Homeland Security: Further Action Needed to Promote Successful	 
Use of Special DHS Acquisition Authority (15-DEC-04, GAO-05-136).
                                                                 
The Homeland Security Act of 2002 authorized the Department of	 
Homeland Security (DHS) to establish a pilot program for the use 
of acquisition agreements known as "other transactions." Because 
they are exempt from many of the requirements that apply to	 
government contracts, other transactions can be useful in	 
acquiring cutting-edge technologies from entities that		 
traditionally have declined to do business with the government.  
The act requires GAO to report to Congress on the use of other	 
transactions by DHS. To fulfill this obligation, GAO (1)	 
determined if DHS has developed policies and established a	 
workforce to manage other transactions effectively and (2)	 
evaluated how effectively DHS has used its other transactions	 
authority to attract nontraditional government contractors.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-136 					        
    ACCNO:   A14536						        
  TITLE:     Homeland Security: Further Action Needed to Promote      
Successful Use of Special DHS Acquisition Authority		 
     DATE:   12/15/2004 
  SUBJECT:   Audits						 
	     Contract authority 				 
	     Contractors					 
	     Data collection					 
	     Federal procurement				 
	     Human resources training				 
	     Labor force					 
	     National preparedness				 
	     Procurement policy 				 
	     Procurement practices				 
	     Program evaluation 				 
	     Research and development				 
	     Other transactions 				 
	     DHS Chemical and Biological			 
	     Countermeasures Project				 
                                                                 
	     DHS Countermeasures for Man Portable Air		 
	     Defense System Project				 
                                                                 

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GAO-05-136

     

     * Results in Brief
     * Scope and Methodology
     * Background
     * DHS Placed Initial Priority on Project Implementation while Developing
       O\ther Transactions Policy and Acquisition Workforce
          * DHS Simultaneously Established Its Science and Technology
            Organization a\nd Implemented Projects
          * Other Transactions Projects Used a Variety of Acquisition
            Techniques
          * Process for Other Transactions Uses Some Knowledge-Based
            Approaches
          * Changes in Policies and Enhancement of Acquisition Workforce
            Could Help \Sustain Long-Term Use of Other Transactions
          * DHS Is Developing Its Other Transactions Authority Policies
          * Other Transactions Policy Does Not Address Audit and Training
            Requiremen\ts
          * Acquisition Workforce Capacity May 對Limit DHS's Ab
     * DHS Included Nontraditional Government Contractors in Initial
       Projects, \but Practices May Not Fully Leverage Market Capabilities
          * Other Transactions Authority Facilitated Inclusion of
            Nontraditional Gov\ernment Contractors in Early Awards
          * Extensive Outreach Used to Attract Nontraditional Contractors
          * Lack of Systematic Assessment of Acquisition Activities Involving
            Other \Transactions Impairs Ability to Capture and Use Knowledge
     * Conclusions
     * Recommendations
     * Agency Comments and Our Evaluation
     * Appendix I: Comments from the Department of Homeland Security
          * 
               * Order by Mail or Phone
     * cover4.pdf
          * http://www.gao.gov

                 United States Government Accountability Office

Report to Congressional Committees

GAO

December 2004

HOMELAND SECURITY

Further Action Needed to Promote Successful Use of Special DHS Acquisition
                                   Authority

                                       a

GAO-05-136

HOMELAND SECURITY

Further Action Needed to Promote Successful Use of Special DHS Acquisition
Authority

  What GAO Found

The Department of Homeland Security has issued policy and is developing a
workforce to implement its other transactions authority, but the
department's policies need further development and its contracting
workforce needs strengthening to promote the successful use of the
authority in the future. Soon after it was established, DHS issued other
transactions solicitations using some commonly accepted acquisition
practices and knowledge-based acquisition principles. Subsequently, the
department issued a management directive and drafted guidance for using
other transactions, loosely modeled on the practices of the Department of
Defense (DOD), one of several other agencies with other transactions
authority and the one with the most experience with using these
agreements. Unlike DOD, however, DHS has not specified in its policies or
guidance when its contracting staff should consider the use of independent
audits to help ensure, for example, that payments to contractors are
accurate. Similarly, DHS has not established training requirements to aid
staff in understanding and leveraging the benefits of other transactions.
The DHS contracting workforce is limited in size and capacity, which could
impede the department's ability to manage a potential increase in its
other transactions workload. DHS is taking steps to enhance the capacity
of its contracting workforce.

The DHS Science and Technology Directorate included nontraditional
government contractors in its first two other transactions projects. The
Directorate engaged in extensive outreach efforts, such as conducting
briefings on its mission and research needs to industry and academic
institutions and using a number of Web-based tools to publicize its
solicitations. But DHS has not yet developed mechanisms to capture and
assess the knowledge gained about the use of other transactions. As a
result, DHS may not be able to leverage information from current projects
for use in future solicitations that use other transactions.

                 Profile of Early DHS Other Transactions Awards

Countermeasures for Man Portable Air Detection Systems for Chemical and
Defense System Biological Countermeasures

     o Prototype project to protect commercial  o  Prototype project to
       protect against aircraft. chemical and biological attacks.
     o Estimated total budget: $96 million.  o  Estimated budget for phase I:
       $6.6
     o Three phase I awards and two phase II million. awards as of October
       25, 2004.  o  17 phase I awards as of August 2, 2004.

Source: DHS.

Note: All awards included a nontraditional government contractor at either
the prime or subaward level.

United States Government Accountability Office

Contents

  Letter 1

Results in Brief 2 Scope and Methodology 3 Background 4 DHS Placed Initial
Priority on Project Implementation while

Developing Other Transactions Policy and Acquisition

Workforce 8 DHS Included Nontraditional Government Contractors in Initial

Projects, but Practices May Not Fully Leverage Market

Capabilities 23 Conclusions 31 Recommendations 31 Agency Comments and Our
Evaluation 31

Appendix I Comments from the Department of Homeland Security

  Tables

Table 1: DHS's List of Laws Generally Inapplicable to Its Other

Transactions Agreements 6 Table 2: DHS's Purposes and Criteria for Using
Other Transactions

for Research and Prototype Projects 18 Table 3: Composition of
Counter-MANPADS Project Phase 1

Contractor Teams 24

  Figures

Figure 1: S&T Directorate's Fiscal Year 2004 Acquisition Activity 8 Figure
2: The S&T Directorate's Offices and Overview of

Their Functions 9 Figure 3: Mobile Laboratory-Exterior and Interior Views
11 Figure 4: Illustration of Commercial Airplane Using Laser

Technology to Deflect MANPADS Missile 12 Figure 5: Overview of the S&T
Directorate's Acquisition Process

for Other Transactions 13 Figure 6: Counter-MANPADS Project Phase 1 and
Phase 2 Payable

Milestones 16

Figure 7: Timeline of DHS's Development of Policies and Guidance   
               for Using Other Transactions and Its Ongoing Other     
Transactions Projects                                                   19 
Figure 8: Illustration of S&T Directorate's Increasing Other       
                Transactions Workload and Available In-house Contract 
              Administration Support, Fiscal Year 2004 to             
Fiscal Year 2005                                                        22 
Figure 9: Illustration of S&T Directorate's Current Acquisition    
              Processes with Possible Knowledge Management            
Function                                                                30 

Abbreviations              
BAA                        broad agency announcements                      
CAS                        Cost Accounting Standards                       
Chem-Bio                           Chemical and Biological Countermeasures 
Counter-MANPADS            Countermeasures for Man Portable Air            
                              Defense System                                  
CPO                        Chief Procurement Officer                       
DARPA                      Defense Advanced Research Projects              
                              Agency                                          
DCAA                       Defense Contract Audit Agency                   
DHS                                Department of Homeland Security         
DOD                        Department of Defense                           
FAR                        Federal Acquisition Regulation                  
FTE                        full-time equivalent                            
HSARPA                     Homeland Security Advanced Research             
                              Projects Agency                                 
IP                         intellectual property                           
IPT                        Integrated Product Team                         
R&D                        research and development                        
S&T                        Science and Technology                          
SED                        Systems Engineering and Development             

This is a work of the U.S. government and is not subject to copyright
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United States Government Accountability Office Washington, DC 20548

December 15, 2004

The Honorable Susan M. Collins Chairman The Honorable Joseph I. Lieberman
Ranking Minority Member Committee on Governmental Affairs United States
Senate

The Honorable Tom Davis Chairman The Honorable Henry A. Waxman Ranking
Minority Member Committee on Government Reform House of Representatives

Protecting the nation against terrorism by researching, developing,
testing, and deploying cutting-edge technologies is a key mission of the
new Department of Homeland Security (DHS). The Homeland Security Act of
2002 1 gave the Secretary of Homeland Security the authority to establish
a 5-year pilot program using special acquisition authority, known as
"other transactions," to carry out research and development (R&D) and
prototype projects. 2 Other transactions are agreements other than
government contracts, grants, and cooperative agreements. Other
transactions are exempt from the Federal Acquisition Regulation (FAR), the
government's Cost Accounting Standards, 3 and various federal statutes,
and therefore can be customized to meet an agency's project

1

Homeland Security Act of 2002, Pub. L. No. 107-296, Nov. 25, 2002.

2

Congress authorized the Department of Defense's (DOD) Defense Advanced
Research Projects Agency to use other transactions for research projects
in 1989, and in 1993, authorized DOD to use other transactions for
prototype projects. In fiscal year 2003, the most recent year for which
complete data are available, DOD awarded approximately 60 other
transactions agreements for prototypes, and several more for research
projects. Two other agencies also have other transactions authority:
National Aeronautics and Space Administration and the Department of
Transportation. Recently, the Services Acquisition Reform Act authorized
all federal agencies to use other transactions to acquire antiterrorism
technology.

3

The Cost Accounting Standards are accounting requirements for the
measurement, assignment, and allocation of costs to contracts.

                                Results in Brief

requirements. Because fewer government-unique requirements apply, other
transactions can be useful in attracting private-sector entities that
traditionally have not done business with the government.

Section 831(b) of the Homeland Security Act requires that we report to the
House Committee on Government Reform and the Senate Committee on
Governmental Affairs on the use of other transactions by DHS. Based on
discussions with your staff, we (1) determined whether DHS has developed
policies and established a workforce to effectively manage the use of
other transactions, and (2) evaluated how effectively DHS has used its
other transactions authority to attract nontraditional government
contractors.

The Department of Homeland Security has issued policy and is developing a
workforce to implement its other transactions authority, but further
development of the department's policies and strengthening of its
workforce are needed to promote successful use of the authority. Soon
after it was established, the department issued solicitations based on its
other transactions authority, using some commonly accepted acquisition
practices and knowledge-based acquisition principles. The department
subsequently issued a management directive and drafted guidance that
together provide a framework for how other transactions authority should
be implemented. These documents, which address such issues as acquisition
planning and determining when other transactions might best be used, are
loosely modeled after the other transactions policies of the Department of
Defense (DOD), one of several other agencies with other transactions
authority and the one with the most experience using these agreements.
Unlike DOD, however, DHS has not specified in its policies or guidance
when its contracting staff should consider the use of independent audits
to help ensure, for example, that payments to contractors are accurate.
The guidance also does not address training requirements for DHS
contracting and program staff to ensure that they fully understand and
leverage the benefits of using other transactions. Recognizing that the
limited size and capacity of the contracting workforce at DHS could impede
the department's ability to achieve its goal of managing the potential
increase in its other transactions workload with in-house resources, DHS
is taking steps to enhance the capacity of its workforce.

The Science and Technology (S&T) Directorate within DHS included
nontraditional government contractors in its two other transactions
projects thus far. The S&T Directorate penetrated the nontraditional

  Scope and Methodology

contractor market by engaging in a variety of outreach efforts, such as
conducting briefings on its mission and research needs to industry and
academic institutions and using a number of Web-based tools to publicize
its solicitations. While the S&T Directorate moved quickly to establish
its organization and initiate several acquisitions involving other
transactions, it has not been effective in capturing and assessing the
knowledge gained about the process of using other transactions. Without
capturing such knowledge, DHS may not be able to leverage lessons learned
from current projects for use in future solicitations.

To help DHS realize the full benefits of other transactions authority, we
are making several recommendations to improve the department's policies
and procedures. We are recommending that DHS (1) establish guidance on
when it is appropriate to include audit provisions in other transactions
agreements, (2) develop a training program for DHS staff in the use of
other transactions to help ensure the appropriate use of this authority,
and

(3) capture knowledge obtained during the acquisition process for use in
planning and implementing future other transactions projects.

We provided a draft of this report to DHS for review and comment. DHS
agreed with our first two recommendations and noted that it is working to
address them. Regarding our recommendation that DHS capture knowledge
obtained during the acquisition process for use in planning and
implementing future projects that could use other transactions, DHS agreed
with the utility of retaining historical information about its procurement
activities. However, DHS sought clarification about the types of
information we recommend it retain and to what end it is to be used. We
have added information on how DHS could capture and use information on
practices used successfully in the past to attract nontraditional
contractors. DHS also provided technical revisions to our draft report,
which we incorporated as appropriate.

To determine whether DHS has developed policies and established a
workforce to use other transactions, we analyzed DHS's organization, and
policy and draft guidance for using these authorities. We interviewed DHS
contracting officials and representatives from the DOD agencies that DHS
has used for contracting support, officials in its S&T Directorate, and
contractors to whom it made initial other transactions awards. We
collected and reviewed other transactions agreement documents for DHS's
Countermeasures for Man-Portable Air Defense System (Counter-MANPADS) and
Chemical and Biological Countermeasures (Chem-Bio) projects, the only two
projects with other transactions awards as of the

                                   Background

time of our review. We also reviewed other S&T Directorate solicitations
that could result in other transactions agreements, but which had not yet
resulted in awards as of the completion of our audit work. We analyzed
information obtained from our interviews and file reviews using criteria
that we found are generally important to federal acquisitions, namely,
planning, reviews and approvals, market knowledge, and monitoring of
contractor performance. We derived these criteria from our prior reports
on other transactions and knowledge-based acquisition principles, DOD's
policies for other transactions, and selected parts of the FAR.

To determine how effectively DHS used its other transactions authority to
attract nontraditional government contractors, we analyzed DHS's reported
results from using these authorities in the Counter-MANPADS and Chem-Bio
programs. We also reviewed other DHS acquisitions that could result in
other transactions awards but for which DHS had not yet made awards. DHS
relies on contractors to self-certify their status as a nontraditional
government contractors during agreement negotiation. In analyzing the
reported results from DHS's other transactions awards, we did not
independently verify a contractor's reported status as a nontraditional
contractor. We also compared DHS's practices to attract nontraditional
government contractors against policies and practices used by DOD. In
addition, we interviewed DHS contracting and project management officials,
contractors that DHS made other transactions awards to, and
representatives from the commercial research and development and
technology communities to gain their perspectives on DHS's use of other
transactions to attract nontraditional government contractors.

We performed our review from February through October 2004 in accordance
with generally accepted government auditing standards.

The acquisition function plays a critical role in helping federal agencies
fulfill their missions. DHS is expected to spend billions of dollars
annually to acquire a broad range of products, technologies, and services
from private-sector entities. Other transactions authority is one of the
acquisition tools-in addition to standard FAR contracts, grants, and
cooperative agreements-available to DHS to help support its mission. Other
transactions were created to enhance the federal government's ability to
acquire cutting-edge science and technology. They help agencies accomplish
this, in part, through attracting nontraditional contractors from the
private sector and other areas that typically have stayed away from
pursuing government contracts. There are two types of other transactions
authorities-(1) research and (2) prototype. Other transactions for
research are used to perform basic, applied, or advanced research. Other
transactions for prototypes are used to carry out projects to develop
prototypes used to evaluate the technical or manufacturing feasibility of
a particular technology, process, or system. A single S&T program could
result in multiple awards using other transactions.

Because they are exempt from certain statutes, other transactions permit
considerable latitude by agencies and contractors in negotiating agreement
terms. For example, other transactions allow the federal government
flexibility in negotiating intellectual property and data rights, which
stipulate whether the government or the contractor will own the rights to
technology developed under the other transactions agreement. Table 1 shows
the statutes that DHS has determined are generally inapplicable to its
other transactions agreements.

  Table 1: DHS's List of Laws Generally Inapplicable to Its Other Transactions
                                   Agreements

                                Law Description

Sections 202-204 of the Bayh-Dole Act (35 U.S.C. sections Prescribes the
government's rights in patentable inventions made 200-212). with
government funds.

Competition in Contracting Act (Pub. L. No. 98-369 [1984]), as Promotes
the use of competitive procurement procedures and

amended. prescribes uniform, governmentwide policies and procedures
regarding contract formation, award, publication, and cost or pricing
data.

Contract Disputes Act, Pub. L. No. 95-563 (1978), as amended, Provides for
the resolution of claims and disputes relating to 41 U.S.C. 601 et seq.
government contracts.

Procurement Protest System, Subtitle D of Competition in Provides
statutory basis for procurement protests by interested
Contracting Act, Pub. L. No. 98-369 (1984), 31 U.S.C. 3551 parties to the
Comptroller General.
et seq.

31 U.S.C. 1352, Limitation on the use of appropriated funds to Prohibits
the use of funds to influence or attempt to influence influence certain
federal contracting and financial transactions. government officials or
Members of Congress in connection with the award of contracts, grants,
loans, or cooperative agreements.

Anti-Kickback Act of 1986, 41 U.S.C. 51-58. Prohibits kickbacks in
connection with government contracts and provides civil and criminal
penalties.

Procurement Integrity Provisions, Section 27 of the Office of Imposes
civil, criminal, and administrative sanctions against Federal Procurement
Policy Act, 41 U.S.C. 423. individuals who inappropriately disclose or
obtain source selection information or contractor bid and proposal
information.

Service Contract Act, 41 U.S.C. 351 et seq, Walsh Healey Act, Provide
protections for contractor employees.
41 U.S.C. 35-45; Fair Labor Standards Act of 1938, 29 U.S.C.
201-219.

Drug-Free Workplace Act of 1988, 41 U.S.C. 701-707. Eliminates any
connection between drug use or distribution and federal contracts,
cooperative agreements, or grants.

    Buy American Act, 41 U.S.C. 10a-d. Provides preferences for domestic end
                                   products.

Source: DHS.

Note: According to DHS, this list of key statutes that apply to
procurement contracts that are not necessarily applicable to other
transactions is not intended to be definitive. DHS's other transaction
policy states that contracting officers should review each statute with
regard any particular arrangement using other transactions and consult
their General Counsel to determine its applicability. To the extent a
particular statute is funding- or program-related, or is not tied to the
instrument used, it generally will apply to an other transaction. This
table should not be construed as representing GAO's views concerning the
applicability of statutes to other transactions agreements.

Because other transactions agreements do not have a standard structure
based on regulatory guidelines, they can be challenging to create and
administer. Experts on other transactions and industry officials who have
used these procurement arrangements told us that other transactions
agreement terms are significantly different from FAR contracts and more
closely resemble procurement agreements between private-sector firms.
According to DHS, the unique nature of other transactions agreements means
that federal government acquisition staff who work with other transactions
agreements should have experience in planning and conducting research and
development acquisitions, strong business acumen, and sound judgment to
enable them to operate in a relatively unstructured business environment.

DHS views the use of other transactions as key to attracting
nontraditional government contractors-typically high-technology firms that
do not work with the government-that can offer solutions to meet agency
needs. As defined by the Homeland Security Act, 4 a nontraditional
government contractor is a business unit that has not, for at least a
period of 1 year prior to the date of entering into or performing an other
transactions agreement, entered into or performed

     o any contract subject to full coverage under the cost accounting
       standards or
     o any contract in excess of $500,000 to carry out prototype projects or
       to perform basic, applied, or advanced research projects for a federal
       agency that is subject to compliance with the FAR.

The S&T Directorate of DHS supports the agency's mission by serving as its
primary research and development arm. According to a senior DHS Chief
Procurement Office official, the S&T Directorate currently is the only DHS
organization using the other transactions authority provided in the
Homeland Security Act. As of September 2004, other transactions agreements
accounted for about $125 million (18 percent) of the S&T Directorate's
fiscal year 2004 total acquisition activity of $715.5 million. 5 The S&T
Directorate's fiscal year 2004 total acquisition activity is depicted in
figure 1.

4

Section 831(d) of the Homeland Security Act of 2002, Pub. L. No. 107-296,
Nov. 25, 2002, referring to section 845 of the National Defense
Authorization Act for Fiscal Year 1994.

5

DHS estimated that it spent approximately $6.6 billion on acquisitions in
fiscal year 2004.

Page 7 GAO-05-136 Homeland Security

  DHS Placed Initial Priority on Project Implementation while Developing Other
  Transactions Policy and Acquisition Workforce

       Figure 1: S&T Directorate's Fiscal Year 2004 Acquisition Activity

4%

Grants

Other transactions

Contracts

Inter-Agency Agreements

$31,976,189 $124,909,284

      Total, $715,533,314

$233,528,568 $325,119,273

Source: DHS.

Note: Inter-Agency Agreements are the means by which the S&T Directorate
transfers funds to national or university laboratories to conduct R&D
activities.

After DHS was established in 2003, the department rapidly established the
S&T Directorate, which issued several solicitations using other
transactions authority. These solicitations used some commonly accepted
acquisition practices and knowledge-based acquisition principles. DHS
issued a management directive, drafted guidance, and recruited additional
program and contracting staff, which now provide a foundation for using
other transactions authority; however, refinements in these policies and
attention to workforce issues are needed to promote success in the
department's future use of other transactions. DHS's policy guidance does
not specify when audit requirements should be included in its other
transactions agreements to help ensure, for example, that payments to
contractors are accurate. Also, the department's guidance does not

DHS Simultaneously Established Its Science and Technology Organization and
Implemented Projects

address training requirements for its contracting and program staff to
ensure that staff understand and leverage the use of other transactions.
In addition, the limited size and capacity of DHS's internal contracting
workforce to conduct other transactions may hamper DHS's goal to
internally manage its increasing number of mission programs that could use
its other transactions authority.

DHS was directed by Congress and the executive branch to quickly initiate
and execute R&D projects to help strengthen homeland security. The S&T
Directorate at DHS was largely established to centralize the federal
government's homeland security R&D efforts, a function that was not the
responsibility of any of DHS's legacy agencies. Figure 2 depicts the
Directorate's four offices and their functions. The S&T Directorate
initiated various projects to address homeland security concerns,
including two prototype projects using other transactions authority.
Initiating and executing these first projects took priority over
establishing the Directorate's operating procedures. The S&T Directorate's
need to rapidly initiate and execute projects forced a reliance on other
federal agencies' acquisition offices to award and administer its project
agreements.

    Figure 2: The S&T Directorate's Offices and Overview of Their Functions

Source: DHS.
aHSARPA is managing the Chem-Bio program.
bSED is managing the Counter-MANPADS program.

The S&T Directorate hired program managers and staff with R&D expertise
from other government agencies and the private sector to manage its other
transactions authority and other acquisitions. These initial hires
included several former Defense Advanced Research Projects Agency (DARPA)
officials experienced in R&D and other transactions authority
acquisitions. In the absence of DHS policies and procedures for other
transactions, the S&T Directorate relied on these key officials and other
staff with R&D expertise in their former organizations to implement its
early projects. These experienced staff helped train DHS program and
contracting staff in other transactions and supervised and managed the
acquisition process. For example, one official drafted a model other
transactions agreement and guided program managers and contracting
officers through the other transactions process. In addition to these
officials, the S&T Directorate obtained portfolio and program managers
from other government agencies and federal laboratories to act in key
programmatic positions in their areas of expertise. Some of these
portfolio and program managers serve on detail from their home agency. The
S&T Directorate's workforce strategy is to have its program and technical
staff serve term appointments, most of which will not be longer than 4
years, in order to promote the influx of leading-edge science and
technology skills to DHS.

DHS's planning and budget documents identified the need to develop
countermeasures and detection systems against chemical-biological
(Chem-Bio) and radiological-nuclear attacks. Under one area of the
Chem-Bio project, being implemented by the S&T Directorate using other
transactions, DHS is developing mobile laboratories to be rapidly deployed
in the field to detect and analyze chemical warfare agents and toxic
industrial chemicals in the environment. Figure 3 depicts a mobile
laboratory being developed for DHS.

            Figure 3: Mobile Laboratory-Exterior and Interior Views

Source: Hamilton Sundstrand Corporation.

The S&T Directorate also initiated projects to address homeland security
needs identified by Congress and the executive branch. One such project is
aimed at protecting commercial aircraft against possible terrorist use of
shoulder-fired missiles, sometimes referred to as man-portable air defense
systems (MANPADS). The Counter-MANPADS other transaction project is a
multiyear development and demonstration program that will produce
prototype systems to be used on commercial aircraft to defend against
shoulder-fired missiles. An illustration of a proposed Counter-MANPADs
technology being considered by DHS is depicted in figure 4.

Figure 4: Illustration of Commercial Airplane Using Laser Technology to
Deflect MANPADS Missile

                              Source: BAE Systems.

Other Transactions The S&T Directorate and Office of the Chief Procurement
Officer (CPO) Projects Used a Variety of used Federal Acquisition
Regulation principles as a framework for other Acquisition Techniques
transactions solicitations. The Directorate also utilized additional
acquisition tools commonly used by DARPA and other agencies, such as

     o broad agency announcements (BAA) to serve as general announcements of
       the Directorate's research interest, including general principles for
       selecting proposals, and soliciting the participation of all offerors
       capable of satisfying the S&T Directorate's needs;
     o a white paper process under which firms submit to S&T brief synopses
       of the main concepts of a proposal introducing technology innovations
       or solutions; and
     o payable milestone evaluations under which the S&T Directorate's
       managers measure the progress of its projects at key points before
       making payments to contractors.

The S&T Directorate modeled its acquisition process after DARPA's to
solicit proposals from as many industry sources as possible to meet its
research needs and hosted technical workshops and bidders conferences for
its early solicitations to help convey its technical needs to industry. An
overview of the S&T Directorate's generally used acquisition process for
other transactions is in figure 5.

Figure 5: Overview of the S&T Directorate's Acquisition Process for Other
Transactions

Source: DHS.

Note: According to DHS, not all steps apply for all of its acquisitions.

aFor the Counter-MANPADS and Chem-Bio solicitations, other transactions
for prototypes were the only acquisition vehicle solicited. After the
Counter-MANPADS and Chem-Bio projects, HSARPA modified its solicitation
strategy and began issuing BAA solicitations offering the choice of
different acquisition vehicles (contract, grant, cooperative agreement, or
other transaction) for its projects. HSARPA indicated that the BAA process
will be used the most for its future projects.

The Homeland Security Advanced Research Projects Agency (HSARPA) and
Office of Systems Engineering and Development (SED) hosted technical
workshops prior to publishing some of their early solicitations to obtain
information from the industry on what technical requirements were feasible
to include in the solicitation. Following the issuance of the
solicitations, HSARPA and SED held bidder's conferences to answer industry
questions about the solicitations.

The S&T Directorate used a white paper review stage in its early
solicitations, including solicitations for the Counter-MANPADS and
Chem-Bio programs. According to DHS's Chem-Bio solicitation, the use of
the white paper approach allows DHS to provide firms with feedback on
their proposed technologies without the firms having to incur the expense
and time of writing complete proposals. For the Chem-Bio project, HSARPA
received over 500 white papers from industry. S&T officials told us they
provided each contractor that submitted a white paper for this project
with feedback, giving the agency's views on the merits of the proposed
technology. HSARPA officials told us that the white paper process helps
ensure that the office gets the best proposals and represents an
inexpensive way for nontraditional firms to pursue business with DHS.

To rapidly execute its projects, including other transactions agreements,
the S&T Directorate used other federal agencies to award and administer
its contracts to fill DHS's contracting workforce gaps. DHS has
interagency agreements with these agencies for their contracting services.
For example, HSARPA is using the U.S. Army Medical Research Acquisition
Activity, based in Ft. Detrick, Maryland, which performs acquisition
services for the Army, to award other transactions instruments in support
of its Chem-Bio project. 6 In addition, DHS is using a contractor who is
an expert in other transactions and R&D procurement to help draft its
other transactions policy guidance and also provide assistance to
administer several of its other transactions projects.

According to DHS, much of the contract award work done by the U.S. Army
Medical Research Acquisition Activity for its Chem-Bio project is now
being performed by DHS's Office of Procurement Operations, which is part
of its Chief Procurement Office.

Page 14 GAO-05-136 Homeland Security

Process for Other The S&T Directorate incorporated some knowledge-based
acquisition approaches throughout its acquisition process for using its
other

Transactions Uses Some

Knowledge-Based transaction authorities. We previously reported that an
agency's use of a knowledge-based acquisition model is key to delivering
products on time

Approaches and within budget. By using a knowledge-based approach, an
agency can be reasonably certain about the progress of its project at
critical junctures during development, which helps to ensure that a
project does not go forward before the agency is sure that the project is
meeting its needs. 7 For example, some of the knowledge-based approaches
being used by the S&T Directorate and CPO to manage their Counter-MANPADS
and Chem-Bio other transaction projects are as follows:

     o Integrated Product Teams (IPTs). Using IPTs to bring together in a
       single organization the different functions needed to ensure a
       project's success is a knowledge-based acquisition best practice. 8
       The S&T Directorate formed IPTs that combine the expertise of
       representatives from each of its four offices to analyze customer
       requirements and make planning and budget decisions for the portfolio.
     o Contractor Payable Milestone Evaluations. The S&T Directorate's
       program managers measure the progress of its projects at key points
       before making payments to contractors. These milestones are usually
       associated with contractors satisfying certain performance criteria-
       commonly referred to as "exit criteria." 9 Examples of SED's four
       payable milestones for Phase I and six payable milestones for Phase II
       of the Counter-MANPADS project are shown in figure 6.
     o Design Reviews. HSARPA and SED program managers also use design review
       decision points to ensure the contractor's product development is
       meeting program expectations and to determine if the product is ready
       to proceed to the next stage of development. (See figure 6 for the
       design review points in Phase I of the Counter-MANPADS project.)

7

GAO, Best Practices: Highlights of the Knowledge-Based Approach Used to
Improve Weapon Acquisition, GAO-04-392SP (Washington, D.C.: January 2004).

8 GAO-04-392SP.

9

Our report on DHS's Counter-MANPADS development program found that DHS
needed to make its Counter-MANPADS exit criteria more knowledge-based,
which would require the contractor to demonstrate that key product
knowledge was obtained at a certain stage. See The Department of Homeland
Security Needs to Fully Adopt a Knowledge-Based Approach to Its
Counter-MANPADS Development Program, GAO-04-341R (Washington, D.C.: Jan.
30, 2004).

    Figure 6: Counter-MANPADS Project Phase 1 and Phase 2 Payable Milestones

        Months after award (3-month intervals)

                                       9

12

15

18

21 Phase II activities

Program management
Reviews and payable milestones

($) ($) ($)

($) ($)

Systems engineering
Prototype development

Airframe integration
FAA certification
System test and evaluation

Phase II Summary Review Production decision

($)

($) Payable milestones

Evaluation period Source: DHS.

Note: Payment milestones depicted above are for illustration only as
provided in DHS's solicitation. According to DHS, proposers were
encouraged to alter the schedule to accommodate their individual program
solutions and this figure does not reflect the individual milestones that
were ultimately negotiated with each of the successful teams. DHS has
negotiated its phase II milestones, which may deviate from representation
above.

Changes in Policies and Enhancement of Acquisition Workforce Could Help
Sustain Long-Term Use of Other Transactions

In 2002 we identified key success factors for DHS to effectively create
its organization, including creating strong systems and controls for
acquisition and related business processes. 10 The development of formal
policies and procedures for DHS's authority to use other transactions is
guided by statute and DOD's experiences and practices in using the other
transactions authority. DOD's extensive experiences with and policies for
using other transactions provide a useful framework for the effective
management of projects using other transactions. For example, DOD uses a
guidebook for other transactions prototype projects, which provides
detailed policies and procedures in areas such as criteria for using other
transactions, acquisition planning, agreement execution, and reporting
requirements. 11

DHS Is Developing Its Other Transactions Authority Policies

In 2004 DHS prepared several policy and draft guidance documents, which
should help provide DHS with a structure for using its other transactions
authority. In October 2004, DHS issued an other transactions management
directive, which provides DHS's policy for the use of other transactions
for research and for prototype projects. The policy is generally
consistent with DOD's policy. The management directive prescribes the
responsibilities of key officials in using other transactions, such as the
DHS Under Secretary of Management and its Chief Procurement Officer.
Specifically, under the management directive, the CPO is responsible for
setting policy, conducting oversight, and approving the use of other
transactions authority for each project. The management directive also
provides general policies and requirements for the documentation of a
strategy for using other transactions and provides the purposes and
criteria for using research and prototype other transactions. DHS's
explanation of the types of other transactions and criteria for their use,
if effectively implemented, should help promote its compliance with the
Homeland Security Act 12 by helping to ensure that agency officials
adequately assess the utility of other acquisition vehicles-such as FAR

10

GAO, Homeland Security: Critical Design and Implementation Issues,
GAO-02-957T (Washington, D.C.: July 17, 2002).

11

DOD, Under Secretary of Defense for Acquisition, Technology and Logistics,
"Other Transaction" (OT) Guide for Prototype Projects, (August 2002).

12

The Homeland Security Act requires DHS, as it carries out basic, applied,
and advanced research and development projects, to first determine that
the use of a contract, grant, or cooperative agreement is not feasible or
appropriate prior to using an other transaction for research. Pub. L. No.
107-296, section 831(a)(1), Nov. 25, 2002.

contracts, grants, or cooperative agreements, prior to using an other
transaction for research. The purposes and criteria for other transactions
use as stated by DHS are shown in table 2.

 Table 2: DHS's Purposes and Criteria for Using Other Transactions for Research
                             and Prototype Projects

Type of other transaction Purposes for use of other transaction Criteria
for use of other transaction

Research Carry out basic, applied, or advanced  o  To develop innovative
approaches when a standard research programs where the main purpose
procurement contract, grant, or cooperative agreement is not is to
stimulate or support homeland security appropriate or feasible.

technologies. Support nonfederal  o  Use the flexibility provided in the
Homeland Security Act to

participants seeking to broaden the reduce government-specific
administrative requirements for
homeland security technology knowledge acquisition or assistance
instruments.
base.

o  Require, to the maximum extent practicable, a 50 percent resource
sharing of program costs between DHS and the contractor.

Prototype Implement prototype projects in support of  o  At least one
nontraditional government contractor participates systems proposed to be
developed or to a significant extent in the project. acquired by DHS. Help
DHS achieve the  o  If not, one of the following circumstances exists:
commercial technology integration to reduce the cost of homeland security
items  o  At least 1/3 of the total project cost is to be paid by parties
and systems. to the transaction other than the federal government.

o  DHS's CPO determines, in writing, that exceptional circumstances
justify the use of a transaction that provides for innovative business
arrangements or structures that would not be feasible or appropriate under
a procurement contract.

Source: DHS.

DHS is using a contractor experienced with other transactions to assist in
the preparation of a guidebook for using other transactions for prototype
projects. The draft guidebook, which is loosely based on the DOD guide on
other transactions for prototype projects, provides a broad framework for
DHS to plan and use other transactions. It covers topics such as
acquisition planning, market research, acquisition strategy, and
agreements analyses requirements. 13 According to a DHS official, its
draft guidebook, when completed, is not to be part of the DHS official
management directive system.

In addition, the contractor drafted a lessons learned report on other
transactions to help DHS fully leverage the benefits and minimize any

13

According to a DHS CPO official, DHS intends to draft a separate guidebook
for other transactions for research in the future.

Page 18 GAO-05-136 Homeland Security

problems associated with using other transactions. DHS's draft lessons
learned report on other transactions summarizes lessons from various
sources, such as federal agencies and think tanks with other transactions
experience, on topics related to those discussed in the draft guidebook.
Figure 7 shows the development of DHS's other transactions policy.

Figure 7: Timeline of DHS's Development of Policies and Guidance for Using
Other Transactions and Its Ongoing Other Transactions Projects

Source: GAO's analysis of DHS information.

Note: In addition to the two programs noted in this figure, the S&T
Directorate issued approximately five additional solicitations from
November 2003 through October 2004 that could result in multiple other
transaction awards.

Other Transactions Policy DHS's management directive and draft guidebook
for other transactions does not yet specify roles, responsibilities, and
requirements for agency

Does Not Address Audit

and Training Requirements program and contracting officials in two key
areas: audit and training. Addressing these areas is important since,
according to DHS officials, DHS plans to issue solicitations that could
result in other transactions use at an increasing rate. S&T Directorate
and CPO officials acknowledged the importance of these areas and told us
they intend to address them in the future.

o  Audit requirements. While DHS's management directive covers Comptroller
General access to contractor records under certain conditions, the
directive does not address audits by other entities or specify other
circumstances when audits of other transactions agreements may be needed
to protect the government's interest. For example, audits may be needed in
certain other transactions agreements to help ensure that payments to
contractors are accurate. DOD's policy for auditing prototype other
transactions projects, 14 by contrast, provides more complete guidance on
audits of other transactions agreements. For example, the DOD policy
states that contracting officers should include information on the
frequency of audits, scope of audits, and the means by which audits are to
be performed. DOD's policy also recognizes the flexibility in negotiating
other transactions agreements by allowing the contracting officer, in
certain circumstances, to waive the inclusion of audit provisions if it
would adversely affect the execution of the agreement. DHS's management
directive, in contrast, does not address these conditions. A DHS official
told us that its contracting officers negotiate specific auditing
provisions in other transactions agreements with contractors on a
case-by-case basis. 15

Also, the DOD other transactions prototype projects policy has provisions
for its contracting officers to use the Defense Contract Audit Agency
(DCAA) 16 or another independent auditor to audit other transactions
agreements. Although DHS has a Memorandum of Understanding with DCAA to
provide contract audit services, neither DHS's other transactions
management directive nor its draft guidance contain information on the
specific conditions when contracting officers should use DCAA's or another
independent auditor's services.

o  Training requirements. DHS's management directive requires other
transactions contracting officers to be senior warranted contracting
officers with a Level III acquisition certification 17 and who possess a
level of experience, responsibility, business acumen, and judgment that
enables them to operate in this relatively unstructured business
environment. This staffing requirement for other transactions closely
mirrors the contracting

14

DOD, Transactions Other Than Contracts, Grants, or Cooperative Agreements
for Prototype Projects, 68 Fed. Reg. 27452, final rule (May 20, 2003).

15

In our prior work on DOD's use of prototype other transactions we found
that DOD contracting staff included such audit provisions in almost all of
the prototype other transactions agreements it awarded between fiscal
years 1994 and 1998. See GAO, Acquisition Reform: DOD's Guidance on Using
Section 845 Agreements Could Be Improved, GAO/NSIAD-00-33 (Washington,
D.C.: Apr. 7, 2000).

16

DCAA is a component of DOD that performs contract audits for DOD and
provides accounting and financial advisory services regarding contracts
and subcontracts to all DOD components responsible for procurement and
contract administration. DCAA also provides other government agencies with
contract audit services.

17

According to DHS policy, there are three levels of contracting officers:
Level 1 (entrylevel), Level II (intermediate level), and Level III (senior
level staff capable of performing the most sophisticated and complex
contracting activities).

Acquisition Workforce Capacity May Limit DHS's Ability To Manage A Growing
Future Other Transactions Workload

workforce staffing qualification used by DOD. DHS's management directive
also requires its contracting staff to possess a special contracting
officer certification, which can be achieved only after the staff have
received appropriate training in other transactions. However, DHS has not
yet developed a training program on other transactions for its contracting
officers or its program managers expected to work on other transactions
projects.

By not establishing other transactions training requirements and schedules
for its contracting and program staff to complete them, DHS may not be
equipping its staff to fully understand and leverage the benefits of other
transactions. We have previously reported on the importance of training
and reported that leading organizations usually prioritize key processes,
identify staff needing training, and establish requirements to ensure that
the appropriate staff are trained. Furthermore, because S&T's technical
program personnel serve on details from other government agencies and have
varying levels of experience with other transactions, appropriate training
is key to help ensure that such staff uniformly and effectively use other
transactions. DHS's draft lessons learned report on other transactions
states that it is critical to train contracting officers on aspects such
as (1) the flexibilities associated with other transactions to help ensure
the proper and optimal use of the authority, and (2) negotiating
intellectual property (IP) rights, which can vary from project to project.

The S&T Directorate plans an increasing number of mission programs that
could use its other transactions authority, but DHS's current contracting
workforce may not be sufficient to manage this workload. DHS has relied on
a small number of key S&T program personnel, who are experienced other
transactions practitioners, to develop or approve solicitations. In fiscal
year 2004, two of the S&T Directorate's programs resulted in other
transactions awards-Counter-MANPADS and Chem-Bio. In fiscal year 2005, the
S&T Directorate could award other transaction agreements for at least
eight additional programs, which could significantly increase its
contracting workload because some programs could include multiple other
transactions awards. (One S&T program could result in multiple awards
using other transactions, contracts, grants, or cooperative agreements as
the acquisition vehicle.) For example, S&T's ongoing Chem-Bio project has
resulted in 17 other transactions awards as of August 2, 2004. Figure 8
depicts the S&T Directorate's project workload that could involve other
transactions and the corresponding CPO in-house contracting support.

Figure 8: Illustration of S&T Directorate's Increasing Other Transactions
Workload and Available In-house Contract Administration Support, Fiscal
Year 2004 to Fiscal Year 2005

                                FY 2004 FY 2005

Source: GAO's analysis of DHS data.

Note: This figure depicts the scenario where DHS uses only its in-house
contracting staff for its other transactions projects. However, DHS is
currently supplementing these staff by using other federal agencies for
contract award and administration support. At the end of fiscal year 2004
CPO dedicated six contracting staff-some of which are warranted
contracting officers qualified in other transactions agreements-to support
the S&T Directorate's acquisitions; at the start of fiscal year 2004, it
had 1 full-time (staffing) equivalent (FTE) supporting S&T's acquisitions.
According to CPO, these staff will help conduct S&T's acquisitions, which
include other transactions. According to CPO and S&T Directorate
officials, they intend to increase this staff support to 15 staff by the
end of fiscal year 2005.

DHS is currently developing a plan to address contracting workforce
issues. Senior DHS officials told us that their strategy is to generally
have in-house contracting staff award and administer all of the S&T
Directorate's other transactions and R&D projects by fiscal year 2006.
Currently, CPO has dedicated six contracting staff-some of whom are
warranted contracting officers dedicated to conducting other
transactions-to support S&T acquisitions on a temporary basis. CPO and S&T
Directorate officials told us that they intend to increase this staff
support to 15 staff by the end of fiscal year 2005.

  DHS Included Nontraditional Government Contractors in Initial Projects, but
  Practices May Not Fully Leverage Market Capabilities

As cited in DOD policy and DHS's guidance, acquisition staff that award
and administer other transactions need special skills and experience in
business, market acumen, and knowledge of intellectual property issues.
CPO and S&T Directorate officials told us that contracting officers with
these skills and experience are difficult to find in the current
acquisition workforce. In addition, they noted lengthy delays in DHS's
ability to process needed security clearances for these staff, which
caused some contracting officer candidates to accept positions elsewhere.
DHS's challenges in developing its acquisition workforce are similar to
other federal agencies' experiences in managing attrition and retirements
affecting their acquisition workforces. 18

As a result, DHS will continue to rely on other agencies for contracting
support until the end of fiscal year 2006. For example, for its Chem-Bio
other transactions project, the S&T Directorate is using DOD's U.S. Army
Medical Research Acquisition Activity for contracting support. According
to DHS's S&T Directorate and CPO officials, the offices are in the process
of drafting a Memorandum of Understanding regarding the contracting
personnel that CPO will dedicate to support the S&T Directorate's
projects.

DHS included nontraditional government contractors in its two initial
other transactions projects. But DHS is not capturing knowledge learned
from these acquisitions that could be used to plan and execute future
projects. The S&T Directorate has conducted outreach to engage
nontraditional government contractors in its early projects, including
briefing industry associations, setting up a Web site to facilitate
contractor teaming, and conducting project-specific workshops. However,
the S&T Directorate does not systematically capture and use knowledge
learned from its acquisition activities for use by program staff.

18

We previously reported on such acquisition workforce challenges in
Acquisition Workforce: Status of Agency Efforts to Address Future Needs,
GAO-03-55 (Washington, D.C.: Dec. 18, 2002).

Page 23 GAO-05-136 Homeland Security

Other Transactions Authority Facilitated Inclusion of Nontraditional
Government Contractors in Early Awards

The S&T Directorate's Counter-MANPADS and Chem-Bio projects included
nontraditional government contractors in all of the initial awards at the
prime and subcontractor levels. For example, in February 2004 DHS made
three Phase I awards for the Counter-MANPADS project to contractor teams
led by BAE Systems, Northrop Grumman, and United Airlines (a
nontraditional contractor). BAE Systems and Northrop-Grumman, which are
traditional contractors, included nontraditional contactors on their
teams. Nontraditional government contractors serve significant roles in
the Counter-MANPADS and Chem-Bio projects, such as leading the aircraft
integration team incorporating the counter measure technology with
commercial aircraft in the Counter-MANPADS project. Table 3 shows the
composition of the Counter-MANPADS project contractor teams.

    Table 3: Composition of Counter-MANPADS Project Phase 1 Contractor Teams

                 Prime contractor Other principal team members

Northrop Grumman Systems  o  FedEx Corporationa Corporation  o  Northwest
                                   Airlines a

BAE Systems  o  Honeywell International's Air Transport Systemsa

o  Delta Airlines Technical Operationsa

United Airlines, Inc.a  o  Avisys, Inc.b

o  ARINC Engineering Services

Source: DHS.

aNontraditional government contractor.

b

According to DHS, L3 Communications acquired Avisys, Inc. in June 2004.

An intent of Congress in granting other transactions authority to DHS was
to attract firms that traditionally have not worked with the federal
government. The use of other transactions may help attract high-tech
commercial firms that have shied away from doing business with the
government because of the requirements mandated by the laws and
regulations that apply to traditional procurement contracts. According to
DHS officials, early DHS other transactions award recipients, and industry
association officials, two primary barriers to nontraditional contractors
pursuing government contracts are:

        * Intellectual Property (IP) Rights. IP rights refer to access to
          information or data used in the performance of work under a
          contract. We previously reported on contractors' reluctance to
          pursue government R&D funding because the FAR's IP provisions could
          give the government rights
        * to certain information and data, which could decrease their
          businesses' competitive advantage. 19 For example, a nontraditional
          contractor without prior federal R&D contracting experience under
          the FAR who won one of DHS's early other transactions awards told
          us that the flexibility to negotiate IP rights was critical to its
          participation because it allowed the contractor to negotiate IP
          rights favorable to its company.
     o Cost Accounting Standards (CAS). CAS are the federal government's
       accounting requirements for the measurement, assignment, and
       allocation of costs to contracts. According to contractors and
       procurement experts outside the government that we interviewed,
       nontraditional firms generally do not operate accounting systems in
       compliance with the federal government's CAS, and developing such
       systems can be cost prohibitive. For example, a nontraditional
       contractor who won an initial DHS other transactions award told us
       developing a CAS-compliant accounting system would have required the
       establishment of a subsidiary firm to perform its accounting
       functions.

Extensive Outreach Used DHS's Science and Technology Directorate used
extensive outreach to attract nontraditional contractors to participate in
its projects. It briefed

to Attract Nontraditional

Contractors industry groups, conducted project-specific workshops, and
used Web sites to publicize the agency's needs. In the fall of 2003,
shortly after the S&T Directorate was established, its HSARPA sponsored
separate 1-day briefings to business and academia to help engage the
private sector in R&D to satisfy DHS's needs. These sessions were designed
to gather input on best practices to optimize the solicitation,
procurement, and program execution aspects of its projects. For example,
at these sessions DHS officials presented information on its

o  organization and approach to program management, such as the roles and
responsibilities of agency officials and managers;

     o investment and research priorities;
     o available solicitation methods, such as requests for proposals, broad
       agency announcements, and research announcements; and
     o possible procurement vehicles, including FAR contracts, grants,
       cooperative agreements, and other transactions.

19

GAO, Acquisition Reform: DOD's Guidance on Using Section 845 Agreements
Could Be Improved, GAO/NSIAD-00-33 (Washington, D.C.: April 2000).

Page 25 GAO-05-136 Homeland Security

The S&T Directorate supplemented these sessions by conducting
projectspecific industry workshops and other outreach events. For example,
in October 2003, the S&T Directorate held an industry day session for its
Counter-MANPADS project. The session provided participants with background
on the project, the structure of the DHS organization that would manage
it, the program's goals and schedule, and an overview of other
transactions for prototypes. DHS presented detailed information on the
nature and requirements of other transactions agreements, firms that may
qualify as a nontraditional contractor, and laws that would not apply to
other transactions. In addition, the S&T Directorate gave an overview of
the other transactions solicitation process to be used for the project,
which covered topics such as the white paper process, oral presentations,
and the proposed other transactions agreement. DHS attracted almost 200
participants to this event-approximately 85 percent of whom were from
industry.

Also, in September 2003, DHS held a bidders conference for its Chem-Bio
project where it described its technical requirements and the solicitation
process for this project. According to an agency official, the conference
gave DHS the opportunity to obtain input from the private sector on the
technical aspects of its solicitation and to answer participants'
questions about the solicitation. Similarly, DHS held technical workshops
for projects that may result in other transactions awards, such as those
intended to counter threats from truck, suicide, and public transportation
bombs and to design cyber security systems.

DHS also created and used Web sites to publicize its activities and
procurement needs. For example, DHS created the "DHS-Open for Business"
site, which centralizes information on its contracts, grants, small
business opportunities, and R&D efforts. According to DHS, this site is
intended to complement governmentwide portals such as Federal Business
Opportunities, known as FedBizOpps. In addition, HSARPA created a
solicitation and teaming portal Web site to help attract firms
(www.hsarpabaa.com). On this site, HSARPA announces its current project
solicitations and offers a teaming portal where contractors can learn
about possible partners to bid on DHS work. This site also contains links
to other DHS programs to facilitate industry participation in its
projects, such as its Small Business Innovation Research program, which
DHS established in December 2003 to increase the participation of
innovative and creative small businesses in its R&D programs. Also, the
site has a mailing list function where contractors can register to receive
electronic e-mail notices of upcoming HSARPA solicitations.

We found that industry's views vary on the effectiveness of DHS's outreach
efforts. Some contractors and industry associations we interviewed said
these outreach efforts are having a positive impact on the procurement
process. For example, an industry association head in the technology field
told us that DHS's use of Broad Agency Announcements and other flexible
solicitation methods to publicize its technology and research needs may
help to attract nontraditional contractors. Officials from two technology
associations told us commercial firms that traditionally do not work with
the federal government believe that government officials have preconceived
ideas of exactly what technology they need and which contractors they want
to work with. However, one of the officials stated that DHS's use of the
BAA process demonstrates to industry that the agency desires to hear all
the possible technology solutions that may meet its needs.

Other industry officials believed that DHS's outreach actions could be
improved, for example, if DHS took additional actions to inform industry
that it has other transactions authority and developed a more
user-friendly process to attract broader interest in its projects.
Representatives of a large industry association we interviewed were not
aware that DHS possesses other transactions authority and said if this
fact were more widely known, it could increase industry's interest in
working with DHS. In addition, representatives of some small companies
told us that the fee DHS charges to attend its outreach events 20 could
pose a barrier to attending them. Also, several contractors we interviewed
told us that DHS's teaming portal site is a good idea in concept but found
it cumbersome to maneuver in the automated system. However, two of the
nontraditional contractors we interviewed that received a DHS other
transactions award used this site to help identify industry partners for
their team.

For the projects we reviewed, we found that DHS's fee for attending these
events was usually between $100 and $150.

Page 27 GAO-05-136 Homeland Security

Lack of Systematic Assessment of Acquisition Activities Involving Other
Transactions Impairs Ability to Capture and Use Knowledge

The S&T Directorate's capacity to build and sustain knowledge for use in
its future acquisitions involving other transactions is in the early
stages of development but the Directorate has not yet developed policies
or procedures to ensure that program and portfolio managers are capturing
and assessing critical information and knowledge gained from its
acquisition activities, including the use of other transactions, for use
in future projects.

Knowledge gained from prior other transactions acquisitions on issues
ranging from seeking nontraditional government contractors to assessing
project outcomes is key to planning future projects. A knowledge base of
important lessons learned from outreach to private-sector firms, the
acquisition process, and the design and execution of projects can
facilitate the work of program and acquisition staff in planning future
acquisitions using other transactions authority. DHS's draft guidebook on
other transactions for prototypes acknowledges the importance of
documenting knowledge gained during the acquisition process for planning
future other transactions acquisitions. We have also reported on the
benefits of agencies using systematic methods to collect, verify, store,
and disseminate information for use by their current and future employees.
21 Our previous work has identified the importance of setting goals and
identifying performance indicators that will inform federal agencies of
whether they have achieved the performance they expected. 22 S&T
Directorate officials acknowledge the need to create a "corporate memory"
function to provide future staff with access to information and knowledge
obtained from its current projects and to incorporate such knowledge into
its training efforts.

The S&T Directorate's workforce-staffing strategy necessitates that it
have a policy and procedure in place to capture employees' knowledge.
Under its current workforce strategy, the S&T Directorate's technical
staff serves regularly rotating term appointments that typically do not
exceed 4 years. This approach, according to S&T Directorate officials, is
designed to promote the influx of leading-edge science and technology
skills to DHS.

21

GAO, Best Practices: Highlights of the Knowledge-Based Approach Used to
Improve Weapon Acquisition, GAO-04-392SP (Washington, D.C.: January 2004)
and GAO, NASA: Better Mechanisms Needed for Sharing Lessons Learned,
GAO-02-195 (Washington, D.C.: Jan. 30, 2002).

22

GAO, Results-Oriented Government: GPRA Has Established a Solid Foundation
for Achieving Greater Results, GAO-04-38 (Washington, D.C.; Mar. 10,
2004).

Page 28 GAO-05-136 Homeland Security

S&T Directorate officials recognize that these rotations can place a
burden on its contracting staff that plan, conduct, and manage highly
specialized other transactions programs by having to continually guide new
technical staff on the workings of the process. However, these officials
have told us that there is no policy or process yet in place to ensure
that the capturing and sharing of such knowledge occur.

The S&T Directorate's current practices for capturing knowledge gained
from its acquisition efforts vary. In establishing its structure the S&T
Directorate drew its technical staff from a variety of organizations, each
of which used different acquisition approaches. Consequently, portfolio
managers and program managers we spoke with did not consistently capture
knowledge acquired. In addition, the S&T Directorate's efforts to assess
the effectiveness of its industry outreach activities involving the use of
other transactions authority are not rigorous enough to capture
information needed in planning future outreach. By not assessing its
activities, S&T cannot be assured that it is reaching the broadest base of
firms to provide technological solutions for the S&T Directorate's needs.

Without policies and a supporting process to capture the experiences and
knowledge gained from its acquisition efforts, DHS may not capitalize on
lessons learned from its early use other transactions. Given the S&T
Directorate's planned rotations of its key technical staff, building and
maintaining institutional knowledge are critical to ensuring that new S&T
Directorate staff have the ability to quickly learn about previous other
transactions acquisitions when designing future projects. For example, the
S&T Directorate invests funding and staff resources to advertise its
organization and projects to help attract firms but does not fully assess
the effectiveness of these activities for use in planning future projects.
Figure 9 depicts the S&T Directorate's acquisition process and a possible
knowledge management function for collecting, storing, and sharing
information.

Figure 9: Illustration of S&T Directorate's Current Acquisition Processes
with Possible Knowledge Management Function

Source: GAO's analysis of DHS data.

Note: Center of figure depicts the knowledge management function needed to
improve DHS's current practices.

  Conclusions

Recognizing the flexibility offered by other transactions authority to tap
nontraditional sources to meet its needs for new homeland security
technologies, DHS moved quickly to use this authority to build its science
and technology capabilities. In doing so it signaled its seriousness about
using other transactions authority to advance its strategic objectives.
However, to sustain its progress made to date DHS needs to take additional
actions, such as completing the necessary foundation of policies and
procedures, including guidance on audit provisions, and ensuring that it
has an adequately trained and staffed acquisition function. Furthermore,
given its strategy of using regularly rotating term appointments in
staffing its S&T programs, long-term success will depend on the
department's ability to harness its institutional knowledge on other
transactions. DHS's ability to identify, prioritize, and access the most
promising research and technologies in the future will depend, in part, on
its ability to capture and make accessible critical knowledge on the
agency's use of other transactions authority to ensure that it is
accessing the broadest and most appropriate technologies in the
marketplace. By completing its foundation for using other transactions and
creating a means for capturing key knowledge and measuring performance,
DHS will be better prepared to capitalize on the full potential of the
private sector to provide the innovative technology it needs to secure the
homeland.

To promote the efficient and effective use by DHS of its other
transactions

  Recommendations

authority to meet its mission needs, we have three recommendations for the
Secretary of Homeland Security. The Secretary should direct the Under
Secretary for Management and the Under Secretary for Science and
Technology to

     o establish guidance on when it is appropriate to include audit
       provisions in other transactions agreements,
     o develop a training program for DHS staff in the use of other
       transactions to help ensure the appropriate use of this authority, and
     o capture knowledge obtained during the acquisition process for use in
       planning and implementing future other transactions projects.

                                Agency Comments
                               and Our Evaluation

We provided a draft of this report to DHS for its review and comment. DHS
provided written comments generally agreeing with the facts and
conclusions expressed in the draft report. DHS agreed with our first two
recommendations and noted that it is already working to address them.
Regarding our recommendation that DHS capture knowledge obtained during
the acquisition process for use in planning and implementing future

Page 31 GAO-05-136 Homeland Security

projects that could use other transactions, DHS agreed with the utility of
retaining such historical information and "lessons learned" about its
procurement activities, acquisition planning, execution, and program
management activities. DHS stated that while no formal system for
assembling such information is in place within the organization, this
information is being monitored. However, DHS sought further clarity about
the types of information we recommend it retain and to what end it is to
be used.

Based on our review of DHS's early use of its other transactions
authority, we believe that systematically capturing, analyzing, and making
readily available knowledge about using this authority is needed. We
recognize that the S&T Directorate's work and focus cuts across various
technology areas, which are continuously evolving, making each
solicitation's requirements unique. We also recognize and appreciate DHS's
concern over the administrative aspects of collecting, maintaining, and
monitoring this information over time. We believe, however, that DHS can
build upon its current informal system of monitoring acquisition
information. Specifically, we think DHS could collect and disseminate
information on what has worked and not worked in areas such as outreach
efforts. This information could be useful for future other transactions
projects. For example, if DHS wants to ensure that its outreach attracts
firms who have a recognized core competency desired by S&T, including
nontraditional government contractors, it may want to use forms of
outreach that have been used successfully in the past. We believe this
information could be particularly important given the S&T Directorate's
workforce-staffing strategies, under which its technical staff serves
regularly rotating term appointments.

DHS also provided technical revisions to our draft report, which we
incorporated as appropriate. The department's comments are reprinted in
appendix I.

We are sending copies of this report to other interested congressional
committees; the Secretaries of Homeland Security and Defense; and the
Director, Office of Management and Budget. We also will make copies
available to others on request. This report will be available at no charge
on GAO's Web site at http://www.gao.gov.

If you have any questions about this report, please contact me at (202)
512-4841, or John K. Needham, Assistant Director, at (202) 512-5274. Other
major contributors to this report were Rachel Augustine, Eric Fisher,
Alison Heafitz, John Krump, Robert Swierczek, and Anthony J. Wysocki.

William T. Woods Director, Acquisition and Sourcing Management

Appendix I: Comments from the Department of Homeland Security

Appendix I: Comments from the Department of Homeland Security

(120324)

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