put a lot of legislation in place having to deal with service 
contracts that is trying to force discipline in the way we 
manage those. And I think really the question is, are we 
following through on those? I think the Army is following 
through on those legislative initiatives.
    The other thing that I would encourage the Congress to do, 
though, is also keep up the focus on the training of the 
acquisition workforce and ensuring that the Department sets 
aside the proper funds to train. I think section 852, which was 
passed in the National Defense Authorization Act (NDAA), is 
very critical for our line of business, and we need to keep 
that focus.
    I think a lot of it is just how well are we following 
through on the initiatives that Congress has already put in 
place for these things.
    Mr. Andrews. Well, thank you. I am struck, in concluding 
this morning's hearing, by two points. One is about enormity; 
the other is about irony.
    The enormity is I come from a state that is a large, 
expensive state to live in. We will spend in one year in the 
acquisition of services for the Department of Defense what my 
state will spend in six years to run the affairs of the state 
government. This is an enormous, enormous issue. Since we have 
met this morning, the United States taxpayers have spent about 
$35 million during this hearing to acquire services. That is 
the enormity.
    The irony is that we have the best military in the world 
because we have mastered data. Our warfighters know more about 
the battle space than anybody else does, sooner than anybody 
else does, so they can make decisions that are far more 
effective and, when necessary, lethal than anybody else can. It 
is why we are as powerful as--and, frankly, because the people 
we empower with data are as well-trained and as courageous and 
as skilled as they are.
    It is supremely ironic to me that we know so little, we 
have so little data about such an enormous amount of money. And 
I am not ascribing blame to anyone sitting here this morning, 
other than us, frankly. But what I am hearing out of this is 
that we really don't have the tools to get our arms around the 
scope of this issue.
    The cell phone example is a really interesting one because 
it is a success story. But Mr. Ellsworth's question is very 
pointed as to, why such a tardy success? It seems kind of self-
evident. I think Mr. Coffman's questions about the distinction 
between very complex services that we buy and very simple 
services that we buy is another good one.
    So I think one of the projects of the panel is to think 
about a way to collect in one place and hold one organization 
accountable for this information.
    I mean, I will come back to one question I asked, which I 
am convinced there is no answer to: Of the $200 billion we will 
obligate for service acquisition this year, how much value are 
we getting? Are we getting $200 billion worth of value? Are we 
getting $170 worth of value? Are we getting $230 billion worth 
of value?
    I am convinced that we just don't know, and that is very 
troubling. If I were the shareholder of a company whose Chief 
Financial Officer (CFO) could not answer that question, I would 
sell my stock. I am not selling my stock in the United States 
of America, particularly in the Department of Defense. I mean, 
the success story of the Department of Defense is that it does 
a great job defending this country. But I think it could do a 
greater job if we could figure this out.
    And, you know, I keep coming back--and we will conclude 
with this story about the food contract in Iraq. Iraq is, by 
definition, probably the most hostile environment on the face 
of the Earth today. A lot had to be done in a hurry. You don't 
want people to be arguing about contracts when people are 
hungry; you have to feed them. I understand all that.
    And, again, that would explain to me why, you know, 
vegetarian meals weren't readily available for soldiers that 
needed them. Or it might explain why certain religious 
preferences couldn't be honored at first. That explains a lot 
of that. Or that certain meals had to be Meals, Ready-to-Eat 
(MREs) for an extended period instead of refrigerated meals. 
But not to figure out whether you are paying on a per capita 
basis or fixed price is--wow. I mean, to have a situation where 
that can happen is very troubling.
    So, listen, what is not troubling is your efforts this 
morning. We appreciate them very, very much.
    And we will hold the record open to receive requests from 
the questions my colleagues have asked.
    The panel is going to proceed down this road of trying to 
develop better metrics. And then our next step will be to look 
at the hypotheses that have been generated over the years, over 
the 131 reports, as to what the problems are, both in this 
service contracting area and the hardware area.
    So, ladies and gentlemen, we appreciate your participation 
this morning. And the panel is adjourned.
    [Whereupon, at 9:30 a.m., the panel was adjourned.]
      
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                            A P P E N D I X

                             April 23, 2009

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              PREPARED STATEMENTS SUBMITTED FOR THE RECORD

                             April 23, 2009

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    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
      
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              WITNESS RESPONSES TO QUESTIONS ASKED DURING

                              THE HEARING

                             April 23, 2009

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            RESPONSES TO QUESTIONS SUBMITTED BY MR. ANDREWS

    Ms. Baldwin. No recommendations for legislative changes. [See page 
25.]
    Mr. Parsons. Chairman Andrews, let me say that as far as I am 
concerned, almost everything that we've asked from Congress has in fact 
been enacted in some form of legislation to support us. At the present 
time I think what we need to do is utilize the flexibilities and 
capabilities that Congress has given us to move forward. [See page 27.]
?

      
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              QUESTIONS SUBMITTED BY MEMBERS POST HEARING

                             April 23, 2009

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

      
                   QUESTIONS SUBMITTED BY MR. ANDREWS

    Mr. Andrews. RAND was asked by the Air Force to help develop 
measures that would allow the newly established Air Force services 
contracting office to assess the health of its acquisition efforts and 
analyze problems and make corrections.
    To your knowledge has the Air Force undertaken the recommendations 
made in your report? Could your recommendations apply to all the 
services?
    Ms. Baldwin. I have not worked with the Air Force's Program 
Executive Officer (PEO) for services in several years, and as a result 
am not aware of whether, or to what degree, the Air Force has 
implemented our recommendations. I believe our recommendations could 
apply to all of the military Services.
    Mr. Andrews. GAO has found that the Department lacks a strategic 
approach to managing services, and needs to develop methods to assess 
risk when acquiring services.
    Do you have any comments on this?
    Ms. Baldwin. I have no comment beyond the recommendations found in 
my official written statement.
    Mr. Andrews. It has been suggested that the Department of Defense 
(DOD) establish centers of excellence for services contracting, and 
some moves have already been made in this direction, such as the Air 
Force's services contracting office.
    In your opinion, would DOD benefit from centralizing the 
contracting of services to a greater degree in order to capitalize on 
best practices and the Department's buying power?
    Or, would the establishment of separate services contracting 
offices lead to great bureaucracy and restrict communication between 
those monitoring performance and those awarding new contracts?
    Ms. Baldwin. I have not studied the costs and benefits of further 
centralization of services contracting at the DOD level, and so have no 
comment on the development of DOD centers of excellence.
    Mr. Andrews. GAO has found that DOD has made few efforts to collect 
information and share lessons learned regarding oversight and 
management of contractors supporting deployed forces. But that is just 
a microcosm of the larger universe of services contracting.
    In your opinion, would greater visibility on all contracted 
services help agencies better measure the value of those contracts?
    If so, what suggestions do you have on how to provide that 
visibility?
    Ms. Baldwin. I agree that greater visibility of all contracted 
services would help agencies better track expenditures on services 
contracts to determine if the taxpayer is getting good value for money. 
Some of our recent research has highlighted the importance of 
standardized collection and reporting of contracting data to do this 
(see Analyzing Contracting Purchases for Operation Iraqi Freedom, Laura 
H. Baldwin, et al., MG-559/1-AF, The RAND Corporation, Santa Monica, 
CA, 2008). Some important steps have already been taken in this 
direction. For example, the Joint Contracting Command Iraq/Afghanistan 
(JCC-I/A) maintains a data system called the Joint Contingency 
Contracting System (JCCS), which contains information on what is 
purchased, by whom, from whom, and for whom in Iraq and Afghanistan.
    Mr. Andrews. One of the most important challenges facing agencies 
today has been the move toward more performance-based contracts to meet 
mission and program needs.
    Has RAND conducted any reviews of performance based contracts 
within DOD? If so, has RAND assessed whether DOD has been able to 
adequately determine whether the value or risks associated with this 
type of contracting can be measured accurately? Also, has RAND assessed 
whether DOD has adequate systems in place to compare alternative 
options?
    Ms. Baldwin. In 2001 RAND conducted a study of Air Force 
performance-based contracting (Performance-Based Contracting in the Air 
Force: A Report on Experiences in the Field, DB-342-AF, John Ausink and 
Frank Camm, The RAND Corporation, Santa Monica, CA, 2001). This work 
examined the experiences of 15 Air Force bases that were responsible 
for the successful implementation of 22 performance-based contracts 
awarded between FY 1998 and FY 2000. The study found that Air Force 
personnel were generally pleased with the results of performance-based 
services acquisition as well as with many of the practices it 
encourages, including teamwork, market research, and the use of past-
performance data in evaluating offerors. However, the study also found 
that no effort had yet been made to compare the performance of current 
contractors hired using PBSA practices with that of their predecessors 
hired through other practices, pointing to a need for more assiduous 
data collection on the efficacy of the PBSA approach to acquiring 
services. This work did not assess the adequacy of Air Force or DOD 
systems to compare alternative contracting options.
    Mr. Andrews. In Performance based logistics contracts, in your 
opinion what types of cost metrics should be included to ensure that 
costs are being reduced as intended?
    Ms. Baldwin. While I have not studied performance-based logistics 
contracts specifically, our research on services contracting (Air Force 
Service Procurement: Approaches for Measurement and Management, Laura 
H. Baldwin, et al., MG-299, The RAND Corporation, Santa Monica, CA, 
2005) indicates that commercial firms use at least three basic types of 
metrics to track cost savings. The first is to examine internal costs 
by, for example, comparing current spending to that of a previous 
period (adjusting for inflation), or comparing costs for a particular 
service across divisions within the firm to determine if there are 
opportunities to reduce costs. A second approach is to compare the 
firm's change in costs for a particular service to the change in the 
relevant market cost index. For example, if the firm's costs increased 
by 3% while the market index increased by 5%, the firm has essentially 
achieved a net savings of 2%. A third basic cost metric is the return 
on investment of a new approach: dividing the reduction in expenditures 
by the cost of the new procurement activities that led to the realized 
savings.
    Mr. Andrews. Under a Performance Based Logistics contract, what 
steps should DOD take to ensure that the right balance is struck 
between giving the contractor sufficient autonomy to manage the 
resources to achieve the performance objectives and ensuring that an 
adequate level of competition is maintained to incentivize performance?
    Ms. Baldwin. I have not addressed performance-based logistics 
contracts in my research to date.
    Mr. Andrews. Service contracting is often viewed as being less 
complex than purchases for products. However, service contracting now 
makes up approximately 60 percent of the Department's budget and 
includes weapon systems and support and IT systems.
    Do you believe the Department has the tools to measure value on 
services contracting to support the warfighter in terms of ensuring 
that contractor supported services are provided on a timely basis and 
in an economical and efficient manner?
    Mr. Hutton and Mr. Solis. To ensure the Department receives value 
when using contractors to support its mission or operations, it is 
essential that DOD employ sound practices--clearly defining its 
requirements, using the appropriate contract type, and properly 
overseeing contract administration. Our work, however, has repeatedly 
identified problems with the practices DOD uses to acquire services. 
Further, an overarching issue that impacts DOD's ability to properly 
manage its growing acquisition of services is having an adequate 
workforce with the right skills and capabilities. Collectively, these 
problems expose DOD to unnecessary risk and make it difficult for the 
Department to ensure that it is getting value for the dollars spent. 
Although DOD has taken steps to improve the planning, execution, and 
oversight of services acquisitions, remaining concerns with the 
Department's management and use of service contracts are among the 
reasons why we continue to include DOD's contract management on our 
high-risk list.
    Mr. Andrews. GAO has found that the Department lacks a strategic 
approach to managing services and needs to develop methods to assess 
risks when acquiring services. Would you detail what actions DOD needs 
to take to develop such an approach?
    Mr. Hutton and Mr. Solis. In November 2006, we made six 
recommendations to put DOD in a position to proactively manage service 
acquisition outcomes and to assist DOD in identifying specific 
solutions at the strategic and transactional levels.\1\ In this regard, 
we recommended that the Secretary of Defense
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    \1\ GAO, Defense Acquisitions: Tailored Approach Needed to Improve 
Service Acquisition Outcomes, GAO-07-20 (Washington, D.C.: November 9, 
2006).

      establish a normative position of how and where service 
acquisition dollars were currently and will be spent (including volume, 
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type, and trends);

      determine areas of specific risk that were inherent in 
acquiring services and that should be managed with greater attention 
(including those areas considered sensitive or undesirable in terms of 
quantity or performance);

      on the basis of the above, clearly identify and 
communicate what service acquisition management improvements were 
necessary and the goals and timelines for completion;

      ensure that decisions on individual transactions were 
consistent with DOD's strategic goals and objectives;

      ensure that requirements for individual service 
transactions were based on input from key stakeholders; and

      provide a capability to determine whether service 
acquisitions were meeting their cost, schedule, and performance 
objectives.

    DOD concurred with our recommendations and agreed that a more 
coordinated, integrated, and strategic approach for acquiring services 
is needed. We currently have ongoing work to assess DOD's management, 
oversight, and execution of its service contracts. We plan to issue a 
report later this year.
    Mr. Andrews. It has been suggested that the Department of Defense 
establish centers of excellence for services contracting and some moves 
have already been made in this direction, such as the Air Force's 
services contracting office.
    In your opinion, would DOD benefit from centralizing the 
contracting of services to a greater degree in order to capitalize on 
best practices and the Department's buying power?
    Or would the establishment of separate services contracting offices 
lead to greater bureaucracy and restrict communication between those 
monitoring performance and those awarding new contracts?
    Mr. Hutton and Mr. Solis. We have not specifically assessed the 
merits of establishing centers of excellence for service contracts on a 
departmentwide basis or the Air Force's specific approach as a means to 
improve service acquisition outcomes. It is important to note, however, 
that DOD's size, the range and complexity of the services it acquires, 
the multiple sources of risk, and the wide variety of organizations 
that are involved in individual acquisitions are among the factors that 
may preclude DOD from developing an ideal, ``one-size-fits-all'' 
departmentwide review process or organizational structure. Further, 
these challenges may require DOD to pursue a number of different 
approaches depending on its needs and requirements. For example, we 
have recommended that DOD conduct additional analysis of its spending 
on service contracts to identify opportunities to leverage its buying 
power and identify opportunities to achieve other procurement 
efficiencies, consider whether cross-functional teams would improve the 
coordination and management of service acquisitions, and assess whether 
it would be beneficial to establish full-time dedicated commodity/
service managers to provide more effective management of key services. 
DOD has generally agreed with these recommendations and has taken steps 
to address our concerns.
    Mr. Andrews. GAO has found that DOD has made few efforts to collect 
information and share lessons learned regarding oversight and 
management of contractors supporting deployed forces. But that is just 
a microcosm of the larger universe of services contracting.
    Would greater visibility on all contracted services help agencies 
better measure value of these contracts?
    What suggestions do any of you have on how to provide that 
visibility?
    Mr. Hutton and Mr. Solis. We do believe that DOD would benefit from 
having greater visibility on its services contracts. As we reported in 
November 2006, DOD lacked good information on the volume and 
composition of service acquisitions, perpetuating the circumstance in 
which the acquisition of services tended to happen to DOD, rather than 
being proactively managed.\2\ We made six recommendations to put DOD in 
a position to proactively manage service acquisition outcomes, 
beginning with improving its knowledge on how and where service 
acquisition dollars were being spent and the desired volume of spending 
by type of service in the future. While DOD agreed with these 
recommendations, DOD still lacks basic data about its service contracts 
that could help it determine how it contracts for services and how 
reliant it is on contractors. For example, at this time, the Department 
does not have complete and accurate information on the number of 
service contracts in use, the services being provided under those 
contracts, and the number of contractors providing those services, and 
the number and types of contracts awarded. Section 807 of the National 
Defense Authorization Act for 2008 required DOD to provide Congress an 
annual inventory of contractor-provided services, to include 
information on the missions and functions of the contractor, the number 
of full-time contractor employees paid for performing the activity, and 
the organization whose requirements are being met through contractor 
performance.\3\ In addition, this provision required the military 
departments to review the inventory to identify activities that should 
be considered for conversion to performance by DOD civilian employees 
or to an acquisition approach that would be more advantageous to DOD. 
The first inventory was to have been reported to Congress not later 
than June 30, 2008. As we noted during the testimony, only the Army had 
begun the process to comply with this requirement. According to DOD 
officials, the Air Force and Navy will issue their prototype 
inventories in the third quarter of fiscal year 2009. Collectively, 
these inventories, if successfully completed, could provide DOD with 
the enhanced visibility on its spending on contractor-provided services 
and allow for more strategic decision making.
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    \2\ GAO-07-20.
    \3\ P.L 110-181, January 28, 2008.
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    With regard to contractors supporting deployed forces, we would add 
that in late 2008, DOD began an effort, directed by the Chairman of the 
Joint Chiefs of Staff, to examine the Department's use of service 
contracts in Iraq and Afghanistan. The purpose of this effort is to 
improve DOD's understanding of the range and depth of contractor 
capabilities necessary to support the Joint Force. The study is to 
address where DOD is most reliant on contractor support and may help 
inform longer term force structure issues such as the potential for 
increasing DOD's military and civilian work force in order to in-source 
services currently provided by contractors. At the departmentwide 
level, however, DOD had yet to conduct the type of fundamental 
reexamination of its reliance on contractors that we called for in 
2008.\4\
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    \4\ GAO, Defense Management: DOD Needs to Reexamine Its Extensive 
Reliance on Contractors and Continue to Improve Management and 
Oversight, GAO-08-572T (Washington, D.C.: Mar. 11, 2008).
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    Mr. Andrews. What is the difference between Advisory and Assistance 
Services and consulting services?
    What recommendations do you have for improving acquisition outcomes 
for these types of services?
    Mr. Hutton and Mr. Solis. Advisory and assistance services (A&AS) 
and consulting services may be thought of, for all practical purposes, 
as being one and the same; indeed, advisory and assistance services 
were previously referred to as consultant services. A&AS are services 
intended to be used by federal agencies to acquire three broad areas of 
services: management and professional support; studies, analyses, and 
evaluations; and engineering and technical services.\5\
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    \5\ For additional information on the challenges with accurately 
reporting on the amount agencies obligate on A&AS contracts in the 
President's Budget, see GAO, Federal Contracting: Congressional Action 
Needed to Address Long-standing Problems with Reporting of Advisory and 
Assistance Services, GAO-08-319 (Washington, D.C.: March 31, 2008).
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    With regard to improving acquisition outcomes for these types of 
services, we have noted that factors contributing to promoting 
successful outcomes on individual service contracts include having 
clearly defined and valid requirements, the use of sound business 
arrangements, and effective contractor management and oversight. These 
factors apply to all service contracts, including those for A&AS.
    Mr. Andrews. One of the most important challenges facing agencies 
today has been the move toward more performance-based contracts to meet 
mission and program needs.
    Has GAO assessed whether DOD has been able to adequately determine 
whether the value or risks associated with this type of contracting can 
be measured accurately?
    Mr. Hutton and Mr. Solis. We have not recently assessed DOD's 
overall use of performance-based contracting approaches \6\ and 
therefore cannot comment on a broader level. We have, however, assessed 
DOD's use of performance-based logistics (PBL) arrangements, a specific 
type of a performance-based approach, which illustrates some of the 
challenges agencies face when implementing performance-based 
approaches.\7\ PBL is defined by DOD as the purchase of performance 
outcomes (such as the availability of functioning weapon systems) 
through long-term support arrangements, rather the purchase of 
individual elements of support, such as parts, repairs, and engineering 
support.
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    \6\ To help improve service acquisition outcomes, federal 
procurement policy calls for agencies to use a performance-based 
approach to the maximum extent practicable. This approach includes a 
performance work statement that describes outcome oriented 
requirements, measurable performance standards, and quality assurance 
surveillance.
    \7\ For additional information on the challenges an agency may face 
when attempting to employ performance-based approaches, see GAO, 
Department of Homeland Security: Better Planning and Assessment Needed 
to Improve Outcomes for Complex Service Acquisitions, GAO-08-263 
(Washington, D.C.: April 22, 2008).
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    DOD has not been able to adequately determine the value and risks 
associated with PBL arrangements. Two key limiting factors are (1) 
deficiencies in DOD's use of business case analysis and (2) 
insufficient cost data from existing arrangements. Although DOD's 
guidance recommends that business case analyses \8\ be used to guide 
decision making regarding the implementation of PBL to provide weapon 
system support, and that the analyses be updated at key decision points 
both to validate the approach taken and to support future plans, we 
found that the services are not consistent in their use of such 
analyses.\9\ About half of the DOD program offices responsible for the 
29 PBL arrangements we reviewed either did not use a business case 
analysis (or economic analysis) or could not provide documentation for 
significant parts of their analyses. Even when business cases were 
prepared, we found that program offices often did not update them in 
accordance with DOD's guidance and service policies. Additionally, most 
of the analyses we reviewed did not identify and quantify the benefits 
that could be expected from contractor incentives to increase 
reliability or improve processes to reduce support costs, nor recognize 
or quantify the costs associated with the transfer of risk that occurs 
under a performance-based support arrangement.\10\ The lack of detailed 
and standardized cost data maintained by program offices further limits 
DOD's evaluation of PBL costs, as many factors influence the overall 
costs of weapon system support. Despite DOD guidance issued in 2004 
stating that PBL contracts shall include cost reporting requirements to 
support contract management and future cost estimating and price 
analysis,\11\ we found that program offices generally did not receive 
detailed cost data and only knew the overall amounts paid for support.
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    \8\ A business case analysis is an analytical tool for assessing 
the projected costs, benefits, and risks of a PBL arrangement compared 
with other alternative weapon system support options.
    \9\ GAO, Defense Logistics: Improved Analysis and Cost Data Needed 
to Evaluate the Cost-effectiveness of Performance Based Logistics, GAO-
09-41 (Washington, D.C.: Dec. 19, 2008).
    \10\ These arrangements transfer responsibility for making support 
decisions--and corresponding risk--to the support provider, and risk is 
one of the major cost drivers for contractors. Therefore, the use of 
performance metrics could introduce a large element of risk for the 
contractor that may be built into the costs of such an arrangement.
    \11\ Under Secretary of Defense (Acquisition, Technology and 
Logistics), Memorandum, Performance Based Logistics: Purchasing Using 
Performance Based Criteria (Aug. 16, 2004).
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    Mr. Andrews. Has GAO assessed whether DOD has adequate systems in 
place to compare alternative options, especially when a performance 
based logistics contract is being considered?
    Mr. Hutton and Mr. Solis. DOD does not have adequate systems in 
place to compare alternative support options when considering 
performance based logistics arrangements. Although DOD's guidance 
recommends that business case analyses be used to guide decision making 
regarding the implementation of PBL to provide weapon system support, 
we found that the use of these analyses was not consistent among the 
services because DOD did not require that the analyses be conducted and 
updated and did not provide specific criteria to guide their 
development.\12\ In addition, we noted that DOD, in updating its 
Defense Acquisition Guidebook,\13\ no longer specifically recommends a 
business case analysis as a best practice; rather, it recommends the 
development of a ``support strategy analysis'' as part of the PBL 
implementation process. According to the guidebook, the support 
strategy analysis can be a business case analysis, economic analysis, 
decision-tree analysis, or other best-value-type assessment. Most of 
the services eventually issued some policies and guidance for business 
case analyses. However, with the exception of the Army, the services 
have not established the internal controls, including a review and 
approval process, necessary to ensure that business case analyses are 
conducted prior to PBL implementation and updated after implementation. 
DOD fully concurred with our recommendations to require the development 
of a business case analysis to support the decision-making process 
regarding weapon system support alternatives, including PBL, and to 
require that each service revise guidance to implement internal 
controls to ensure that program offices prepare and update business 
case analyses. DOD stated that the Department will take steps to 
require the use of business case analyses in the next iteration of 
DOD's acquisition regulations. DOD also stated that the Army's internal 
controls will be reviewed by its Life Cycle Product Support Assessment 
Team, which will make recommendations for expansion of DOD-wide policy 
as part of the team's overall recommendations. DOD partially concurred 
with our recommendation to revise PBL business case analysis guidance 
to clearly define what should be included in a business case analysis 
and to establish specific criteria and methods for evaluating PBL 
support arrangements, stating that the Life Cycle Product Support 
Assessment Team will review existing business case analysis policy. The 
Department will evaluate the team's recommendations on providing 
specific criteria and methods for evaluating support arrangements and 
determine how best to incorporate these recommendations into mandatory 
policy.
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    \12\ DOD had previously issued guidance for using economic analysis 
in the Department's decision making (DOD Instruction 7041.3, Economic 
Analysis for Decisionmaking, November 7, 1995), and this guidance 
recommends the analysis of both quantitative and qualitative factors. 
However, when DOD in 2001 recommended the development of a business 
case analysis prior to implementing a PBL arrangement, it provided 
little criteria for conducting such an analysis.
    \13\ The Defense Acquisition Guidebook provides an interactive, 
online reference to policy and discretionary best practices. The 
guidebook is available at https://akss.dau.mil/dag/.
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    Mr. Andrews. In PBL contracts, what types of cost metrics should be 
included to ensure that costs are being reduced as intended?
    Mr. Hutton and Mr. Solis. While it is the agency's role to 
determine what type of cost metrics should be used, GAO has recommended 
DOD collect detailed, standardized cost data to support effective 
program management. While DOD has identified performance-based metrics 
for PBL arrangements, it has not specified metrics for ensuring that 
costs are being reduced as intended. DOD guidance issued in 2004 
directed PBL arrangements to be constructed to purchase performance, 
which is defined using criteria such as cost per unit usage, 
operational availability, operational reliability, logistics footprint, 
and logistics response time. The guidance recommended that PBL metrics 
be tailored to reflect the unique circumstance of the arrangement, but 
still support these desired outcomes and that performance measures be 
tailored by the Military Departments to reflect the unique 
circumstances of the PBL arrangement. Many of the 29 PBL arrangements 
we reviewed did not contain cost metrics. Some of the aviation PBL 
arrangements we reviewed were negotiated on a cost per flight hour 
basis, but none of the non-aviation PBL arrangements included a similar 
cost per unit of usage metric. As previously mentioned, the lack of 
detailed and standardized cost data maintained by the program offices 
also limited the evaluation of PBL costs, as many factors influence the 
overall costs of weapon system support. Based on our work, we 
recommended that DOD require program offices to collect and report 
support cost data for PBL arrangements in a consistent, standardized 
format with sufficient detail to support traditional cost analysis and 
effective program management. DOD partially concurred and stated that a 
provision for tailored cost reporting for major acquisition programs 
designed to facilitate future cost estimating and price analysis has 
been included in the draft DOD Instruction 5000.2.\14\ Additionally, 
the Life Cycle Product Support Assessment Team is reviewing support 
cost reporting and cost analysis as a part of its ongoing study. 
According to DOD's response, the ultimate goal is standardized support 
cost reporting for all life cycle product support efforts, to include 
support provided by government activities.
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    \14\ DOD Instruction 5000.02, Operation of the Defense Acquisition 
System, was issued on December 8, 2008.
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    Mr. Andrews. Under a performance based logistics contract, what 
steps should DOD take to ensure that the right balance is struck 
between giving the contractor sufficient autonomy to manage the 
resources to achieve the performance objectives and ensure that an 
adequate level of competition is maintained to incentivize performance?
    Mr. Hutton and Mr. Solis. While our PBL work has not directly 
addressed this question, in 2004 we compared industry practices for 
activities using complex and costly equipment with life-cycle 
management issues similar to those of military systems to identify 
lessons learned that could be useful to DOD.\15\ In general, company 
officials said that performance-based contracts are a tool most often 
used selectively in a noncompetitive environment in an effort to 
control cost and reduce risk. Our review found that while 7 of the 14 
companies interviewed used some type of performance-based contracting, 
it was used at the subsystem or component level--for commodities such 
as engines, wheels, and brakes--and it was generally used for older 
systems. Company officials said that performance-based contracting 
works better for subsystems and components where available cost and 
performance data are sufficient to establish a good business case 
analysis, noting that this is more difficult to accomplish for new 
systems, where performance data are uncertain. In general, company 
officials said they relied more widely on other contracting vehicles, 
such as time and material contracts, particularly for newer systems 
that don't have a performance history. We also found no private-sector 
performance-based contracts being used at the platform level. Instead, 
company representatives preferred to retain the program integration 
function that they considered a core function essential to the success 
of their business operations. Additionally, they preferred to (1) take 
advantage of competition when it is available for subsystems or 
components, (2) gain purchasing power from volume discounts on 
subsystems or components across their entire fleet, and (3) avoid the 
administrative costs that would be charged by a prime integrator for 
managing subcontractors.
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    \15\ GAO, Defense Management: Opportunities to Enhance the 
Implementation of Performance-Based Logistics, GAO-04-715 (Washington, 
D.C.: Aug. 16, 2004).
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    Mr. Andrews. Service contracting is often viewed as being less 
complex than purchases for products. However, service contracting now 
makes up approximately 60% of the Department's budget and includes 
weapons systems and support and IT systems. Do you believe the Army has 
the tools to measure value on services contracting to support the 
warfighter in terms of ensuring that contractor supported services are 
provided on a timely basis and in an economical and efficient manner?
    Mr. Parsons. The Army's primary tool for evaluating how well a 
given service contractor performs its contract requirements is the 
Contracting Officer Representative (COR) Program. The CORs are the 
``eyes and ears'' of the contracting officer and track technical 
performance to validate the contractor is performing the work that was 
ordered under a contract. We combine this process with performance 
based work statements (PWSs) that specify the results that are to be 
delivered and how the Army will measure those results. We use 
techniques such as the DOD's Seven Steps method, http://
www.acquisition.gov/comp/seven_steps/index.html, to develop PWS's that 
are tailored to reflect the specific requirements of the work to be 
performed and the performance environment. The metrics that we use to 
evaluate performance include cost, schedule, and various aspects of 
technical performance that are focused on outcomes.
    Mr. Andrews. GAO has found that the Department lacks a strategic 
approach to managing services, and needs to develop methods to assess 
risk when acquiring services. Would you detail what actions the Army 
has taken to develop such an approach?
    Mr. Parsons. The Army is building upon its functional 
organizational and command structure to facilitate and further the 
initiatives of commodity management and strategic sourcing. Medical 
products, services, and research are exclusively managed and sourced 
through the Army Medical Command. Major weapon systems and equipment, 
material, and related logistics support are primarily managed and 
sourced through the Army Materiel Command. Garrison and Base operations 
support for Army installations is managed by the Army Installation 
Command with procurement support provided by the Army Contracting 
Command. Major construction is managed and sourced by the Army Corps of 
Engineers. Strategic transportation services are managed and procured 
by the Army Surface Deployment and Distribution Command.
    The Army's established strategic sourcing goals are to:

      Establish enterprise-wide cross-functional acquisition 
strategies

      Reduce Total Cost of Ownership for acquired goods and 
services

      Improve ability to meet socio-economic goals

      Standardize acquisition business processes

      Improve the skills of acquisition community

    We are evolving a deliberate strategic sourcing movement that 
focuses on establishing Army-wide contracts for common use supplies and 
services. For example, we now have an Army-wide contract for cell 
phones that has achieved substantial discounts from the GSA contracts 
prices and support better controls over who is given a cell phone and 
what type of calling program they may use. Net effect is a cost 
avoidance of $79.2 million per year. The Blanket Purchase Agreements 
provide consistent enterprise terms and conditions, eliminate 
activation, deactivation and other fees previously charged, and provide 
aggressive pricing on both cellular devices and service plans. Service 
plans also include a new flat rate pricing option not previously 
available to Army users. The flat rate price plan helps minimize the 
costs of using more than monthly allotted minutes and using fewer than 
the total minutes purchased each month by charging the user a low flat 
rate per minute only for minutes used each month. Use of this pricing 
option takes a lot of the guesswork out of matching individual users to 
the appropriate pricing plan and significantly lowers the total cost of 
cellular service for most users relative to existing plans.
    The Army uses suites of multiple-award indefinite quantity 
contracts to support all types of operations leveraging our service 
spending. Examples include the Field and Installation Support Readiness 
Team (FIRST) that provides logistical support requirements including 
logistics program management, repair and maintenance support, supply 
chain management, quality assurance support, logistics training 
support, and transportation support in worldwide locations.
    Other examples of our strategic sourcing initiatives: The Computer 
Hardware, Enterprise, Software and Solutions (CHESS) program and the 
Information Technology, E-Commerce and Commercial Contracting Center 
(ITEC-4) developed negotiated bulk purchase pricing for commercial 
desktops and notebooks. We consolidate most of the Army requirements 
for desktops and notebooks into semiannual buys to maximize cost 
savings through volume discounts. Two contracts at CECOM provide 
centralized management of requirements for logistics and service 
support (the so-called R2 and S3 suites of contracts). These contracts 
are used across the Army. Finally, the AMCOM EXPRESS contracts provide 
professional engineering and support services--once again for all Army 
customers--at a savings to the prices on the related GSA schedules.
    Mr. Andrews. Does the Army or the Department maintain a common 
database of past performance data for services? In particular, for 
commercial services that fill similar needs across various agencies? If 
so, how widespread is its use and what could be done to improve its 
use? If not, would such a database be a useful tool for finding good 
contractors, similar to a Better Business Bureau?
    Mr. Parsons. The Army uses the Contractor Performance Assessment 
Reporting System to feed data on how well a contractor performed on a 
given contract into the central federal Past Performance Information 
Retrieval System (PPIPRS), which is similar to the Better Business 
Bureau concept. The National Institutes of Health, NASA and DOD operate 
systems to track contractor performance. These systems all feed into 
PPIRS. Contracting officers must collect past performance information 
on any Services or Information Technology contract for more than 
$1,000,000 and transmit that information to the central database. We 
have been collecting this type of information since 1999. Contracting 
Officers can access data within PPIRS from across the Federal 
Government and use that data as part of the evaluation of past 
performance that is part of most source selections.
    Mr. Andrews. What is the difference between Advisory and Assistance 
Services and Consulting Services? Generally, these types of contracts 
have broad statements of work, so how does the Army measure value? What 
steps does the Army take, and what additional steps, if any, should the 
Army take to minimize conflicts of interest that may develop with the 
acquisition of Advisory and Assistance Services, given that contractor 
personnel work in the same office environment as the Army customer? 
What challenges are created in objectively measuring performance of 
contractor personnel who seem to be an indistinguishable part of the 
government team?
    Mr. Parsons. Advisory and Assistance Services, according to FAR 
Part 2.101 means ``those services provided under contract by 
nongovernmental sources to support or improve: organizational policy 
development; decision-making; management and administration; program 
and/or project management and administration; or R&D activities. It can 
also mean the furnishing of professional advice or assistance rendered 
to improve the effectiveness of Federal management processes or 
procedures (including those of an engineering and technical nature). In 
rendering the foregoing services, outputs may take the form of 
information, advice, opinions, alternatives, analyses, evaluations, 
recommendations, training and the day-to-day aid of support personnel 
needed for the successful performance of ongoing Federal operations.'' 
These services are obtained to improve the efficiency of the agency. 
They do not include routine information technology support services. 
The acquisition of advisory and assistance services is a legitimate way 
to improve Government services and operations. Advisory and assistance 
services may be used at all organizational levels to help managers 
achieve maximum effectiveness or economy in their operations.
    Consulting Services are a possible subset of Advisory and 
Assistance Services--if advice is being provided that will improve 
agency efficiency.
    Mr. Andrews. What unique issues, if any, does the Army face in 
obtaining services via fixed price contracts?
    Mr. Parsons. Services may be obtained under a fixed price contract 
if the statement of work is well defined and there are clear end 
products that will be delivered. If you are in a ``tear down and 
quote'' or other repair situation where the contractor cannot tell what 
the exact work required will be, a fixed price contract is not the 
right arrangement. Professor Steve Schooner, Co-Director of the 
Government Procurement Law Program at the George Washington University, 
uses the analogy of obtaining plumbing service to repair a broken 
toilet to illustrate this problem. Plumbing is normally obtained under 
a time and materials arrangement. If you ask a plumber to pre-price a 
job before he is able to examine the broken fixture, he will set a 
price that would cover the worst-case scenario--$400, or the price to 
completely replace the entire toilet. If you priced it on a time and 
material basis, it could be just $50 for his time to snake the drain.
    Mr. Andrews. We often hear of ``contractors managing other 
contractors''. In your experience, how prevalent is this practice? Does 
the Army have contractors whose responsibility it is to supervise or 
evaluate the work of other contractors? If so, how does the Army ensure 
that best value is being obtained for the warfighter?
    Mr. Parsons. The Army uses contractors to advise government 
personnel about technical issues. Government personnel make decisions 
about what supplies or services are to be acquired by the Government, 
take actions based on evaluations of contractor performance, and accept 
or reject contractor products or services. As part of the acquisition 
planning process, senior Army officials must certify that the 
contractor will not perform inherently governmental services. If the 
services are closely related to inherently governmental, there must be 
controls in place (as part of the contract execution/oversight process) 
to prevent contractors from performing prohibited services. This policy 
has been in place for about two years. Requiring officials must provide 
the contracting officer a written determination that none of the 
functions required are inherently governmental as part of the 
acquisition package provided to contracting. Disagreements regarding 
the determination must be resolved by the Contracting Officer prior to 
issuance of the solicitation. The DOD guidance that addresses how to 
evaluate the contractor services is DOD Instruction 1100.22, Guidance 
for Determining Workforce Mix.
                                 ______
                                 
                    QUESTION SUBMITTED BY MR. COOPER
    Mr. Cooper. Please describe, in detail, acquisition ``horror 
stories'' you have seen in your career. And how many incidents occur 
that are squashed internally?
    Mr. Parsons. The chart provided with this QFR appears to be a 
summary of the POGO on-line database of contractor misconduct data. 
However, we have not been able to duplicate the number of cases 
indicated for the Army on the QFR chart using the on-line search 
capabilities of the POGO database which indicates 19 cases of 
misconduct where Army is the contracting agency. We offer the following 
information regarding some of the most recent cases that have been 
investigated and adjudicated:

      Stephen Seamans--Convicted of fraud relating to a 
subcontract with a Kuwaiti cleaning company. Mr. Seamans has been 
convicted and debarred. He served 8 months of a year and a day prison 
term; released September 2007.

      Jeff Mazon--Indicted for fraud for a subcontract related 
to La Nouvelle. Mr. Mazon was accused of inflating Nouvelle's bid to 
eight times over the estimated cost for providing fuel tankers before 
awarding the resulting contract. Mazon was indicted in March 2005 and 
pled guilty in March 2009 to making a false statement. He has not been 
sentenced. This matter has been turned over to DoJ, Criminal and Civil 
Divisions for recovery/remedy. Mr. Mazon and La Nouvelle have been 
suspended indefinitely, pending completion of investigation, court 
proceedings, etc., effective 18 May 2005. A former managing partner of 
La Nouvelle, Mr. Alhijazi, has also been suspended in connection with 
this case. He is a fugitive in Kuwait. Company and personal suspension 
remain in place until DoJ dismisses the indictment or closes its 
investigation.

      Glenn Powell--Admitted to accepting $110,000 in kickbacks 
from an Iraqi subcontractor. Mr Powell has been debarred effective 16 
February 2006 until 14 September 2009. Additionally, Mr. Powell is 
prohibited from serving in any capacity with the authority to 
influence, advise, or control decisions on any DOD Contracts or first 
tier subcontracts effective 18 November 2005 until 17 November 2010. 
Powell will repay $91,000 IAW court ruling. He was sentenced to 15 
months confinement.

      Anthony Martin--Admitted to taking kickbacks from First 
Kuwaiti General Trading & Contracting Company in exchange for the award 
of subcontracts. Martin pled guilty in July 2007 to violating the Anti-
Kickback Act. He was sentenced to 12 months and a day and supervised 
release for 2 years. He must repay approximately $200,000. This matter 
has been turned over to DoJ, Criminal and Civil Divisions for recovery/
remedy. Martin was proposed for debarment indefinitely on 29 September 
2008. Mr. Martin is prohibited from serving in any capacity with the 
authority to influence, advise, or control decisions on any DOD 
Contracts or first tier subcontracts effective, 06 June 2008 until 05 
June 2013. The Army suspension/debarment official has agreed to delay 
any action against First Kuwaiti until DoJ has completed its 
investigation if the company does not enter into new government 
contracts. Agreement date is 11 December 2008. A one-time exception 
granted on 3 February 2009 to compete for 3 Corps of Engineers 
contracts.

                                  
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