March 19 Hearing on Sourcing and Acquisition--Questions for the  
Record (23-MAY-03, GAO-03-771R).				 
                                                                 
GAO appeared before the Subcommittee on Readiness and Management 
Support, House Committee on Armed Services on March 19, 2003, to 
discuss various sourcing and acquisition issues. This letter	 
responds to a request for our views on the following questions	 
for the record. 						 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-771R					        
    ACCNO:   A07004						        
  TITLE:     March 19 Hearing on Sourcing and Acquisition--Questions  
for the Record							 
     DATE:   05/23/2003 
  SUBJECT:   Federal procurement policy 			 
	     Internal controls					 
	     Private sector					 
	     Strategic planning 				 
	     Defense procurement				 
	     Congressional oversight				 
	     Source selection					 
	     Competitive procurement				 
	     Service contracts					 

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GAO-03-771R

GAO- 03- 771R Sourcing and Acquisition

United States General Accounting Office Washington, DC 20548 Comptroller
General

of the United States

May 23, 2003 The Honorable John Ensign Chairman The Honorable Daniel Akaka
Ranking Minority Member Subcommittee on Readiness and Management Support
Committee on Armed Services United States Senate

Subject: March 19 Hearing on Sourcing and Acquisition-- Questions for the
Record It was a pleasure to appear before the Subcommittee on March 19,
2003, to discuss various sourcing and acquisition issues. This letter
responds to your request for my views on the following questions for the
record.

Q. How would you assess the impact of the reductions in the defense
acquisition workforce over the last decade?

Between fiscal years 1990 and 2001, the Department of Defense*s (DOD)
acquisition workforce was reduced significantly* by more than 50 percent.
At the same time, DOD*s contracting workload increased by 12 percent. As
we reported last month, governmentwide reductions in the acquisition
workforce along with a number of procurement reforms* including an
increased reliance on services provided by commercial firms, changes to
federal acquisition processes, and the introduction or expansion of
alternative contracting approaches* have placed unprecedented demands on
the federal acquisition workforce. 1 Underlying these challenges is DOD*s
need to address serious imbalances in the skills of its remaining
workforce and the potential loss of highly specialized knowledge as its
procurement specialists retire.

During the last decade, the Congress passed several significant pieces of
acquisition reform legislation, including the Federal Acquisition
Streamlining Act of 1994 and the Clinger- Cohen Act of 1996, to provide
agency officials with greater flexibility and tools to acquire goods and
services more efficiently. Today, contracting specialists must have a
greater knowledge of market conditions, industry trends, and the technical
details of the commodities and services they procure. The Department of
Defense, like other federal agencies, has had difficulty adjusting to the
significant changes in the federal acquisition environment* particularly
in regard to improving its acquisition of services and ensuring the
appropriate use of contracting techniques

1 U. S. General Accounting Office, Federal Procurement: Spending and
Workforce Trends, GAO- 03- 443 (Washington, D. C.: Apr. 30, 2003).

GAO- 03- 771R Sourcing and Acquisition Page 2 and approaches. As a result,
earlier this year we reported that DOD*s contract

management remains a high- risk area, which we originally designated as
such in 1992. 2 While the Congress and the executive branch have looked
for ways to streamline the

acquisition process and generate savings, many of our recent reviews
indicate that DOD has missed out on opportunities to reduce administrative
burdens and enhance its acquisition outcomes. For example:

DOD contracting officials have not consistently followed established
procedures for ensuring fair and reasonable prices when using the General
Services Administration*s (GSA) Federal Supply Schedule to purchase
services. Specifically, we reported in November 2000 that 77 percent of
the orders we reviewed, valued at $60.5 million, were placed without
seeking competitive quotes from multiple contractors, as required by GSA*s
procedures. 3 The key reason that established procedures were not followed
is that many contracting officers were not even aware of GSA*s requirement
to seek competitive quotes. Also, guidance for the program has not been
clear. A recent proposed change to the Federal Acquisition Regulation
should help make distinctions between buying services and buying products,
and the proposed change should help inform contracting officers that
competitive quotes should be sought when acquiring services with a
statement of work.

DOD has also been challenged to implement performance- based service
contracting* an approach to contracting that is intended to achieve
greater cost savings and better acquisition outcomes. We reported in
September 2002 that DOD, like other agencies we reviewed, had achieved
mixed success in incorporating four basic performance- based attributes
into its contracts. 4 For example, two of the five DOD contracts that it
identified as models of performance- based contracting did not clearly
exhibit all four performance- based attributes. Our report also raised
concern as to whether agencies have a good understanding of performance-
based contracting and how to take full advantage of it. We recommended
that the OFPP Administrator clarify existing guidance to ensure that
performance- based contracting is appropriately used, particularly when
acquiring more unique and complex services that require strong government
oversight.

Several reports we have issued since 1999 have indicated that inadequate
guidance and poor training played a role when DOD personnel did not use
sound techniques to obtain the best prices for DOD. These situations are
largely in areas where DOD cannot, or chooses not to, rely on cost- based
pricing techniques for contracts awarded without competition. For example,
in June 1999 we reported that in our review of 65 sole- source purchases
of commercial items, contracting

2 U. S. General Accounting Office, Major Management Challenges and Program
Risks: Department of Defense, GAO- 03- 98 (Washington, D. C.: January
2003). 3 U. S. General Accounting Office, Contract Management: Not
Following Procedures Undermines Best

Pricing Under GSA*s Schedule, GAO- 01- 125 (Washington, D. C.: Nov. 28,
2000). 4 U. S. General Accounting Office, Contract Management: Guidance
Needed for Using PerformanceBased Service Contracting, GAO- 02- 1049
(Washington, D. C.: Sept. 23, 2002).

GAO- 03- 771R Sourcing and Acquisition Page 3 officers* price analyses
were often too limited to ensure that the prices were fair

and reasonable. 5 In April 2002, we reported that DOD was waiving the
requirement for contractors to submit certified cost or pricing data* a
key requirement meant to ensure that the government has the data it needs
to effectively negotiate with the contractor in contracts awarded without
competition. 6 DOD*s guidance was inadequate to help contracting officers
determine whether a waiver should be granted, what type of data and
analyses are acceptable, and what kind of expert assistance should be
obtained.

Although we have not evaluated the extent to which reductions in the size
of the acquisition workforce may have contributed to these results, DOD*s
Inspector General has identified a number of adverse impacts attributable
to reductions in DOD*s acquisition workforce. Specifically, in February
2000, the Inspector General reported on

increased backlogs in closing out completed contracts;

increased program costs resulting from contracting for technical support
versus using in- house technical support;

insufficient personnel to fill in for employees on deployments;

insufficient staff to manage requirements, reduced scrutiny and timeliness
in reviewing acquisition actions, personnel retention difficulty;

increased procurement action lead time; and

lost opportunities to develop cost savings initiatives. 7 The Inspector
General*s report noted that while DOD had improved efficiency in
contracting through acquisition reform initiatives, concern was still
warranted because *staffing reductions have clearly outpaced productivity
increases and the acquisition workforce*s capacity to handle its still
formidable workload.* In a May 2001 report, DOD*s Inspector General
concluded that the lack of planning, shortages in staffing, and the
absence of senior leadership oversight contributed to poor pricing
analysis and the inappropriate use of waivers in a significant number of
contracts reviewed. 8 DOD is taking a number of actions to address its
acquisition challenges. Most of

these actions are at the early stages, however, and it is uncertain
whether they can be fully and successfully implemented in the near term.
Because effective acquisition management plays a key role in creating and
sustaining high- performing organizations, a critical issue for DOD is
whether it has today, or will have tomorrow, a workforce with the skills
needed to manage DOD*s acquisitions.

5 U. S. General Accounting Office, Contract Management: DOD Pricing of
Commercial Items Needs Continued Emphasis, GAO/ NSIAD- 99- 90 (Washington,
D. C.: June 24, 1999). 6 U. S. General Accounting Office, Contract
Management: DOD Needs Better Guidance on Granting Waivers for Certified
Cost or Pricing Dat a, GAO- 02- 502 (Washington, D. C.: Apr. 22, 2002). 7
Department of Defense, Inspector General, DOD Acquisition Workforce
Reduction Trends and

Impacts, Report No. D- 2000- 088 (Arlington, VA.: Feb. 29, 2000). 8 Office
of the Inspector General, Department of Defense, Contracting Officer
Determinations of Price

Reasonableness When Cost or Pricing Data Were Not Obtained, Report No. D-
2001- 129 (Arlington, Va.: May 30, 2001).

GAO- 03- 771R Sourcing and Acquisition Page 4

Q. Do you view the recommendations of the Commercial Activities Panel as a
menu from which it is appropriate to pick and choose recommendations to
implement on a piecemeal basis, or as a cohesive set of principles, which
should be considered on a comprehensive basis?

The 12- member Commercial Activities Panel produced two sets of
recommendations for improving the way federal agencies make sourcing
decisions. The first set, which the panel unanimously agreed to, consisted
of a set of principles to guide sourcing policy for the federal
government. The panel specifically noted that while each principle is
important, no single principle stands alone and that the principles were
adopted as a package. The second set of recommendations was adopted by a
twothirds supermajority of the panel. These recommendations involved use
of the Federal Acquisition Regulation to conduct public- private
competitions, limited changes to Circular A- 76, and the promotion of
high- performing organizations across the federal government. This set of
recommendations was also intended to be adopted as a package, rather than
on a piecemeal basis.

Q. The Inspector General of the Department of Defense reported that a
*consultant*s error in a public- private competition resulted in the award
of an A- 76 contract with potential 10- year value of $346 million to a
contractor rather than to the lower in- house bid.* Does this episode
reinforce the recommendation of the Commercial Activities Panel that all
parties to a public- private competition, including representatives of
federal employees, should have the same access to the bid protest process
to challenge the way a competition has been conducted?

It is quite appropriate for both sides to be able to challenge the results
of publicprivate competitions. In fact, public employees, like private-
sector vendors, have long had the right under Circular A- 76 to file an
appeal at their agency challenging the results of a public- private cost
comparison. It is true, though, that only private- sector vendors can go
on* if they lose an agency- level appeal* to file a bid protest at GAO or
in court. As your question notes, the Commercial Activities Panel
recommended that all parties to a public- private competition should have
rights as nearly equal as possible to challenge the way the competition
was conducted, including protest rights. The panel noted, however, that
granting protest rights should be part of an effort to address the full
range of issues related to competing for and performing government
contracts. The panel also recognized that, if a decision were made to
permit public- sector bid protests of the results of public- private
competitions, the question of who would have representational capacity to
file such a protest would have to be carefully considered.

Q. Would you agree that the challenges of meeting the Administration*s
goals for public- private competition, and of managing services contracts
that result from such competition, are more likely to require an increase
in acquisition resources than a decrease?

The Administration*s goals for conducting public- private competitions
could have a significant impact on the acquisition workforce in a number
of ways. First, as noted by the Commercial Activities Panel, the current
process for conducting these

GAO- 03- 771R Sourcing and Acquisition Page 5 competitions is complicated,
and therefore requires a skilled acquisition workforce to

support the studies. Any changes to the process will require additional
resources for training and perhaps additional personnel. Second, the
number of positions proposed for study in the coming years is
significantly higher than in the past, greatly increasing the competitive
sourcing workload at many agencies. At DOD, for example, the number of
positions proposed for study during the next 5 years is double what the
department has been able to review over the between fiscal years 1997 and
2002. Civilian agencies, which have not conducted nearly as many
publicprivate competitions as DOD, will face even greater challenges in
building the necessary infrastructure to conduct these competitions. 9
Finally, to the extent that an increase in competitive sourcing studies
results in an increase in the award of service contracts to the private
sector, agencies will need to ensure that they have a sufficient
acquisition workforce in numbers and abilities to administer those
contracts effectively. In this regard, the private sector historically has
won half the public- private competitions.

- - - - - We are sending copies of this report to the Administrator,
Office of Federal Procurement Policy; the Director, Defense Procurement
and Acquisition Policy; and interested congressional committees. We will
also make copies available to others upon request. In addition, this
report will be available at no charge on the GAO Web site at http:// www.
gao. gov.

If you have any questions about this letter or need additional
information, please call me or Jack Brock, Managing Director, Acquisition
and Sourcing Management, on (202) 512- 4841. Key contributors to this
letter included Vijay Barnabas, Ralph Dawn, and Karen Sloan.

David M. Walker Comptroller General of the United States

9 The costs for additional training or personnel needed to conduct public-
private competitions could be offset, of course, through the savings
realized from conducting the competitions.

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