Defense Logistics: High-Level DOD Coordination Is Needed to	 
Further Improve the Management of the Army's LOGCAP Contract	 
(21-MAR-05, GAO-05-328).					 
                                                                 
The Logistics Civil Augmentation Program (LOGCAP) is an Army	 
program that plans for the use of a private-sector contractor to 
support worldwide contingency operations. Examples of the types  
of support available include laundry and bath, food service,	 
sanitation, billeting, maintenance, and power generation. LOGCAP 
has been used extensively to support U.S. forces in recent	 
operations in southwest Asia, with more than $15 billion in	 
estimated work as of January 2005. While we issued two reports on
LOGCAP since 1997 that made recommendations to improve the Army's
management of the contract, broader issues on coordination of	 
LOGCAP's contract functions were beyond the scope of our earlier 
work. This report assesses the extent to which the Army is taking
action to improve the management and oversight of LOGCAP and	 
whether further opportunities for using this contract effectively
exist.								 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-328 					        
    ACCNO:   A19820						        
  TITLE:     Defense Logistics: High-Level DOD Coordination Is Needed 
to Further Improve the Management of the Army's LOGCAP Contract  
     DATE:   03/21/2005 
  SUBJECT:   Contract administration				 
	     Contract oversight 				 
	     Contracts						 
	     Defense cost control				 
	     Defense procurement				 
	     Department of Defense contractors			 
	     Internal controls					 
	     Logistics						 
	     Military forces					 
	     Military training					 
	     Program management 				 
	     Strategic planning 				 
	     Army Battle Command Training Program		 
	     Army Logistics Civil Augmentation			 
	     Program						 
                                                                 

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GAO-05-328

                 United States Government Accountability Office

                     GAO Report to the Secretary of Defense

March 2005

DEFENSE LOGISTICS

 High-Level DOD Coordination Is Needed to Further Improve the Management of the
                             Army's LOGCAP Contract

                                       a

GAO-05-328

[IMG]

March 2005

DEFENSE LOGISTICS

High-Level DOD Coordination Is Needed to Further Improve the Management of the
Army's LOGCAP Contract

                                 What GAO Found

The Army has taken or is in the process of taking actions to improve the
management and oversight of LOGCAP on the basis of our earlier reporting.
The actions that the Army has completed or has underway include (1)
rewriting its guidance, including its field manual for using contractors
on the battlefield and its primary regulation for obtaining contractor
support in wartime operations; (2) implementing near-and longer-term
training for commanders and logisticians in using the contract; (3)
developing a deployable unit to assist commands using LOGCAP; (4)
restructuring the LOGCAP contracting office to provide additional
personnel resources in key areas; and (5) taking steps to eliminate the
backlog of contract task orders awaiting definitization-that is, coming to
agreement on the terms, specifications, and price of the task orders-and
conducting award fee boards.

While improvements have been made, GAO believes that the Department of
Defense (DOD) and the Army need to take additional action in two areas.
First, although DOD continues to agree with our July 2004 recommendation
to create teams of subject matter experts to review contract activities
for economy and efficiency, it has not done so yet because the need to
respond to statutory requirements took precedence. Prior GAO reviews have
shown that when commanders look for savings in contract activities, they
generally find them, as illustrated in the table.

Savings Reported Through DOD's Review of Contract Activities

                          Contract Percent savings                   Comments 
                   Balkans Support              10 Savings of $200 million by 
                          Contract                                   reducing 
                                                        services that were no 
                                                                longer needed 
                 LOGCAP (Djibouti)              18 Savings of $8.6 million by 
                                                   reducing                   
                                                                     services 

Sources: DOD (data); GAO (analysis).

The second area needing attention is the coordination of contract
activities between DOD components involved with using LOGCAP. While the
Army Materiel Command (AMC) is the executive agent for LOGCAP, other DOD
components also play important LOGCAP roles, including the combatant
commander, individual deployed units, and the Defense Contract Management
Agency. The effective and efficient use of the contract depends on the
coordinated activities of each of these agencies. However, at the DOD
level, no one is responsible for overall leadership in using the contract
and, while AMC has sought to influence the way in which the other
components carry out their roles, it does not have command authority over
the other components and thus its influence is limited. For example, AMC
knew that planning for the use of LOGCAP for Operation Iraqi Freedom was
not comprehensive but lacked the command authority to direct better
planning. AMC officials believe that training will resolve these problems
over time. However, given the importance of LOGCAP to supporting military
operations and the billions of dollars being spent on LOGCAP activities,
we believe that more immediate and direct oversight is needed.

                 United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
The Army Has Taken Steps to Improve LOGCAP Management

and Oversight Enhanced Management and Oversight of LOGCAP Contract

Activities Are Needed in Two Areas Conclusions Recommendation for
Executive Action Agency Comments and our Evaluation

1 3 5

7

12 18 19 19

Appendixes

          Appendix I: Scope and Methodology 21 Appendix II: Comments from the
                 Department of Defense 23 Appendix III: GAO Contact and Staff
                                                           Acknowledgments 25

Table Table 1: Key Contract Management Roles and Responsibilities

Figure Figure 1:	Organizational Structure for Management of the LOGCAP
Contract in Iraq and Afghanistan

Abbreviations

AFSC Army Field Support Command
AMC Army Materiel Command
DCAA Defense Contract Audit Agency
DCMA Defense Contract Management Agency
DFARS Defense Federal Acquisition Regulation Supplement
DOD Department of Defense
LOGCAP Logistics Civil Augmentation Program

Contents

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separately.

A

United States Government Accountability Office Washington, D.C. 20548

March 21, 2005

The Honorable Donald H. Rumsfeld The Secretary of Defense

Dear Mr. Secretary:

As you know, the U.S. military has long relied on contractors to provide
supplies and services to deployed U.S. forces, and its reliance on
contractors has been growing in recent military operations. Much of this
support has come from logistics support contracts, particularly the Army's
Logistics Civil Augmentation Program (LOGCAP) contract. LOGCAP provides a
wide array of support for U.S. military personnel throughout southwest and
central Asia, including food service and housing. While this contract
provides vital services, it is expensive. The estimated value of work
under the current LOGCAP contract is more than $15 billion as of early
January 2005, including $6.8 billion that the Army budgeted for LOGCAP
activities in fiscal year 2005.1 Given the importance of LOGCAP to
supporting military operations and the billions of dollars being spent on
LOGCAP, effective use of the LOGCAP contract is critical.

The Army's use of its LOGCAP contract has not been without problems. Since
1997 we have issued two reports on the U.S. Army's use of the LOGCAP
contract to provide supplies and services for deployed U.S. forces that
highlight both the growing importance of this contract to military
operations and the difficulties the Army has experienced in managing and
overseeing it and controlling costs. In 1997 we reviewed the Army's use of
its LOGCAP contract to support U.S. forces deployed for the peacekeeping
mission in Bosnia;2 and in 2004 we reviewed several logistics support
contracts, including the Army's LOGCAP contract, to support military
operations around the world.3

1 The estimated $15 billion value of work under the current LOGCAP
contract is the contractor's rough order of magnitude estimate.

2 GAO, Contingency Operations: Opportunities to Improve the Logistics
Civil Augmentation Program, GAO/NSIAD-97-63 (Washington, D.C.: Feb. 11,
1997).

3 GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington, D.C.:
July 19, 2004).

In 2000 we also reviewed the Army's use of the Balkans Support Contract to
support the expanded Balkans Peacekeeping Mission.4 The Balkans Support
Contract is similar to the LOGCAP contract and was established in 1997.
Finally, in 2004 we issued a report on contracting procedures in Iraq5 and
testified on logistics support contracts and contracting in Iraq before
the House Committee on Government Reform.6 Our reports identified
difficulties the Army has experienced in planning for the use of the
LOGCAP contract, controlling costs, and effectively managing and
overseeing contract activities, and each made a number of recommendations
intended to improve the Army's use and management of the contract.

We initiated this report because LOGCAP continues to be an important
support mechanism for the Army and, as previously noted, the Army plans to
spend approximately $6.8 billion on LOGCAP contract activities in fiscal
year 2005 and to address broader issues involving the coordination of
contract functions that are the responsibility of different elements
within the Department of Defense (DOD), such as the contract administrator
and commanders on the ground, that were beyond the scope of our prior
reports. The objectives of this report are to (1) examine the extent to
which the Army is taking action to improve the management and oversight of
LOGCAP and (2) identify further opportunities for using the LOGCAP
contract effectively.

To examine actions to improve the management and oversight of LOGCAP, we
examined a wide range of contracting guidance and met with officials from
the LOGCAP Program Management Office, the LOGCAP Support Unit, and the
LOGCAP Contracting Office to gain a comprehensive understanding of the
status of efforts regarding the LOGCAP contract, the contract management
process, and issues related to using LOGCAP. To identify further
opportunities for using these contracts effectively, we undertook a number
of actions. We drew upon our prior work, including our visits to U.S.
military sites using the LOGCAP contract in Kuwait and

4 GAO, Contingency Operations: Army Should Do More to Control Contract
Costs in the Balkans, GAO/NSIAD-00-225 (Washington, D.C.: Sept. 29, 2000).

5 GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and
Management Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004).

6 GAO, Contract Management: Contracting for Iraq Reconstruction and for
Global Logistics Support, GAO-04-869T (Washington, D.C.: June 15, 2004).

units that had returned from Iraq, but we did not visit sites in Iraq. To
obtain more current information about the use of LOGCAP in Iraq, we (1)
interviewed personnel who were responsible for contract management at the
Army Materiel Command (AMC); the Army Central Command in Ft. McPherson,
Georgia; and the former Deputy Commanding General for Logistics in Iraq,
(2) reviewed Defense Contract Management Agency (DCMA) situation reports
written by contracting officers in Iraq; (3) reviewed Defense Contract
Audit Agency (DCAA) reports; and (4) met with representatives of the 1st
Armored Division shortly after their return from Iraq to discuss their
experiences with the LOGCAP contract. We determined that the information
and data discussed in this report were reliable for the purposes of the
report. We conducted our review from October 2004 through January 2005 in
accordance with generally accepted government auditing standards. We
discuss our scope and methodology in more detail in appendix I.

Results in Brief	The Army has taken or is in the process of taking actions
to improve the management and oversight of the LOGCAP contract on the
basis of our earlier reporting, and it continues to proactively look for
additional areas for improvement. Some of the initiatives that the Army
has completed or has under way that we believe will contribute to stronger
management of LOGCAP include (1) rewriting its guidance, including its
field manual for using contractors on the battlefield and its primary
regulation for obtaining contractor support in wartime operations; (2)
implementing near- and longer-term training for commanders and
logisticians; (3) developing a deployable unit to assist commands using
LOGCAP; (4) restructuring the LOGCAP contracting office to provide
additional personnel resources in key areas; and (5) taking steps to
eliminate the backlog of contract task orders requiring
"definitization"-that is, coming to agreement on the terms,
specifications, and price of the task orders--and conducting award fee
boards in order to improve the financial oversight and control of LOGCAP.
These steps should help to improve LOGCAP program management.

While improvements have been made in the areas discussed above, we believe
DOD needs to take additional action in two areas:

o 	First, although DOD continues to agree with our July 2004
recommendation to implement a formal process for regularly reviewing
contract activities for economy and efficiency, DOD's point of contact on
our LOGCAP work, who is in the Office of the Deputy Under Secretary of
Defense for Logistics and Materiel Readiness, told us that the need to
address statutory requirements has taken precedence over implementing our
recommendation.7 Our prior reviews have shown that when commanders look
for savings in contract activities, they generally find them. For example,
in our 2004 report on logistics support contracts, we reported that U.S.
Army Europe's reviews of contract services provided under the Balkans
Support Contract resulted in approximately $200 million in savings, or 10
percent of estimated project costs, by reducing services that were no
longer needed and labor costs.

o 	The second area needing attention is the coordination of contract
activities. While AMC is the executive agent for LOGCAP, a number of other
DOD components also have important LOGCAP responsibilities, including the
combatant commander, individual deployed units, DCMA, and DCAA. The
effective and efficient use of the LOGCAP contract depends on the
coordinated activities of each of these entities. However, our reports
have shown a lack of coordination between the various components,
including inadequate planning for the use of the contract, the last-minute
renewal of contract task orders, and the absence of customer involvement
in monitoring the contractor's performance. This lack of coordination
stems from the fact that each DOD component is independent of the others.
While AMC has sought to influence the way in which the other components
carry out their roles, it does not have command authority over the other
components and thus its influence is limited. For example, decisions on
the level and frequency of services provided under the contract are the
combatant commander's; decisions on the level of staffing and resources
allocated to contract monitoring

7 DOD is required to issue defense guidance and make a report to the
Senate and House Armed Services Committees regarding contractors in Iraq
no later than 180 days after the enactment of the National Defense
Authorization Act for Fiscal Year 2005. Pub. L. No. 108-375, S:S:1205 and
1206 (2004).

are DCMA's; and decisions regarding the composition of task orders are the
ground commander's.

DOD's ability to coordinate the activities of each component involved in
LOGCAP could facilitate finding economies and efficiencies as discussed
above, however, no one at DOD has been assigned responsibility for overall
leadership in using the contract. Given the billions of additional dollars
the Army plans to spend on LOGCAP contract activities, the importance of
the contract to the success of current military operations, and the
existing command authorities, we believe that high-level oversight and
coordination are needed to resolve the coordination issues that we
previously cited and to ensure that the contract is being used as
efficiently and effectively as possible.

We are recommending that the Secretary of Defense designate a LOGCAP
coordinator who would be responsible for ensuring that the contract is
being used both effectively and efficiently. We are not suggesting a
change in command and control relationships or contractual authority.

In written comments on a draft of this report, DOD stated that it
concurred with the report and its recommendations. DOD stated that a
recently issued instruction creates the position of Defense Logistics
Executive who will be responsible for DOD logistics and global supply
chain management, including oversight of logistics support contracts such
as the Army's LOGCAP contract. DOD also stated that this executive would
advise the Secretary of unresolved differences among the DOD components on
how best to use LOGCAP.

Background	Established in 1985, LOGCAP is an Army program that preplans
for the use of global corporate resources to support worldwide contingency
operations. In the event that U.S. forces deploy, contractor support is
then available to a commander as an option. Examples of the types of
support available include supply operations, laundry and bath, food
service, sanitation, billeting, personnel support, maintenance,
transportation, engineering and construction, and power generation and
distribution. LOGCAP has been used to support U.S. forces in operations in
Somalia, Haiti, and Bosnia and is currently being used to support
operations in Afghanistan, Iraq, Kuwait, and Uzbekistan, as well as in
other countries. The use of LOGCAP to support U.S. troops in Iraq is the
largest effort in the history of LOGCAP.

The LOGCAP contract comprises a series of task orders that commit both the
contractor to provide services and the government to pay for those
services. Some of the task orders are considered undefinitized contracting
actions because the terms, specifications, and price of the task orders
are not agreed upon before performance begins. Undefinitized contract
actions are used when (1) government interests demand that the contractor
be given a binding commitment so that work can begin immediately and (2)
negotiating a definitive contract is not possible in sufficient time to
meet the requirement. The Defense Federal Acquisition Regulation
Supplement (DFARS) requires that undefinitized contract actions must
include a not-to-exceed cost and a definitization schedule. DFARS also
requires that the contract be definitized within 180 days or before 50
percent of the work to be performed is completed, whichever occurs first.
The head of an agency may waive the requirement.

Both LOGCAP and the Balkans Support Contract are cost-plus-award-fee
contracts. Cost-plus-award-fee contracts entitle the contractor to be
reimbursed for reasonable, allowable, and allocable costs incurred to the
extent prescribed in the contract. The advantage of cost-plus-award-fee
contracts is that they provide financial incentives based on contractor's
performance and criteria stated in the contract. These contracts enable
the government to evaluate a contractor's performance according to
specified criteria and to grant an award amount within designated
parameters. Thus, award fees can serve as a valuable tool to help control
program risk and encourage excellence in contract performance. But to reap
the advantages that cost-plus-award-fee contracts offer, the government
must implement an effective award fee process.

Responsibility for the LOGCAP contract is divided among multiple DOD and
service components. AMC is the Army executive agent for LOGCAP, and it has
organized the program under its Army Field Support Command (AFSC).
According to Army regulation, as the executive agent, AMC is responsible
for coordinating LOGCAP requirements (and the requirements of any other
AMC umbrella support contracts) with the unified commands, other services,
and Army-supported combatant commanders for AMC contractor support. AMC
has assigned responsibility for LOGCAP to the commander of AFSC, who has
task-organized LOGCAP under three separate offices, all of which report
directly to him. These three offices are (1) the LOGCAP Program Manager,
(2) the LOGCAP Contracting Office, and (3) the LOGCAP Support Unit. The
key contract management roles and responsibilities for these three offices
are detailed in table 1, along with the management roles and
responsibilities of LOGCAP customers.

Table 1: Key Contract Management Roles and Responsibilities

Customers LOGCAP Contracting Officer

o  Develop requirements.  o  Interprets the contract.

o  Write statements of work.  o  Obligates the government for work under
the contract.

o  Obtain funding.  o  Delegates contract administration procedures to
administrative

o  Monitor contract performance. contracting officers.

o  Evaluate technical performance.  o  Provides the award fee board with
input.

o  Provide the award fee board with input.  o  Definitizes the task
orders.

LOGCAP Support Unit LOGCAP Program Manager

o  Serves as the Army interface between the customer and the  o  Provides
LOGCAP central management. LOGCAP contractor.  o  Provides education and
training.

o  Advises customer of LOGCAP capabilities.  o  Provides plan and budget
for program resources.

o  Serves as on-site contracting officer representative as needed.  o 
Prioritizes planning requirements.

o  Deploys worldwide in support of any contingency using LOGCAP.  o 
Partners with contractor to ensure responsive and flexible support.

o  Identifies emerging requirements.

o  Ensures statement of work's execution.

Sources: DOD (data); GAO (analysis).

DCMA also plays a role in overseeing contract activities. When requested
by the procuring contracting officer, DCMA monitors a contractor's
performance and management systems to ensure that the cost, product
performance, and delivery schedules comply with the terms and conditions
of the contract. As of November 2004, DCMA had 46 employees in Iraq
monitoring multiple DOD contracts, including the LOGCAP contract.

DCAA performs contract audits of the LOGCAP contract and provides
accounting and financial advisory services regarding contracts and
subcontracts for AFSC. These services are provided in connection with the
negotiation, administration, and settlement of contracts and subcontracts.

  The Army Has Taken Steps to Improve LOGCAP Management and Oversight

Overall, the Army has taken numerous actions, or is in the process of
taking actions to improve the management and oversight of LOGCAP as well
as related contracts, based on our earlier reporting. Some of the
initiatives the Army has completed or has under way that should contribute
to stronger management of LOGCAP include (1) rewriting its guidance,
including its field manual for the use of contractors on the battlefield,
and its primary regulation for obtaining contractor support in wartime
operations; (2) implementing near-and longer-term training for commanders
and logisticians; (3) developing a deployable unit to provide training and
assistance for commands using LOGCAP; (4) restructuring the LOGCAP

contracting office to provide additional personnel resources in key areas;
and (5) eliminating the backlog of contract task orders requiring
definitization and conducting award fee boards in order to improve the
financial oversight and control of LOGCAP.

    Guidance Has Been Rewritten

The absence of guidance on how to effectively use LOGCAP was cited in our
1997 report as an area that needed improvement, and since that time the
Army has rewritten two key documents that provide guidance on using
LOGCAP. In January 2003, the Army reissued Field Manual 3-100.21,
Contractors on the Battlefield, and it is currently rewriting Army
Regulation 715-9, Contractors Accompanying the Force. These documents
should significantly improve the supported forces' understanding of the
Army policies, responsibilities, and procedures for using contractors
effectively on the battlefield. The Army's rewritten field manual provides
guidance for commanders and their staff at all levels in the planning,
management, and use of contractors in each area of operations, as well as
guidance describing the relationship between contractors and both the
combatant commanders and the Army's service component commanders. The
manual addresses supported forces' roles and responsibilities in planning
contractor support; deploying and redeploying contractor personnel and
equipment; and managing, supporting, and protecting contractors. It also
addresses the planning process and relates the planning for contractor
support to the military decision-making process.

The Army's regulation for contractors accompanying the force is still in
draft; however, when completed, we believe it will establish Army policy
for planning and managing contracted support. According to an information
paper on the draft regulation, it proposes significant changes in three
areas. The most significant policy change in terms of contract management
and oversight is the recommendation that the supported unit (that is, the
customer) be responsible for providing day-to-day control of contractors'
activities. Contract managers will continue to be responsible for the
business aspects of managing the contractor workforce. The other two
changes deal with (1) the accountability and support of contractor
employees and (2) the medical screening, training, and equipping of
contractor employees prior to deployment. An Army official working on the
draft regulation said that once the regulation is finalized, the field
manual will be revised to incorporate the changes.

    Training and Assistance Programs Are Being Developed

Training and assistance programs have been or are being developed to
improve the understanding of the contract and how it is managed and
controlled. A 1999 initiative was the creation of a deployable unit, known
as the LOGCAP Support Unit, to assist commanders in planning for and using
the contract effectively. The unit consists of 66 Army Reserve soldiers
with specialties in logistics, engineering, quartermaster duties,
transportation, and ordinance. Because customers often have little
knowledge of contract processes, the unit has developed training materials
that address the issues of planning, operational impacts, execution
responsibilities, and keys to success. This training addresses preparing
statements of work, independent government cost estimates, and the
contractor's cost estimates and technical plans and has been presented at
the Quartermaster School, the Battle Command Training Program, and DCMA's
predeployment training. The LOGCAP Support Unit has also taken steps to
increase the size of the unit and improve its training. As we reported in
July 2004, the unit was deployed in the early stages of Operation Iraqi
Freedom, and when the original members returned home, replacement teams
were created and staffed with individuals who had no prior LOGCAP or
contracting experience. Since then, the unit has developed a program of
instruction to enhance LOGCAP Support Unit members' skills in key areas.
As of November 2004, two sessions of the training have been conducted for
all members of the unit who are not deployed. The LOGCAP Support Unit has
also worked with the LOGCAP Program Manager's office and DCMA to ensure
the consistency of information being provided in each office's training.

The LOGCAP Program Manager's office, in conjunction with the LOGCAP
Support Unit, has also made efforts to educate the users of LOGCAP
services about their responsibilities. When the office has become aware of
units preparing for deployment, it has dispatched teams tasked with
briefing commanders on the contract and their responsibilities. LOGCAP
training has also been presented at senior-level symposiums and made a
part of several warfighter exercises.

We did not follow up on DOD's efforts to integrate LOGCAP into
professional military education because DOD is in the process of
developing a training module that could be utilized by each of the mid-
and senior-level service schools.

    AFSC Has Restructured the LOGCAP Contracting Office to Provide Additional
    Personnel Resources in Key Areas

Recently, AFSC restructured the LOGCAP Contracting Office to provide
additional resources in key areas. This includes dividing procuring
contracting officer functions and contracting branch chief functions as
well as establishing definitization and award fee board coordinators. The
command also established a Deputy Division Chief position. To assist in
the timely resolution of issues in the theater, the command deployed
contracting officers to Kuwait and Iraq to establish closer working
relationships with commanders and DCMA personnel located there.

AFSC is also in the process of reorganizing its contracting office. In
response to an August 2004 memorandum from the Deputy Assistant Secretary
of the Army for Policy and Procurement to AMC's Director of Contracting
stating that it seemed appropriate to have a member of the Senior
Executive Service manage LOGCAP, given its high dollar value, AFSC is in
the process of establishing a senior executive position to oversee the
AFSC Acquisition Center. A key function of this executive is to provide
the AFSC commander with additional leadership and expertise in the LOGCAP
arena. The command also established a sustainment branch to develop and
implement an acquisition strategy for the follow-on to the LOGCAP
contract. This branch will also lead the command's efforts to transition
existing LOGCAP work to sustainment contracts.

    Improvements Have Been Made in Definitizing Contracts and Conducting Award
    Fee Boards

In our February 1997 report and again in our July 2004 report, we noted
that the Army had not definitized LOGCAP task orders within the time
frames prescribed in DFARS. Definitization is the process by which the
government and the customer come to agreement or a determination is made
on the terms, specifications, and price of the task orders. DFARS requires
that undefinitized contract actions be definitized within 180 days or
before 50 percent of the work to be performed is completed, whichever
occurs first. Definitization is important because until the estimate is
formalized, the contractor has no real incentive to control costs, as
increased project costs potentially mean a higher project estimate,
potentially resulting in a higher award fee. Definitization is also a
necessary first step before the Army can conduct award fee boards that
evaluate the contractor's performance. In our 2004 report on contracting
procedures in Iraq, we recommended that the Army definitize outstanding
contracts and task orders as soon as possible.

Progress is being made in definitizing task orders. When we issued our
report in July 2004 on the Army's use of LOGCAP to support ongoing

military operations, the Army had definitized only 13 of 54 task orders
that required definitization. As of March 2005, the Army had initiated 11
additional task orders (bringing the total to 65 task orders that require
definitization) and has completed the definitization on 31 additional task
orders (bringing the total to 44). The Army also reports that it will
complete definitization of the remaining 21 by March 31, 2005. To help
with definitizing the two largest task orders-task order 59, which
provides base camp services, accommodations, and life support services at
various locations in Iraq, and task order 43, the theater transportation
mission-the Army established two special cost analysis teams. These teams
are led by senior officials with extensive contracting and negotiating
background, augmented by a contractor. In addition, three more teams have
been assembled to help definitize the remaining backlogged task orders as
well as all newly issued, undefinitized contract actions.

Progress has also been made in conducting award fee boards since our July
2004 report noted that the Army had not yet conducted an award fee board
for any of the LOGCAP task orders even though the contract requires an
award fee board to be held every 6 months. Award fee boards are a
mechanism for the government to evaluate the contractor's overall
performance and can serve as a valuable tool to control program risk and
encourage the contractor's performance. According to AFSC, 41
undefinitized task orders require award fee boards, and as of mid-March
2005, the Army had conducted award fee boards for 22 of the 41 task
orders. It should be noted, however, that the Army converted 12 task
orders and plans to convert an additional 3 that required definitization
to fixed fee contracts, thereby negating the need to hold award fee boards
for these task orders. According to an AFSC contracting official, the
decision to convert these task orders was based on a number of factors,
including the small size of the task order, the cost to the government to
conduct the boards, the Army's ability to acquire meaningful customer
participation, and whether performance is complete on the contract. We
stated in our July 2004 report that the government may find it difficult
to conduct a board that comprehensively evaluates contractor performance
because customers have not been documenting their LOGCAP experience.

  Enhanced Management and Oversight of LOGCAP Contract Activities Are Needed in
  Two Areas

While improvements have been made in a number of areas, there are two
areas where management and oversight are lacking. First, there is no
formal process for seeking economy and efficiency in the use of LOGCAP. In
our July 2004 report, we recommended that teams of subject matter experts
be created to travel to locations where contractor services are being
provided to evaluate the support. DOD concurred with our recommendation.
However, as of February 2005, teams had not been created or deployed to
review contract activities. Second, there is a lack of coordination of
contract activities between all of the LOGCAP parties. AMC is the
executive agent for LOGCAP, but several other DOD components also have
important LOGCAP responsibilities, and these components must work in
coordination with AMC to ensure the contract's effective and efficient
use. However, AMC does not have command authority over the other
components and, while it has sought to influence how the other components
carry out their roles, its influence is limited outside the command. We
believe that this dispersed responsibility has led to numerous instances
of inadequate coordination, which we have cited in our earlier reports.

    Steps Needed to Ensure That Contractors Provide Services in an Economical
    and Efficient Manner Have Not Been Taken at All Task Order Locations

Our previous work has shown that when government officials (including
customers) review a contractor's work for economy and efficiency, savings
are generated. For example, U.S. Army Europe's reviews of contract
activities under the Balkans Support Contract resulted in approximately
$200 million in savings, or 10 percent of estimated project costs, by
reducing services and labor costs and by closing or downsizing camps that
were no longer needed. U.S. Army Europe officials told us that our 2000
report on the management of the Balkans Support Contract was a "wake up
call" to them to be more engaged in managing the contract. Also, when
Marine Corps forces replaced Army forces in Djibouti in December 2002,
they took over the responsibility for funding LOGCAP services there.
Marine commanders immediately undertook a complete review of the statement
of work and were able to reduce the $48 million task order by an estimated
$8.6 million, or 18 percent. In Iraq, the coalition forces military
command reviewed task order 59, change 7 (the task order for life support
services in Iraq) and was able to reduce the estimated cost of the task
order by over $108 million by eliminating services and an extra dining and
laundry facility. Regularly scheduled reviews of all task orders, however,
were not taking place in Kuwait or Iraq, and we recommended that teams of
subject matter experts be created to travel to locations where contractor
services are being provided to evaluate the support and make

recommendations on (1) the appropriateness of the services being provided,
(2) the level of services being provided, and (3) the economy and
efficiency with which the services are being provided.

In response to our recommendation, DOD stated that it would issue a policy
memorandum that would identify the need to have teams of subject matter
experts make periodic visits to evaluate and make recommendations on the
logistics support contracts. However, as of February 2005 no policy
memorandum has been issued and no teams of subject matter experts have
been established or deployed to review contract activities. While DOD
continues to agree with our recommendation, its point of contact on our
LOGCAP work, in the Office of the Undersecretary of Defense for Logistics
and Materiel Readiness, told us that the need to address statutory
requirements has taken precedence.8 However, some individual efforts have
been undertaken to reduce costs but not as part of a formal review
process. For example, requests for services costing more than $50,000 now
require a review by a general officer. Also, in December 2004 the
commanding general of military forces in Iraq requested that the Army
Audit Agency evaluate LOGCAP throughout Iraq to identify fiscal and
managerial efficiencies; the effectiveness of contract administration and
its impact on cost controls; areas vulnerable to fraud, waste, and abuse;
systemic processes and procedures that inherently result in increased
costs; and methods for improving the timeliness and accuracy of
information presented to assist senior leaders in making timely decisions.
He also asked that the Army Audit Agency assess the adequacy of internal
controls.

    The Coordination of Contract Activities Needs Additional Management
    Attention

The effective use of the LOGCAP contract largely depends on the combined
efforts of a number of separate DOD components, including AMC, the
combatant commander, deployed units, DCMA, and DCAA. For example, an AMC
pamphlet that provides users with a basic understanding of LOGCAP
identifies the responsibility to monitor contractor performance as one
that is shared by AMC, DCMA, and the customer.9 Altogether, the

8 DOD is required to issue defense guidance and make a report to the
Senate and House Armed Services Committees regarding contractors in Iraq
no later than 180 days after the enactment of the National Defense
Authorization Act for Fiscal Year 2005. Pub. L. No. 108-375, S:S:1205 and
1206 (2004).

9 U.S. Army Materiel Command, AMC Pamphlet 700-30, Logistics Civil
Augmentation Program (January 2002).

pamphlet identifies 22 LOGCAP responsibilities, of which 16 are shared by
two or more components. Only six responsibilities are the sole
responsibility of one component. As the executive agent for LOGCAP, AMC is
responsible for directing the worldwide, regional, and country-specific
planning, development, and execution of a LOGCAP contract. However, while
AMC has sought to influence the manner in which the other components carry
out their roles, AMC does not have command authority over the components,
and thus its influence is limited. We believe that this limitation
contributes to an overall lack of coordination across the various DOD
components that are involved with LOGCAP, and consequently less effective
utilization of the LOGCAP contract. For example, we identified the
following coordination problems in our previous reports and current work:

o 	The Army Central Command-the Army command responsible for LOGCAP
planning in Iraq and Kuwait-did not follow the planning process described
in Army regulations and guidance as it prepared for operations in
southwest Asia. While AMC was aware that the Army Central Command's plan
for the use of the contract was not comprehensive, it lacked the authority
to direct better planning.

o 	An acquisition review board in Kuwait was presented with several large
preexisting task orders that were to expire within a few weeks, giving the
board little time to consider alternatives to LOGCAP or review the
requirements to ensure that they did not provide an excessive level of
service. Again, AMC was aware that the planning was inadequate but lacked
the authority to direct better planning.

o 	Effective oversight processes were not established by customers at
several locations. A senior Army division-level logistician who returned
from Iraq in late 2004 told us that there was nothing in the division's
operations orders that identified its responsibilities in managing or
overseeing LOGCAP contract activities. Furthermore, the logistician had
not seen the contract statement of work that described the division's
requirements nor had he seen the contractor's technical execution plan
that described how the contractor planned to meet the division's
requirements. He also said that the division had not prepared any formal
assessment of the contractor's performance that could be used at award fee
boards. AMC has no authority to direct contract oversight by LOGCAP
customers.

o 	In our July 2004 report, we discussed a disagreement between the LOGCAP
contractor and DCAA involving at least $88 million in food service charges
to feed soldiers in Iraq. This occurred because the Army had defined a
population for each base camp in the statement of work and had directed
the contractor to feed that number. The actual number of soldiers served,
however, was lower than the number specified in the contract for most
locations. The contractor requested payment based on the base camp numbers
in the contract but DCAA believes that the contractor should have been
paid on the basis of the actual number of meals served. These differing
views created a billing disagreement. According to the 101st Airborne
Division official responsible for coordinating LOGCAP activities in the
division's sector in Iraq, the division was not aware of the cost
implications of the disparity. He also said that the next higher
headquarters for the 101st was not interested in the number of people who
were using the dining facility, unless the number exceeded the number
contracted for in the statement of work.

o 	Information for award fee boards was not systematically collected from
some customers, making it difficult to hold a board that could
comprehensively evaluate the contractor's performance. Award fee boards
can serve as a valuable tool to control program risk and encourage
contractors' performance. AFSC recently told us that it had to convert
some LOGCAP task orders to cost-plus-fixed-fee task orders partly because
it lacked the information to hold an award fee board.

AMC is aware of these problems and has attempted to influence how the
other DOD components carry out their roles by deploying personnel to
assist the customer in using the LOGCAP contract effectively. However,
while AMC can ask the DOD components to carry out their responsibilities,
it cannot direct their activities. This affects the extent to which it can
control how effectively the contract is utilized. For example, in response
to a series of questions we posed to AFSC regarding managing LOGCAP, an
AFSC official provided the following examples where it has no ability, or
limited ability, to influence contract activities:

o 	Decisions on the level and frequency of services provided under the
contract are the combatant commanders', based on operational requirements.

o 	Commanders on the ground ultimately make decisions regarding the
composition of task orders and required services based on their
operational needs. While AFSC provides input to the planning process,

once the commander on the ground makes a decision, AFSC's mission is to
execute that action within established legal, regulatory, and contractual
parameters. As an example, an AFSC official said that the command
aggressively pursued the reduction of the major task order for services in
Iraq (Task Order 59) with the customer. However, the customer's decision
was to maintain the task order in its current form with a planned increase
in scope for the follow-on effort. Consequently, AFSC will execute the
customer's requirement.

o 	AFSC's procuring contracting officer has the primary responsibility for
monitoring the contractor's performance, and DCMA serves as the
contracting officer's agent in theater to monitor the performance of the
contractor. However, DCMA makes an independent assessment regarding the
level of staffing and resources allocated to perform its mission.

AMC's command relationship to the other DOD components is shown in figure
1. As shown, the DOD components with LOGCAP responsibilities have separate
chains of command leading to the Secretary of Defense and only the Office
of the Secretary of Defense is in a position to exercise overall
coordination of the four components.

Figure 1: Organizational Structure for Management of the LOGCAP Contract
in Iraq and Afghanistan

Source: DOD.

To address coordination issues between the components, AFSC has focused on
training commanders in using the LOGCAP contract effectively and deploying
personnel to work with commanders to improve their understanding of
contract oversight practices. However, AFSC officials acknowledge that
change will be slow because of the turnover of units and personnel in
southwest Asia. Given the $6.8 billion that the Army plans to spend on
LOGCAP contract activities in fiscal year 2005, the importance of the
contract to the success of current military operations, and the existing
command authorities, we believe that more direct oversight and
coordination is needed. This oversight would need to be at a level
sufficiently high enough to ensure participation in deliberations and
vested in an individual with sufficient stature to effectively advocate
for the most efficient use of the contract. We are not suggesting a change
in command and control relationships or contractual authority. The view
that high level oversight and coordination are needed is also shared by
the former Deputy Commanding General for Logistics in Iraq, who told us
that he believes someone was needed to provide overall coordination for
the program and

by a senior AFSC official who told us that there was confusion over
program leadership and that there would be value in having someone of
general officer stature that could interact with all the DOD components
having LOGCAP responsibility to advocate for the most effective use of the
contract. In commenting on a draft of this report, the LOGCAP Support Unit
commander similarly said that better coordination between the DOD
components would improve contract oversight. The commander added that
doctrine development and training are a critical part of the solution and
that in AMC's current LOGCAP doctrine, there is no "user guide" that
addresses user responsibilities in using the LOGCAP contract. Our February
1997 report identified the need for better guidance, and earlier in this
report we discussed the Army's ongoing efforts to improve its guidance.

Conclusions	In response to our prior reports, the Army has taken or is in
the process of taking steps designed to improve the management and
oversight of LOGCAP as well as related contracts and it continues to
proactively look for additional areas for improvement. This proactive work
includes the recent establishment of a Senior Executive Service position
to manage LOGCAP within AFSC. However, many other DOD components have
responsibilities under LOGCAP. At the DOD level, no one is in a position
to coordinate these components in using the contract. This lack of
coordination has resulted in problems in the use of the contract. While we
are not suggesting a change in command and control relationships or
contractual authority, we believe that establishing a LOGCAP coordinator
within DOD with responsibility for coordinating the use of LOGCAP and with
the authority to participate in deliberations and advocate for its most
effective use has the potential to improve the manner in which LOGCAP is
used and managed.

Our July 2004 report recommended that teams of subject matter experts be
created to travel to locations where contractor services are being
provided to evaluate the support of and make recommendations on the
appropriateness of the services being provided, the level of services
being provided, and the economy and efficiency with which the services are
being provided. We continue to believe that this recommendation has merit
and would generate savings.

  Recommendation for Executive Action

To make more effective use of LOGCAP we recommend that the Secretary of
Defense take the following actions:

o 	Designate a LOGCAP coordinator with the authority to participate in
deliberations and advocate for the most effective and efficient use of the
LOGCAP contract. Areas where we believe this coordinator should provide
oversight include (1) reviewing planning for the use of LOGCAP to ensure
it is in accordance with Army doctrine and guidance; (2) evaluating the
types and frequency of services to be provided; and (3) evaluating the
extent to which the contract is being used economically and efficiently.

o 	Direct the coordinator to advise the Secretary of unresolved
differences among the DOD components on how best to use LOGCAP, and to
report to the Secretary periodically regarding how effectively LOGCAP is
being used.

As you know, 31 U.S.C. c 720 requires the head of a federal agency to
submit a written statement on the actions taken on our recommendations
to the Senate Committee on Government Affairs and House Committee on
Government Reform not later than 60 days after the date of this report.
A written statement must also be sent to the House and Senate Committees
on Appropriations with the agency's first request for appropriations made
more than 60 days after the date of this report.

  Agency Comments and our Evaluation

DOD provided written comments on a draft of this report, which were signed
by the Acting Deputy Under Secretary of Defense for Logistics and Materiel
Readiness. They are included in appendix II. DOD concurred with the report
and its recommendations, and described the steps it plans to take to
implement our recommendations. Regarding our recommendation that the
Secretary of Defense designate a LOGCAP coordinator with the authority to
participate in deliberations and advocate for the most effective and
efficient use of the contract, DOD stated that it recently issued a new
DOD instruction entitled "The Defense Logistics and Global Supply Chain
Management System," which identifies the Under Secretary of Defense for
Acquisition, Technology, and Logistics as the Defense Logistics Executive;
establishes a Defense Logistics Board; and defines the department's
logistics and global supply chain management system as including all DOD
activities that provide the combatant commanders with materiel support.
According to DOD, oversight of logistics support contracts such as the

Army's LOGCAP contract is within the authority and responsibility of the
Defense Logistics Executive, and the Defense Logistics Board will include
logistics support contracts as part of its mandate to "advise the Defense
Logistics Executive on oversight of the Defense logistics and global
supply chain management system." Regarding our recommendation that the
coordinator be directed to advise the Secretary of unresolved differences
among the DOD components on how best to use LOGCAP, DOD stated that the
Defense Logistics Executive, with the advice and assistance of the Defense
Logistics Board, would do so.

We are sending copies of this report to the Chairman and Ranking Minority
Members, House and Senate Committees on Armed Services; the Chairman and
Ranking Minority Members, Subcommittees on Defense, House and Senate
Committees on Appropriations; Chairman and Ranking Minority Member, House
Committee on Government Reform; and other interested congressional
committees. We are also sending a copy to the Director, Office of
Management and Budget, and we will make copies available to others upon
request. In addition, the 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, please contact me on (202)
512-8365 or by e-mail at [email protected]. Major contributors to this report
are included in appendix III.

Sincerely yours,

William M. Solis Director, Defense Capabilities and Management

Appendix I

Scope and Methodology

To determine the actions the Army has taken for improving the management
and oversight of the Logistics Civil Augmentation Program (LOGCAP), we met
with representatives of the Army Field Support Command's (AFSC) LOGCAP
Program Manager, LOGCAP Contracting Office, and LOGCAP Support Unit to
gain a comprehensive understanding of the status of efforts regarding the
LOGCAP contract, the contract management process, and issues related to
using the contract effectively. We drew upon our prior work, including
visits to U.S. military sites using the LOGCAP contract in Kuwait and
units that had returned from Iraq. Among the units that had returned from
Iraq, we met with representatives of the 101st Airborne Division and the
1st Armored Division. We also met with customers who used the LOGCAP
contract, including logistics planners from the Army Central Command, who
were responsible for planning for the use of LOGCAP in Operations Enduring
Freedom and Iraqi Freedom, to discuss their experiences, and with
contracting officials within the same command who played a role in
contract management and oversight. To identify further opportunities to
use the contract effectively, we undertook a number of actions. We
interviewed the former Deputy Commanding General for Logistics in Iraq to
discuss his experiences in using LOGCAP. We also met with senior logistics
officials from U.S. Army Europe who were responsible for the Balkans
Support Contract. As we stated earlier in this report, the Balkans Support
Contract is similar to the LOGCAP contract and was established in 1997
when there was a change in LOGCAP contractors. The purpose of our visit
was to discuss their lessons learned in controlling the Balkans Support
Contract and the actions they had taken to improve the overall management
of that contract.

We visited or spoke with individuals at the following locations during our
review:

Department of the Army:

o  Office of the Deputy Chief of Staff-Logistics, Pentagon

o  U.S. Army Europe, Heidelberg, Germany

o  U.S. Army Central Command (Rear), Fort McPherson, Ga.

o U.S. Army Corps of Engineers-Trans Atlantic Program Center, Winchester,
Va.

o  1st Armored Division, Wiesbaden Army Airfield, Wiesbaden, Germany

Appendix I Scope and Methodology

o U.S. Army Materiel Command, Fort Belvoir, Va.

o U.S. Army Field Support Command, LOGCAP Contracting Office, Rock Island,
Ill.

o U.S. Army Field Support Command, LOGCAP Program Office, Fort Belvoir,
Va.

o U.S. Army Field Support Command, LOGCAP Support Unit, Fort Belvoir, Va.

We conducted our review from October 2004 through January 2005 in
accordance with generally accepted government auditing standards.

                                  Appendix II

                    Comments from the Department of Defense

Appendix II
Comments from the Department of Defense

Note: Page numbers in the draft report may differ from those in this
report.

Appendix III

                     GAO Contact and Staff Acknowledgments

GAO Contact Steve Sternlieb (202) 512-4534

Acknowledgments	In addition to the person named above, Glenn Furbish,
Kenneth Patton, Jennifer Thomas, and Earl Williams made key contributions
to this report.

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