Defense Acquisitions: Knowledge of Software Suppliers Needed to  
Manage Risks (25-MAY-04, GAO-04-678).				 
                                                                 
The Department of Defense (DOD) is increasingly reliant on	 
software and information systems for its weapon capabilities, and
DOD prime contractors are subcontracting more of their software  
development. The increased reliance on software and a greater	 
number of suppliers results in more opportunities to exploit	 
vulnerabilities in defense software. In addition, DOD has	 
reported that countries hostile to the United States are focusing
resources on information warfare strategies. Therefore, software 
security, including the need for protection of software code from
malicious activity, is an area of concern for many DOD programs. 
GAO was asked to examine DOD's efforts to (1) identify software  
development suppliers and (2) manage risks related to foreign	 
involvement in software development on weapon systems.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-678 					        
    ACCNO:   A10177						        
  TITLE:     Defense Acquisitions: Knowledge of Software Suppliers    
Needed to Manage Risks						 
     DATE:   05/25/2004 
  SUBJECT:   Computer software					 
	     Defense procurement				 
	     Information systems				 
	     Information technology				 
	     Procurement policy 				 
	     Weapons systems					 
	     Classified defense information			 
	     Foreign policies					 

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GAO-04-678

United States General Accounting Office

GAO

                       Report to Congressional Requesters

May 2004

DEFENSE ACQUISITIONS

             Knowledge of Software Suppliers Needed to Manage Risks

GAO-04-678

Highlights of GAO-04-678, a report to congressional requesters

The Department of Defense (DOD) is increasingly reliant on software and
information systems for its weapon capabilities, and DOD prime contractors
are subcontracting more of their software development. The increased
reliance on software and a greater number of suppliers results in more
opportunities to exploit vulnerabilities in defense software. In addition,
DOD has reported that countries hostile to the United States are focusing
resources on information warfare strategies. Therefore, software security,
including the need for protection of software code from malicious
activity, is an area of concern for many DOD programs.

GAO was asked to examine DOD's efforts to (1) identify software
development suppliers and (2) manage risks related to foreign involvement
in software development on weapon systems.

To address software vulnerabilities and threats, GAO recommends that DOD
better define software security requirements and require program managers
to mitigate associated risks accordingly.

DOD agreed with the findings but only partially concurred with the
recommendations over concerns that they place too much responsibility for
risk mitigation with program managers. GAO has broadened the
recommendations to address DOD's concerns.

May 2004

DEFENSE ACQUISITIONS

Knowledge of Software Suppliers Needed to Manage Risks

DOD acquisition and software security policies do not fully address the
risk of using foreign suppliers to develop weapon system software. The
current acquisition guidance allows program officials discretion in
managing foreign involvement in software development, without requiring
them to identify and mitigate such risks. Moreover, other policies
intended to mitigate information system vulnerabilities focus mostly on
operational software security threats, such as external hacking and
unauthorized access to information systems, but not on insider threats,
such as the insertion of malicious code by software developers. Recent DOD
initiatives may provide greater focus on these risks, but to date have not
been adopted as practice within DOD.

While DOD has begun to recognize potential risks from foreign software
content, this is not always the case within the weapon programs where
software is developed or acquired. Program officials for the systems in
this review did not make foreign involvement in software development a
specific element of their risk identification and mitigation efforts. As a
result, program officials' knowledge of the foreign developed software
included in their weapon systems varied. In addition, risk mitigation
efforts emphasized program level risks, such as meeting program cost and
schedule goals, instead of software security risks. Further, program
officials often delegated risk mitigation and source selection to
contractors who are primarily concerned with software functionality and
quality assurance, rather than specifically addressing software security
for development risks associated with foreign suppliers. Unless program
officials provide specific guidance, contractors may favor business
considerations over potential software development security risks
associated with using foreign suppliers.

As the amount of software on weapon systems increases, it becomes more
difficult and costly to test every line of code. Further, DOD cannot
afford to monitor all worldwide software development facilities or provide
clearances for all potential software developers. Therefore, the program
manager must know more about who is developing software and where early in
the software acquisition process, so that it can be included as part of
software source selection and risk mitigation decisions.

www.gao.gov/cgi-bin/getrpt?GAO-04-678.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Katherine Schinasi at (202)
512-4841 or [email protected].

Contents

      Letter                                                                1 
                                     Results in Brief                       2 
                                        Background                          4 
                DOD's Approach to Software Security Does Not Fully Address 
                               Risks from Foreign Suppliers                 6 
                     Program Officials Generally Did Not Manage Risks from 
                                                                  Foreign- 
                                    Developed Software                     11 
                                       Conclusions                         18 
                           Recommendations for Executive Action            19 
                            Agency Comments and Our Evaluation             19 
    Appendix I                    Scope and Methodology                    
Appendix II           Comments from the Department of Defense           
Appendix III                   Staff Acknowledgments                    

Abbreviations

COTS commercial-off-the-shelf
DITSCAP Defense Information Technology Security Certification

and Accreditation Process DOD Department of Defense DSS Defense Security
Service ITAR International Traffic in Arms Regulations SEI Software
Engineering Institute

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separately.

United States General Accounting Office Washington, DC 20548

May 25, 2004

The Honorable Christopher Shays
Chairman, Subcommittee on National Security,

Emerging Threats and International Relations
Committee on Government Reform
House of Representatives

The Honorable Adam Putnam
Chairman, Subcommittee on Technology, Information

Policy, Intergovernmental Relations and the Census
Committee on Government Reform
House of Representatives

The Department of Defense (DOD) is experiencing significant and
increasing reliance on software and information systems for its weapon
capabilities, while at the same time traditional DOD prime contractors are
subcontracting more of their software development to lower tier and
sometimes nontraditional defense suppliers. Because of economic
incentives and business relationships, these suppliers are using offshore
locations and foreign companies to complete various software
development and support tasks. DOD is also using more commercial-off
the-shelf (COTS) software1 to reduce development costs and allow for
frequent technology updates, which further increases the number of
software developers with either direct or indirect access to weapon
system software. The increased dependence on software capability,
combined with an exposure to a greater variety of suppliers, results in
more opportunities to exploit vulnerabilities in defense software.
Software
security, including the protection of software code from hacking and other
malicious tampering, is therefore an area of concern for many DOD
systems.

1 COTS software is that which is not specifically developed for military
use and instead purchased "as-is" from an outside vendor.

As DOD's need for software increases, knowledge about foreign suppliers2
in software development is critical for identifying and mitigating risks.
Multiple national security policies and other guidance recognize the
inherent risks associated with foreign access to sensitive information and
technology. For 2001, the Defense Security Service (DSS) reported a
significant increase in suspicious attempts by foreign entities to access
U.S. technology and information, with one-third of that activity coming
from foreign government-sponsored or affiliated entities. While both U.
S.- and foreign-developed software are vulnerable to malicious tampering,
DSS specifically noted a concern with the potential exploitation of
software developed in foreign research facilities and software companies
located outside the United States working on commercial projects related
to classified or sensitive programs. As foreign companies and individuals
play a more significant role in software development activities, the need
for knowledge to manage associated risks also increases. At your request,
we (1) examined DOD's efforts to identify and address risks associated
with foreign involvement in software development in weapon systems and (2)
determined how weapon system program offices manage these risks in
individual programs.

To perform our work, we collected information from various DOD officials
and software development experts and reviewed relevant guidance and
procedures for software development security. We identified 16 DOD weapon
systems of varying age and software capability and solicited information
from system program offices and prime contractors. Complete details of our
scope and methodology are located in appendix I. We performed our work
from April 2003 to May 2004 in accordance with generally accepted
government auditing standards.

DOD acquisition and software security policies do not require program
managers to identify and manage the risks of using foreign suppliers to
develop weapon system software. The primary focus of the acquisition
policies is to acquire weapon systems to improve military capability in a
timely and cost-effective manner. Despite the inherent risks associated
with foreign access to sensitive information and technology, the guidance
allows program officials discretion in managing risks related to foreign

2 For the purposes of this report, a foreign supplier is defined as any
foreign company or foreign national working for companies either in the
United States or abroad. It encompasses both prime contractors and
subcontractors performing work under those contracts.

  Results in Brief

involvement in software development. Other requirements and policies
intended to mitigate information system vulnerabilities focus primarily on
operational software security threats, such as external hacking and
unauthorized access to information systems, but not on insider threats
such as the insertion of malicious code by software developers. While
recent DOD initiatives, such as the establishment of working groups to
evaluate software products and security processes, may help to increase
DOD's focus on software security and may lead to the development and
identification of several potential software security best practices, they
have yet to be implemented in weapon acquisition programs.

Given broad discretion, program officials for 11 of the 16 software
intensive weapon systems we reviewed did not make foreign involvement in
software development a specific element of their risk management efforts.
As a result, the program offices had varying levels of awareness of the
extent of software developed by foreign suppliers on their systems.
Program officials generally did not consider the risks associated with
foreign suppliers substantial enough to justify specific attention, and
instead focused their resources on meeting software development cost and
schedule goals while ensuring software functionality and quality. In
addition, most of the program offices relied on their defense contractors
to select software subcontractors and ensure that best available software
development practices were being used, such as peer review and software
testing. Without specific guidance from program officials, contractors
primarily focused their software development efforts on meeting stated
performance requirements, such as software quality and functionality,
rather than mitigating potential software development security risks
associated with using foreign suppliers. Contractors that excluded foreign
suppliers from their programs' software development did so to avoid the
additional costs and resources needed to mitigate the risks of using such
suppliers.

As the amount of software on weapon systems increases, it becomes more
difficult and costly to test every line of code, and DOD cannot afford to
monitor all worldwide software development facilities or provide
clearances for all potential software developers. Program managers who
know more about potential software development suppliers early in the
software acquisition process will be better equipped to include software
security as part of source selection and risk mitigation decisions.
Therefore, we are making three recommendations to the Secretary of Defense
to ensure such knowledge is available to address risks attributable to
software vulnerabilities and threats. In written comments on a draft of
this report, DOD agreed with our findings that malicious code

is a threat that is not adequately addressed in current acquisition
policies and security procedures and stated that the department is working
to strengthen software related risk management activities. However, DOD
only partially agreed with our recommendations over concerns that
responsibility for mitigating risks would be placed on program managers
and software assurance experts alone. We made adjustments to our
recommendations to acknowledge the value of having other DOD organizations
involved in software security risk management.

                                   Background

To protect the security of the United States, DOD relies on a complex
array of computer-dependent and mutually supportive organizational
components, including the military services and defense agencies. It also
relies on a broad array of computer systems, including weapon systems,
command and control systems, financial systems, personnel systems, payment
systems, and others. These systems are, in turn, connected with other
systems operated by contractors, other government agencies, and
international organizations. In addition, performance requirements for
weapon systems have become increasingly demanding, and breakthroughs in
software capability have led to a greater reliance on software to provide
more weapon capability when hardware limitations are reached. As such, DOD
weapon systems are subject to many risks that arise from exploitable
software vulnerabilities. Software code that is poorly developed or
purposely injected with malicious code could be used to disrupt these and
other DOD information systems, and potentially others connected to the DOD
systems.

DOD has reported that countries hostile to the United States are focusing
resources on developing information warfare strategies. For example, a DSS
report noted that in 2001 there was a significant increase in suspicious
attempts by foreign entities to access U.S. technology and information and
that trend is expected to continue. Information systems technology was the
most sought after militarily critical technology by these entities.
Forty-four countries were associated with attempts at accessing U.S.
information technology, with 33 percent of the activity coming from
foreign government-sponsored or affiliated entities. Because the U.S.
defense industry is at the forefront of advanced design and development of
weapon systems that include militarily critical technologies, access is
sought after for industrial and financial purposes. Access to these
technologies by potential adversaries could enhance the performance of
their military systems and may be used to counter U.S. capabilities. DSS
specifically noted a concern with exploitation or insertion of malicious
code with the use of foreign research facilities and software development
companies located outside the United States

working on commercial projects related to classified or sensitive
programs.

Multiple requirements and guidance are in place to ensure the protection
of U.S. national security interests. They generally acknowledge the
inherent risk associated with foreign access to classified and
export-controlled information and technology by establishing procedures to
manage such access. For example, the National Industrial Security Program
Operation Manual3 establishes mandatory procedures for the safeguarding of
classified information that is released to U.S. government contractors. It
generally limits access to U.S. citizens with appropriate security
clearances and establishes eligibility policies for U.S. contractors
determined to have foreign ownership, control, or influence. Further, an
additional DOD directive requires programs containing classified military
information to have controls to prevent the unauthorized release of this
information to foreign recipients.4 In addition, the International Traffic
in Arms Regulations (ITAR) controls foreign access to defense articles and
services through the establishment of the export license and authorization
process. U.S. entities, including defense contractors, may apply to the
Department of State for authorization to export controlled information and
technology to qualified foreign recipients, which is determined through
the approval or denial of license requests.

DOD estimates that it spends about 40 percent of its Research,
Development, Test, and Evaluation budget on software-$21 billion for
fiscal year 2003. Furthermore, DOD and industry experience indicates that
about $8 billion of that amount may be spent on reworking software because
of quality-related issues. Carnegie Mellon University's Software
Engineering Institute (SEI), recognized for its expertise in developing
best practices for software processes, has developed models and methods
that define and determine organizations' software process maturity. Better
software development practices are seen as a way to reduce the number of
software defects and therefore improve overall software quality, but alone
the practices cannot be expected to address malicious software development
activities intended to breach security. To underscore the

3 The National Industrial Security Program Operating Manual, DOD
5220.22-M, prescribes specific requirements, restrictions, and other
safeguards necessary to prevent unauthorized disclosure of classified
information to U.S. contractors.

4 DOD Directive 5230.11, "Disclosure of Classified Military Information to
Foreign Governments and International Organizations," June 16, 1992.

DOD's Approach to DOD's approach to software development and acquisition
generally

focuses on improving overall quality, leaving decision making on software
Software Security suppliers and security with individual program managers.
Despite the risks Does Not Fully associated with foreign access to defense
systems, DOD acquisition policy

does not require program managers to identify and manage the amount of
Address Risks from foreign involvement for software development in weapon
systems. DOD Foreign Suppliers information system security requirements
focus on operational software

threats, rather than potential threats posed by software developers. While
recent DOD initiatives could increase DOD's focus on software security,
efforts to date have not translated into greater knowledge for program
managers about foreign software development activities.

DOD Acquisition Policy DOD acquisition policy5 allows program managers
discretion in managing Allows Discretion in foreign suppliers used for
software development. This policy consists of Managing Foreign general
guidance for meeting overall acquisition management principles

and instructs program managers to use systems engineering
practices,Software Suppliers when applicable, that focus on cost,
schedule, and performance of the

importance of securing software-related products, the Office of the
Assistant Secretary of Defense (Networks and Information Integration) and
the Federal Aviation Administration Chief Information Office are
cosponsoring, with the involvement of the Department of Energy, the
National Aeronautics and Space Administration, and SEI, a project aimed at
developing ways to provide safety and security assurance extensions to
integrated software maturity models.

system. For software acquisition, program managers are encouraged to
develop open software systems architectures, use COTS computer system
products, and allow incremental improvements based on reusable software.
All of these practices, while having the potential to benefit cost and
schedule for weapon programs, could result in greater software
vulnerabilities by introducing potentially malicious code from unknown
software development sources. While DOD acquisition policy requires major
weapon programs to maintain information about the software project's size,
effort, schedule, and quality to track the cost-related implications of
software development, it does not require program

5 The DOD 5000 series includes the mandatory DOD Directive 5000.1 "The
Defense Acquisition System," DOD Instruction 5000.2 "Operation of the
Defense Acquisition System," and a nonmandatory Interim Defense
Acquisition Guidebook.

managers to identify and manage suppliers or the potential security risks
from foreign suppliers.

On October 30, 2002, DOD issued the Interim Defense Acquisition Guidebook,
which contained the following security considerations to be used when
foreign nationals participate in software development.

o  The change control process6 shall indicate whether foreign nationals,
in

any way, participated in software development, modification, or
remediation.

o  	Foreign nationals employed by contractors or subcontractors to
develop, modify, or remediate software code specifically for DOD shall
each have a security clearance commensurate with the level of the program
in which the software is being used.

o  	Primary vendors on DOD contracts may have subcontractors who employ
cleared foreign nationals that work only in a certified or accredited
environment.

o  	DOD software with coding done in foreign environments or by foreign
nationals shall be reviewed by software quality assurance personnel for
malicious code.

o  	Vendors of COTS software that demonstrate efforts to minimize the
security risks associated with foreign nationals that have developed,
modified, or remediated the COTS software being offered shall be given
preference during the contracting process in product selection or
evaluation.

o  	Software quality assurance personnel shall check software sent to
locations not directly controlled by DOD or its contractors for malicious
code when returned to the DOD contractors' facilities.

While this guidance acknowledges the additional risks from using foreign
nationals in software development, it is not mandatory and, according to
the Guidebook, is to be used at the discretion of acquisition program
managers as best practices or lessons learned. Even if the suggested
guidance was implemented, the procedures for addressing software security
are generally for use after software suppliers have been selected,

6 This process tracks changes and documents updates to a software
baseline.

and do not provide the program manager the opportunity to evaluate whether
the risks associated with using those suppliers for software development
are acceptable. Further, several of these procedures would not apply when
contractors use foreign nationals to develop unclassified portions of
software programs. In support of DOD guidance, Air Force, Army, and Navy
regulations implement DOD-wide acquisition policies. As such, they defer
to DOD guidance and do not specifically address software security issues
and related risks that may be inherent with foreign software development.

    Information Assurance Focuses on Mitigating Operational Software Security
    Risks, Leaving Internal Software Development Vulnerable

Laws, requirements, and policies that are intended to provide information
assurance for operational security do not fully address risks during
software development. Under the Federal Information Security Management
Act of 2002, all executive agencies, including DOD, are required to ensure
that information security policies, procedures, and practices are
adequate.7 In this regard, DOD is required to carry out an information
assurance program that includes the development of essential information
assurances technologies and programs.8 Generally, this includes a review
of security features and information technology system safeguards. For
example, DOD's information assurance policy establishes procedures to
maintain the integrity of DOD information systems. 9 It sets out a process
for all DOD information systems to achieve, among other things, an
appropriate level of confidentiality, integrity, knowledge of threats and
vulnerabilities, trustworthiness of users and interconnecting systems, and
cost effectiveness. These procedures are intended to mitigate system
vulnerabilities from operational threats, such as external hacking and
unauthorized access to information systems. However, they do not apply to
internal threats that could affect the integrity of the software, such as
the insertion of malicious code during software development. In
implementing its information assurance policy, DOD also relies on other

7 Federal Information Security Management Act, Title III, E-Government Act
of 2002, P.L. 107-347, Dec. 17, 2002.

8 Enacted in the National Defense Authorization Act for Fiscal Year 2000,
P.L. 106-65, Oct. 5, 1999, subsequently amended in various statutes, and
currently at 10 U.S.C. S: 2224.

9 Information assurance is defined as measures that protect and defend
information and information systems by ensuring their availability,
integrity, authentication, confidentiality, and nonrepudiation, which
includes software certification for functionality and quality. DOD
Directive 8500.1, "Information Assurance", Encl. 2, S: E2.1.17 (Oct. 24,
2002). DOD's Information Assurance policy is implemented in DOD
Instruction 8500.2, "Information Assurance Implementation" (Feb. 6, 2003).

governmentwide policies and standards. For example, DOD requires the
evaluation and validation of information assurance software products, such
as firewalls and intrusion detection systems, in accordance with National
Security Telecommunications and Information Systems Security Policy No.
11.10 This policy requires the use of one of three nationally recognized
evaluation and validation standards.11 However, these policies and
standards do not include criteria to specifically identify and manage the
use of foreign software suppliers.

To assist systems in meeting information assurance requirements, DOD has
developed the Defense Information Technology Security Certification and
Accreditation Process (DITSCAP) as a standardized evaluation process.12
This process includes a review by a designated approving official who
certifies that the security features and information technology system
safeguards will maintain information assurance through the life cycle of a
system. The process results in an agreement between the program manager,
the intended user of the system being certified, and the approval
authorities that defines critical schedule, budget, security,
functionality, and performance issues. The process includes a requirement
for a threat assessment, but does not articulate how this information
should be developed or reported. As such, it does not direct program
managers to consider foreign involvement in software development as a risk
or threat that needs to be addressed for information system security. In
addition, while the process is mandatory, the implementation details may
be tailored and, in some cases, integrated with other acquisition
activities and documentation. According to DOD Software Assurance Program
officials, the DITSCAP approving authority is not expected to evaluate
whether the risks have been identified appropriately, only that the
process will mitigate the risks identified. If the program manager has

10 The National Security Telecommunications and Information Systems
Security Policy No. 11 is a national policy to ensure that COTS
information assurance and information assurance-enabled products that
provide security services as an associated feature and are purchased by
the U.S. government to be used in national security systems perform as
prescribed by the software developer. The policy requires use of
preapproved products to meet information assurance needs.

11 The standards are the (1) Common Criteria for Information Security
Technology Evaluation, (2) the National Security Agency/National Institute
of Standards and Technology National Information Assurance Partnership
Evaluation and Validation Program, and (3) the National Institute of
Standards and Technology Federal Information Processing Standard
Validation Program.

12 DOD Instruction 5200.40 (Dec. 30, 1997).

not identified risks from foreign suppliers, the process cannot be
expected to mitigate them.

DOD also requires weapon programs to protect certain types of information
during transfer of technology to foreign entities. For example, documents
such as the Technology Assessment/Control Plan and the Program Protection
Plan address the risks associated with the potential release of
information to foreign governments through cooperative programs and
foreign military sales, but the documents do not provide information on
specific suppliers who will be performing work, such as software
developers. The Technology Assessment/Control Plan establishes planning
requirements for the potential release of sensitive information to foreign
entities involved in cooperative programs or purchasing military
equipment. It evaluates the risk of releasing critical military capability
or sensitive information and technology against the benefit of the sale to
the United States. The plan also outlines the security requirements to
prevent compromise. The purpose of the Program Protection Plan is to
identify measures to protect Critical Program Information13 from hostile
collection efforts and unauthorized disclosure during the acquisition
process.

    Initiatives to Address Software Concerns Have Yet to be Implemented

While DOD has taken steps to strengthen software acquisition practices, it
has yet to implement practices to better manage software development
security risks in weapon programs. Currently, each of the military
services is developing plans for improving software acquisition. The
improvement plans are each at varying stages of development and include
practices such as pilot programs for providing information on software
metrics, additional training programs, and teaming arrangements with SEI
for improved overall software management. DOD has also begun policy-level
initiatives focused on better software management and on identifying and
specifying software security processes and technologies to protect systems
and network capabilities from various internal and external threats.
Specific initiatives include the following:

o  	The Tri-Service Assessment Initiative began in 1999 to strengthen
software acquisition and development as well as address repeated

13 Critical Program Information is defined as program information,
technologies, or systems that, if compromised, would degrade combat
effectiveness, shorten the expected combat effective life of the system,
or significantly alter program direction. This includes classified
military information or unclassified controlled information about such
critical programs, technologies, or systems.

performance shortfalls attributed to software. Task forces conducted
detailed assessments of software-intensive programs to identity potential
improvements in overall software acquisition processes.

o  	A source selection criteria working group is tasked with clarifying
the policy on source selection criteria for software intensive systems and
the application of software product maturity measures. Another working
group is tasked with developing a proposal for a centralized clearinghouse
of software best practices, but DOD has not approved any proposals.

o  	In October 2003, the Office of the Assistant Secretary of Defense
(Networks and Information Integration) established the position of Deputy
Director for Software Assurance that is, as part of its function, to
coordinate software security efforts with other existing initiatives
concerning software protection, antitamper technologies, and software
producibility. In addition, since its inception, the office has initiated
working groups intended to focus on mitigating software risks and
improving software security. To date, while these initiatives have
presented top level findings and recommendations within DOD and in public
forums, they have not externally published reports or obtained funding for
implementing the recommendations.

While these plans and initiatives may help to increase DOD's focus on
software security and may lead to the development and identification of
several potential software security best practices, DOD software assurance
officials acknowledge that significant effort remains to adequately
mitigate software risks to weapon systems.

While DOD initiatives have begun to recognize potential risks from foreign
software suppliers, this is not always the case within the weapon programs
where software is developed or acquired. Program officials for most of the
systems we reviewed did not make foreign involvement in software
development a specific element of their risk identification and mitigation
efforts. As a result, program officials' knowledge of the
foreign-developed software included in their weapon systems varied. In
addition, risk mitigation efforts emphasized program level risks, such as
meeting program cost and schedule goals, instead of software security
risks. Further, program managers often delegated risk mitigation and
source selection to their prime contractors who tended to be concerned
with software functionality and quality assurance, rather than
specifically addressing software development risks associated with foreign
suppliers.

  Program Officials Generally Did Not Manage Risks from Foreign-Developed
  Software

    Program Office Knowledge of Software Suppliers Varied Across Weapon Systems

Knowledge of the extent of foreign involvement in software development
varied greatly for the 16 weapon system programs we reviewed. Overall, the
knowledge program managers had was based on the function of the software
being developed, the manner in which it was acquired, and the specific
handling requirements. While none of these programs could fully identify
all foreign-developed software for their systems, six program offices had
significant knowledge of foreign software developers.

Knowledge of software developed for weapon systems can vary based on the
different functions needed to meet mission requirements. Program offices
were most knowledgeable about the foreign-developed software for the
onboard portions of their programs, with 4 program offices able to
identify all the software produced by foreign suppliers, and 11 program
offices able to identify at least some of the software produced by foreign
suppliers. Onboard software is that which actually runs the weapon system,
even if that software is not located on the main component (aircraft,
missile, satellite, etc). For example, onboard software for a missile
system could include software located on a remote platform used to guide
the missile toward its target. Because onboard software is the most
critical for meeting mission requirements and other program goals, program
managers placed greater emphasis on the quality, functionality, and
usually, the security of this software. In 9 of the systems we reviewed,
either prime contractors or major subcontractors conducted software
development for the onboard systems. However, in meeting with prime
contractors, we found that while this increased their knowledge about
foreign software suppliers, the information was not always shared with
government program managers, and therefore was not available for them to
use to make risk management decisions to address software security.

Program offices and contractors reported very little knowledge about the
level of foreign involvement for offboard software. This software,
sometimes referred to as ground based, interacts with the onboard system
to provide updated information in support of operational activity. For
example, one program uses standard mission planning software that
interacts with the onboard flight software to provide information used for
navigation and targeting. In addition, offboard software is often used to
check for errors or malicious code and to produce, maintain, or verify
onboard software. Program officials from 10 of the programs we reviewed
indicated they had very little knowledge of the developers for their
offboard software, including those portions that may have been developed
by foreign suppliers.

As DOD is attempting to find new ways of reducing the time and money it
takes to develop software code, the increased use of COTS software may
introduce additional risks and further limit visibility into the existence
of foreign-developed software. Officials for 13 of the programs reviewed
had almost no insight into the use of foreign developers for any COTS
software placed on their systems. Even when procured directly from a known
supplier, program officials could not guarantee whether additional
subcontractors were used for software development. According to DOD and
program officials, visibility into COTS software is limited by the
willingness of the producers of that software to share information on how
the code was developed. For one program we reviewed, a substantial portion
of the system was a commercial acquisition. As such, the software product
was not originally developed for DOD and therefore the program office had
no knowledge of software development suppliers because it did not purchase
the rights to the software. Further, officials from five programs told us
that the cost of identifying and managing foreign software suppliers,
especially for COTS software, could be substantial. Officials from two
programs said that even if available, this information would not offer
significant software security improvements in light of the cost required
for identifying foreign suppliers of COTS software. DOD and program
officials have indicated that commercial software producers often demand a
cost premium to share software and source code information that would be
required to determine this information.

Similar to COTS, software from other applications and embedded software is
often accepted without full knowledge of the source of development.
Legacy, or reused code, is most prevalent when software programs are
updated into newer versions or when software just requires editing and
enhancing the older code rather than developing new code. When asked to
produce software similar to what they have developed previously,
manufacturers can use all or part of the legacy code as a basis for
developing or modifying the new code. Ten of the programs reviewed
accepted legacy software without fully identifying the sources of
development. Software is also developed as part of the hardware components
it is tasked with managing. This embedded software is used to control
other electronic hardware products, either onboard or offboard the weapon
system, and is often purchased from lower tier subcontractors. While we
did not specifically ask for information on foreign suppliers responsible
for embedded software, officials for two of the programs reviewed stated
that this software tends to include more reused and COTS software. These
officials indicated that this could limit the visibility of the software
suppliers because acceptance testing was usually only performed to prove
functionality and the software was not

further evaluated to determine the actual source that developed the
software code. Further, DOD and prime contractor officials told us that it
is sometimes difficult to determine whether the actual hardware
subcontractor developed embedded software, or if it was done by a software
developer hired by that subcontractor, thus further reducing visibility of
software suppliers.

While most of the program offices we reviewed did not specifically track
foreign software suppliers for security purposes, almost all of the
programs had opportunities to gain such knowledge through practices
designed to collect other information. One way program offices obtained
information on software suppliers was through requirements in their prime
contracts. Many of the program offices in our review were able to obtain
some information on software suppliers, either directly or indirectly,
because it was contractually required. In some cases, this information was
available early in the proposal process when bidders were required to
identify suppliers they intended to use in the development and
manufacturing phases, including potential foreign suppliers and components
they were expected to provide. For example, officials from one program
office said they were effective in determining software suppliers at the
prime and subcontractor levels because they were intimately involved with
source selection and contract negotiation. However, only five of the prime
contractors reported that they were required to notify the program office
concerning their decisions on software subcontracting. Once a winning
bidder is selected, more information is often available to the program
manager. For example, contracts for 12 programs contained a requirement
that the contractors provide a software development plan that included
information on some of their planned suppliers, development risks, and
action plans for the contract period. In at least two cases, program
software managers became aware of foreign software suppliers while
collecting information requested for this review.

Program officials also said that some knowledge of foreign software
development was available as a result of procedures in place because their
programs contained classified or technical program information. For
example, of the six programs that had significant knowledge of foreign
software suppliers, four reported they had very few foreign suppliers
because handling restrictions for classified information precluded the
involvement of such suppliers, not because they were specifically managing
software development risks. Similarly, contractors for 12 programs had
information available from the export license process. While limited
information on the supplier and location of foreign entities

performing software work was available from export licenses, contractors
request approval directly from the State Department, which may not refer
the application to DOD or the individual program offices. Consequently,
program managers likely did not have this information available for use in
software risk management decisions.

    Program Risk Mitigation Efforts Are Focused on Meeting Performance
    Requirements and Are Often Delegated to Contractors

The relative importance of software security in risk mitigation efforts
also varied greatly across the systems we reviewed. For 11 of the 16
systems, program managers have not identified foreign supplier involvement
in software development as a significant risk to the security of their
weapon systems. Instead, program managers concerned with completing their
programs on budget and on schedule generally focused risk mitigation
efforts on program level risks associated with the performance of system
components, not on internal software development security risks. When
specifically identified, software risks are usually defined by their
impact when integrated with these system level risks and do not
specifically focus on foreign suppliers used in software development.
Software generally only becomes a concern for program managers as it
begins to affect the cost or schedule of the program. For example, one of
the programs we reviewed lists "software executibility" as a program level
risk. The risk is based on potential cost and schedule overruns should the
software not function as needed to allow related system components to meet
mission requirements, rather than potential vulnerabilities from foreign
suppliers. For these programs, security risks have generally been
implemented to prevent unauthorized access to classified or technical
program information, provide security at contractor facilities, and limit
access to export-controlled technical information in accordance with ITAR
license requirements, rather than specifically for software security. In
addition, 12 of the programs used the Technology Assessment/Control Plan
and the Program Protection Plan to ensure that risks associated with
foreign participation on the program were addressed.

Programs that identified software security as a risk focused on limiting
foreign access to software development facilities and denying foreign
access to software code. In addition, these programs employed various
measures to address software security consistent with information
assurance requirements. These measures included the use of password
protection, firewalls, or encrypted software, but they did not always
focus on risks from foreign involvement in software development. Further,
11 programs mentioned using DITSCAP as a means for addressing general
software security. However, interpretation and implementation of this
requirement can vary across programs. For example, according to officials

from two programs, the current DITSCAP requirements do not govern
contractors in cases where the requirements were not included as part of
the original contract. Representatives from two of the programs we
reviewed noted that guidance for implementing DITSCAP was confusing and
that they were uncertain whether the process applied to their programs.
Program officials responsible for software development on one other
program indicated that they had no knowledge of this process. In cases
where DITSCAP is being implemented, the certification and accreditation
process requirements are determined based on the program manager's
assessment of risks. If the program manager has not identified foreign
software development as a program risk or threat, it will not be addressed
by the process.

Because security and software risks are generally defined in terms of
programmatic elements, program managers often delegate the identification
and mitigation responsibility to the contractors who are developing the
system and are therefore more knowledgeable about what functions are
needed from the software. Officials from eight of the programs we reviewed
said they expect contractors to ensure quality and security on their
systems because their software development processes are more mature than
those required by DOD, and that such practices could indirectly address
foreign software risks. For example, contractors for these eight programs
were presumed to be addressing software security because they were
employing practices such as peer review 14 and software testing consistent
with SEI development models.15 Peer review is recognized as a best
practice for improving software development and is generally performed to
improve the quality and functionality of software

14Peer reviews and inspections of software, documentation, and hardware
are used extensively during the requirements, design, and coding phases to
identify any integration problems that must be corrected.

15 The Software Engineering Institute has identified specific processes
and practices that have proven successful in fostering quality software
development. The Capability Maturity Model for Software(R) (registered in
the U.S. Patent and Trademark Office by Carnegie Mellon University), for
example, focuses on improving software development processes. The model
rates software maturity according to five levels of maturity: (1) Initial:
The software process is characterized as ad hoc. Success depends on
individual effort; (2) Repeatable: The basic process is in place to track
cost, schedule, and functionality. Some aspects of the process can be
applied to projects with similar applications; (3) Defined: There is a
standardized software process for the organization. All projects use some
approved version of this process to develop and maintain software; (4)
Managed: The organization uses and collects detailed data to manage and
evaluate progress and quality; (5) Optimizing: Quantitative feedback about
performance and innovative ideas and technologies contribute to continuous
process improvement.

code. In terms of security, peer review can reduce the likelihood that an
individual programmer can insert malicious or other harmful code. Through
dedicated software testing, teams assess the quality of the software to
uncover gaps and make it as defect-free as possible. However, on eight of
the programs we reviewed, decisions on the amount of software code to test
were made based upon the risks and benefits to the functionality of the
system to be tested, not on the benefits to security. DOD and SEI
officials said that the amount of effort needed to comprehensively test
every line of code to ensure complete security could be physically
impossible and would require immense resources.

Because contractors for the weapon systems we reviewed had not received
specific direction from program managers to address risks from foreign
suppliers in software development, they tended to focus on development
efforts aimed at meeting stated requirements, such as software quality and
functionality. In fact, officials from the 15 contractors that responded
to our review indicated this was the focus of their software development
activities. While SEI representatives told us that rigorous software
development could help improve the quality and functionality of software
by decreasing the number of errors in software code, they also said that
alone their models should never be expected to completely address software
security risks. Officials from one contractor we interviewed that employs
practices consistent with SEI's highest level indicated that unless
software security is a specific contract requirement, they would not
modify their practices to address associated risks. SEI experts confirmed
that the models they have developed do not include a security element and
are not intended to certify that improved processes will address risks
related to software security. In fact, it is possible that using software
development practices to increase efficiency could lead to an increase in
security vulnerability by encouraging the use of legacy and COTS software,
unless risks are managed appropriately.

For several programs we reviewed, contractors made risk identification and
mitigation decisions for business reasons and to avoid additional resource
burdens (i.e., cost and access) associated with incorporating foreign
suppliers necessary for software development, as opposed to being done for
security reasons. For example, prime contractors for two programs did not
use foreign subcontractors for economic reasons; namely the company wanted
to maintain the software expertise within the company. While restricting
foreign access solely for economic reasons could result in a decrease in
software development security risks, it might also preclude foreign
suppliers that could offer new capability or lower costs to the
government. For example, contractor officials for three

Conclusions

weapon systems told us that they restrict foreign involvement in software
development because it costs too much to develop and monitor security
procedures to separate foreign nationals from classified and sensitive
information, not because they feel their involvement is a risk to the
program. In yet another case, the contractor did not want to create
dedicated partitions, such as firewalls, required to prevent employees
from a foreign subcontractor from accessing unauthorized information in
the system design database and instead contracted with a domestic
supplier. Finally, software managers for one program told us that when
foreign nationals modify or update software they had developed, it was
necessary to isolate test facilities to meet security requirements, which
resulted in increased cost and delays to other test activities. The
officials said that, in similar cases, contracting decisions might
sometimes be made in favor of U.S. suppliers to avoid costs and delays.

Because software is increasingly responsible for advances in weapon system
capabilities, it is essential that DOD and program managers take
appropriate steps to identify and manage software-related risks. While DOD
has made improvements to system engineering and software development
practices that can reduce the likelihood of defects in software code,
current methods of testing focus on the quality of software and related
functionality and failures, which will not necessarily uncover malicious
intent. As the amount of software on weapon systems increases, it becomes
more difficult and costly to test every line of code. Further, DOD cannot
afford to monitor all worldwide software development facilities or provide
clearances for all potential software developers, especially for COTS
software. Given the global nature of the software industry, which offers
benefits to software cost and functionality needed by weapon systems, DOD
also cannot afford to exclude all foreign suppliers from its programs.
While program managers should be allowed discretion in managing their
acquisitions, they are responsible for knowing more about who is
developing software and where and for working with DOD's software
assurance resources, and other organizations as necessary, so that risks
can be identified and assessed accordingly. Unless this is done early in
the software acquisition process, it cannot be included as part of
software source selection and risk mitigation decisions and could result
in increased cost and less effective security measures if risks have to be
addressed later in the acquisition process.

  Recommendations for Executive Action

Agency Comments and Our Evaluation

We have previously made recommendations to DOD to adopt more effective
software development practices and to increase oversight of software
intensive systems to improve acquisition outcomes. While DOD attempts to
better its software acquisition policies and implement new initiatives, it
must take steps to ensure that security is an integral element in decision
making and that program managers mitigate risks accordingly. We recommend
that the Secretary of Defense take the following three actions to address
risks attributable to software vulnerabilities and threats:

o  	Require program managers, working with software assurance experts,
acquisition personnel, and other organizations as necessary, to
specifically define software security requirements, including those for
identifying and managing software suppliers. These requirements should
then be communicated as part of the prime development contract, to be used
as part of the criteria to select software suppliers.

o  	Based on defined software security requirements, require program
managers to collect and maintain information on software suppliers,
including software from foreign suppliers. This information should be
evaluated periodically to assess changes in the status of suppliers and
adjustments to program security requirements.

o  	Require the Office of the Assistant Secretary of Defense for Networks
and Information Integration and the Office of the Undersecretary of
Defense for Acquisition Technology and Logistics, as part of their role to
review, oversee, and formulate security and acquisition practices, to work
with other organizations as necessary to ensure that weapon program risk
assessments include specific attention to software development risks and
threats, including those from foreign suppliers. For example,
certification and accreditation processes, such as DITSCAP, should include
verification that software development practices contain adequate security
measures to address identified risks and threats.

In written comments on a draft of this report, DOD agreed with our
findings that malicious code is a threat that is not adequately addressed
in current acquisition policies and security procedures and stated that
the department is working to strengthen software related risk management
activities. DOD also noted the need to enhance its risk management
processes to factor in vulnerabilities analysis of proposed software
products, security risks of suppliers' processes, and counterintelligence

threat information. DOD partially concurred with our three recommendations
based on the concern that they place too much responsibility for risk
mitigation on program managers. Although the draft report recognized that
software assurance experts from the Office of the Assistant Secretary of
Defense for Networks and Information Integration were necessary to support
program managers in risk mitigation efforts, we broadened two of our
recommendations to include acquisition and other organizations to address
this concern. DOD also provided separate technical comments that we
incorporated into the report as appropriate. DOD's letter is reprinted in
appendix II.

DOD agreed that software security risks should be defined for DOD weapon
programs, but noted that program managers should not be solely responsible
for defining security requirements, including those for identifying and
managing software suppliers. Instead, DOD stated that program managers
should be able to rely on external resources to gain threat information on
suppliers and that formulation and oversight of security practices should
be a collaborative function among several offices within DOD. While we
continue to believe that program managers and software assurance experts
play a critical role in defining software security requirements, we do see
the value of involving other DOD resources to provide coordinated
evaluation of broader security concerns. As such, we modified our
recommendation to reflect the inclusion of acquisition personnel and other
organizations as necessary.

DOD also agreed that information on software suppliers, including foreign
suppliers, should be collected and that this information should be
periodically assessed to determine if adjustments to security requirements
are needed. However, DOD indicated that centralized information on
software suppliers is necessary because the cost of collecting and
maintaining this information would require resources and assets beyond
those of individual program managers. DOD indicated its intent to develop
a database to identify, track, and maintain information on security risks
from specific software suppliers, which could be used by program managers
across various weapon and other programs for developing acquisition
strategies, plans, requests for proposals, and contracts. While we agree
that such a database would be helpful to program managers in collecting
and maintaining information on software suppliers, we made no change to
the recommendation because the program managers should be responsible for
collecting this information until such a database is developed and for
directing the collection of information from the database once it is
completed.

Finally, DOD agreed that it should ensure that program risk assessments
include specific attention to software development risks, including those
from foreign suppliers. However, DOD suggested that this might be best
accomplished through collaboration between the Office of the Assistant
Secretary of Defense for Networks and Information Integration, the Office
of the Undersecretary of Defense for Acquisition Technology and Logistics,
and the Office of the Undersecretary of Defense for Intelligence. This
seemed reasonable, and we adjusted our recommendation to reflect the
inclusion of other organizations. Further, DOD agreed certification
activities such as DITSCAP can assist in addressing insider threats in
software development, but that additional guidance is necessary to ensure
that software security risks are addressed during system design and
development or when selecting software sources.

We are sending copies of this report to interested congressional
committees; the Secretary of Defense; the Secretaries of the Air Force,
Army, and Navy; the Commandant of the Marine Corps; and the Director,
Office of Management and Budget. 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 or your staff have any questions about this report, please contact
me
at (202) 512-4841. Staff acknowledgments are listed in appendix III.

Katherine V. Schinasi
Managing Director
Acquisition and Sourcing Management

                       Appendix I: Scope and Methodology

To determine how the Department of Defense (DOD) measures the extent of
foreign involvement in software development in weapon systems and how
risks associated with using foreign suppliers for software development are
measured and mitigated, we reviewed relevant DOD guidance, policies,
regulations, and procedures. In addition, we spoke with DOD officials from
the Office of the Under Secretary of Defense (Acquisition Technology &
Logistics), the National Security Agency, the Defense Information Systems
Agency, the Defense Advanced Research Projects Agency, the Office of the
Assistant Secretary of Defense (Networks and Information Integration), the
Department of the Army, the Department of the Air Force, and the
Department of the Navy. We met with software experts at the Software
Engineering Institute of Carnegie Mellon University to obtain information
on software development practices and risk identification and mitigation
techniques used by the software industry. Additionally, we met with the
Association of Old Crows (The Electronic Warfare and Information
Operations Association) whose membership includes individuals and
companies involved in the design and development of software used in DOD
weapon programs.

To document and analyze how programs specifically measure and manage their
use of foreign-developed software, we identified 16 DOD weapon systems and
solicited information from each program office and prime contractor. We
selected these weapon systems based on recommendations from DOD officials
and on our internal knowledge of the systems. While our selection of
programs cannot be generalized to the population of all DOD systems, the
systems selected varied by product type, represented each of the military
services, and represented a range of DOD contractors. The systems reviewed
were the Abrams System Enhancement Package, AH-64D Apache, Bradley
Upgrade, C-130 Avionics Modernization Program, C-130 J Hercules, C-17
Globe Master, Comanche Reconnaissance Attack Helicopter (RAH-66), F/A-18
Super Hornet, F/A-22 Raptor, Future Combat Systems, Global Hawk Unmanned
Aerial Vehicle, Joint Helmet Mounted Cueing System, Joint Strike Fighter,
Patriot Missile System, Tactical Tomahawk Missile, and Wideband Gapfiller
Satellites.

Using their respective command liaisons to initially contact each office,
we distributed a structured set of questions to solicit information from
software managers designated by individual program managers to respond to
our inquiry. To further determine how programs manage and mitigate their
use of foreign-developed software, we then tailored follow-up questions to
solicit information and documentation in areas such as program risk
identification and management practices, security policies and procedures,
and software contracting management practices. To learn

Appendix I: Scope and Methodology

more about program practices for managing and mitigating the use of
foreign-developed software, we solicited information and documentation
from the prime contractor for each system using contacts provided by
program office officials. Information requested from contractors included
government guidance for software practices, company software development
and security practices, software risk mitigation efforts, software testing
procedures, and software sourcing decision processes. We received
information from 15 of the prime contractors through written responses,
on-site interviews, and other means such as telephone conversations. We
also obtained several security and software related documents such as the
Program Protection Plan, the Software Development Plan, and other program
specific documents, such as the contract, for the systems we reviewed.

Appendix II: Comments from the Department of Defense

Appendix II: Comments from the Department of Defense Appendix II: Comments from
 the Department of Defense Appendix II: Comments from the Department of Defense
              Appendix II: Comments from the Department of Defense

                      Appendix III: Staff Acknowledgments

Acknowledgments 	John Neumann, Brian Mullins, Delores Cohen, Shelby S.
Oakley, Christopher Miller, Gary Middleton, and Marie Ahearn made key
contributions to this report.

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