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




 
 REVIEW OF THE SPACE AND NAVAL WARFARE SYSTEMS CENTER ATLANTIC AND THE
       U.S. DEPARTMENT OF VETERANS AFFAIRS' INTERAGENCY AGREEMENT

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

                                HEARING

                               before the

                  SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

                                 of the

                     COMMITTEE ON VETERANS' AFFAIRS
                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           SEPTEMBER 10, 2009

                               __________

                           Serial No. 111-41

                               __________

       Printed for the use of the Committee on Veterans' Affairs




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                     COMMITTEE ON VETERANS' AFFAIRS

                    BOB FILNER, California, Chairman

CORRINE BROWN, Florida               STEVE BUYER, Indiana, Ranking
VIC SNYDER, Arkansas                 CLIFF STEARNS, Florida
MICHAEL H. MICHAUD, Maine            JERRY MORAN, Kansas
STEPHANIE HERSETH SANDLIN, South     HENRY E. BROWN, Jr., South 
Dakota                               Carolina
HARRY E. MITCHELL, Arizona           JEFF MILLER, Florida
JOHN J. HALL, New York               JOHN BOOZMAN, Arkansas
DEBORAH L. HALVORSON, Illinois       BRIAN P. BILBRAY, California
THOMAS S.P. PERRIELLO, Virginia      DOUG LAMBORN, Colorado
HARRY TEAGUE, New Mexico             GUS M. BILIRAKIS, Florida
CIRO D. RODRIGUEZ, Texas             VERN BUCHANAN, Florida
JOE DONNELLY, Indiana                DAVID P. ROE, Tennessee
JERRY McNERNEY, California
ZACHARY T. SPACE, Ohio
TIMOTHY J. WALZ, Minnesota
JOHN H. ADLER, New Jersey
ANN KIRKPATRICK, Arizona
GLENN C. NYE, Virginia

                   Malcom A. Shorter, Staff Director

                                 ______

                  SUBCOMMITTEE ON ECONOMIC OPPORTUNITY

          STEPHANIE HERSETH SANDLIN, South Dakota, Chairwoman

THOMAS S.P. PERRIELLO, Virginia      JOHN BOOZMAN, Arkansas, Ranking
JOHN H. ADLER, New Jersey            JERRY MORAN, Kansas
ANN KIRKPATRICK, Arizona             GUS M. BILIRAKIS, Florida
HARRY TEAGUE, New Mexico

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Veterans' Affairs are also 
published in electronic form. The printed hearing record remains the 
official version. Because electronic submissions are used to prepare 
both printed and electronic versions of the hearing record, the process 
of converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                           September 10, 2009

                                                                   Page
Review of the Space and Naval Warfare Systems Center Atlantic and 
  the U.S. Department of Veterans Affairs' Interagency Agreement.     1

                           OPENING STATEMENTS

Chairwoman Stephanie Herseth Sandlin.............................     1
    Prepared statement of Chairwoman Herseth Sandlin.............    26
Hon. John Boozman, Ranking Republican Member.....................     2
    Prepared statement of Congressman Boozman....................    26

                               WITNESSES

U.S. Department of Veterans Affairs:
  Maureen T. Regan, Counselor to the Inspector General, Office of 
  Inspector General..............................................     3
    Prepared statement of Ms. Regan..............................    27
  Hon. Roger W. Baker, Assistant Secretary for Information and 
  Technology.....................................................    13
    Prepared statement of Mr. Baker..............................    34
U.S. Department of Defense, Captain Mark Krause, USNR (Ret.), 
  U.S. Department of Veterans Affairs Program Manager, Space and 
  Naval Warfare Systems Center Atlantic, Department of the Navy..    13
    Prepared statement of Captain Krause.........................    32

                   MATERIAL SUBMITTED FOR THE RECORD

Post-Hearing Follow-up Information, Questions and Responses for 
    the Record:

    Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on 
      Economic Opportunities, Committee on Veterans' Affairs, to 
      Ms. Maureen Regan, Counselor to the Inspector General, 
      Office of Inspector General, U.S. Department of Veterans 
      Affairs, letter dated September 28, 2009, and response from 
      Hon. George J. Opfer, Inspector General, U.S. Department of 
      Veterans Affairs, letter dated October 21, 2009............    39
    Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on 
      Economic Opportunities, Committee on Veterans' Affairs, to 
      Captain Mark Krause, Department of Veterans Affairs Program 
      Manager, Space and Naval Warfare Systems Center, letter 
      dated September 28, 2009, and SPAWAR's responses...........    40
    Hon. Stephanie Herseth Sandlin, Chairwoman, Subcommittee on 
      Economic Opportunities, Committee on Veterans' Affairs, to 
      Hon. Roger W. Baker, Assistant Secretary for Information 
      and Technology, U.S. Department of Veterans Affairs, letter 
      dated September 28, 2009, and VA responses.................    42


                     REVIEW OF THE SPACE AND NAVAL
                    WARFARE SYSTEMS CENTER ATLANTIC
                       AND THE U.S. DEPARTMENT OF
                VETERANS AFFAIRS' INTERAGENCY AGREEMENT

                              ----------                              


                      THURSDAY, SEPTEMBER 10, 2009

             U.S. House of Representatives,
                    Committee on Veterans' Affairs,
                      Subcommittee on Economic Opportunity,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 1:37 p.m., in 
Room 334, Cannon House Office Building, Hon. Stephanie Herseth 
Sandlin [Chairwoman of the Subcommittee] presiding.

    Present: Representatives Herseth Sandlin, Teague, and 
Boozman.

OPENING STATEMENT OF HON. HARRY TEAGUE, PRESENTING STATEMENT OF 
                   CHAIRWOMAN HERSETH SANDLIN

    Mr. Teague [presiding]. The Veterans' Affairs Subcommittee 
on Economic Opportunity's oversight hearing on the U.S. 
Department of Veterans Affairs (VA's) interagency agreement 
with Space and Naval Warfare Systems Center Atlantic (SPAWAR) 
will come to order.
    I ask unanimous consent that all Members may have 5 
legislative days to revise and extend their remarks, and that 
written statements be made part of the record.
    Hearing no objection, so ordered.
    Today, we will follow up on an issue of concern first 
raised by Committee Ranking Member Steve Buyer that initiated 
an investigation by the VA's Office of Inspector General and 
more recently, that I raised in a previous Subcommittee hearing 
on the implementation of the VA's strategy for implementing the 
Post-9/11 GI Bill.
    Some of those in attendance might recall that on June 25, 
2009, I provided some of today's panelists with advance notice 
that the Subcommittee would follow-up on a VA Office of 
Inspector General's OIG's report highlighting the many 
contracting irregularities between SPAWAR and the VA. Some of 
the concerns highlighted in the report include: The interagency 
agreement (IAA) between VA and SPAWAR does not include any 
specific task deliverables; the interagency agreement was 
entered into without an adequate analysis to determine that the 
use of an interagency acquisition is in the best interest of 
the government as required by Federal Acquisition Regulation 
(FAR) 17.503; unauthorized work was being performed on projects 
that were outside the scope of the interagency agreement; and 
VA was unaware that SPAWAR was charging management fees.
    In reviewing the testimonies for today's hearing, I am not 
confident that enough is being done by the VA to learn from its 
mistakes. I share the concerns of my colleagues and look 
forward to learning more about specific actions taken by the 
Department of Veterans Affairs to address the Inspector 
General's report.
    [The prepared statement of Chairwoman Herseth Sandlin 
appears on p. 26.]
    I now recognize Ranking Member Boozman for any opening 
remarks that he may have.

             OPENING STATEMENT OF HON. JOHN BOOZMAN

    Mr. Boozman. Thank you, Mr. Chairman.
    I suspect if the general public had focused on the results 
of the OIG report on the interagency agreement between VA and 
the Space and Naval Warfare Systems Center, SPAWAR, as 
requested by Ranking Member Buyer as they have on our current 
health care debate, the August recess may have been even more 
contentious.
    According to the OIG report, VA will have obligated over 
$100 million to SPAWAR activities since signing the agreement 
in 2007. Unfortunately, the results of that agreement have been 
less than satisfactory. I would like to summarize some of the 
OIG's findings:
    The VA initially obligated $2.5 million to SPAWAR without 
specific requirements or deliverables. SPAWAR and its 
contractors developed statements of work, SOWs, that should 
have been written by the VA. SOWs were often general and lacked 
specific deliverables.
    The VA Office of Enterprise Development, OED, did not 
perform adequate oversight. VA was not aware that SPAWAR 
contracted out 87 percent of the work under the interagency 
agreement.
    OED did not know who was performing specific tasks. OED did 
not know how many people were working under the various tasks 
or where they were working.
    SPAWAR estimated the need for 295 FTE, but only 217 were 
providing services. Of that 217, 195 were contractor personnel. 
OED was not aware of the management fees being charged by 
SPAWAR, and SPAWAR could not justify the 10 percent fee.
    SPAWAR did not determine fair and reasonable prices for the 
services being performed.
    SPAWAR did not include specifics tasks and deliverables in 
contracts with its vendors.
    SPAWAR contracts did not include privacy and security 
clauses required by the VA, thereby increasing the 
vulnerability of VA Information Technology (IT) systems.
    Mr. Chairman, those are only a few of the findings in this 
damaging report. However, we must put the OIG's criticisms in 
some perspective. It is important to remember that SPAWAR is a 
working capital system organization, which means they seek out 
work much like a private-sector company with all of the 
attendant vices and virtues. That means that if they do not 
bring in business, staff could be let go, just like the private 
sector, so there is significant pressure on management to get 
the most favorable terms profitable in any business 
arrangement.
    While I am not implying there is anything illegal as 
described by the OIG, the VA SPAWAR relationship does not 
appear to be an arm's length business relationship. I think 
based on the OIG report, it would be charitable to describe 
that business relationship as a mess. While a degree of 
flexibility in contracting is commendable, it appears the use 
of the IAA goes well beyond flexible and borders on 
unprofessional, at best. It appears that the IAA was concluded 
as a matter of convenience rather than as a rational business 
decision, issuing tasks and obligating funds without a 
contractual basis for payment, lack of insight into who was 
actually doing the work and all of the other things found by 
the OIG are totally unacceptable.
    I know that the VA is trying hard to add a new level of 
professionalism to its contracting operations by adding 
experienced personnel in implementing the new acquisition 
academy. But the overly cozy relationship between the VA and 
SPAWAR and any others like it must come to an end.
    I hope Secretary Shinseki will take a personal interest in 
this matter, and I am looking forward to hearing from the VA 
how they intend to correct this unacceptable situation.
    I yield back the balance of my time.
    [The prepared statement of Congressman Boozman appears on 
p. 26.]
    Mr. Teague. I would like to welcome our panelists 
testifying before this Subcommittee today. Joining us on the 
first panel is Ms. Maureen Regan, Counselor to the Inspector 
General, Office of Inspector General, U.S. Department of 
Veterans Affairs who is accompanied by Mr. Michael Grivnovics, 
Director, Division B, Office of Inspector General, Office of 
Contract Review, U.S. Department of Veterans Affairs.
    Mr. Teague. Thank you for joining us today. Ms. Regan, you 
are now recognized to present your oral testimony.

   STATEMENT OF MAUREEN T. REGAN, COUNSELOR TO THE INSPECTOR 
   GENERAL, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF 
    VETERANS AFFAIRS, ACCOMPANIED BY MICHAEL B. GRIVNOVICS, 
  DIRECTOR, DIVISION B, OFFICE OF CONTRACT REVIEW, OFFICE OF 
     INSPECTOR GENERAL, U.S. DEPARTMENT OF VETERANS AFFAIRS

    Ms. Regan. Thank you, Mr. Chairman.
    Mr. Chairman, and Members of the Subcommittee, thank you 
for the opportunity to testify on the OIG's June 4, 2009, 
report regarding the interagency agreement between the VA and 
the Department of Navy's Space and Naval Warfare Systems 
Center, also known as SPAWAR. Today I am accompanied by Mr. 
Michael Grivnovics, who is a Director in our Office of Contract 
Review. Mr. Grivnovics had primary responsibility for the 
review that resulted in this report.
    In early February of this year at the request of the 
Secretary and Congressman Buyer, we began a review of the 
agreement between the VA and SPAWAR. We expedited our review 
for several reasons, including the Secretary's interest in the 
matter. We were told at the time that VA and SPAWAR were in the 
process of renegotiating the agreement to comply with the 
Office on Management and Budget (OMB) requirements. We knew 
that in addition to the $66 million that had already been 
transferred to SPAWAR under the interagency agreement, VA was 
preparing to award work for an additional 26 projects with an 
estimated value of $73 million, and we knew those projects 
included some key projects for VA, especially with relationship 
to the GI bill.
    We identified some concerns very early on in our review. 
And as a result on March 19, we briefed the Secretary's Chief 
of Staff on our findings. On April 16, we briefed the Deputy 
Secretary, the Chief of Staff, and the nominee for the 
Assistant Secretary for Information and Technology. We also 
briefed the Secretary and the senior staff on June 6 right 
after the report was issued; but since that time, we have had 
no discussions with the Department about the report or our 
findings or conclusions.
    The purpose of the agreement was to provide government 
employee and contractor technical support for analysis 
planning, program review and engineering services for 
information management and information technology initiatives. 
The agreement itself does not include any specific task or 
pricing structure. Rather, it was a vehicle that allowed VA to 
order services relating to eight general tasks including 
program management, training and mentoring.
    VA's Office of Enterprise Development is responsible for 
oversight of the agreement. This organization serves as the 
chief adviser to the Assistant Secretary for all enterprise 
application development activities. One of the major reasons 
for the agreement was that the Office of Information and 
Technology (OI&T) did not have personnel who possessed adequate 
skills to develop and manage IT projects.
    We were told that the expectation at the time the agreement 
was executed was that SPAWAR personnel would train and mentor 
VA personnel to develop and manage IT programs. However, the 
manner in which the agreement has been administered, the stated 
purpose, could not be achieved. More importantly, the Office of 
Enterprise Development has become dependent on SPAWAR and 
SPAWAR contractors to develop and manage VA's IT program 
development.
    The most significant conclusion from our review is that the 
Office of Enterprise Development essentially relinquished its 
program responsibilities to SPAWAR. We also found that neither 
VA, nor SPAWAR, has complied with the terms of the agreement, 
that VA failed to implement any cost controls, and that 
inadequate legal and technical reviews contributed to the 
problems.
    Documentation provided by SPAWAR showed that 87 percent of 
the level of work performed under the agreement was performed 
by SPAWAR contractors not government employees. VA personnel in 
the Office of Enterprise Development were not involved in the 
award and administration of the task orders to SPAWAR 
contractors. This was SPAWAR's responsibility.
    Furthermore, they were unaware of how many individuals were 
providing services, whether they were government personnel or 
contractors, where the services were being provided, or whether 
the personnel performing the work had the necessary skills. In 
addition, the services provided did not include the training 
and mentoring of VA personnel as intended.
    Our finding that the Office of Enterprise Development was 
not in control of the work being done by SPAWAR and SPAWAR 
contractors was highlighted by the fact that we could not have 
a meeting with VA employees without having a SPAWAR contractor 
present to respond to questions and provide documents. At times 
we could not distinguish between VA personnel and SPAWAR 
contractors. This led us to conclude that the contractors may 
be improperly providing personal services to the VA.
    Shortly after we began our review of the interagency 
agreement, we were asked to review the failure of the 
replacement scheduling activity development program, also known 
as RSA. This review further supported our findings related to 
the interagency agreement between the VA and SPAWAR.
    In our report, we suggested that the Secretary reevaluate 
the interagency agreement to determine whether it was in the 
best interest of VA to continue obtaining services through this 
type of agreement. If it was decided that it was in the VA's 
best interest, we made several suggestions to improve the 
effectiveness of the agreement. These included restructuring to 
emphasize retraining of VA personnel, to better manage Office 
of Enterprise Development programs and operations; to develop 
comprehensive statements of work and independent government 
cost estimates (IGCE); monitor contract performance and make VA 
program managers (PMs) accountable for the outcome. We noticed 
in Assistant Secretary Baker's testimony that many of these 
have been implemented.
    This concludes my oral statement. Thank you for the 
opportunity to discuss our findings and conclusions regarding 
the interagency agreement between the VA and SPAWAR. We will be 
happy to answer any questions you may have.
    [The prepared statement of Ms. Regan appears on p. 27.]
    Mr. Teague. Thank you for that testimony. I do have a few 
questions.
    You state that the interagency agreement did not include 
specific tasks or a pricing structure. Is this normal in 
interagency agreements, and how important do you think it is to 
have a structure in place?
    Mr. Grivnovics. In general, an interagency agreement is an 
overarching agreement. You would set the framework of what you 
expect between the parties, who is responsible for preparing 
certain documents and the funding. Where you expect to have the 
details is in the amendments to the interagency agreement. That 
is where the work is actually ordered. And in our report, we 
addressed how the amendments were lacking; the statements of 
work were lacking in those areas. That is where you would see 
the real requirements, in the amendments that order the work 
under an interagency agreement.
    Ms. Regan. Just to add to that, I think you would expect to 
find some type of a pricing structure, particularly with what 
fees were going to be paid to the government agency.
    Mr. Teague. If the Department of Veterans Affairs did not 
prepare the project change request, who would prepare them and 
provide the statement of work, and how did the VA know that 
they were necessary?
    Mr. Grivnovics. Those items were stipulated in the 
interagency agreement.
    Our understanding, based on our review, is that SPAWAR was 
actually preparing the task initiation form, which based on the 
agreement should have been prepared by VA, which would start 
the process with the statement of work and set the guidelines.
    Mr. Teague. You state that one of the major reasons for use 
of the interagency agreement was because the Department of 
Veterans Affairs lacked personnel with adequate skills to 
develop and manage IT projects. If very little training or 
mentoring has been conducted, then who is actually overseeing 
the work being done by Space and Naval Warfare and its 
contractors?
    Mr. Grivnovics. Based on our review, our conclusion is that 
no one at OED is really overseeing the work. They are relying 
on the SPAWAR program managers to ensure that the work is done 
under the interagency agreement.
    Mr. Teague. In your report, you also state that you found 
that the task initiation form statement of work and the 
independent government cost estimates were essentially 
developed by Space and Naval Warfare or its contractor. How 
many other Federal agencies permit this to happen and how 
concerned should we be about this finding?
    Ms. Regan. We are not aware of what other Federal agencies 
do. But it is the Department's responsibility under the IAA to 
develop the statement of work and the VA should be developing 
the independent government cost estimate for that. That is 
usually the program office's responsibility for any type of 
contract or agreement.
    Mr. Teague. You concluded that the Office of Enterprise 
Development has essentially abdicated its program 
responsibility to Space and Naval Warfare. Does the abdication 
of responsibility go all of the way down to SPAWAR contractors?
    Mr. Grivnovics. I am not sure that I understand your 
question. I will answer what I think you are asking.
    SPAWAR, it is their responsibility to manage their 
contractors and subcontractors. The OED oversight does not go 
down to that level and would not generally go down to the 
subcontractor level. But we would expect them to oversee 
SPAWAR's work and how the work is being accomplished on the 
project.
    Mr. Teague. What I meant was, how far down does the 
abdication go? Is it just one level, or do they pass it off to 
someone else?
    Mr. Grivnovics. I would say, my opinion on that is VA went 
down to SPAWAR.
    Mr. Teague. One other thing. Can you elaborate a little 
more on the statement that you could not at times distinguish 
between VA personnel and Space and Naval Warfare contractors?
    Ms. Regan. I can give you an example. One of our first 
tasks was to call the program managers to find out what 
documentation they had regarding the amendments that related to 
their programs.
    We contacted one program manager who was on travel. The 
message said to call a certain individual and gave a phone 
number. We called the individual. She answered the phone and we 
told her we needed to talk to the program manager. She wanted 
to know why. We went into a whole explanation about why we 
needed to talk to this person. And it wasn't until the very end 
of the conversation that the person said I'm with SPAWAR. And 
then it was only upon further questioning by us that this 
person said, Oh, I am a SPAWAR contractor.
    I would never have, Mike and I would never have discussed 
what we were looking for with a contractor to SPAWAR. We wanted 
to talk to a VA program manager, but it wasn't clear from the 
message that we were going to be talking to a contractor. If 
you didn't know who they were when you went to a meeting, they 
were answering all of the questions. They weren't clearly 
identified as contractor employees.
    Mr. Teague. At this time, I will allow Ranking Member 
Boozman to ask questions.
    Mr. Boozman. Thank you, Mr. Chairman.
    Under the scenario that you are talking about with the 
contractors being so involved, would you have a situation where 
the contractors perhaps were actually essentially writing this 
stuff and then later on bidding on it?
    Mr. Grivnovics. We are not sure about that. We do not know 
who wrote the statements of work. They said it was a 
collaborative effort. On many of the documents it would say 
prepared for or prepared by SPAWAR.
    Mr. Boozman. So no one could remember who was in the room 
when they did that?
    Mr. Grivnovics. No. But you are correct that you would not 
want someone writing the statement of work and then performing 
that work under that statement of work.
    Mr. Boozman. Let me ask you, you said we determined that 
SPAWAR did not ensure that VA paid fair and reasonable prices 
for the services provided. SOW for task orders that SPAWAR 
issued to contractors did not identify tasks or deliverables. 
We also found that SPAWAR contractors were subcontracting the 
work to other SPAWAR contractors at the direction of SPAWAR. 
That practice unnecessarily increases the cost because the VA 
must pay an additional layer of management fees and overhead in 
reviewing contracts that SPAWAR issued and vendors performing 
services.
    Also, you went on to talk about how SPAWAR executed an 
option year more than 6 months prior to the expiration of the 
contract's base year. Because the option year prices were 
higher, VA unnecessarily incurred higher costs for the work 
performed by the contractor. Why would you do that?
    Mr. Grivnovics. What happened, as I understand it, was that 
many of their contracts had ceilings for hours basically. They 
were not just using their contracts and contractors on VA work, 
it is whoever needs work under the SPAWAR umbrella.
    They would run out of hours or bump up against the ceiling 
on hours for a particular year, but they have an option, 
another option period, a year or two, with more hours to use. 
And so they would basically exercise that option for a second 
year of that contract, or whatever year it may be, so they 
could get to those hours in the present year.
    The particular case here was that it was a fixed rate 
contract so those rates as stated were fixed. And when they 
modified the contract, the second option year period rates 
became effective in the first period.
    They could have requested the contractor or subcontractor 
to modify the contract to only bill at the lower rates, the 
base year rates until the base year was actually over, but they 
did not do that.
    Mr. Boozman. So we don't know if they actually asked to do 
that and were denied?
    Mr. Grivnovics. I do not know that. The person I spoke to, 
it was a contracting officer, but that was not their contract 
that they were working on. They did state if it was their 
contract, they would have requested that the rates be modified.
    Mr. Boozman. In the audit, it indicates that SPAWAR is 
subbing much of the work out. What is SPAWAR charging VA for 
administration costs?
    Mr. Grivnovics. I believe that is 10 percent, the program 
management fee or program management cost. That is part of 
that. Those costs are for overseeing the contractors and 
subcontractors.
    Mr. Boozman. And in your testimony, you said that the VA 
didn't really realize that they were paying that?
    Mr. Grivnovics. Yes.
    Mr. Boozman. How does that happen?
    Ms. Regan. I think what happened was one of the things that 
we pointed out is that the interagency agreement did not have 
kind of a pricing structure, including the 10 percent. Where it 
appeared was in the independent government cost estimates that 
we believe were not done by VA, were done by SPAWAR or done by 
somebody on behalf of SPAWAR. But nobody in VA ever questioned 
the 10 percent or where it came from?
    Our concern was an interagency agreement by law is supposed 
to be cost-based unless there is an established rate, and we 
couldn't find an established rate. The 10 percent seemed 
somewhat high, but nobody in VA ever questioned the 10 percent, 
which was our concern.
    Mr. Boozman. Did you find anything as high as 47 percent in 
administration costs with any of the contracts?
    Mr. Grivnovics. The 47 percent, I believe, you are 
referring to was when we did a selective sample of some task 
orders that they had written for VA, was that they then 
subcontracted 47 percent further downstream. I don't know if 
that answers your question, but that is what the 47 percent 
refers to, work being subcontracted out by the prime 
contractor.
    Mr. Boozman. You heard my opening statement. You guys have 
been around me before. I am not usually too harsh with these 
things. Was I too harsh or was that fairly appropriate?
    Ms. Regan. That is hard to answer. Most of it was just the 
facts of our report.
    Mr. Boozman. You are not under oath, but you are expected 
to tell the truth.
    Ms. Regan. I didn't think it was that harsh.
    Ms. Herseth Sandlin [presiding]. Thank you. I want to thank 
our colleague, Mr. Teague, for beginning the Subcommittee 
hearing. Thank you both for your testimony.
    Let me just ask a few additional questions. In addition to 
the focus on the particular interagency agreement that has 
already been the subject of some questions, has the Department 
of Veterans Affairs failed to routinely include specific tasks 
or requirements in other interagency agreements that you are 
aware of?
    Mr. Grivnovics. I have not looked at any other interagency 
agreement. This was the only one.
    Ms. Regan. The only other agreement that I am aware of is 
the one they have with us for the Office of Contract Review, 
and it does have specific tasks in it. Well, the types of 
reviews that we do and the deliverables or reports. But because 
there are different reviews that come up at different times, it 
is described in the agreement, but not how many we do. It is 
based on a full-time equivalent (FTE).
    Ms. Herseth Sandlin. You state that you were informed that 
the Department of Veterans Affairs is not involved at any level 
in the negotiations, award or administration of the task 
orders, correct?
    Ms. Regan. Correct.
    Ms. Herseth Sandlin. Who is doing the negotiation, the 
awarding and the administration of the task orders and how can 
they look out for the VA's best interests?
    Ms. Regan. SPAWAR is doing all of that. And anybody 
awarding a contract should look out for the government's 
interest in awarding the contract to be sure that it is a 
definitive statement of work, that there is measurable 
performance, and that they do proper oversight and 
administration.
    Ms. Herseth Sandlin. In response to some of the other 
questions that were posed by my colleagues, you found no 
evidence that anyone in the Department of Veterans Affairs 
monitored cost or performance, correct?
    Mr. Grivnovics. We believe that is correct. As an example, 
the reports and whatnot, the financial reports that we 
ultimately received all came from SPAWAR, and no program 
manager actually reviewed them. We asked, and the program 
managers never reviewed the financial reports to see what was 
actually taking place.
    Ms. Herseth Sandlin. Do you have an opinion as to what 
office or individual specifically should have been monitoring 
cost and performance?
    Mr. Grivnovics. They did have one person as we gathered 
through questions and answers, and I wouldn't call them a 
program manager, but the person responsible where all of the 
reports would go through. And they said that they did send them 
on.
    Ms. Herseth Sandlin. Who said they did send them on, 
SPAWAR?
    Mr. Grivnovics. No, VA personnel. A VA employee.
    But ultimately, those documents could not be found. And 
talking to program managers, they said they did not actually 
review those documents.
    Ms. Herseth Sandlin. You also gave us many examples of the 
inadequacies found in the statement of work and the independent 
government cost estimates. Once you identified these, did the 
VA say they were going to review and rewrite them?
    Mr. Grivnovics. The deficiencies that were noted were not 
discussed with the VA at the time.
    Ms. Regan. The VA has not discussed any issues with us on 
the report since we issued it. We don't know what they have 
done since that time.
    Ms. Herseth Sandlin. My last question is whether or not you 
have an opinion on whether or not SPAWAR is the best entity to 
assist the VA in developing the long-term solution for the new 
GI bill?
    Ms. Regan. We have not analyzed their capability in doing 
that or whether there is another organization that can assist 
them.
    Ms. Herseth Sandlin. Thank you.
    Mr. Boozman, do you have any final questions for the panel?
    Mr. Boozman. In follow-up, it does make sense that you all 
would talk. You spend time reviewing. That is the idea of these 
things, to try to be helpful, not a gotcha-type of situation, 
but again to be helpful. So is it your responsibility, or whose 
responsibility is for you guys to sit down and visit about 
this?
    Mr. Grivnovics. I didn't hear the last part?
    Mr. Boozman. Whose responsibility is it for you guys to sit 
down and visit? You said you hadn't talked to VA since you came 
out with your finding.
    Ms. Regan. When we issued the report, we made suggestions 
as opposed to recommendations. Part of that was we had not done 
an in-depth analysis of what would happen if they canceled the 
interagency agreement. How dependent was VA on that? Was it 
like a house of cards, if you pull it away, is the whole 
program is going to fail?
    That is why we made suggestions to the Secretary.
    I am not sure if they could amend the existing amendments 
because there were already subcontractors or contracts that 
SPAWAR had put in place for those. We would hope that they 
would have done that in the future amendments, that they would 
have made them more specific and become more involved in the 
contracting process with SPAWAR and do more oversight, which we 
understand from Mr. Baker's statement that they have.
    Mr. Boozman. But you haven't met with the VA to discuss 
this, right?
    Ms. Regan. Correct.
    Mr. Boozman. I guess my question is it looks like that 
would be good for you to do. Whose responsibility is it to 
facilitate that meeting?
    Ms. Regan. We usually don't do that unless we have been 
asked to. If we have been asked to, or the Secretary or the 
Committee, we could go in and do a follow-up.
    Mr. Boozman. They usually ask.
    One other thing. You indicated early on you had a little 
trouble sometimes getting the information that you needed. Did 
you get the hourly billing and all of those kinds of things? Do 
you know who got what? Were you able to get all of the billing 
information that you needed?
    Mr. Grivnovics. Actually, there are no billings that go 
back to VA as an invoice. What we did do as part of our 
review----
    Mr. Boozman. So how do they know what they are paying for?
    Mr. Grivnovics. The money is fully funded. When the 
amendment goes through under the particular IAA, at that time 
based on the statement of work and the cost estimate that was 
put in there, the VA will fully fund that amendment. And 
basically, it is the reports that go back monthly that would 
show how many dollars were spent against a particular amendment 
or funding line.
    Mr. Boozman. So costs can't go down then, if you have an 
amount of money to spend?
    Mr. Grivnovics. That is quite possible. Due to the lack of, 
as we said, specificity in statements of work, it is very hard 
to define or match up. Normally, if you had a well-defined 
statement of work and a government cost estimates that tracks 
that by task, you can track those simultaneously and see what 
was originally proposed and then what is coming back in.
    Mr. Boozman. Part of your task was to find out if the 
dollars that VA had spent had been spent wisely. So wouldn't 
you go the further step and look and see the billing records of 
SPAWAR to see if they in reality got, if in reality VA got what 
they paid for with their subcontractors?
    Ms. Regan. Our task was to primarily look at the agreement 
and how it was administered and whether or not VA was getting 
services or acting within the scope of the agreement.
    Due to time constraints, we did not go in and look at every 
dime spent by SPAWAR on their contractors and match it up with 
any records. SPAWAR should be responsible for that under the 
agreement. But I think what we found when we went down there, 
even they don't necessarily do it. They look at the 
expenditures against the burn rate to make sure they have 
enough money obligated, but not necessarily whether or not they 
were charged appropriately. That would be done in a future 
audit, probably by the Defense Contract Audit Agency.
    Mr. Boozman. Thank you, Madam Chairman.
    Ms. Herseth Sandlin. Thank you, Mr. Boozman.
    Two follow-up questions. The Department of Veterans 
Affairs, in their written testimony, states that the Inspector 
General specifically stated that they weren't interested in 
later amendments or subsequent changes made to strengthen 
requirements and management of amendments.
    Mr. Grivnovics. I wouldn't characterize it that way. We 
started our review in January and we looked at the amendments 
that were awarded at that date, as of January. The hard part 
about doing the work is we would be working forever if we were 
constantly looking at new amendments.
    We had heard that due to a new Office of Federal 
Procurement Policy (OFPP) policy, that the VA was going to have 
an information letter coming out to strengthen the IAA process, 
but we basically looked at all of the amendments that were 
issued up through January of 2009.
    Ms. Regan. We were told at the time that because of the new 
guidance from OMB, they were going to be renegotiating the 
agreement. I understand that may not have happened. That may 
have impacted any statements of work or anything they had 
ongoing at that time. We looked at everything that had already 
been awarded.
    Ms. Herseth Sandlin. Finally, in SPAWAR's written 
testimony, they state that it is our [SPAWAR] view that the VA 
OIG misapplied the OFPP memo, referring to the Office of 
Federal Procurement Policy memo that you just mentioned. Do you 
have a response to that statement?
    Mr. Grivnovics. Not without more particulars, no.
    Ms. Regan. I am not sure how we would have misapplied it. 
We didn't really apply it. We were told at the time they were 
going to renegotiate the interagency agreement to comply with 
it, and that is where that would have come into play. I have 
seen something today that the position now is that it doesn't 
apply to the IAA, so they weren't going to do that. We didn't 
apply it to anything; it was what we were told they were doing.
    Ms. Herseth Sandlin. I appreciate your testimony and your 
responses to our questions and the insights that you have been 
able to offer the Subcommittee today. We look forward to 
receiving updates as it relates to your very timely report. 
Thank you again for joining us.
    I would now like to invite the second panel to the witness 
table. Joining us on this panel is Mr. Mark Krause, Department 
of Veterans Affairs Program Manager, Space and Naval Warfare 
Systems Center Atlantic, Department of the Navy, U.S. 
Department of Defense (DoD); and the Honorable Roger Baker, 
Assistant Secretary for Information and Technology, U.S. 
Department of Veterans Affairs.
    Mr. Baker is accompanied by Mr. Stephen Warren, Principal 
Deputy Assistant Secretary For Information and Technology, U.S. 
Department of Veterans Affairs; the Honorable William Gunn, 
General Counsel, U.S. Department of Veterans Affairs; Mr. Glenn 
Haggstrom, Executive Director, Office of Acquisition, Logistics 
and Construction, U.S. Department of Veterans Affairs; and Dr. 
Peter Levin, Senior Adviser to the Secretary, Chief Technology 
Officer, U.S. Department of Veterans Affairs.
    Ms. Herseth Sandlin. Gentlemen, welcome to the 
Subcommittee. We look forward to your testimony. Mr. Krause, 
welcome back to the Subcommittee, we will begin with you. You 
are recognized to present your testimony.

STATEMENTS OF CAPTAIN MARK KRAUSE, USNR (RET.), U.S. DEPARTMENT 
 OF VETERANS AFFAIRS PROGRAM MANAGER, SPACE AND NAVAL WARFARE 
     SYSTEMS CENTER ATLANTIC, DEPARTMENT OF THE NAVY, U.S. 
   DEPARTMENT OF DEFENSE; AND HON. ROGER W. BAKER, ASSISTANT 
 SECRETARY FOR INFORMATION AND TECHNOLOGY, U.S. DEPARTMENT OF 
 VETERANS AFFAIRS; ACCOMPANIED BY STEPHEN W. WARREN, PRINCIPAL 
  DEPUTY ASSISTANT SECRETARY FOR INFORMATION AND TECHNOLOGY, 
   OFFICE OF INFORMATION AND TECHNOLOGY, U.S. DEPARTMENT OF 
 VETERANS AFFAIRS; HON. WILLIAM A. GUNN, GENERAL COUNSEL, U.S. 
 DEPARTMENT OF VETERANS AFFAIRS; GLENN D. HAGGSTROM, EXECUTIVE 
 DIRECTOR, OFFICE OF ACQUISITION, LOGISTICS, AND CONSTRUCTION, 
U.S. DEPARTMENT OF VETERANS AFFAIRS; AND PETER L. LEVIN, PH.D., 
SENIOR ADVISOR TO THE SECRETARY, AND CHIEF TECHNOLOGY OFFICER, 
              U.S. DEPARTMENT OF VETERANS AFFAIRS

         STATEMENT OF CAPTAIN MARK KRAUSE, USNR (RET.)

    Captain Krause. Good afternoon, Madam Chairman.
    I have submitted my written testimony and I ask that it be 
entered into the record. I look forward to answering any 
questions that the Subcommittee has.
    Ma'am in the interest of time, it took me 7 or 8 minutes to 
read it out loud, I thought since I have submitted it, I would 
just enter it.
    [The prepared statement of Captain Krause appears on p. 
32.]
    Ms. Herseth Sandlin. That rarely happens, you caught me off 
guard.
    Mr. Boozman. Madam Chairman, I think he is trying to curry 
favor.
    Ms. Herseth Sandlin. I am not going to question his 
motives, and I thank you for the testimony you have provided to 
the Subcommittee.
    Ms. Herseth Sandlin. We will move on to Mr. Baker. You are 
now recognized.

                STATEMENT OF HON. ROGER W. BAKER

    Mr. Baker. Thank you, Chairwoman Herseth Sandlin and 
Ranking Member Boozman. I appreciate the opportunity to testify 
today and the support of this Committee as we wrestle with the 
changes necessary to improve the results of VA IT investments. 
You have mentioned the folks that are here with me today, so I 
will skip over that, emulating Mr. Krause.
    I would like to make a few brief remarks to supplement my 
written testimony and then respond to your questions.
    As I stated in my confirmation testimony barely 4 months 
ago, managing VA's IT organization is a challenging position. 
To this point, I would say that the challenges meet or exceed 
my expectations at that time. Clearly, some of the challenges 
were not anticipated, including two recent OIG reports on 
extensive personnel issues within the Office of Information and 
Technology.
    On a positive note, I am pleased with the status of our 
operations, our security, and our privacy efforts. Although 
these areas are not completely without problems, substantial 
progress has been made over the last few years and the results 
from each of these areas have so far been a pleasant surprise. 
I would note that these organizations comprise about two-thirds 
of our annual spending, and are in my experience to date 
delivering good services and value for the taxpayers.
    Unfortunately, the systems development area of our 
organization remains by far the largest IT challenge that VA 
faces, a challenge that exceeds my original expectation. 
Changing the long term work practices of a nearly 1,000-person 
systems development organization will take time, disciplined 
management and discipline, hard work, new skills, and 
substantial support from this Committee.
    To begin the necessary transformation, in June of this 
year, Secretary Shinseki approved the program management 
accountability system, or PMAS. PMAS brings discipline to our 
systems development process, and puts IT projects under tight 
control, requiring that they deliver new functionality to 
customers at least every 6 months and halting them if they 
establish a track record of failed deliveries.
    In July, the Secretary announced a temporary halt of 45 
projects. My experience to date with the 45 projects initially 
placed under PMAS indicates that VA lacks the depth of program 
management and project management skills necessary to reliably 
complete the number of IT projects we are currently executing. 
This is the fundamental reason that VA reached out to SPAWAR in 
2008 and 2009. VA sought to bring in a trusted government 
partner who could supply project management skills that VA does 
not possess.
    Just to speak specifically of the Chapter 33 long-term 
solution for a moment, I receive a monthly project management 
presentation from the VA SPAWAR team. And those presentations 
far exceed those of any other project team within the VA from a 
quality perspective.
    And while the project management presentations are not a 
guarantee of success, the fact that team can project their most 
pressing risks and road blocks, can explain the progress they 
have made and the plan for the next month, and can consistently 
meet their monthly schedules gives me a reasonable degree of 
comfort that they will, in fact, achieve their March 2010 
milestone for initial customer delivery and December 2010 
milestone for full functional delivery of the Chapter 33 long-
term solution.
    Thank you for the opportunity to appear before the 
Subcommittee. I look forward to your questions.
    Ms. Herseth Sandlin. Thank you, Mr. Baker.
    [The prepared statement of Mr. Baker appears on p. 34.]
    Ms. Herseth Sandlin. Mr. Krause, how many contractors is 
the Space and Naval Warfare using for developing the education 
long-term solution?
    Captain Krause. Ma'am, as of last count, 24 hours or so 
ago, we had 113 contractors on board the Chapter 33 long-term 
solution project.
    Ms. Herseth Sandlin. Is the Space and Naval Warfare 
awarding contracts on behalf of the Department of Veterans 
Affairs?
    Captain Krause. We are using pre-competed SPAWAR contracts, 
that are SPAWAR contracts. In other words, they are existing 
contract vehicles that we are using on behalf of the VA, of our 
customer, the VA, for Chapter 33.
    Ms. Herseth Sandlin. If Space and Naval Warfare is charging 
a program management fee, does that mean that the VA has no 
program manager for the education long-term solution?
    Captain Krause. The program management fee has been badly 
misunderstood. We explained it and reexplained it. Essentially, 
we were carving out the costs of the financial managers that 
have to manage the money, for instance for the Chapter 33 long-
term solution. We have carved out. It isn't a straight 10 
percent fee. It is an estimate that is used to essentially 
estimate the cost of the financial managers that have to be 
involved to track all of the money, especially the American 
Recovery and Reinvestment Act of 2009 (ARRA) funds, the 
stimulus funds, the contract specialists that have to monitor 
the invoices and track the costs and spending on the project, 
the logistics folks that have to get accounts for everybody and 
make sure that they have computers and everybody is connected 
and online with the VA network.
    Essentially, it also talks about some of the project 
initiation functions we do and some of the program oversight. 
For instance, my oversight is paid out of some of those funds 
that we set aside. My being here today is charged against that, 
if you will, as a working capital fund.
    It is misunderstood and everybody thinks that it is a 
management fee, something we are doing to get profit, if you 
will. Again, we are a Navy working capital fund. We don't have 
any profit. We break even every year. All we do is recoup our 
costs. This estimate, anywhere from 8 to 10 to 12 percent, 
depending on the project, is just used for those purposes. We 
have met with the technical acquisition command, which we are 
now working very closely with to resolve a lot of the IAA 
issues, and they are now in the future as of the new IAA that 
is in development that we expect this fall, we will 
essentially, that funding will be tucked into the contract 
itself. It will be tucked in the IGCE as labor hours for 
specific functions, and tracked by the TAC, by the Technical 
Acquisition Center.
    And we report the spending on those fees every week and 
every month to Dr. Tibbits, the Deputy Assistant Secretary of 
OED, and the VA program managers on a weekly basis from the 
SPAWAR PM. Cost schedule performance is reported on a weekly 
and monthly basis on every project we have.
    I have been to the briefs. I have stacks of them I can 
show. They are there, and we have been reporting them.
    Mr. Baker. There is a VA program manager that is in charge 
of the Chapter 33 long-term solution. The SPAWAR folks work 
with him on this project.
    Ms. Herseth Sandlin. Could anybody in the VA be doing some 
of the activities that Mr. Krause just described?
    Mr. Baker. Especially on Chapter 33, we look to SPAWAR to 
provide a solution on this one.
    I know that we have a nicely integrated team. I wouldn't 
want to make a definitive statement that no one could do that, 
but the division of roles, I believe in that area, is pretty 
appropriate to the work that SPAWAR is doing and the work that 
VA is doing on these things. In particular, I will note that 
the program manager for the long-term solution is also the 
program manager for the short-term solution. So there are a lot 
of things that program manager is doing to ensure the final 
delivery of the short-term solution. They should be joined 
together. They are working for the same customer with the same 
requirements using different technology, and so it is 
appropriate to put them under the same program manager. That 
program manager has a substantial job just managing the short-
term solution and then providing the appropriate interaction 
with the SPAWAR team on the long-term solution.
    Ms. Herseth Sandlin. Now that the short-term solution is 
being implemented, there is going to be a new IAA, correct? Is 
that going to adjust any in terms of the program manager's 
responsibilities as you move to the long-term solution?
    Mr. Baker. I don't believe that it will adjust their 
responsibilities, no.
    Mr. Warren has a comment.
    Ms. Herseth Sandlin. Yes, Mr. Warren.
    Mr. Warren. If I could, since I was the individual who 
brought SPAWAR into the section, what was the thinking that 
took place when we asked them as a government entity to do 
functions as a government entity as our partner?
    With the time pressure we were under in the fall, and I 
think we had multiple hearings where we talked about what the 
challenge was and how we were trying to get there, we looked 
within the IT organization. And as I previously testified, it 
is hard for a leader to say we did not have the qualified 
staff, either in number or skill set, to do what we had to do. 
We had a partner at hand. We drew upon them to strengthen the 
team and bring in the skill set.
    So could VA employees have done some of the functions? 
Inadequately. So instead of having the project fail, we reached 
out to a Federal partner and brought their skill set in to 
ensure that we could move that solution forward.
    In that interim solution, the short-term solution, I think 
we were able to get to where we needed to get to. The checks 
went out in terms of getting the systems in place, giving us 
some of the knowledge set while they were working on what do we 
need to do for the long term. So they brought in a skill set 
that we desperately needed, and we reached out to them because 
we saw that they could do it.
    So could other VA employees have done it? Yes. Were they 
capable of it? The answer at that time was no. Going forward, 
it is still a heavy lift for us, which is why we are continuing 
that relationship with them. They are part of the project team 
in terms of how do we make sure that we meet that March date 
and how do we ultimately bring forward that final solution, 
December of next year.
    Ms. Herseth Sandlin. Mr. Warren, I appreciate your 
testimony just now. As you know, there is probably no one who 
has tried harder to be understanding of the pressures that you 
faced in implementing the short-term solution. But there have 
to be quality controls and accountability and that is what we 
are trying to get at today as it relates to the relationship 
that exists and how we address some legitimate concerns that 
have been raised going forward. I appreciate what you are 
saying. We are going to follow-up on a few other questions. I 
know Mr. Boozman has some.
    Let me just pose this again with the focus on some of the 
concerns that have been raised and how we address it going 
forward.
    The OIG asserts that the VA appears to be paying for 
deliverables that SPAWAR contractors prepared but the VA never 
requested. Is the VA making all of the requests or has it 
resulted in some of the pressure that we have been under to 
implement the short-term strategy on time and to focus on the 
heavy lifts associated with the long term? Has VA been 
abdicating responsibility or delegating authority in a way that 
blurs the professional line within this contract in a way where 
SPAWAR is the one putting forward the deliverables versus the 
VA making the requests? Who is making the requests?
    Mr. Warren. That is a very good question because I think it 
gets to the heart of some of the things that are in the report, 
and I think this is the difference between if SPAWAR was a 
contractor and we had a contract with them versus SPAWAR as a 
government entity with whom we have a relationship.
    So the way the interagency agreement works, we talk about 
who we need to meet a specified outcome. We need to accomplish 
this task. Because they are a government entity, we go back and 
forth in terms of what do you mean by that? What does it look 
like, which ends up in an amendment that says we need to get to 
this outcome; it looks like this.
    The agreement or the amendment is the end result. So there 
are actions that our government partner, SPAWAR, takes to put 
things together to get to the end result that we are not 
involved in on a day-to-day basis. But it is why we reached out 
to them in that agreement and why we actually brought them on 
board as a partner, as a government partner. If it was a 
contractor, we would be managing it fundamentally differently.
    So to try to talk to that point, I agree with many of the 
things that the OIG laid out in terms of where our scrutiny on 
a partner relationship was not as good as it needed to have 
been, and those changes have been taken and absorbed and we are 
doing them to make sure that we are doing a better job in a 
partnership. So there are many things I agree with. We are 
implementing them and making the changes so we have better 
controls.
    But again, I think where it is not clear, it is an 
agreement with a partner. It is not a superior-subordinate 
relationship in a contract type of relationship. I am paying 
you to do a specific thing versus we talk about an outcome and 
what the goal is. Now bring it forward within the boundaries we 
have set. Is that reasonable? I don't know if that helps.
    Ms. Herseth Sandlin. Mr. Warren, that is a very helpful 
clarification. With Mr. Boozman's indulgence, I will ask 
another follow-up.
    I posed the question of the earlier panel about other 
interagency agreements. Mr. Baker, how many other interagency 
agreements has the VA entered into and are some of the same 
concerns being raised about this partnership? Do they apply to 
any other interagency agreements that the VA has entered into? 
I think Mr. Warren is making an important distinction and 
clarification, but we still have to address some of these 
things. I am also a little concerned that there are other 
interagency agreements that are out there that are posing some 
of the same problems that you are now trying to address going 
forward with this partnership.
    Mr. Baker. I am not specifically aware of other interagency 
agreements at the VA, but let me turn to Mr. Haggstrom and see 
if he has any other thoughts.
    Mr. Haggstrom. Madam Chairwoman, I am not aware of any 
other interagency agreements that look at the requirements, 
solving those requirements, as we have that relationship with 
SPAWAR.
    We will have interagency agreements with other government 
agencies to do assisted acquisitions, and that is specifically 
to put contracts in place on behalf of the VA, which is a 
different type of requirement, if you will, than what we are 
asking SPAWAR to do for us here.
    Mr. Baker. I guess I would say from previous experience 
that there is a substantial difference between forming an 
agreement with another government organization. We are all 
employees of the government. There are certain things that are 
inherently governmental, which in effect we trust each other 
more with than we do on the contract side of things. In 
particular, in the area where we have our worst systems 
development issues at the VA, which is in the area of just 
managing the projects, that can't be outsourced. That has to be 
done by government personnel. So the limitations on who we can 
turn to in that area, it is a small community. There is 
potentially the General Service Administrator (GSA), 
potentially SPAWAR. There may be a few others in government 
that offer to provide those services outside of their own 
agency. But there is not a lot of places that VA can go to 
achieve those resources where inherently governmental work is 
concerned.
    Ms. Herseth Sandlin. Mr. Boozman.
    Mr. Boozman. Thank you, Madam Chairwoman.
    You know, you kind of looked back to how this started, Mr. 
Warren, and if you remember, I think this Committee was very 
supportive of you accepting the fact that you didn't feel like 
you could get this done in-house, and I think many of us 
supported that and really said, yes, we trust you to do that.
    The problem is we have oversight over this. We have given 
it to you, okay. So again, we oversee it but it is yours. You 
have oversight. Whether it is in government or out of 
government, you have oversight over that. The problem is we 
have an OIG report that is not very flattering in regard to you 
doing the functions that you are supposed to do in that regard.
    Now I understand it is a unique situation with government 
to government, okay. But it has to be put in place. You are 
responsible. And what we have to do is figure out how to help 
you do that.
    Now it bothers me some of the things from a business 
standpoint. And I was in business for many years. Some of the 
stuff that the OIG talks about, I just don't understand from a 
business standpoint. I would not, no private businessman would 
let that stuff go on. Perhaps the contracting agents being 
involved with making the planning and this and that and then 
potentially bidding on it, that is not a good situation.
    The other thing the OIG mentioned, and I asked about, did 
they get the billing records, the hourly billing records, and 
they said basically you didn't have that information, didn't 
know much about it, and that they didn't feel like SPAWAR, 
essentially, could produce that either. That to me is a 
problem.
    So again, you have to figure it out. I will be honest with 
you guys, I can't imagine if I had a group look at me that 
toughly, and that is great advice. The first thing I would do 
is call them in and say, what's the deal? We don't agree with 
this, this and that, and you have done that somewhat in your 
testimony but it does seem like you sit across the table from 
the OIG and hash it out and figure out how can you get this 
thing done. Like I said, that is a basic thing.
    Captain Krause, who oversees you all, the Defense Contract 
Audit Agency (DCAA)? Does VA need to ask for an OIG report of 
your entity? Do we, along with the VA, need to help them get 
them off the hook because they are responsible? Do we need to 
have an OIG report to help oversee you peripherally, or do we 
need to ask the DCAA to step in and audit you? Where is your 
accountability?
    Captain Krause. My accountability is essentially to my 
supervisor who is accountable to his boss who is eventually 
accountable to Admiral Bachman, the Commander of SPAWAR in San 
Diego.
    DCAA will come in and audit us regardless. They come and 
audit all of the programs. They will come and do it. They are 
already going to eventually do it. They make sure that the cost 
and labor hours are appropriate with the skill sets being 
required, that you are not overpaying.
    In my career, I have seen DCAA go in on a project and tell 
the contractors that they owe the government money, millions of 
dollars, and the contractor has to pay up. So we are audited by 
DCAA. We have cost controls in place. We absolutely do not have 
contractors out there doing requirements, doing statements of 
work and then bidding on the work and then doing the work. We 
don't have that. Absolutely, we do not have it. There are 
safeguards that prevent that and we take those seriously.
    Mr. Boozman. So what was the deal with the phone call that 
they alluded to?
    Captain Krause. My efforts to find out more about what was 
in that report were not successful.
    Mr. Boozman. And also the fact that nobody really knew or 
remembers who sat down around the table and who actually 
decided----
    Captain Krause. Well, many of the amendments he was looking 
at were over a year old. They were back in fiscal year 2008. I 
wasn't here. Many of the people that he had access to were not 
necessarily there when he was looking at the older amendments. 
He wasn't looking at the newer ones, he was looking at the 
older ones.
    Again, as he stated, when we told him that a lot of that 
had been cleaned up, that we have made great strides since 
January before the OIG inspection to fix a lot of this, that 
was out of scope of the OIG report and it wasn't in his report 
and it wasn't really written down.
    So none of our comments about that to tell him that those 
things had been resolved were not captured.
    Mr. Boozman. Do you agree they commented and said, when I 
asked about the billing hours and things, that they didn't 
really feel like you guys had a handle where you could know the 
billing hours and who had done what; was that a true statement?
    Captain Krause. Absolutely not. It is not a true statement. 
The invoices come in. We have a contracting officer.
    Mr. Boozman. Prior to this last January.
    Captain Krause. It doesn't matter the time period. We look 
at our invoices and we look at our cost figures. We have people 
who are hired to do that. They are not contractors; they are 
government. They actually look at the invoices and validate 
them.
    I see the reports that come in from the contractors on the 
various projects. We have them. All the OIG had to do was ask 
for them. We had them all ready to go. I don't know why they 
didn't look at them.
    Mr. Boozman. But you understand our dilemma. Like I said, 
we have oversight of this project.
    Captain Krause. Yes, sir.
    Mr. Boozman. The OIG, and I hope and believe what you are 
saying, and I think it is true on the VA that things are better 
now than they were in January. On the other hand, the VA has to 
figure out how you can have oversight or we got a problem. I 
think that is really what we are discussing today.
    Captain Krause. Yes, sir.
    I mean, we really do have weekly meetings with our senior 
leadership to show cost, schedule and performance, show them 
the burn rate, show them where the money is going. On this 
particular project, Chapter 33, like the Secretary said, we 
have monthly meetings with him to show him cost, schedule and 
performance. Just like all of the rest of our others, and we 
have scores of others, we are doing the same thing we do for 
all of our other customers in trying to meet their expectations 
and report directly and have cost controls in place and do the 
right thing with respect to our DoD government requirements.
    Mr. Boozman. Thank you.
    Let me ask--go ahead, Mr. Baker.
    Mr. Baker. I was just going to say, certainly from a 
management standpoint, going forward, I have the responsibility 
to make certain that this is being well managed. And I just 
thought, in addition to what is here in the written testimony 
about changes that may have been made inside the organization, 
I want you to understand, when the OIG report came out, and I 
think very appropriately raised this issue on my radar screen, 
I had been in the office for about 2 weeks at that point. The 
questions that I asked were along the lines of tell me about 
the 40 amendments, tell me about the issues in here. I have a 
complete report on each of those 40 amendments where the folks 
responsible for this agreement have walked through and told me 
what the results are. My primary interest is, what are we 
getting for the dollars that we are spending? And are they 
appropriate for the dollars that we are spending from a 
management standpoint?
    Most critically, the Chapter 33 long-term solution is 
clearly a very high priority for the Secretary, which makes it 
a very high priority for me. I spend the time during the month 
and every month to sit down with his team and understand where 
they are and whether they are on schedule. And one of the 
things I am trying to make certain I drive through my 
organization is that those are open and honest meetings. 
Telling me you have a problem early is a lot better than me 
finding out later that you have a problem.
    The reason that I can tell you that I am very pleased with 
those project management reports is that I feel we have that 
environment. When SPAWAR has an issue, I get a call. And that 
is the only way that I can ensure that, if it is something that 
my organization can move out of their way, that we are 
involved. And that is in effect the only real positive role I 
can play from a management standpoint, is moving roadblocks out 
of people's way.
    So I make that comment so that you understand, the one 
thing that this OIG report did very effectively, from my 
standpoint, is raise this on the radar screen and make certain 
that we are not in any way, shape, or form ignoring the 
fundamentals of the report, which are that we have to manage 
our work with SPAWAR much more tightly than we had been during 
the time that this report was written.
    Now, many of the changes recommended in the report were 
under way at the time the report was written, so to the credit 
at the folks here. Additional changes have been made since that 
time period. I don't want to overstate the case and tell you 
that this is the best managed thing you have ever seen, but 
there is good management going on in this area right now.
    Mr. Boozman. Thank you, Madam Chair.
    Ms. Herseth Sandlin. Thank you, Mr. Boozman.
    Mr. Baker, if you could then provide some of that 
additional information to the Subcommittee and our staff as it 
relates to the report on those amendments, some of the changes 
that were already under way based on the suggestions in the OIG 
report, additional changes that have been made, that would be 
helpful to us to have that information.
    [The VA subsequently provided a report, which includes an 
Overview of the VA/SPAWAR IAA, Summary of IG Findings, 
Remediation Plan, Summary of Amendments, Deliverables/Outcomes, 
and VA's Next Steps, which will be retained in the Committee 
files. In response to the suggestions in the OIG report, the VA 
provided the following:]

    L  In response to OIG's recommendations, VA has implemented 
the changes listed below. Additionally, VA and SPAWAR agreed 
that program support costs will be submitted by SPAWAR, to VA, 
as a cost estimate broken-out by labor categories and hours, 
for each specific requirement placed against the IAA, rather 
than estimated as a flat percentage of labor costs:

       LVA has matched program managers with specific 
task orders and deliverables and made them accountable for the 
outcomes.
       LVA has established policies and procedures for 
program managers to certify that they have reviewed monthly 
SPAWAR financial documents and progress reports and have 
concurred with them.
       LVA has established a single point of contact 
within OED to warehouse all documents and deliverables required 
under the IAA and amendments.
       LVA is working to assure costs associated with 
Program Management Support provided by SPAWAR is proposed and 
reported under a separate amendment.
       LVA has implemented processes and procedures to 
assure unrelated tasks are not issued on the same amendment.
       LAdditionally, on November 4, 2009, VA executed 
a new IAA with SPAWAR that incorporated relevant aspects of OMB 
guidance published in a memorandum dated June 6, 2008, entitled 
``Improving the Management and Use of Interagency 
Acquisitions.'' The OMB guidance was used as a business model 
and framework in the development of roles, responsibilities, 
and management oversight of the SPAWAR IAA to ensure VA 
receives the greatest value possible through execution of an 
IAA with SPAWAR.

    Ms. Herseth Sandlin. Also, what is the status then of the 
new interagency agreement that you began rewriting in February? 
Is that completed?
    Mr. Baker. Let me go to Mr. Haggstrom for that.
    Mr. Haggstrom. The interagency agreement is currently under 
revision. We began that process back in May of this year. We 
are looking to, in effect, take what OFPP put out in their 
guidance letter of June of 2008 and use that as a template as 
we develop the two parts of the interagency agreement; first 
the overarching agreement that establishes our relationship and 
the requirements that we are looking at, and then the 
subsequent, which is called part B, which will drill down and 
establish what the bona fide need of the agency is in terms of 
asking SPAWAR to help us with a solution. So both of those are 
under draft right now, and we anticipate having those completed 
by October of this year.
    Ms. Herseth Sandlin. By October of this year.
    Mr. Haggstrom. Yes ma'am.
    Ms. Herseth Sandlin. I know they are under revision, but 
how do they differ?
    Mr. Haggstrom. What they do is they differ in terms of our 
involvement in how we are looking at them. We were criticized, 
if you will, by the OIG because of the lack of specificity in 
our statement of works and our deliverables. As an example, 
when we changed over management internally in my office, we 
gave this responsibility to our Technical Acquisition Center. 
These folks are very experienced in doing these kinds of 
agreements and, as a result, have worked very closely with the 
OI&T people to put a very robust statement of work into being 
for the subsequent amendments that we have put into place this 
fiscal year.
    As an example, if you will look at our prior amendments, 
when the OIG was looking at this, we had as an example four 
main deliverables on a very expensive piece of work. 
Subsequently, now when you look at our statement of work and 
the resulting deliverables, we will specify up to 14 main areas 
of work that we are asking SPAWARs to perform for us. And as 
part of those 14 areas, we have 56 specific deliverables that 
clearly specify what we are after and the dates and the 
performance we are asking SPAWARs to perform for us. So we have 
not waited for the newly signed IAA to put into effect what the 
OIG has recommended we go ahead and do in terms of tightening 
up how we define our requirements between the organizations.
    Ms. Herseth Sandlin. That was very helpful. Let me just 
make a couple of final questions. Can the Office of 
Acquisition, Logistics and Construction provide us with the 
documentation to support statements that use of an interagency 
acquisition is in the best interest of the Federal Government 
and that the supplies or services couldn't be obtained 
conveniently or economically by contracting directly with a 
private source?
    Mr. Haggstrom. We can, ma'am. That would be the new 
Determination and Findings, and it will be part of the new 
Interagency Agreement. And we will also, as part of any 
subsequent amendments, which define the real task, we will also 
perform a determination in findings which specifically look to 
that.
    Ms. Herseth Sandlin. Very good. Of the people providing 
services under the interagency agreement, it will be helpful 
for the Committee to know: the number of Federal employees; the 
number of SPAWAR employees; the number of SPAWAR contractors; 
where they work; who they are working for; and if the hours 
billed have actually been worked. We would also like updates on 
an ongoing basis if it changes in light of other amendments to 
the agreement going forward
    I just think, in light of the jurisdiction of the 
Subcommittee and the concerns raised in the report, that that 
would be very helpful for the Subcommittee to have in terms of 
the current situation and how that may change going forward to 
be able to answer other questions that may be raised as it 
relates to implementing the long-term solution. I think that 
will be helpful and perhaps even easier to document based on 
some of the specifics that you just indicated are part of the 
revision of the interagency agreement, correct.
    Mr. Haggstrom. Yes. And as part of that, when we go into 
looking at the specific requirements, part of that discussion 
will now be that we will be very much aware of what SPAWARs 
intends to offer us as a solution which will be a mix of FTEs 
and/or contractor support, so we will be very much aware of how 
that sorts out in the solution.
    [The VA subsequently provided the information in response 
to Question #14 in the Post-Hearing Questions and Responses for 
the Record, which appears on p. 47.]
    Ms. Herseth Sandlin. Okay. Very good, very good.
    Mr. Warren, did you have anything you wanted to add?
    Mr. Warren. I was just going to ask; you ran through a 
whole bunch of things that you wanted in the report you were 
requesting. If your staff could just send it over, so we can 
make sure we meet the need and not send something over which is 
the wrong answer.
    Ms. Herseth Sandlin. We will do that. We will provide that 
clarification. Thank you.
    Mr. Boozman, any final questions or comments?
    Mr. Boozman. No. I really do appreciate your all's hard 
work. We have three government entities involved here. We have 
the OIG. We have the VA and SPAWAR. And I know that everybody 
is working hard. And then you have us involved. So, as I said 
earlier, we were very supportive of doing things in the manner 
that we are doing them, and we will help any way we can.
    But I don't mind--I am responsible, and I don't mind being 
responsible, but that makes you responsible, and it goes down 
the line. And so we really do have to work together to fix this 
and make it such that we can move on without problems in the 
future. And I know myself, and I think I can speak for the rest 
of the Committee, is very much committed to doing that as we 
committed to get you in the situation that you are in now, you 
know, with the contracting and doing it the way we did.
    So we appreciate you being here, and we really do 
appreciate your hard work. But we do have to, like I said, we 
are going to be accountable and go from there.
    We also, Madam Chair, if it is okay with you, we will have 
some questions that we would like to submit. Thank you.
    [No questions were submitted by Congressman Boozman.]
    Ms. Herseth Sandlin. Thank you very much.
    I want to thank all of you for your testimony and your 
input today, your continued service to our Nation's veterans. I 
understand that the Administration is in the process of 
continuing to fill its appointed positions within the VA. I 
also recognize that the VA has career staff within its ranks 
with invaluable experience that is going to supplement the 
learning curve of the folks that will be new employees. So, 
knowing this, it is difficult for me, and I think the 
Subcommittee, to accept that the VA is lacking in resources to 
manage these programs and to oversee them effectively.
    I think this is especially true considering that we have 
consistently received testimony from the VA officials notifying 
us that they are sufficiently funded and staffed and equipped 
to successfully meet the needs of our Nation's veterans.
    I hope that those testifying before us today understand 
that the actions taken now, and I think you do, it is clear 
from not only your testimony today but testimony we have taken 
from you before, these are long-term implications affecting the 
VA for many years to come and the people that you serve. It is 
imperative that the VA begin the long-term IT solution on the 
right foot.
    I am heartened by the testimony that you have provided, the 
additional information that we have requested about the changes 
that you are making to address some of the concerns that have 
been raised by the OIG that the Subcommittee clearly has to 
take seriously and with significant attention because of the 
importance of this opportunity to overhaul such an important 
program for our Nation's veterans that can potentially affect 
millions of them and their dependants.
    A couple months ago, Mr. Warren, you were quoted in a news 
article that the OIG report will help the VA do its job better. 
In your testimony today and Mr. Baker's testimony and the 
responses of those of you on the panel I think indicate that 
while you may take issue with the process or what was reviewed, 
that the recommendations or the suggestions had been addressed, 
have been implemented, some of which were already under way 
when the report was issued.
    I can assure you that our goal here today is to ensure that 
you have the needed resources that you need to do a better job 
to oversee the project effectively as we not only implement and 
overhaul this new program but guard the use of taxpayer moneys. 
I think that there are some unique issues for us to think about 
going forward as it relates to a traditional contracting 
relationship and the interagency relationship, but a need to 
guard those taxpayer dollars and investments equally in either 
relationship.
    Again, thank you for your testimony and your response to 
our questions, as well as the responses that we would like from 
our questions we may submit to you in writing. Thank you.
    The hearing now stands adjourned.
    [Whereupon, at 2:54 p.m., the Subcommittee was adjourned.]



                            A P P E N D I X

                              ----------                              


   Prepared Statement of Hon. Stephanie Herseth Sandlin, Chairwoman,
                  Subcommittee on Economic Opportunity
    Today, we will follow-up on an issue of concern first raised by 
Committee Ranking Member Steve Buyer that initiated an investigation by 
the VA's Office of Inspector General and, more recently, by Congressman 
Harry Teague in a previous Subcommittee hearing on the implementation 
of the VA's Strategy for Implementing the Post-9/11 GI Bill.
    Some of those in attendance might recall that on June 25, 2009 
Representative Teague provided some of today's panelists with advanced 
notice that this Subcommittee would follow-up on a VA Inspector 
General's report highlighting the many contracting irregularities 
between SPAWAR and the VA. Some of the concerns highlighted in the 
report include:

      The Interagency Agreement between VA and SPAWAR does not 
include any specific task deliverables;
      The Interagency Agreement was entered into without an 
adequate analysis to determine that the ``use of an interagency 
acquisition is in the best interest of the Government'' as required by 
Federal Acquisition Regulation 17.503;
      Unauthorized work was being performed on projects that 
were outside the scope of the Interagency Agreement; and
      VA was unaware that SPAWAR was charging management fees.

    In reviewing the testimonies for today's hearing, I am not 
confident that enough is being done by the VA to learn from its 
mistakes. I share the concerns of my colleagues and look forward to 
learning more about specific actions taken by the Department of 
Veterans Affairs to address the Inspector General's report.
    I now recognize Ranking Member Boozman for any opening remarks that 
he may have.
                                 
  Prepared Statement of Hon. John Boozman, Ranking Republican Member,
                  Subcommittee on Economic Opportunity
    Good afternoon everyone.
    Madam Chair, I suspect that if general public had focused on the 
results of the IG report on the Interagency Agreement between VA and 
the Navy's Space and Naval Warfare Systems Command or SPAWAR as 
requested by Ranking Member Buyer as they have on our current 
healthcare debate, the August recess would have been even more 
contentious.
    According to the IG report, VA will have obligated over $100 
million to SPAWAR activities since signing the agreement in 2007. 
Unfortunately, the results of that agreement have been less than 
salutary. I would like to summarize the IG's findings.

      VA initially obligated $2.5 million to SPAWAR without 
specific requirements or deliverables.
      SPAWAR and its contractors developed statements of work 
or SOW that should have been written by VA.
      SOW were often general and lacked specific deliverables.
      The VA Office of Enterprise Development or OED did not 
perform adequate oversight.
      VA was not aware that SPAWAR contracted out 87 percent of 
the work under the interagency agreement.
      OED did not know who was performing specific tasks.
      OED did not know how many people were working under the 
various tasks or where they were working. SPAWAR estimated the need for 
295 FTE but only 217 were providing services. Of that 217, 195 were 
contractor personnel.
      OED was not aware of the management fees being charged by 
SPAWAR and SPAWAR could not justify the 10 percent fee.
      SPAWAR did not determine fair and reasonable prices for 
the services being performed.
      SPAWAR did not include specific tasks and deliverables in 
contracts with its vendors.
      SPAWAR contracts did not include privacy and security 
clauses required by VA thereby increasing the vulnerability of VA IT 
systems.

    Madam Chair those are only a few of their findings in this damaging 
report. However, we must put the IG's criticisms in some perspective, 
it is important to remember that SPAWAR is a working capital systems 
organization which means they seek out work much like a private sector 
company with all the attendant vices and virtues. That means that if 
they do not bring in business, staff could be let go, just like the 
private sector so there is significant pressure on management to get 
the most favorable terms possible in any business arrangement. While I 
am not implying anything was illegal, as described by the IG, the VA-
SPAWAR relationship does not appear to be an arms-length business 
relationship.
    I think it would be charitable to describe that business 
relationship as a mess. While a degree of flexibility in contracting is 
commendable, it appears the use of the IAA goes well beyond flexible 
and borders unprofessional at best. It appears the IAA was concluded as 
a matter of convenience rather than a rational business decision. 
Issuing tasks and obligating funds without a contractual basis for 
payment, lack of insight into who was actually doing the work, and all 
the other things found by the IG are totally unacceptable.
    I know that VA is trying hard to add a new level of professionalism 
to its contracting operations by adding experienced personnel and 
implementing the new Acquisition Academy. But the overly cozy 
relationship between VA and SPAWAR and any others like it must come to 
an end. I hope Secretary Shinseki will take a personal interest in this 
matter and I am looking forward to hearing from VA how they intend to 
correct this unacceptable situation.
    I yield back.
                                 
          Prepared Statement of Maureen T. Regan, Counselor to
          the Inspector General, Office of Inspector General,
                  U.S. Department of Veterans Affairs

                           EXECUTIVE SUMMARY

    The VA Office of Inspector General conducted a review of the 
Interagency Agreement (IAA) between the Department of Veterans Affairs 
(VA), Office of Information and Technology, Office of Enterprise 
Development (OED), and the Space and Naval Warfare Systems Center 
(SPAWAR). Our findings are outlined in our report dated June 4, 2009, 
Review of Interagency Agreement between the Department of Veterans 
Affairs (VA) and the Department of the Navy, Space and Naval Warfare 
System Center (SPAWAR).
    The IAA was entered into on November 5, 2007, under the authority 
of the Economy Act to provide Government employee and contractor 
technical support for analysis, planning, program review and 
engineering services for Information Management/Information Technology 
initiatives. We found that VA had obligated $66 million under the IAA 
and that there are additional projects to be awarded that will add an 
additional $73 million in funding. We concluded that neither VA nor 
SPAWAR has complied with the terms and conditions of the IAA. The 
Statements of Work and Independent Government Cost Estimates were 
developed by or on behalf of SPAWAR. We also found that 87 percent of 
the level of work performed under the IAA was performed by SPAWAR 
contractors and subcontractors. OED was not involved in the award or 
administration of those contracts and did not know who was performing 
the work, how many people were involved, or where they were located. We 
concluded that OED had relinquished its oversight role of financial 
performance and work performed under the IAA to SPAWAR. We suggested 
that VA re-evaluate the IAA and determine whether it is in the best 
interest of VA to continue obtaining services through this type of 
agreement, and if it determined to continue to procure services in this 
manner, we made a number of suggestions to be incorporated in any 
future IAAs.
    The results of our review of the IAA were further supported by our 
report on the failure of the Replacement Scheduling Activity 
Development project, Review of Award and Administration of Task Orders 
Issued by the Department of Veterans Affairs for the Replacement 
Scheduling Application Development Program (RSA), issued on August 26, 
2009.
                               __________
Introduction
    Madam Chairwoman and Members of the Subcommittee, thank you for 
this opportunity to testify on our report dated June 4, 2009, Review of 
Interagency Agreement between the Department of Veterans Affairs (VA) 
and the Department of the Navy, Space and Naval Warfare System Center 
(SPAWAR). I will present the major findings and conclusions of our 
review of the administration of the IAA, as well as related findings in 
a report issued on August 26, 2009, Review of Award and Administration 
of Task Orders Issued by the Department of Veterans Affairs for the 
Replacement Scheduling Application Development Program (RSA). I am 
accompanied by Mr. Michael B. Grivnovics, Director, Office of Inspector 
General Office of Contract Review.

Background
    The IAA was entered into on November 5, 2007, under the authority 
of the Economy Act. The stated purpose of the agreement was to provide 
``government employee and contractor technical support for analysis, 
planning, program review and engineering services for Information 
Management/Information Technology (IM/IT) initiatives.'' The IAA itself 
does not include specific tasks or a pricing structure. It is an 
overarching agreement that identifies eight general tasks that SPAWAR 
can perform on behalf of the Office of Enterprise Development (OED) in 
the Office of Information and Technology (OI&T), establishes the 
process for VA to order services, and sets forth the responsibilities 
of each party to the agreement. The eight general tasks that SPAWAR can 
perform under the IAA are:

      Application Development Assessment
      Program Management and Training & Mentoring
      Workforce Competency
      Service Oriented Architecture
      Program/Project Management
      Information Assurance
      Development and Management of Secure Infrastructure
      IM/IT Project Engineering Assistance

    Notwithstanding the fact that the IAA does not contain specific 
tasks or requirements, when it was executed, VA obligated and 
transferred $2.5 million to SPAWAR. At the time of our review 22 
amendments supporting 30 projects were issued against the IAA with a 
total estimated value of $66 million and another 26 projects were in 
the pipeline valued at $73 million. Each amendment contained funding 
and requirements and was accompanied by a Statement of Work (SOW) that 
included an Independent Government Cost Estimate (IGCE).
    OED is responsible for oversight of the IAA. One of the major 
reasons cited for the need for the IAA was that OI&T did not have 
personnel who possessed adequate skills to develop and manage IT 
projects, including cost controls and writing SOWs to obtain the 
services needed for enterprise development. The only way to obtain the 
services of government personnel from another agency to provide VA with 
assistance in these areas was through an IAA.
    The general process for issuing amendments to order services is 
delineated in the IAA. The IAA requires VA to prepare a Task Initiation 
Form (TIF) to include the principal participants, period of 
performance, and description of tasks and high level deliverables. The 
TIF is to be accompanied by a SOW with a designated VA point of 
contact. The SOW is required to include a detailed description of 
deliverables to be produced by SPAWAR, a delivery schedule, major 
milestones, performance measurement parameters, acceptance criteria, 
estimated total cost, and security requirements. The IAA states that 
the development of the TIF and the SOW is VA's opportunity to shape and 
define the project.
    The IAA also sets forth the process for modification of a task 
order identified in the TIF and accompanying SOW. The formal stage of 
this process is required to be accomplished and documented through the 
use of a Project Change Request (PCR) to the existing SOW. A PCR or 
modified SOW is required to change information contained within the 
original SOW including changes to taskings and cost estimates. Although 
there were changes to the projects, no PCRs were prepared by VA.
    The stated purpose of the IAA was to obtain the services needed for 
project development and, at the same time, train and mentor VA 
personnel in program development and management. However, the IAA 
states that once the TIF has been accepted, the resulting project 
management and execution is within the exclusive control of SPAWAR, 
which is inconsistent with the intent to train and mentor VA personnel 
to manage these programs.

Results of Review
    We identified significant problems with the manner in which the IAA 
has been administered by both VA and SPAWAR. These include the failure 
to adhere to one of the basic purposes of the IAA, which was to obtain 
the services of government personnel to provide VA personnel with the 
training and mentoring needed to develop the expertise needed to design 
and manage IT enterprise development. We found that very little 
training or mentoring was being conducted. We also found that the TIFs, 
SOWs, and IGCEs that were to be developed by VA were developed by or on 
behalf of SPAWAR, not by VA. In addition, we identified deficiencies in 
the oversight of the IAA and amendments thereto by OED, the Office of 
General Counsel (OGC), and the Office of Acquisition, Logistics and 
Construction (OAL&C). We found that there were no cost controls in 
place within VA and that actions by SPAWAR may have increased costs to 
VA. We concluded that OED had essentially abdicated its program 
responsibilities to SPAWAR.
    Our finding that OED was not in control of the work being done by 
SPAWAR and SPAWAR contractors was highlighted by the fact that we could 
not have a meeting with VA employees without having a SPAWAR contractor 
present to respond to questions or provide documents. At times, we 
could not distinguish between VA personnel and SPAWAR contractors. This 
led us to conclude that the contractors may be improperly providing 
personal services to VA.
    This conclusion was further supported by the fact that throughout 
our review we had difficulty in obtaining basic IAA documents from OED. 
These documents included SOWs, TIFs, listing of VA project managers, 
performance documents, and deliverables. We first directed our request 
for documents to the Chief of Staff, OED, who was listed as the program 
manager and point of contact for the IAA. The Chief of Staff referred 
us to the Director, Acquisitions Division, Program Administration 
Office in OED, who could not provide the documents we requested. Due to 
delays in obtaining documents, we discussed our concerns with the 
Deputy Chief Information Officer, OED, who in turn referred us back to 
the Director, Acquisitions Division. Ultimately the documents we 
requested were provided by SPAWAR, not VA.
    The inability to obtain documents and other information needed for 
our review directly from VA required us to conduct an onsite review at 
SPAWAR, Charleston, South Carolina. For example, most of the services 
provided under the amendments to the IAA were performed by SPAWAR 
contractors. VA did not have copies of the task orders awarded by 
SPAWAR to these contractors or the SOWs that should have been included 
in the task orders. In addition, we were told that VA was not involved 
at any level in the negotiation, award, or administration of these task 
orders. As a result, we had to go to SPAWAR to obtain information 
relating to these task orders.

Insufficient VA Oversight
    Although each amendment to the IAA went through a legal and 
technical review before award, we found that the reviews conducted by 
OGC and OAL&C were insufficient. OI&T officials stated they relied on 
the legal and technical reviews conducted by OGC and OAL&C. Our review 
determined that each level of review relied on the previous levels of 
review, all of which were inadequate.
    For example, we noted that Determinations and Findings (D&F) 
required by Federal Acquisition Regulations were not adequately 
addressed as part of the IAA process. OAL&C was unable to provide 
documentation to support statements that use of an interagency 
acquisition is in the best interest of the government and the supplies 
or services could not be obtained as conveniently or economically by 
contracting directly with a private source.
    OGC performed legal sufficiency reviews of the IAA, including the 
D&F, and all amendments issued under the IAA. There is no evidence that 
OGC questioned the applicability of the November 2007 D&F that 
supported use of a $2.5 million agreement or the additional $64 million 
in funding. In addition, the OGC attorney who performed the reviews of 
the proposed amendments stated the legal sufficiency review included 
determining whether the proposed amendment was within the general scope 
of the IAA and that funding was available. A review of the SOW 
accompanying the proposed amendments was not included in OGC's review. 
Even with this limited review, OGC did not identify that amendments 10 
and 19 contained requirements that were outside the scope of the IAA.
    Another example of the lack of oversight is that the financial 
reports prepared by SPAWAR were submitted to the Director of OED's 
Acquisition Division, but were not forwarded to OED program managers 
for analysis and were not maintained by OED. There is no evidence that 
shows program managers used SPAWAR financial or other reports to 
monitor costs or performance. In fact, we found no evidence that anyone 
in VA monitored costs or performance. OED was unaware of how many 
individuals were providing services under the IAA, how many were 
Federal employees versus contract employees, where they were working, 
who they were working for, or whether they actually worked the number 
of hours claimed in billings to SPAWAR.
    This lack of oversight resulted in the excess funding of $664,200 
on amendments 1, 2, and 3. Although there were three separate 
amendments, amendments 2 and 3 were essentially modifications of 
amendment 1. In this case neither VA nor SPAWAR identified the 
discrepancy in funding.
    Also, neither party complied with the terms of the IAA that 
required such changes to the scope of work being performed under an 
amendment be done through a PCR, not another amendment to the IAA. 
Additionally, OED personnel informed us that SPAWAR had begun work on 
the long-term GI Bill solution without official authorization. Costs 
for the work were being charged against an existing amendment, despite 
the fact that the work was outside the scope of the work authorized 
under the amendment.

SOWs and IGCEs not developed by VA
    Although the IAA states that the development of the TIF and the SOW 
is VA's responsibility and opportunity to shape and define the project, 
neither OED personnel nor SPAWAR representatives were able to 
definitively state who prepared the SOWs and both claimed it was a 
``collaborative'' effort. Our review indicated that most TIFs and SOWs, 
including the IGCEs contained in each SOW, were prepared by or on 
behalf of SPAWAR. VA personnel could not provide documentation to show 
that VA participated or ``collaborated'' in writing the SOW and in one 
instance, we were told the SOW was prepared by a SPAWAR contractor. 
Discussions with OED disclosed that, at most, OED only prepared section 
8 of the SOW that identifies the task requirements, which we found to 
be very general in nature. No one was able to provide any documentation 
showing that VA personnel prepared the IGCEs. Although collaboration 
between OED and SPAWAR to achieve a final SOW is within the terms and 
conditions of the IAA, as the customer, VA had responsibility under the 
IAA for serving as the lead on writing all SOWs.

Inadequate SOWs and IGCEs
    We determined that the SOWs and IGCEs were inadequate. The SOWs 
were very broad and general in nature and few of them included major 
milestones that serve to indicate the level of progress required by the 
terms and conditions of the IAA. Examples of the inadequacies we 
identified in the SOWs and IGCEs include:

      SOWs did not include the number of personnel, 
qualifications, or hours needed to complete the project.
      SOWs provided to us by VA and those provided by SPAWAR 
for the same amendments were inconsistent with each other.
      Table of contents was inconsistent with the tasks 
identified in the SOW.
      Costs associated with deliverables were not included in 
the SOWs.
      Deliverables were to be provided on an ``as requested'' 
basis.
      IGCEs were at a summary level only. No breakdowns of 
hours or labor categories by task were included in the IGCEs.
      Costs identified for specific tasks in the IGCEs did not 
support the corresponding task.

Requirements in amendments were outside the scope of the IAA
    The scope of the IAA is limited to services. However, amendments 10 
and 19 requested SPAWAR to purchase hardware and software, which is 
outside the scope of the IAA. In addition to not identifying this 
during the legal and technical reviews, the equipment purchased by 
SPAWAR was not in compliance with VA policy on purchasing IT equipment, 
which included a requirement to purchase the equipment from NASA's SEWP 
IV Contracts. Neither OED nor SPAWAR provided documentation that a 
waiver of VA policy was granted as required.

No Cost Controls
    VA failed to implement any cost controls to ensure that it pays 
fair and reasonable prices and that the work is performed. This is 
evidenced by VA's failure to develop the SOWs, failure to develop 
IGCEs, failure to question the 10 percent program management fee 
charged by SPAWAR, or to be involved in any manner in how the IAA is 
administered. We identified a potential for increased costs in general 
and specifically in the areas of Program Management (PM), unclear 
deliverables, and higher subcontract costs.
    VA was unaware of the basis for SPAWAR's 10 percent program 
management fee. The fee was not included in the IAA or the amendments. 
Although the fee was included in the IGCEs that SPAWAR provided for 
each SOW, we found no evidence that anyone in VA raised any questions 
or concerns.
    Due to the discrepancies between the tasks described in the SOWs 
and deliverables required by the SOWs, we concluded that the potential 
exists for VA to pay for deliverables not received and/or deliverables 
that were not necessary.
    We found that 87 percent of the level of effort performed under the 
IAA is attributed to contractor personnel and that VA is not involved 
in any way in the award or administration of these contracts. In 
addition, prime contractors were also performing work as subcontractors 
which increased the cost to VA by having multiple tiers of profit or 
fees. We also found that SPAWAR exercised an option period of a fixed 
price labor hour contract before the existing contract period had 
expired. This resulted in increased costs to VA because it accelerated 
the billing of higher fixed rates for services provided by the 
contractor to VA than originally called for in the contract.

Review of the Failure of the Replacement Scheduling Application 
        Development Program
    The results of our review of the IAA were further supported by our 
recent review of the failure of the Replacement Scheduling Activity 
Development project (RSA). We found that around the time the decision 
was made to halt further development of the program, discussions began 
regarding SPAWAR's involvement in the future RSA development and 
creating a transition to a blended VA and SPAWAR development efforts. 
The current RSA Program Manager recommended that the creation of a 
blended team, leveraging SPAWAR for core engineering, technical 
leadership, and additional IT providers for application development, 
integration, and delivery. The team was to report to the RSA Program 
Manager. The RSA Program Manager also recommended that a mechanism be 
established to fully empower SPAWAR government employees to act on 
behalf of VA. We have serious concerns regarding this course of action 
because, if implemented, VA would further relinquish its decision-
making and program responsibilities to SPAWAR.
    We also questioned this solution given SPAWAR's involvement in the 
assessments of RSA prior to the termination of the task orders to the 
vendor who was developing the code for the program. We identified four 
amendments to the IAA that identified work to be conducted on RSA. We 
found that VA was unable to determine exactly what work was to be 
performed on or relating to RSA by SPAWAR, what deliverables were 
required or received, or which VA personnel were monitoring or tracking 
the work.
    We had concerns that OED was unable to provide us with copies of 
the work relating to RSA that SPAWAR was tasked to perform under the 
IAA because the work may have impacted on the decision to halt the 
project and terminate the task orders with the vendor who was 
developing the code. We noted in the records that evaluations of RSA 
were conducted by a ``Tiger Team,'' which was specifically referred to 
in amendment 5 of the IAA. This raised concerns whether decisions made 
by VA personnel were being influenced by SPAWAR contractor personnel 
who could ultimately benefit from the decisions.

Suggestions
    To meet the original intent of the IAA and to control and monitor 
the progress of projects and costs under the IAA, VA needs to:

      Prepare SOWs with specific tasks, deliverables, defined 
delivery dates, and performance measures.
      Prepare IGCEs that provide labor hours, labor categories, 
and costs by task to assist in determining the reasonableness of 
proposed costs.
      Be involved in the award and administration of task 
orders to contractors who will perform the work required in the SOW.
      Require OAL&C and OGC to implement processes to improve 
their technical and legal reviews of the IAA, amendments or 
modifications thereto, and the SOWs.
      Require program managers to certify that monthly progress 
and financial reports have been reviewed and approved.
      Provide appropriate training to VA personnel to learn to 
develop SOWs and monitor contract performance.

    Madam Chairwoman, thank you for the opportunity to appear before 
the Subcommittee. We would be pleased to answer any questions that you 
or Members of the Subcommittee may have.

                                 

        Prepared Statement of Captain Mark Krause, USNR (Ret.),
     U.S. Department of Veterans Affairs Program Manager, Space and
     Naval Warfare Systems Center Atlantic, Department of the Navy,
                       U.S. Department of Defense

    Good afternoon Chairwoman Sandlin, Ranking Member Boozman, and 
Members of the Subcommittee. I appreciate the opportunity to appear 
before you today to discuss the topics related to the relationship 
between Space and Naval Warfare Systems Center Atlantic (SPAWARSYSCEN 
Atlantic) and the Department of Veterans Affairs with respect to the 
implementation of the Post-9/11 GI Bill (Chapter 33 of Title 38, United 
States Code). My testimony will address the capabilities provided to VA 
by SPAWARSYSCEN Atlantic, the proposed new Interagency Agreement (IAA), 
and the SPAWARSYSCEN Atlantic response to specific items within the 
recent VA Inspector General Report No. 09-012130142, ``Review of 
Interagency Agreement Between the Department of Veterans Affairs and 
Department of Navy, Space Naval and Warfare Systems Center.''

SPAWARSYSCEN Atlantic Capabilities
    SPAWARSYSCEN Atlantic is a Department of the Navy activity with 
expertise in designing and delivering command and control systems, 
business information technology systems, and information security 
systems. SPAWARSYSCEN Atlantic agreed to partner with the Department of 
Veterans Affairs (VA) on the Chapter 33 Long Term Solution effort in 
order to assist the VA in delivering secure information technology (IT) 
solutions that are fiscally sound and of benefit to our veterans. We 
are doing so by providing quality full-service systems engineering, and 
program management expertise. Our competency aligned engineering team 
delivers engineered solutions in a timely manner, and achieves speed to 
engineered capability through rapid prototyping.

SPAWARSYSCEN Atlantic Contracting and Interagency Agreement (IAA)
    SPAWARSYSCEN Atlantic uses existing competitively awarded contracts 
(most of them Indefinite Delivery Indefinite Quantity cost-plus fixed 
fee) to support development of the Chapter 33 Long Term Solution. With 
the exception of specific Federally authorized small business set-aside 
contracts, the contracts used to support the VA are full and open 
competitive contract vehicles.
    SPAWARSYSCEN Atlantic is not a contracts-for-hire organization 
(e.g., a franchise fund). SPAWARSYSCEN Atlantic's contracts belong to 
and service SPAWARSYSCEN Atlantic and its customers' requirements. 
Rigorous application of OMB's Office of Federal Procurement Policy 
(OFPP) memo, dated June 6, 2008, entitled ``Improving the Management 
and Use of Interagency Acquisitions,'' and its guidance concerning 
Interagency Agreement customer relationships is not appropriate to 
SPAWARSYSCEN Atlantic's relationship with the VA. The OFPP memo 
addresses only those interagency business transactions undertaken for 
the primary purpose of obtaining services or products from contractors. 
The OFPP guidance provides best business practices for inter-agency 
acquisitions but was not developed to address reimbursable work 
performed by Federal employees or interagency activities where 
engineering solutions and not contracting is the main purpose of the 
relationship. It is our view that the VA IG misapplied the OFPP memo.
    As agreed to between VA and SPAWARSYSCEN Atlantic, a new IAA was 
drafted in July and is currently being reviewed by the VA. The new 
proposed IAA more closely follows the OFPP guidance.
    Access to SPAWARSYSCEN Atlantic services is typically provided by 
the general authority of the Economy Act (31 U.S.C. 1535). The 
requesting agency, in this case, the Department of Veterans Affairs, 
executes an Economy Act Determination and Findings that documents, 
among other things, that doing business with SPAWARSYSCEN Atlantic is 
in the best interest of the government.

SPAWARSYSCEN Atlantic Response to Specific Comments
    I have been asked to respond to certain matters.

1. ``Out of Scope Purchases of Equipment and Software''
    SPAWARSYSCEN Atlantic was acting on the Statement of Work 
associated with amendments 10 and 19 of the IAA, which specifically 
called out procurements. On amendment 10, SPAWARSYSCEN Atlantic did not 
receive or expend $47,124.31 in program management funds. SPAWARSYSCEN 
Atlantic actually received and utilized $2,500 for in-house procurement 
efforts ($1,800 Service Center, $700 procurement development labor). 
Under amendment 19, the VA was charged approximately $40,000 to cover 
the labor required to complete the acquisition process. This process 
included reviewing the Statements of Work of existing SPAWARSYSCEN 
Atlantic competitively awarded contracts to ensure the requirements of 
the VA, in accordance with the signed IAA, were within the scope, and 
that the Government was procuring the best solution for the lowest 
cost. Many labor hours were spent in gathering the VA's requirements 
and ensuring distribution lists were accurate. SPAWARSYSCEN Atlantic 
engaged its own contracting process to include developing and issuing 
RFPs, performing evaluations of proposals, performing cost analysis to 
ensure fair and reasonable costs were proposed and placing task and/or 
delivery orders against existing awarded contracts. In addition, 
SPAWARSYSCEN Atlantic used the simplified acquisition procedures for 
any small purchases, under $100,000, necessary to meet VA requirements. 
Each procurement had a unique distribution list which was tracked 
closely to ensure items were delivered to the correct location on 
schedule. This process resulted in contract actions totaling over 
$10,000,000. The $40,000 in labor charges to VA equates to 0.4 percent 
of the total material dollars.
    SPAWARSYSCEN Atlantic does not believe the VA requirement to use 
NASA Solutions for Enterprise-Wide Procurement (SEWP IV) contracts is 
appropriate for the IAA. This is a VA policy, appropriate for VA 
contracting. Preferred use of SEWP IV contracts is not a SPAWARSYSCEN 
Atlantic policy. SPAWARSYSCEN Atlantic awards contracts for its 
purposes and follows DoD acquisition policies and procedures.

2. ``Program Support and Labor Costs''
    In order to effectively manage all costs for tasks assigned to 
SPAWARSYSCEN Atlantic, the decision was made to separate the costs for 
the program management (PM) function. This PM function includes, but is 
not limited to, financial management and reporting, project initiation 
functions, Information Management/Information Technology (IM/IT) 
services, logistics support, and program oversight. In this instance, 
the estimated amount for the PM function was 10 percent of the 
estimated project labor; this is neither a standard fee nor a standard 
amount that is used across the board, rather it is the estimate for 
this subset of the VA project. SPAWARSYSCEN Atlantic considers this a 
value-added activity and has taken steps to ensure the customer is 
aware of what is included in these costs.
    While it may be anticipated that economies of scale may be realized 
in future projects, the corresponding increase in reporting (e.g., 
American Recovery and Reinvestment Act (ARRA)) and other administrative 
costs have not yet allowed this to occur. As a Working-Capital-Fund 
activity, SPAWARSYSCEN Atlantic, as authorized by statute, may only 
recoup the costs it incurs. A monthly report showing the Program 
Support Office (PSO) funding and expenditures is supplied to VA each 
month for review and comment.
    There seems to be a fundamental misunderstanding in the way the 
relationship between VA and SPAWARSYSCEN Atlantic is viewed. As a Navy-
Working-Capital-Fund (NWCF) activity, SPAWARSYSCEN Atlantic produces 
goods and services on a reimbursable basis. Although we agree in 
writing to perform work for the VA, the relationship is not 
characterized as government to contractor, but as government to 
government. The stabilized labor rates are established per DoD 
guidelines. The stabilized billing rate is developed each year through 
the OMB Circular A-11 Budget Process and approved by the Under 
Secretary of Defense, Comptroller USD(C) and is included in the DoD 
budget approved by Congress. The civilian labor hours worked are billed 
at the stabilized rate for each career group, which includes 
adjustments for prior year stabilized billing variances.

3. ``Lack of Cost Controls''
    SPAWARSYSCEN Atlantic considers that it fully meets and exceeds 
both the intent and requirements of the IAA. Appropriate controls and 
oversight are in place to ensure SPAWARSYSCEN Atlantic and its sponsors 
are NOT paying more than they should for services or material. Under 
cost-reimbursement contracts, vouchers for costs incurred are certified 
by the Defense Contract Audit Agency (DCAA) and submitted via Wide Area 
Work Flow (WAWF) to the Defense Finance and Accounting Service (DFAS) 
for payment. The Contracting Officer's Representative (COR) reviews the 
invoices and monthly reports, including the labor categories and number 
of hours expended, submitted by the contractor to ensure that the costs 
billed are commensurate with the work expected and performed. Defense 
Contract Audit Agency (DCAA) also has responsibility for verifying 
incurred costs and performing audits at contract completion, to ensure 
the costs charged the government are allowable and allocable.
    SPAWARSYSCEN Atlantic uses existing competitively awarded contracts 
to provide the sponsor needed capability. With the exception of 
specific small business set-aside contracts, all of the major contracts 
used for the VA are full and open competitive vehicles, in which the 
VA's requirement was within scope. In most instances the labor 
categories and rates are less than the Independent Government Cost 
Estimates rates calculated by VA because of the diligence of 
SPAWARSYSCEN Atlantic contracting personnel.

4. Personal Services
    SPAWARSYSCEN Atlantic does not enter into ``personal services'' 
contracts. Some of the SPAWARSYSCEN Atlantic contracts utilized for VA 
tasking have been Indefinite Delivery Indefinite Quantity (IDIQ) with 
specific task requirements. As work was performed on site, performance 
of some tasks, such as Help Desk support, and other day-to-day program 
support services that may not have a defined deliverable, may have been 
perceived as ``personal services'' because they are not regularly 
recurring or are performed without frequent interaction with government 
representatives. SPAWARSYSCEN Atlantic is working to negate the 
perception of ``personal services'' by ensuring that contract language 
is clear, that contractors understand their appropriate role as well as 
the roles and responsibilities of those government personnel with whom 
they interact, and by working with the VA to ensure their personnel 
understand that contractors can only perform work specifically 
identified in the pertinent delivery order.
    Madam Chairwoman, this concludes my statement. I would be pleased 
to answer any questions you or any of the other Members of the 
Subcommittee may have.

                                 
     Prepared Statement of Hon. Roger W. Baker, Assistant Secretary
  for Information and Technology, U.S. Department of Veterans Affairs

    Madam Chairwoman and Members of the Subcommittee, thank you for the 
opportunity to update you on the status of our Chapter 33 GI Bill Long-
Term Solution efforts. This Subcommittee has always been extremely 
supportive of our efforts to assist all Veterans, especially those 
veterans entitled to Post-9/11 GI Bill benefits based on their service 
to our Country. We have the shared goal of providing Veterans with the 
opportunities to reach their educational or vocational goals. I look 
forward to highlighting some of our recent and future IT 
accomplishments, in addition to articulating the benefits that VA has 
derived from our Interagency Agreement (IAA) with the Department of 
Navy, Space and Naval Warfare Systems Center (SPAWAR). I will also 
individually address your concerns with the IAA, as examined in the 
Department of Veterans Affairs--Office of Inspector General (OIG) 
Report Number 09-012130-142.
    The intricacies associated with VA's IT systems and their 
correspondent modernization initiatives are more complex than most 
private sector computing environments. The demand for the experienced 
resources needed by these initiatives far exceeds the Office of 
Information and Technology's (OI&T) ability to provide this expertise. 
The Economy Act, 31 U.S.C. section 1535, allows one Federal Government 
agency to seek out and utilize the expertise of another Federal agency. 
As such, OI&T reached out to SPAWAR in 2007 to acquire engineering and 
IT project management expertise as an effective, practical, economic, 
and appropriate solution to meet the demand for this expertise.
    SPAWAR is a Department of the Navy working capital systems 
engineering command that provides full-service systems engineering to 
its customers through the development, testing, evaluation, production, 
and fielding of sustainable, survivable, and interoperable systems. 
SPAWAR is unique from other Department of Defense (DoD) Systems 
Engineering working capital commands, in that it works with customers 
outside of its Service (Navy) to develop skills and capabilities that 
can be leveraged to obtain engineering capability and solutions.
    SPAWAR possesses skill sets and competencies in systems engineering 
that can help address the critical skills shortage that exists within 
VA. The Interagency agreement between VA and SPAWAR was a Government-
to-Government partnership, to leverage this expertise and experience in 
support of the execution of VA's complex IT projects. The principal 
purpose and central aspect of this relationship was to strengthen the 
knowledge, skills, and abilities of VA employees, through knowledge 
transfer and skilled support and obtain Information Management/
Information Technology (IM/IT) engineering solutions and program 
management support. The agreement, although not without challenges, 
enabled immediate, fully staffed teams of highly experienced program 
management and systems engineering staff, to facilitate real-time 
progress on specific project execution and project management.
    The timeline of the VA/SPAWAR IAA has been as follows:

      In November 2007, VA and SPAWAR created the IAA to 
provide VA with skilled and program management support and knowledge 
transfer through SPAWAR's expertise of information management/
information technology engineering solutions.
      In May 2008, VA began executing amendments to the IAA to 
acquire technical and program management expertise for key health 
programs including Replacement Scheduling Application (RSA), Pharmacy 
Reengineering (PRE), Bi-Directional Health Information Exchange (BHIE) 
and Blood Bank.
      In June 2008, Office of Federal Procurement Policy (OFPP) 
issued the memorandum, ``Improving the Management and Use of 
Interagency Acquisitions'' which provides new guidance for agreements 
entered on or after November 3, 2008.
      In September, 2008, faced with a project management 
skills shortage, VA began issuing amendments under the SPAWAR IAA to 
support the Chapter 33 program.
      In October 2008, VA's Office of Acquisition, Logistics 
and Construction (OALC) and Office of General Counsel (OGC) discussed 
revisions to the technical and legal review processes, including the 
impact of the June 2008 OFPP memorandum and guidance.
      In January 2009, VA's OALC, OGC, and Office of 
Information and Technology (OI&T) recognized issues in the management 
of SPAWAR amendments issued to that point, and took actions to 
strengthen the requirements of future amendments and the management of 
ongoing amendments.
      In February 2009, although it was determined that the 
OFPP memorandum did not directly apply to the VA/SPAWAR IAA, OALC 
informed OI&T of its intent to develop a new IAA and build upon the 
framework as stated in the memorandum to ensure success in the 
management and administration of VA and SPAWAR agreements. VA continues 
to use the original IAA while the new IAA is developed.
      In March 2009, Information Letter 001AL-09-04 was issued 
by OALC. The Information Letter established new VA procedures for 
entering into any agreement with another Federal agency.
      In March of 2009, the OIG began an investigation into the 
amendments issued during the time period of September to November, 
2008. OIG staff specifically stated that they were not interested in 
later amendments or in subsequent changes made to strengthen the 
requirements and management of amendments under the IAA.
      In March 2009, VA OALC established the Technology 
Acquisition Center (TAC) in Eatontown, NJ, to specifically support OIT 
acquisitions, which include SPAWAR IAA amendments. OALC is recruiting 
and hiring fully certified and trained contracting professionals who 
had previously supported the Army's Communications and Electronics 
Command (CECOM). It is anticipated that the TAC will be fully staffed 
with almost 200 individuals by Fall 2009.
      In April 2009, the Office of Enterprise Development 
(OED), OALC and OGC conducted a lockdown to review new amendments and 
validate that those amendments were within scope of the existing IAA. 
VA proceeded to execute approximately 15 additional amendments under 
existing IAA from April 2009 to present. To improve oversight, VA 
established a secure repository for administrative documentation, 
strengthened Statement of Work format, and strengthened Independent 
Government Cost Estimate (IGCE) requirements.
      In June 2009, the OIG issued its report and its 
suggestions.
      Presently, VA and SPAWAR continue to develop the new IAA 
in conformance with Information Letter 001AL-09-04. Developing this new 
IAA will establish governing terms and conditions and ensure VA and 
OFPP guidance is carried out to the fullest extent possible. The new 
IAA will document SPAWAR's commitment to comply with VA regulations and 
policies, and ensure the reasonableness of their fees.

    Since the OIG report, I have received briefings on the status of 
our efforts to provide a long-term solution for Chapter 33 processing 
via SPAWAR, and on our management of each of the 40 amendments that 
have been issued under the SPAWAR IAA.
    Our long-term strategy to support delivery of Post-9/11 GI Bill 
education benefits relies on our partnership with SPAWAR Systems 
Center--Atlantic to design, develop, and deploy an end-to-end solution 
that utilizes rules-based, industry-standard technologies. The Post-9/
11 GI Bill contains eligibility rules and benefit determinations that 
will work well with rules-based technology to reduce the need for human 
intervention. VA is currently working with SPAWAR Systems Center--
Atlantic on the long-term IT solution. In accordance with VA's new IT 
management approach (Program Management Accountability System (PMAS)), 
which commenced June 19, 2009, VA's OI&T will utilize incremental 
development and strict management of milestones to ensure that we 
successfully deliver the functionality needed to serve our Veterans. 
New functionality will be delivered in increments of no more than 6 
months, with the fourth and final release planned for December 2010. 
The Chapter 33 Long Term Solution will deliver an end-to-end solution, 
to support the delivery of Post-9/11 GI Bill benefits. The long-term 
solution will be:

      Released in 4-6 month intervals, delivering incremental 
capability
      Developed in a distributed application architecture 
framework
      Supportive of a service oriented architecture
      Developed using an agile methodology
      Rules-based to ensure reusability and flexibility

    Development of release one has begun and we will complete the 
solution development environment in the first quarter of FY2011. Once 
completed, the Solution Release Schedule will allow us to meet the 
following milestones:

      Chapter 33 Long Term Solution Release 1--2QFY2010
      Chapter 33 Long Term Solution Release 2--3QFY2010
      Chapter 33 Long Term Solution Release 3--4QFY2010
      Chapter 33 Long Term Solution Release 4--December 2010

    As mentioned earlier in my testimony, I receive regular briefings 
on the status of the Chapter 33 Long Term Solution from the VA/SPAWAR 
team. I can tell you that the project management skills exhibited in 
the content of those presentations are far in excess of those I have 
seen in any presentation from any other VA project to date. I have 
specifically excerpted pages from the SPAWAR presentation material to 
provide to other VA projects as examples of the types of project 
management methodologies all projects should follow.
    I would now like to focus on the June 4, 2009, OIG Report, ``Review 
of Inter-Agency Agreement between the Department of Veterans Affairs 
and the Department of Navy, Space and Naval Warfare Systems Center 
SPAWAR'' and specifically address OIG's issues of concerns and 
recommendations as they relate to implementing the long-term solution 
for managing Chapter 33 GI Bill benefits. As an overview, it is VA's 
position that the implementation of the Chapter 33 long-term solution 
will not be negatively affected nor will the project delivery of the 
long-term solutions by December 2010 be delayed because of the findings 
within the OIG review.
    The OIG reported poor administration of the IAA by both OED and 
SPAWAR. It was further noted that OED was not performing adequate 
oversight to ensure that funds were spent appropriately. OIG also 
attributed problems with the administration of the IAA, to insufficient 
technical and legal reviews conducted by OALC and OGC, respectively. 
OIG reported that neither VA nor SPAWAR complied with the terms and 
conditions of the IAA and that Statements of Work were often broad, and 
lacked specific timelines and deliverables.
    I would like to assure the Committee that the VA/SPAWAR 
relationship resulted in a number of solid deliverables. In addition to 
the support provided to the Chapter 33 program, VA's investment in 
SPAWAR program management expertise proved immensely beneficial in 
other program areas as well. This included:

      The development of key program documentation, plans, and 
software designs for the next-generation HealtheVet Common Services;
      Comprehensive executability review of the Clinical Health 
Data Repository, including the determination of a viable path forward 
for its critical VA/DoD interoperability module;
      Full lifecycle, risk-adjusted Independent Cost Estimates 
for the FLITE program and HealtheVet program, identifying significant 
cost differences from the initial government estimates; and
      Information architecture for the eBenefits Portal, an 
interactive Web site providing a single source of information for 
returning servicemembers.

    While we do not agree with many of the OIG findings regarding the 
sufficiency of the reviews, heightened management of the SPAWAR 
amendments and future work within the IAA is imperative. In concert 
with OALC and OGC, OI&T has taken the initial steps to improve the 
administration of the IAA, including establishing a consolidated, 
secure repository for storing all administrative documentation 
associated with any VA/SPAWAR initiatives; strengthening the Statements 
of Work, to include major milestones, specific deliverables, and other 
controls to ensure appropriate oversight; and strengthening the IGCE, 
to include specificity for labor, travel, materials, and standard 
listing of labor categories.
    Most of the remediation will occur through the initiative OI&T has 
established to mature the acquisitions function. This initiative 
includes establishment of standardized, improved processes and 
mentorship of OI&T acquisitions management staff to better execute 
these processes.
    As a component of strengthening the acquisition capabilities of all 
IT programs, VA recognizes importance of applying those improvements to 
the SPAWAR relationship. OI&T will ensure that the staff assigned as 
Contracting Officer Technical Representatives (COTR) has the capacity 
to oversee all SPAWAR relationships, including the administrative 
aspects. This includes:

      Managing, reviewing and assigning amendments and changes
      Tracking cumulative data such as monthly financial 
reports
      Monitoring and resolving issues, to include determination 
if there are systemic problems
      Monitoring all documentation and deliverables
      Confirming receipt of services and monitoring if OI&T is 
receiving best value

    OI&T will establish acquisition training for OI&T staff and provide 
acquisition experts to coach and mentor program managers. In addition 
to training staff to execute the acquisitions processes effectively, 
training will also address Organizational Conflict of Interest (OCI), 
Personal Services, and Government Ethics.
    OI&T is standardizing acquisition documents to:

      Clearly define tasks, deliverables, performance measures, 
period of performance, VA points of contact
      Ensure deliverables directly tied to tasks
      Tasks are specific and tied to only one program/project

    OI&T is standardizing its reporting. Reports will be created for 
financial, staffing, and schedule status. To ensure adherence to cost, 
schedule and performance, easy-to-use standard management templates 
will be created for the program managers to assist in the review and 
analysis of financials, and other project status information.
    OI&T will pursue an approach to ensure that a key principal purpose 
of the IAA, to strengthen the knowledge, skills, and abilities of VA 
staff, is the central aspect of all future work between VA and SPAWAR, 
as well as initiate use of performance based statements of work, to 
improve specificity and better manage outcomes of VA's relationship 
with SPAWAR. Additionally, VA is taking steps to ensure better training 
of its personnel to manage IT programs, operations and monitor contract 
performance, including greater oversight of the technical and legal 
review processes by OALC and OGC. Through the implementation of these 
objectives and new policies, VA will continue to work with SPAWAR, to 
address the issues cited in the IG report as they apply to the IAA.
    Specific to the administration of the SPAWAR Chapter 33 amendments, 
VA already made great strides in establishing a proper governance and 
oversight plan. The Chapter 33 Long Term Solution Governance and 
Oversight Plan describes how the long term solution engages in 
oversight. Oversight includes the monitoring of the deliverables 
submitted by SPAWAR. Reviews of the Monthly Progress Reports, project 
deliverables reviews and planning sessions, and day-to-day oversight of 
the SPAWAR teams provide several layers of oversight.
    The Chapter 33 program utilized the IAA to gain assistance with the 
project management expertise that VA was not able to provide. SPAWAR 
provided in-domain expertise to build a robust necessary framework and 
plan to fulfill functional and organizational requirements. Program 
management and technical services were provided to consistently 
integrate standard protocols, pilot reporting structures to ensure 
process maturity, compare the project's methodology to reflect industry 
best practices from organizations such as Gartner, and design 
infrastructure to support modular tools.
    The acquisition will focus on the development of the Chapter 33 
Long Term Solution using agile methodologies. This requirement 
encompasses two distinct tasks, the second of which is optional 
dependent upon the performance of the first. Task 1 includes the 
development of the initial solution functionality and a system 
prototype. Task 2, which is optional, contains requirements for 
completing development, conducting final end user acceptance testing, 
deploying the full capability, training staff on the new system, and 
sustaining the system.
    In order to meet the objectives of both Task 1 and Optional Task 2, 
significant material investments are required. The materials 
investments to be obtained by SPAWAR include (1) necessary hardware and 
operating systems to host the solution; (2) commercial off-the-shelf 
products; (3) life-cycle software tools for management of all solution 
requirements, architecture artifacts, software components, and 
documentation; and (4) networking and telecommunications hardware in 
order to connect to VA's network infrastructure. The investment will 
produce and maintain a framework for managerial reporting, quality 
control, and team training.
    The Chapter 33 Long Term Solution will not be negatively affected 
nor will the project delivery of the Long Term Solution by December 
2010 be delayed because of the OIG review. As mentioned in prior 
testimony and responses to inquiries, the Chapter 33 project instituted 
consistent oversight of all aspects of the project, including SPAWAR, 
from the outset. The Post-9/11 GI Bill IT solution Integrated Project 
Team (IPT) meets weekly to conduct a review and status of the 
initiative. These IPT reviews include participants from development, 
infrastructure, engineering, and the Veterans Benefits Administration. 
Also, VA maintains frequent oversight of the SPAWAR contribution to the 
Post-9/11 GI Bill initiative through daily communications concerning 
requirements, architecture, and software development. Finally, the 
Post-9/11 GI Bill IT solution underwent an extensive review associated 
with OI&T's Transformation-21 initiative, which included an analysis of 
eight key program attributes.
    In inviting us to today's session, Members of the Subcommittee 
inquired as to whether VA researched the Department of Education's 
Common Origination and Disbursement (COD) benefits management program 
for potential incorporation into the Post-9/11 GI Bill IT solution. VA 
and the Department of Education assessed this possibility early in the 
planning stages of the program. However, VA concluded that the process 
required to administer benefits for the Post-9/11 GI Bill was distinct 
from that required for the COD program, therefore the COD program did 
not represent a comparable model for the Post-9/11 GI Bill solution. VA 
welcomes the opportunity to collaborate with agencies throughout the 
Federal Government and will continue to assess best practices in the 
development of its IT solutions.
    In closing, I would like to thank you again for your continued 
support and the opportunity to testify before this Subcommittee on the 
important work we are undertaking to improve educational benefits for 
those, who have selflessly served our Nation. I would now like to 
address any questions you might have.

                   MATERIAL SUBMITTED FOR THE RECORD

                                     Committee on Veterans' Affairs
                               Subcommittee on Economic Opportunity
                                                    Washington, DC.
                                                 September 28, 2009

Ms. Maureen Regan
Counselor to the Inspector General
Office of Inspector General
U.S. Department of Veterans Affairs
810 Vermont Ave., N.W.
Washington, DC 20420

Dear Ms. Regan:

    I would like to request your response to the enclosed questions for 
the record and deliverable I am submitting in reference to our House 
Committee on Veterans' Affairs Subcommittee on Economic Opportunity 
hearing on Review of Space and Naval Warfare Systems Center Atlantic 
and the U.S. Department of Veterans Affairs' Interagency Agreement on 
September 10, 2009. Please answer the enclosed hearing questions by no 
later than Monday, November 9, 2009.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres by fax at (202) 225-2034. If you have any questions, 
please call (202) 226-4150.

            Sincerely,

                                          Stephanie Herseth Sandlin
                                                         Chairwoman
    JL/ot

                               __________

                                U.S. Department of Veterans Affairs
                                        Office of Inspector General
                                                     Washington, DC
                                                   October 21, 2009

Hon. Stephanie Herseth Sandlin, Chairwoman
Subcommittee on Economic Opportunity
Committee on Veterans' Affairs
United States House of Representatives
Washington, DC 20515

Dear Madam Chairwoman:

    This is in response to your September 28, 2009, letter to Maureen 
Regan, Counselor to the Inspector General, following the September 10, 
2009, hearing on Review of Space and Naval Warfare Systems Center 
Atlantic and the U.S. Department of Veterans Affairs' Interagency 
Agreement. Enclosed are Ms. Regan's answers to the additional hearing 
questions. This information has also been provided to Congressman John 
Boozman, Ranking Republican Member, Subcommittee on Economic 
Opportunity.
    Thank you for your interest in the Department of Veterans Affairs.

            Sincerely,

                                                    GEORGE J. OPFER
                                                  Inspector General
    Enclosure

                               __________


         Questions from the Honorable Stephanie Herseth Sandlin
         For Maureen Regan, Counselor to the Inspector General
    Office of Inspector General, U.S. Department of Veterans Affairs
            Before the Subcommittee on Economic Opportunity
                     Committee on Veterans' Affairs
   Review of Space and Naval Warfare Systems Center Atlantic and the
       U.S. Department of Veterans Affairs' Interagency Agreement
    Question 1: Did you find out why the Interagency Agreement did not 
contain specific tasks or requirements?

    Response: The Interagency Agreement (IAA) was intended to be an 
overarching agreement through which VA could purchase services over the 
lifetime of the IAA. The intent of the IAA was not to purchase services 
for specific tasks; rather it was to establish parameters for VA to 
order services from Space and Naval Warfare Systems Center (SPAWAR). 
Therefore, the IAA would not have contained specific tasks or 
requirements. These parameters included the identification of eight 
types of services that VA could request, the process for requesting 
services, how payment would be made and when, and other terms and 
conditions. When VA identified a need for services, VA was to be 
responsible for developing a Task Initiation Form that would include a 
detailed Statement of Work (SOW) identifying the specific tasks or 
requirements, deliverables, and including an independent government 
cost estimate (IGCE).

    Question 2: Has anyone in the Department of Veterans Affairs been 
trained or mentored to manage the programs being overseen by Space and 
Naval Warfare?

    Response: Although training and mentoring VA personnel to manage 
information technology (IT) programs was one of the eight general 
services that VA could procure under the IAA, at the time we completed 
our review, no training or mentoring relating to program management 
responsibilities had been provided through the IAA. This is a concern 
since VA has stated that SPAWAR would provide training and mentoring 
related to program management responsibilities to VA personnel so that 
at some time in the future, VA would have the expertise to fully assume 
program management responsibility for all its IT projects.

    Question 3: Did the Department of Veterans Affairs state why each 
level of review for the Interagency Agreement relied on previous levels 
of inadequate review?

    Response: The amendments issued against the IAA to purchase 
services for specific tasks did not go through a review board process 
consisting of representatives from the program office requesting the 
services, acquisition personnel, and legal staff. Instead, the 
preparation of the amendment, accompanying SOW, including the IGCE, and 
other relevant documentation is sent separately through these entities 
for approval. Each entity focuses its review on its area of specialty 
and the others rely on the comments and approvals submitted by each 
specialty area. For example, legal and technical reviewers relied on 
the program office to identify its requirements and deliverables, and 
to develop the IGCE. In turn, the program office relied on the legal 
reviewers to ensure the work is within the scope of the IAA and that 
the proposed amendment was legally sound. Finally, both the program 
office and the legal reviewers relied on the technical reviewers in 
acquisition to ensure that the proposed amendment complied with Federal 
acquisition laws and regulations.

                                 

                                     Committee on Veterans' Affairs
                               Subcommittee on Economic Opportunity
                                                    Washington, DC.
                                                 September 28, 2009

Mr. Mark Krause
Department of Veterans Affairs Program Manager
Space and Naval Warfare Systems Center
810 Vermont Ave., N.W.
Washington, D.C. 20420

Dear Mr. Krause:

    I would like to request your response to the enclosed questions for 
the record and deliverable I am submitting in reference to our House 
Committee on Veterans' Affairs Subcommittee on Economic Opportunity 
hearing on Review of Space and Naval Warfare Systems Center Atlantic 
and the U.S. Department of Veterans Affairs' Interagency Agreement on 
September 10, 2009. Please answer the enclosed hearing questions by no 
later than Monday, November 9, 2009.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres by fax at (202) 225-2034. If you have any questions, 
please call (202) 226-4150.

            Sincerely,

                                          Stephanie Herseth Sandlin
                                                         Chairwoman
    JL/ot

                               __________

                        Questions for the Record
               Hon. Stephanie Herseth Sandlin, Chairwoman
                  Subcommittee on Economic Opportunity
                  House Committee on Veterans' Affairs
                           September 10, 2009

       Review of Space and Naval Warfare Systems Center Atlantic
   and the U.S. Department of Veterans Affairs' Interagency Agreement

    Question 1: You write that many labor hours were spent gathering 
the Department of Veterans Affairs' requirements and ensuring 
distribution lists were accurate. Who in the VA should have had these 
items and was this essentially a duplication of work?

    Answer: The VA partnered with SPAWARSYSCEN Atlantic to acquire 
needed project management and systems engineering expertise, and this 
is a case where that expertise was correctly applied. There was no 
duplication of work.
    Under amendment 19, the VA funded SPAWARSYSCEN Atlantic 
approximately $40,000 to cover the labor required to complete the 
acquisition process. This process utilizes vendor competition to ensure 
the government is procuring the best solution for the lowest cost. In 
order for this to occur, SPAWARSYSCEN Atlantic labor hours were spent 
gathering the VA's requirements and system components distribution 
lists. The system components distribution lists consisted of points of 
contact and equipment configuration encompassing 64 VA sites. This 
information was used to coordinate the purchase, delivery and 
installation of equipment at each of those sites. The request for 
quotation (RFQ) packages were then posted for authorized bidders' 
review on one of SPAWARSYSCEN Atlantic's contracting vehicles. Once all 
bids were received, SPAWARSYSCEN Atlantic conducted technical 
evaluation reviews to ensure the proposed solutions met VA requirements 
and cost analyses were completed. Once a vendor was selected, the quote 
packages and supporting details were then forwarded to the Contracting 
Officer for contract award. Each procurement had a unique system 
components distribution list which was tracked closely to ensure they 
were delivered to the correct location on schedule. This process was 
completed for 11 line items, quantities ranging from 1 to 7,000 and 
material costs totaling over $10,000,000. The $40,000 in labor equates 
to 0.4 percent of the total material dollars.

    Question 2: The Inspector General expresses concern that the 
Deliverables Schedule does not specifically address any of the 
deliverables and lacks specificity. Do you agree with this assertion?

    Answer: When SPAWARSYSCEN Atlantic first began supporting these VA 
projects last year, the VA requested that we provide system engineers 
for support their IT programs. The deliverables from the statements of 
work (SOWs) at that time primarily called for technical/engineering 
labor hours. The VA asked SPAWARSYSCEN Atlantic to be part of a blended 
VA/SPAWAR team; however SPAWARSYSCEN Atlantic was not assigned primary 
responsibility for completing specific project deliverables. Rather, 
SPAWARSYSCEN Atlantic system engineers worked collaboratively with VA 
team members to develop the resulting `code' and deliverables. The 
quality of the support SPAWARSYSCEN Atlantic provided exceeded the 
expectations of the VA. Since development of these early SOWs (and well 
before the IG inspection) the VA and SPAWARSYSCEN Atlantic have worked 
closely together to better define specific project deliverables. This 
was made known to the IG, but it was not brought out in the final IG 
report. For the last several months, SPAWARSYSCEN Atlantic has worked 
very closely with the VA's Technical Acquisition Center to ensure all 
SOWs within VA funding Amendments have extremely detailed deliverable 
descriptions and due dates.

                                 

                                     Committee on Veterans' Affairs
                               Subcommittee on Economic Opportunity
                                                    Washington, DC.
                                                 September 28, 2009

Hon. Roger W. Baker
Assistant Secretary for Information and Technology
U.S. Department of Veterans Affairs
810 Vermont Ave., N.W.
Washington, D.C. 20420

Dear Hon. Baker:

    I would like to request your response to the enclosed questions for 
the record and deliverable I am submitting in reference to our House 
Committee on Veterans' Affairs Subcommittee on Economic Opportunity 
hearing on Review of Space and Naval Warfare Systems Center Atlantic 
and the U.S. Department of Veterans Affairs' Interagency Agreement on 
September 10, 2009. Please answer the enclosed hearing questions by no 
later than Monday, November 9, 2009.
    In an effort to reduce printing costs, the Committee on Veterans' 
Affairs, in cooperation with the Joint Committee on Printing, is 
implementing some formatting changes for material for all full 
Committee and Subcommittee hearings. Therefore, it would be appreciated 
if you could provide your answers consecutively on letter size paper, 
single-spaced. In addition, please restate the question in its entirety 
before the answer.
    Due to the delay in receiving mail, please provide your response to 
Ms. Orfa Torres by fax at (202) 225-2034. If you have any questions, 
please call (202) 226-4150.

            Sincerely,

                                          Stephanie Herseth Sandlin
                                                         Chairwoman
    JL/ot

                               __________

                        Questions for the Record
               Hon. Stephanie Herseth Sandlin, Chairwoman
                  Subcommittee on Economic Opportunity
                  House Committee on Veterans' Affairs
       Review of Space and Naval Warfare Systems Center Atlantic
      and the Department of Veterans Affairs Interagency Agreement
                           September 10, 2009

    Question 1: If the Department of Veterans Affairs lacks the 
experienced personnel to do the education long term solution how can 
the VA oversee what Space and Naval Warfare (SPAWAR) and the SPAWAR 
contractors are doing?

    Response: The recently implemented Program Management and 
Accountability System provides explicit procedures for project 
development oversight and a rigorous management approach to address 
potential performance shortcomings. These procedures apply to the 
Chapter 33 project and entail formal progress reviews every 2 weeks and 
delivery of smaller, frequent releases of functionality, which undergo 
testing and customer acceptance for each interim milestone delivered. 
This way, Department of Veterans Affairs (VA) subject matter experts 
can provide immediate feedback for course correction and ensures 
customers, project members (VA and SPAWAR) and vendors are aligned and 
accountable to produce results.

    Question 2: Are the Inspector General's assertions correct that 
Task Information Forms, Statement of Work, and Independent Government 
Cost Estimates were developed for the Department of Veterans Affairs by 
Space and Naval Warfare or its contractors? If so, why?

    Response: Prior to the new Interagency Agreement (IAA) signed in 
November 2009, VA Government Project Managers (PM) did collaborate with 
Space and Naval Warfare Systems Center Atlantic (SPAWARSYSCEN Atlantic) 
government employees in the preparation of Task Initiation Forms (TIF), 
Statements of Work (SOW), and Independent Government Cost Estimates 
(IGCE). Both the prior and current IAAs between VA and SPAWAR represent 
a government-to-government partnership. The purpose for the government-
to-government collaborative effort in development of TIFs, SOWs, and 
IGCEs was to ensure both parties had a full understanding of the work 
to be performed and the requirements/method to complete.
    To eliminate any confusion over roles, or the false appearance of a 
conflict of interest between VA and SPAWARSYSCEN Atlantic, changes were 
implemented in the new IAA. In the new IAA, the roles of VA as the 
Requesting Agency and SPAWARSYSCEN Atlantic as the Servicing Agency are 
more clearly defined with respect to preparing requirement documents, 
cost estimates and PART B funding documents. VA's Technical Acquisition 
Center (TAC) strictly enforces these roles and works closely with VA 
PMs in preparing all PART B documents issued to SPAWARSYSCEN Atlantic. 
All PART Bs are signed by a VA TAC Contracting Officer.
    In addition, SPAWARSYSCEN ATLANTIC utilizes its industry partners 
to perform various administrative and programmatic functions associated 
with VA projects. These contractors have never participated in the 
preparation of TIFs, SOWs and IGCEs.

    Question 3: You mentioned in your testimony revisions to the 
technical and legal review processes. What revisions have been made?

    Response: By October 2008, the Office of General Counsel (OGC) and 
the Office of Acquisition, Logistics, and Construction (OALC) both 
recognized a need to streamline technical and legal review processes, 
and discussed revising how intergovernmental transactions were 
reviewed, in part, to implement the Office of Federal Procurement 
Policy (OFPP) June 2008 Memorandum. Subsequently, OALC and OGC 
collaborated to revise their technical and legal review processes.
    OALC consulted OGC and then issued Information Letter 001AL-09-04, 
March 23, 2009, which provided additional guidance on the management of 
interagency acquisitions by establishing new VA procedures for entering 
into any agreement with another Federal agency. Also in March 2009, 
OALC established the TAC, to specifically support OI&T acquisitions, 
including moving SPAWAR requirements to this Center. As such, SOWs are 
reviewed by TAC technical personnel with OI&T program managers to 
ensure requirements include specific tasks, deliverables, and delivery 
dates; that SOWs include VA technical points of contact; that the 
Contracting Officer (CO) executes a determination that VA requirements 
provided by SPAWAR under each amendment are within the scope of the 
IAA; that the CO ensures compliance with Federal regulations (FAR Part 
17.5) (e.g., Requiring each Economy Act order be supported by a 
Determination and Findings (D&F)) and VA policy (e.g., requiring an 
Integrated Project Team (IPT) or IPT waiver for acquisitions over $5M).
    OGC, meanwhile, updated IAA and amendment legal reviews by 
revamping the review process. OGC incorporated the following action 
items to work closer with OALC and OI&T on amendments (including 
SPAWAR) to enhance the reviews' accuracy and utility:

      Ensure a complete technical and legal review is conducted 
for all Statements of Work (SOW) for all new SPAWAR amendments.
      Ensure a CO's written confirmation that the services to 
be acquired are within the scope of the IAA. This is in addition to 
OGC's independent review and determination regarding scope.
      Ensure D&Fs are included with supporting rationale and 
evidence of the CO's analysis for each amendment.
      Ensure amendments issued against the SPAWAR IAA include 
the specific identification of all tasks and deliverables associated 
with the services requested.
      Ensure that the procedural steps outlined in Information 
Letter (IL) 001AL-09-04 are followed; including preparation of a 
preliminary business case and a detailed work package for OGC review.

    Additionally, OGC attorneys, OALC, and OI&T are actively 
collaborating in working and information meetings to ensure timely 
execution of IAA requirements and to address all concerns/issues with 
subsequent SPAWAR amendments.

    Question 4: Did Office of Enterprise Development or Office of 
Acquisition, Logistics, and Construction personnel ever request Space 
and Naval Warfare (SPAWAR) to substantiate the 10 percent fee being 
charged by SPAWAR? Are you comfortable with the rate?

    Response: Yes. Based on VA's request, SPAWAR submitted the below 
report that supports details to substantiate the Program Support Office 
(PSO) costs (i.e., 10 percent fee) and included specific descriptions 
of the services provided by the SPAWAR PSO. The TAC also requested 
support for SPAWAR's PSO costs and received the following breakout:


Government and Systems Engineering Oversight                 40 percent
Finance and Accounting                                       30 percent
Quality Assurance/Process Improvement                        10 percent
Performance Reporting and Maintenance                         5 percent
Acquisition and Logistics                                     5 percent
Business Automation                                           5 percent
Performance Metrics                                           5 percent



    Based on this information, and a review of the other agency service 
charges and the level of complexity of the work being performed by 
SPAWAR, the CO determined that the program support costs were 
reasonable and in the best interest of VA.
    VA and SPAWAR have also agreed that program support costs will be 
submitted by SPAWAR, to VA, as a cost estimate broken out by labor 
categories and hours, for each specific requirement placed against the 
IAA, rather than estimated as a flat percentage of labor costs.

    Question 5: The Inspector General concluded that Office of 
Enterprise and Development (OED) has essentially abdicated its program 
responsibilities to Space and Naval Warfare. What is OED doing to 
reclaim its oversight role?

    Response: In his September 10, 2009, testimony to the House 
Committee on Veterans' Affairs, VA's Chief Information Officer (CIO), 
Mr. Roger Baker, provided testimony that ``OI&T will establish 
acquisition training for OI&T staff and provide acquisition experts to 
coach and mentor program managers. In addition to training staff to 
execute the acquisitions processes effectively, training will also 
address Organizational Conflict of Interest (OCI), Personal Services, 
and Government Ethics.'' Coupled with developing appropriate training 
for all VA employees affiliated with the SPAWAR IAA and subsequent 
amendments, VA has assigned VA employees with appropriate experience 
and knowledge to key government oversight roles. OI&T, in concert with 
OALC and OGC, has taken the following initial steps to improve this 
process:

      Established a consolidated secure repository for storing 
all administrative documentation associated with any VA/SPAWAR 
initiatives.
      Strengthened SOW format to include major milestones, 
specific deliverables, and other controls to ensure appropriate 
oversight.
      Strengthened IGCE to include specificity for labor, 
travel, materials, and standard listing of labor categories.

    Going forward, OI&T, in concert with OALC and OGC, will implement 
the following measures to further improve oversight:

      Pursue an approach to ensure that the principal purpose 
of the IAA, to strengthen the knowledge, skills, and abilities of the 
VA staff, is the central aspect of all future work between VA and 
SPAWAR.
      Require monthly SPAWAR reports comparing estimated labor 
costs with actual costs for better fiscal execution monitoring.
      Implement Certificate of Compliance and Acceptance of 
Deliverables to record receipt, inspection, acceptance of deliverables, 
and certification of compliance with contractual specifications. The 
Certificate of Compliance and Acceptance of Deliverables must be signed 
by the PM receiving service as well as the OED IAA Contracting 
Officer's Technical Representative (COTR).
      Review the scope and nature of all amendments to ensure 
separation of unrelated requirements.

    Question 6: The Inspector General had difficulty obtaining basic 
Interagency Agreement documents that were ultimately provided by Space 
and Naval Warfare and not the Department of Veterans Affairs. Why did 
the VA not have the documents, why was the VA unaware where the 
documents resided? How unusual is it to have a contractor provide basic 
documents instead of a Federal agency?

    Response: The Director, OED Acquisitions Service, provided 
``zipped'' files of available documents upon request to the Office of 
Inspector General. The office acknowledged receipt on February 12, 
2009. Attachment 1 is the Inventory of Documents provided to OIG. OED 
acknowledges that it is unusual for the contractor to supply basic 
contract documents. [Attachment 1 will be retained in the Committee 
files.]
    Since the initial report, OED has implemented more stringent 
records management protocols and assigned contracting responsibilities 
to the TAC.
    Going forward, OED has established a consolidated, secure 
repository for storing all administrative documentation associated with 
any VA/SPAWAR initiative. Additionally, OALC stores all contractual 
documents electronically in VA's Electronic Contract Management System 
(eCMS).

    Question 7: The Inspector General was informed that the Department 
of Veterans Affairs is not involved at any level in the negotiations, 
award or administration of the task orders. Who is doing the 
negotiations, awarding and administration of the task orders and how 
are VA's best interests being protected?

    Response: SPAWAR COs negotiate, award, and administer task orders 
to their contractors using existing multiple award contracts under 
which task orders are competed. These task orders are placed in 
accordance with all applicable Federal, Department of Defense, and Navy 
regulations and policies.
    Although, VA has no privity of contract with SPAWAR's contractors, 
VA's interests are protected by the VA CO, working in concert with the 
VA Program Manager (PM), who monitors SPAWAR's performance under each 
amendment, based on the terms and conditions of the SOW associated with 
each amendment.

    Question 8: The Inspector General found no evidence that anyone in 
the Department of Veterans Affairs monitored costs or performance. 
Which office and which person specifically should have been monitoring 
costs or performance?

    Response: As part of their program responsibilities, VA OI&T PMs, 
are responsible for monitoring cost and performance. Additionally, the 
CO, working in concert with the PM, monitors SPAWAR's performance under 
each amendment, based on the terms and conditions of the SOW associated 
with each amendment.

    Question 9: Is Space and Naval Warfare the best entity to assist 
the Department of Veterans Affairs with developing the long term 
solution for the new GI Bill?

    Response: VA believes SPAWAR is ideally suited to assist VA with 
the development of the long-term solution for the new GI Bill. This 
relationship provides significant expertise in contract oversight, 
program integration, and service-oriented architecture (SOA). Financial 
risk to VA is minimized as SPAWAR cannot profit from another government 
entity.
    SPAWAR has knowledge of both the VA and Department of Defense 
environments. This knowledge, coupled with its experience at VA in 
building the foundational elements of this program, such as the SOA, 
reduces the ramp-up time required to launch this program and to achieve 
product delivery.

    Question 10: Have any Space and Naval Warfare employees been fully 
empowered to act on behalf of the Federal Government by any mechanism?

    Response: Although SPAWAR is a government agency with Federal 
Government employees, no SPAWAR employee is empowered to act on behalf 
of the VA.

    Question 11: Can Office of Acquisition, Logistics and Construction 
provide us with the documentation to support statements that use of an 
interagency acquisition is in the best interest of the Federal 
Government and that the supplies or services could not be obtained as 
conveniently or economically by contracting directly with a private 
source?

    Response: The original Determination and Findings (D&F) (Attachment 
2) that was executed to support the initial SPAWAR IA is considered an 
``umbrella'' D&F therefore, it does not provide any specifics. 
Following the issuance of new OFPP guidance, VA determined that D&Fs 
should be executed specific to each amendment. This resulted in the 
corrective action and the documentation provided by the TAC in support 
of the recent amendments issued by its staff.

    Question 12: The Inspector General asserts that the Office of 
General Counsel (OGC) did a limited review of the Interagency Agreement 
and all amendments. Did OGC fail to identify that amendments 10 and 19 
contained requirements that were outside the scope of the Interagency 
Agreement as asserted by the Inspector General?

    Response: OGC reviewed the Interagency Agreement (IAA) and all 
subsequent amendments for legal sufficiency in accordance with OALC and 
OGC policies then in effect. Prior to determining the legal sufficiency 
of amendments 10 and 19, the reviewing attorney followed OGC's internal 
review procedures which consisted of reviewing the language, purpose, 
and scope contained in each amendment, and comparing them to the 
original IAA's purpose and scope. Targeted clauses included the 
amendment's purpose, the authority for both the IAA and given 
amendment, the tasks and deliverables for both, the additional services 
or supplies sought under the IAA amendment, the requisite funding 
information supporting the amendment, the IAA amendment point of 
contact information, terms for amending and terminating the agreement, 
dispute resolution, and acceptance of the agreement.
    OALC submitted the amendments in questions, 10 and 19, to OGC for 
review and concurrence as part of typical document packages that 
contained a cover letter to SPAWAR enclosing the amendment, a 
Determination and Findings (D&F), and a funding document showing funds 
were available. A separate document package was provided for each 
amendment and submitted to OGC for a determination of legal 
sufficiency. Commonly, OGC only received the amendment document 
package; Statements of Work--the parts of the acquisition packages that 
described the tasks and requirements in detail--were not part of the 
document packages. The IAA amendments described the requirements 
needed, typically supplementing or modifying the requirements 
established in the original IAA.
    After comparing the amendment's purpose and description of the 
changed services and supplies it would procure within the original 
IAA's tasks, purpose, and scope, the attorney determined that the 
software licenses and the hardware and software materials requested 
were necessary to support the Application Development Assessment task 
the IAA described and were within its original ambit. The attorney 
further determined that the funding documents were in order and 
indicated funding was available for the amendments. Upon reviewing the 
amendments in conjunction with the plain language of the original IAA, 
the attorney determined that legal authority existed for the 
acquisitions and that the amendments could be entered into pursuant to 
the authority of the Economy Act 1932 (31 U.S.C. Sec. 1535), which 
authorizes the transfer of funds from one Federal agency to another 
under an IAA.
    Based upon the attorney's review of amendments 10 and 19, and all 
supporting documentation provided by OALC, a determination that the 
amendments were legally sufficient was rendered and a concurrence was 
provided to OALC. Given the OALC and OGC routine practice at the time, 
OGC properly reviewed the amendments in question. Consequently, because 
the SOWs were not presented in the review packages and OGC was unaware 
of their existence, this determination was based on incomplete 
information. Therefore, when the OIG obtained the SOWs that were 
originally absent from the review packages submitted to OGC, it was 
able to conclude that the software licenses and hardware and software 
materials contained in amendments 10 and 19 were outside the scope of 
the original IAA. OGC has subsequently revised its review procedures.
    As indicated in the response to question 3, OGC, working with OALC 
and OI&T, has adopted new policy and processes which will ensure a more 
comprehensive legal review to avoid a recurrence. Specifically, OGC 
requests and requires the following to conduct reviews: requisite 
statements of work, supporting agreement or amendment documentation, 
and documentation of the contracting officer's analysis for the D&F 
(including a within scope determination). OGC has increased 
participation in acquisition planning and processes to ensure 
compliance with VA policies, including Information Letter 001AL-09-04 
(which follows OMB/OFPP guidance on Interagency Agreements). OGC 
believes that it has addressed the concerns raised by implementing the 
foregoing, innovative procedures.

    Question 13: Under the current Interagency Agreement develop the 
long term solution, what percent of the work is being done by the 
Department of Veterans Affairs, Space and Naval Warfare and SPAWAR 
contractors?

    Response: As previously provided to the House Committee on 
Veterans' Affairs, Subcommittee on Economic Opportunity, in a response 
to a Question for the Record, from the June 25, 2009, Congressional 
Hearing: Post-9/11 GI Bill: Is the VA Ready for August 1st, 100 percent 
of the Post-9/11 GI Bill Long-Term Solution (LTS) work is being 
accomplished by an integrated team of SPAWARSYSCEN employees and 
contractors, led by SPAWARSYSCEN program managers, chief engineers, 
project engineers and analysts.
    SPAWARSYSCEN is a level III compliant capabilities maturity model 
for integration (CMMI) systems engineering command and is the lead 
system integrator responsible to VA for providing the inherently 
governmental elements of a program to include: program management; 
systems engineering; and fiscal accountability for the Post-9/11 GI 
Bill LTS. SPAWARSYSCEN supplements VA personnel with industry leading 
experts in the various disciplines required to execute the program. Via 
performance-based contracting, the Post-9/11 GI Bill LTS team is 
composed of approximately 80 percent contract personnel.

    Question 14: Of the people providing services under the Interagency 
Agreement, do you know how many are Federal employees, Space and Naval 
Warfare employees, Space and Naval Warfare contractors, where they 
work, who they are working for and if the hours billed have actually 
been worked?

    Response: Yes. SPAWAR tracks all project resources as part of its 
project management responsibility and provides monthly rosters to VA 
indicating resources engaged by project, their location, and whether 
they are SPAWAR employees or sub-contracted. Presently 451 resources 
are engaged, of which 44 are SPAWAR employees. VA maintains additional 
information for resources requiring access to VA's facilities and 
computer systems. VA tracks the level of access requested by 
individuals, their organization, their security clearance level, 
satisfactory completion of VA security training and the date access is 
granted.
    The amendments to the Interagency Agreement for services provided 
are performance-based. As such, performance is measured according to 
whether deliverables produced are within schedule and cost, not 
according to hours worked. To measure interim progress, VA meets weekly 
with SPAWAR to review project accomplishments and to review financial 
projections to ensure satisfactory completion of deliverables. In 
addition to weekly reviews, SPAWAR provides monthly financial reports 
that formally document completed and planned activities, deliverables 
produced, and financial performance.
    Regarding verification if the hours billed have actually been 
worked, the verification pertains to invoices submitted by sub-
contractors to SPAWAR. SPAWAR monitors and validates the billable 
hours. They are subject to FAR and are regularly audited for 
compliance. As such, specific information is available to VA from 
SPAWAR anytime upon request.

                               __________

                     DEPARTMENT OF VETERANS AFFAIRS
                                ACRONYMS
CIO--Chief Information Officer
CO--Contracting Officer
COTR--Contracting Officer's Technical Representative
D&F--Determination and Findings
DoD--Department of Defense
eCMS--electronic Contract Management System
FAR--Federal Acquisition Regulations
IAA--Interagency Agreement
IG--Inspector General
IGCE--Independent Government Cost Estimate
IL--Information Letter
IPT--Integrated Project Team
LTS--Post-9/11 GI Bill Long Term Solution
OALC--Office of Acquisition, Logistics and Construction
OED--Office of Enterprise Development
OFPP--Office of Federal Procurement Policy
OCI--Organizational Conflict of Interest
OGC--Office of General Counsel
OI&T--Office of Information and Technology
PgM--Program Manager
PM--Project Manager(s)
PMAS--Project Management Accountability System
PMO--Program Management Office
PSO--Program Support Office
PWS--Performance Work Statement
SOA--service-oriented architecture
SOW--Statement of Work
SPAWAR--Space and Naval Warfare
SPAWARSYSCEN--Space and Naval Warfare Systems Center Atlantic
TAC--Technology Acquisition Center
VA--Department of Veterans Affairs

                               __________

                             ATTACHMENT #2
                       DETERMINATION AND FINDINGS

                Authority to Place an Economy Act Order
    Based upon the following determination and findings, the proposed 
services may be placed under an existing contract pursuant to 
Interagency Agreement between Department of Veterans Affairs (VA) and 
the Space and Naval Warfare Systems Center (SPAWARSYSCEN) Charleston 
(SSC-C) in accordance with FAR 17.503, Determination and Findings 
Requirements.

                                Findings

    1.  VA proposes to collaborate with SSC-C in support of the 
development of major VA IT applications that support the delivery of 
health benefits and services.
    2.  These VA IT applications provide access to: trusted health 
information; links to Federal and VA benefits and resources; a personal 
health journal for veterans; and, an online VA prescription refill 
service. They directly benefit the veteran and allow them to understand 
and manage their own health.
    3.  VA IT development projects are intended to directly support the 
mission of the VA and the veteran. The collaboration with SSC-C, as an 
agency partner, affords VA the opportunity to standardize core IT 
software development processes, implement industry standard/best 
practices and improve efficiencies and effectiveness.
    4.  The SSC-C mission is to engineer, deliver, and support 
integrated, interoperable information technology systems through the 
use of rigorous, disciplined development processes. SSC-C achieves 
excellence in engineering through an aggressive Systems Engineering 
Program that applies key industry standards and best practices to 
improve systems and software engineering processes.
    5.  Subsequent incremental finding will be appropriated subject to 
the availability of funds for fiscal year 2008. This agreement may be 
extended by mutual consent of both parties.
    6.  Use of an interagency acquisition is in the best interest of 
the government.
    7.  The supplies or services cannot be obtained as conveniently or 
economically by contracting directly with a private source.

            Submitted by:

                                                   Paul Tibbits, MD
                              Deputy CIO for Enterprise Development

            Signed by:

                                                      Cynthia Brown
                                                Contracting Officer

                                 
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