Contract Management: Improving Services Acquisitions (01-NOV-01, 
GAO-02-179T).							 
								 
Federal agencies spend billions of tax dollars each year to buy  
services, ranging from clerical support and consulting services, 
to information technology services, to the management and	 
operations of government facilities, such as national		 
laboratories. Agency procurements of services often are not being
conducted as efficiently as they could be. Too frequently	 
agencies are not clearly defining their requirements, fully	 
considering alternative solutions, performing vigorous price	 
analyses, or adequately overseeing contractor performance.	 
Meanwhile, agencies are at risk of not having enough of the right
people with the right skills to manage service contracts.	 
Congress is considering a package of proposals to improve the	 
government's acquisition of services. This package focuses in	 
part on (1) strengthening management oversight of services	 
acquisitions, (2) improving the acquisition workforce, and (3)	 
moving toward a performance-based contracting environment.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-02-179T					        
    ACCNO:   A02406						        
  TITLE:     Contract Management: Improving Services Acquisitions     
     DATE:   11/01/2001 
  SUBJECT:   Federal procurement				 
	     Procurement practices				 
	     Productivity in government 			 
	     Service contracts					 
	     DOE Federal Energy Management Program		 

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GAO-02-179T
     
Testimony Before the Subcommittee on Technology and

Procurement Policy Committee on Government Reform U. S. House of
Representatives

United States General Accounting Office

GAO For Release on Delivery Expected at 1: 30 p. m., EST Thursday, November
1, 2001 CONTRACT

MANAGEMENT Improving Services Acquisitions

Statement of William T. Woods Acting Director Acquisition and Sourcing
Management

GAO- 02- 179T

Page 1 GAO- 02- 179T

Mr. Chairman and Members of the Subcommittee: I am pleased to be here today
to assist the Subcommittee in its consideration of proposals to improve the
government?s acquisition of services. Work performed by the General
Accounting Office (GAO) continues to show that improvements are needed in a
number of areas related to how the government buys services. We fully
support the efforts of the Subcommittee in addressing this issue.

Federal agencies spend billions of tax dollars each year to buy services,
ranging from clerical support and consulting services, to information
technology services, to the management and operation of government
facilities, such as national laboratories. And the amount spent on services
is growing substantially. Last year alone, the federal government acquired
more than $87 billion in services- a 24- percent increase in real terms from
fiscal year 1990.

As we testified before you in May, Mr. Chairman, agency procurements of
services often are not being conducted as efficiently as they could be. 1 We
have found that too frequently agencies are not clearly defining their
requirements, fully considering alternative solutions, performing vigorous
price analyses, or adequately overseeing contractor performance. Such
problems clearly point to a need for more focused management attention.

At the same time, agencies are at risk of not having enough of the right
people with the right skills to manage service contracts. Years of
downsizing and curtailed investments in human capital have produced serious
imbalances in the skills and experience of the acquisition workforce, and,
in effect, created a retirement- driven talent drain. It is clear that more
needs to be done to strengthen the acquisition workforce.

The package of proposals the Subcommittee is considering, which together
would comprise the Services Acquisition Reform Act (SARA), would address
many of these issues, and we look forward to working with the Subcommittee
as these proposals continue to evolve. Today, I would like to offer our
perspective on some of the proposals under consideration, highlighting areas
where our completed or ongoing work may be helpful to the Subcommittee.

1 Contract Management: Trends and Challenges in Acquiring Services

(GAO- 01- 753T, May 22, 2001)

Page 2 GAO- 02- 179T

My statement focuses on three areas:

 Strengthening management oversight of services acquisitions,

 Improving the acquisition workforce, and

 Moving toward a performance- based contracting environment. Strengthening
management oversight begins with leadership, and in this regard, the
proposed legislation would create a chief acquisition officer within each
agency. Such an approach is consistent with that of some of the leading
companies in the private sector.

Our discussions with a number of private sector companies about how they buy
services indicate that a procurement executive or a chief acquisition
officer plays a critical role in changing an organization?s culture and
practices. Company officials said that the position needs to be sufficiently
high in the organization to have the authority to effect any needed
structural, process, or role changes. They indicated that senior management
support was essential to provide direction and vision, facilitate the
development of common processes and approaches, and when necessary, provide
the necessary clout to obtain initial buy- in and acceptance of
reengineering efforts. These officials also said that this commitment and
support needs to be sustained over time.

Equally important, we learned, is the corporate decision to pursue a more
strategic approach to acquiring services. Taking a strategic approach
involves a range of activities- from developing a better picture of what an
organization is spending on services, to taking an enterprisewide approach
to procuring services, to developing entirely new ways of doing business.
Adopting such an approach has contributed greatly to realizing the types of
efficiencies and improved service levels federal agencies desire. An agency
Chief Acquisition Officer can do much to help an agency achieve those
outcomes.

We are pleased to see that a number of the proposals are designed to
strengthen the acquisition workforce. Following a decade of workforce
downsizing and curtailed investment in their people, federal agencies
currently face skills, knowledge, and experience imbalances. Without
corrective action, these imbalances could worsen given the number of federal
civilian workers who will become eligible to retire in the next few years.
Chief Acquisition

Officer Training the Acquisition Workforce

Page 3 GAO- 02- 179T

This issue is particularly acute in the acquisition area. At the Department
of Defense, for example, contracting workload has increased by about 12
percent in recent years, but the workforce available to perform that
workload has been reduced by about half over the same period. The result is
fewer people whose job it is to ensure maximum value for the taxpayer.

Addressing human capital issues in acquisition is not just a matter of the
size of the workforce. It is also a capacity issue. While acquisition
reforms have helped streamline smaller acquisitions, larger acquisitions,
particularly for information technology, remain complex and technical. Yet
agencies are at risk of not having enough of the right people with the right
skills to manage these procurements. Consequently, a critical issue the
federal government faces is whether it has today, or will have tomorrow, the
ability to manage the procurement of increasingly sophisticated services.

A key element in addressing this situation is workforce training. Our work
indicates that the leading companies in the private sector take a targeted,
customized approach to training. They commit training resources to a few,
well- defined areas. By contrast, we have found that standard training at
the Department of Defense, for example, often did not reach the right people
at the right time, or was not of sufficient depth to help program officials
implement acquisition reform initiatives. 2 Our work at the General Services
Administration (GSA) and the Department of Veterans Affairs showed that
neither agency had established core training requirements for some segments
of their acquisition workforces, 3 nor had they identified all funds they
planned to use for workforce training as required by the Clinger- Cohen Act.
4 At your request, Mr. Chairman, we have work underway to determine the
current status of acquisition workforce training at these and other
agencies.

2 Best Practices: DOD Training Can Do More to Help Weapon System Programs
Implement Best Practices (GAO/ NSIAD- 99- 206, Aug. 16, 1999). 3 Acquisition
Reform: GSA and VA Efforts to Improve Training of Their Acquisition
Workforces (GAO/ GGD- 00- 66, Feb. 18, 2001). 4 P. L. 104- 106

Page 4 GAO- 02- 179T

The legislative proposals are intended to promote greater use of
performance- based contracting. Performance- based service contracting is a
process where the customer agency specifies the outcome or result it desires
and leaves it to the vendor to decide how best to achieve the desired
outcome. Historically, the government has not widely used this strategy, but
it is beginning to move in that direction in an effort to attract leading
commercial companies, gain greater access to technological innovations, and
better ensure contract performance.

Figure 1 shows that, for the first 6 months of fiscal year 2001, about 15
percent of service contracts were reported to be performance- based. The
Office of Management and Budget established a goal that 20 percent of
contracts for services be performance- based in fiscal year 2002.

Figure 1: Governmentwide Obligations for Services, Oct. 1, 2000 - Mar. 31,
2001

Note: Architect and engineering services and construction excluded. Source:
All actions reported to the Federal Procurement Data System.

Mr. Chairman, you have asked us to identify governmentwide mechanisms that
can be implemented to encourage the use of performance- based contracting.
In responding to this request, we also plan to review how federal agencies
are using performance- based contracting when acquiring services as well as
how they are measuring outcomes. We look forward to sharing the results of
our review with the Subcommittee. Performance- Based

Contracting

Page 5 GAO- 02- 179T

Today, however, I would like to highlight one particular form of
performance- based contracting, share- in- savings contracting, an
innovative tool that allows agencies to leverage limited resources.
Basically, in share- in- savings contracting, the contractor funds a project
up front in return for a percentage of the savings that are actually
realized by the agency.

Perhaps one of the best known examples of share- in- savings contracting in
government is in the Department of Energy. Energy?s Federal Energy
Management Program has crafted an energy savings contract under which energy
service contractors are expected to contribute all the up- front costs
identifying a federal facility?s energy needs and buying, installing,
operating, and maintaining energy- efficient equipment to cut energy bills.
In return, the companies get a share of energy savings generated by the
improvements. For example, since 1998, the government has issued 57 energy
savings orders to private- sector energy services companies. Although we
have not verified the numbers, the contractors? preliminary indications are
that these 57 orders will allow the agency to obtain almost $150 million in
capital improvements. In addition, the agency expects to realize significant
reductions in energy usage.

Almost 6 years after the Clinger- Cohen Act called for the creation of pilot
programs to test the share- in- savings concept in federal information
technology contracts, the government has not identified many suitable
candidates for use of this technique. In large part, this is because use of
this tool requires solid baseline data about the existing cost of an
activity and a reliable method for measuring whether success has been
achieved. Gathering reliable baseline data can be difficult. According to
the GSA Assistant Commissioner of the Federal Technology Service, many of
the projects GSA reviewed for a pilot share- in- savings contracting program
were rejected because the agencies proposing the projects could not
determine baseline costs.

The Subcommittee has asked us to identify and analyze examples of best
practices using the share- in- savings contracting method found in the
commercial sector. We plan to hold discussions with prominent commercial
companies to better understand (1) why they chose share- insavings
contracting as a means to help achieve their business goals or improve their
administrative processes, and (2) what their experiences with this
contracting method have been.

Page 6 GAO- 02- 179T

In conclusion, Mr. Chairman, the increasing significance of service
contracting has prompted a renewed emphasis by the Congress and the
administration on resolving longstanding problems with service contracts. We
support the Subcommittee?s efforts to improve the government?s acquisition
of services. The proposals being discussed address many of the critical
issues, and would introduce innovative techniques designed to enhance
contract performance. We look forward to providing you with the findings
that result from our ongoing reviews and to continuing to assist the
Subcommittee in its development of the Services Acquisition Reform Act.

Mr. Chairman and Members of the Subcommittee, this concludes my statement. I
would be happy to answer any questions you may have.

For further information, please contact William T. Woods at (202) 512- 4841.
Individuals making key contributions to this testimony include Don
Bumgardner, Cristina Chaplain, Odi Cuerro, Ralph Dawn, Tim DiNapoli, Dan
Hauser, and John Yakaitis. Conclusion

(120114)

Contact and Acknowledgement
*** End of document. ***