Homeland Security: Challenges in Creating an Effective
Acquisition Organization (27-JUL-06, GAO-06-1012T).
The Department of Homeland Security (DHS) has some of the most
extensive acquisition needs within the U.S. government. In fiscal
year 2005, the department reported that it obligated almost $17.5
billion to acquire a wide range of goods and services. DHS's
acquisition portfolio is broad and complex, including
procurements for sophisticated screening equipment for air
passenger security; technologies to secure the nation's borders;
trailers to meet the housing needs of Hurricane Katrina victims;
and the upgrading of the Coast Guard's offshore fleet of surface
and air assets. This testimony summarizes GAO reports and
testimonies, which have reported on various aspects of DHS
acquisitions. It addresses (1) areas where DHS has been
successful in promoting collaboration among its various
organizations, and (2) challenges it still faces in integrating
the acquisition function across the department; and (3) DHS'
implementation of an effective review process for its major,
complex investments. The information in this testimony is based
on work that was completed in accordance with generally accepted
government auditing standards.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-06-1012T
ACCNO: A57560
TITLE: Homeland Security: Challenges in Creating an Effective
Acquisition Organization
DATE: 07/27/2006
SUBJECT: Budget obligations
Contract oversight
Federal procurement
Government contracts
Homeland security
Interagency relations
Internal controls
Procurement planning
Procurement policy
Procurement practices
Coast Guard Deepwater Project
TSA Secure Flight Program
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GAO-06-1012T
* Summary
* Early Initiatives to Leverage Buying Power and Small Busines
* DHS Faces Key Challenges In Creating An Integrated Acquisiti
* Policy Directive Relies on Dual Accountability and Exempts C
* Chief Procurement Officer's Staffing for Oversight Is Insuff
* Office of Procurement Operations' Heavy Use of Interagency A
* Review Process for Major Investments, Despite Use of Best Pr
* GAO's Mission
* Obtaining Copies of GAO Reports and Testimony
* Order by Mail or Phone
* To Report Fraud, Waste, and Abuse in Federal Programs
* Congressional Relations
* Public Affairs
Testimony before the Committee on Government Reform, House of
Representatives
United States Government Accountability Office
GAO
For Release on Delivery Expected at 10:00 a.m. EST
Thursday, July 27, 2006
HOMELAND SECURITY
Challenges in Creating an Effective Acquisition Organization
Statement of Michael J. Sullivan,
Director, Acquisition and Sourcing Management
GAO-06-1012T
Mr. Chairman and Members of the Committee:
Thank you for inviting me here today to discuss the Department of Homeland
Security's (DHS) acquisition organization. Since its establishment in
March 2003, DHS has been faced with assembling 23 separate federal
agencies and organizations with multiple missions, values, and cultures
into one cabinet-level department. This mammoth task-one of the biggest
mergers ever to take place within the federal government- involved a
variety of transformational efforts, one of which is to design and
implement the necessary management structure and processes for the
acquisition of goods and services.
DHS has some of the most extensive acquisition needs within the U.S.
government. In fiscal year 2005, the department reported that it has
obligated almost $17.5 billion to acquire a wide range of goods and
services. The DHS acquisitions portfolio is broad and complex. For
example, it has purchased increasingly sophisticated screening equipment
for air passenger security; acquired technologies to secure the nation's
borders; purchased trailers to meet the housing needs of Hurricane Katrina
victims; and is upgrading the Coast Guard's offshore fleet of surface and
air assets. DHS has been working to integrate the many acquisition
processes and systems that the disparate agencies and organizations
brought with them while still addressing ongoing mission requirements and
emergency situations such as responding to Hurricane Katrina. As you know,
we designated the establishment of the department and its transformation
as high risk;1 we also pointed out that not effectively addressing DHS'
management challenges and program risks could have serious consequences
for our national security.
Based on work done for this committee last year,2 today I would like to
discuss areas where DHS has been successful in promoting collaboration
among its various organizations and areas where it still faces challenges,
such as integrating and unifying the acquisition function across the
department. I will also discuss our assessment of the department's
progress in implementing an effective review process for its major,
complex investments, highlighting some recent GAO work related to these
issues. This testimony is based on GAO reports and testimonies that were
done in accordance with generally accepted government auditing standards.
1 GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: January
2003).
2 GAO, Homeland Security: Successes and Challenges in DHS's Efforts to
Create an Effective Acquisition Organization, GAO-05-179 , (Washington,
D.C.: Mar. 29, 2005).
Summary
Designing and implementing the necessary management structure and
processes for the acquisition of goods and services for 23 separate
federal agencies and organizations, with multiple missions and cultures,
has been a mammoth task for DHS and, while it has had some success, there
are many challenges remaining. DHS has opened communication among its
acquisition organizations through its strategic sourcing and small
business programs. DHS' organizations quickly collaborated to leverage
spending for various goods and services without losing focus on small
businesses, thus leveraging its buying power and increasing savings.
We reported in March 2005 that DHS' efforts to create a unified,
accountable acquisition organization have been hampered by policies that
create ambiguity as to who is accountable for acquisition decisions.
Further, we found that, to a great extent, the various acquisition
organizations within the department are still operating in a disparate
manner, with oversight of acquisition activities left primarily up to each
individual organization. DHS continues to face challenges in creating a
more effective acquisition organization. For example:
o A policy directive intended to integrate the acquisition
function relies on a system of dual accountability for
acquisitions between the Chief Procurement Officer (CPO) and the
heads of each DHS component. This directive does not apply to the
U.S. Coast Guard and the Secret Service, which is likely to hinder
the formation of a unified acquisition organization.
o Although the CPO has issued guidance providing a framework for
acquisition oversight, implementation of the oversight program has
been limited due to insufficient staffing in the CPO's office.
o Staffing shortages in the Office of Procurement Operations,
which handles a significant portion of DHS' contracting
activity-over $4 billion last year-have led this office to rely
heavily on outside agencies for contracting support, often for a
fee. The office did not have adequate internal controls in place
to effectively oversee this interagency contracting. Due to the
challenges associated with interagency contracts, we recently
designated interagency contracting as a government-wide high risk
area.3
To protect its major, complex investments, DHS has put in place an
investment review process that adopts many best practices-that is,
proven methods, processes, techniques, and activities-to help the
department reduce risk and increase the chances for successful
acquisition outcomes. However the process does not include two
critical management reviews that would help ensure that (1)
resources match customer needs prior to beginning a major
acquisition and (2) program designs perform as expected before
moving to production. We also found that some critical information
is not addressed in DHS' investment review policy or the guidance
provided to program managers. For example, before a program is
approved to begin, DHS does not require that cost and schedule
estimates be established for the acquisition based on knowledge
from preliminary designs. The review process also does not fully
address how program managers are to conduct effective contractor
tracking and oversight. Our prior reports on large DHS acquisition
programs, such as the Transportation Security Administration's
(TSA) Secure Flight program and the U.S. Coast Guard's Deepwater
program, have highlighted the need for improved oversight of
contractors and a management review that provides decision makers
with critical information at the right time.
Early Initiatives to Leverage Buying Power and Small Business Programs
Fostered Collaboration Among DHS Organizations
In the three years since its creation, DHS realized some successes
among its various acquisition organizations in opening
communication through its strategic sourcing and small business
programs. Both efforts have involved every principal organization
in DHS, along with strong involvement from the CPO, and both have
yielded positive results. DHS' disparate acquisition organizations
quickly collaborated on leveraging spending for various goods and
services, without losing focus on small businesses. This use of
strategic sourcing-formulating purchasing strategies to meet
departmentwide requirements for specific commodities, such as
office supplies, boats, energy, and weapons-helped DHS leverage
its buying power, with savings expected to grow. At the time of
our March 2005 review, DHS had reported approximately $14 million
in savings across the department. We also found that the small
business program, whose reach is felt across DHS, was off to a
good start. In fiscal year 2004, DHS reported that 35 percent of
its prime contract dollars went to small businesses, exceeding its
goal of 23 percent. Representatives have been designated in each
DHS procurement office to help ensure that small businesses have
opportunities to compete for DHS' contract dollars.
However, some officials responsible for carrying out strategic
sourcing initiatives have found it challenging to balance those
duties with the demands and responsibilities of their full-time
positions within DHS. Officials told us that strategic sourcing
meetings and activities sometimes stall because participants must
shift attention to their full-time positions. Our prior work on
strategic sourcing shows that leading commercial companies often
establish full-time commodity managers to more effectively manage
commodities. Commodity managers help define requirements with
internal clients, negotiate with potential vendors, and resolve
performance or other issues arising after a contract is awarded
and can help maintain consistency, stability, and a long-term
strategic focus.
DHS Faces Key Challenges In Creating An Integrated Acquisition
Organization
DHS continues to faces challenges in creating a unified,
accountable acquisition organization due to policies that create
ambiguity as to accountability for acquisition decisions,
inadequate staffing to conduct department-wide oversight, and
heavy reliance on interagency contracting in the Office of
Procurement Operations, which is responsible for a large portion
of DHS' contracting activity.
Policy Directive Relies on Dual Accountability and Exempts Coast
Guard and Secret Service
Achieving a unified and integrated acquisition system is hampered
because an October 2004 policy directive relies on a system of
dual accountability between the CPO and the heads of the
department's principal organizations. Although the CPO has been
delegated the responsibility to manage, administer, and oversee
all acquisition activity across DHS, in practice, performance of
these activities is spread throughout the department, reducing
accountability for acquisition decisions.
This system of dual accountability results in unclear working
relationships between the CPO and heads of DHS' principal
organizations. For example, the policy leaves unclear how the CPO
and the director of Immigration and Customs Enforcement are to
share responsibility for recruiting and selecting key acquisition
officials, preparing performance ratings for the top manager of
the contracting office, and providing appropriate resources to
support CPO initiatives.
The policy also leaves unclear what enforcement authority the CPO
has to ensure that initiatives are carried out because heads of
principal organizations are only required to "consider" the
allocation of resources to meet procurement staffing levels in
accordance with the CPO's analysis. Agreements had not been
developed on how the resources to train, develop, and certify
acquisition professionals in the principal organizations would be
identified or funded.
While the October 2004 policy directive emphasizes the need for a
unified, integrated acquisition organization, achievement of this
goal is further hampered because the directive does not apply to
the U.S. Coast Guard and U.S. Secret Service. The Coast Guard is
one of the largest organizations within DHS, with obligations
accounting for about $2.2 billion in fiscal year 2005, nearly 18
percent of the department's total. The directive maintains that
these two organizations are exempted from the directive by
statute. We disagreed with this conclusion, as we are not aware of
any explicit statutory exemption that would prevent the
application of the DHS acquisition directive to either
organization. We raised the question of statutory exemption with
the DHS General Counsel, who shared our assessment concerning the
explicit statutory exemptions. He viewed the applicability of the
management directive as a policy matter.
Chief Procurement Officer�s Staffing for Oversight Is Insufficient
DHS' goal of achieving a unified, integrated acquisition
organization is in part dependent on its ability to provide
effective oversight of component activities. We reported in March
2005 that the CPO lacked sufficient staff to ensure compliance
with DHS' acquisition oversight regulations and policies. To a
great extent, the various acquisition organizations within the
department were still operating in a disparate manner, with
oversight of acquisition activities left primarily up to each
individual organization. In December 2005, DHS implemented a
department wide management directive that establishes policies and
procedures for acquisition oversight. The CPO has issued guidance
providing a framework for the oversight program and, according to
DHS officials, as of May 2006, five staff were assigned to
oversight responsibilities. We have ongoing work in this area and
will be reporting on the department's progress in the near future.
The challenge DHS faces overseeing its various components'
contracting activities is significant. For example, in May 20044
we reported that TSA had not developed an acquisition
infrastructure, including organization, policies, people, and
information that would facilitate successful management and
execution of its acquisition activities. The development of those
areas could help ensure that TSA acquires quality goods and
services at reasonable prices, and makes informed decisions about
acquisition strategy.
Office of Procurement Operations� Heavy Use of Interagency Agreements
To support the DHS organizations that lacked their own procurement
support, the department created the Office of Procurement
Operations. In 2005, we found that, because this office lacked
sufficient contracting staff, it had turned extensively to
interagency contracting to fulfill its responsibilities. At the
time of our review, we found that this office had transferred
almost 90 percent of its obligations to other federal agencies
through interagency agreements in fiscal year 2004. For example,
DHS had transferred $12 million to the Department of the
Interior's National Business Center to obtain contractor
operations and maintenance services at the Plum Island Animal
Disease Center. Interior charged DHS $62,000 for this assistance.
We found that the Office of Procurement Operations lacked adequate
internal controls to provide oversight of its interagency
contracting activity. For example, it did not track the fees it
was paying to other agencies for contracting assistance. Since our
report was issued, the office has added staff and somewhat reduced
its reliance on interagency contracting. Recently, DHS officials
told us that the office has increased its staffing level from 42
to 120 employees, with plans to hire additional staff. As reported
by DHS, the Office of Procurement Operations' obligations
transferred to other agencies had decreased to 72 percent in
fiscal year 2005.
Review Process for Major Investments, Despite Use of Best Practices,
Was Inconsistent and Lacked Some Management Controls
To protect its major, complex investments, DHS has put in place a
review process that adopts many acquisition best practices-proven
methods, processes, techniques, and activities-to help the
department reduce risk and increase the chances for successful
investment outcomes in terms of cost, schedule, and performance.
One best practice is a knowledge-based approach to developing new
products and technologies pioneered by successful commercial
companies, which emphasizes that program managers need to provide
sufficient knowledge about important aspects of their programs at
key points in the acquisition process, so senior leaders are able
to make well-informed investment decisions before an acquisition
moves forward.
While DHS' framework includes key tenets of this approach, in
March 2005 we reported that it did not require two critical
management reviews. The first would help ensure that resources
match customer needs before any funds are invested. The second
would help ensure that the design for the product performs as
expected prior to moving into production. We also found that some
critical information is not addressed in DHS' investment review
policy or the guidance provided to program managers. In other
cases, it is made optional. For example, before a program is
approved to start, DHS policy requires program managers to
identify an acquisition's key performance requirements and to have
technical solutions in place. This information is then used to
form cost and schedule estimates for the product's development to
ensure that a match exists between requirements and resources.
However, DHS policy does not establish cost and schedule estimates
for the acquisition based on knowledge from preliminary designs.
Further, while DHS policy requires program managers to identify
and resolve critical operational issues before proceeding to
production, initial reviews-such as the system and subsystem
review-are not mandatory.
In addition, while the review process adopts other important
acquisition management practices, such as requiring program
managers to submit acquisition plans and project management plans,
a key practice-contractor tracking and oversight-is not fully
incorporated. We have cited the need for increased contractor
tracking and oversight for several large DHS programs. While many
of DHS' major investments use commercial, off-the-shelf products
that do not require the same level of review as a complex,
developmental investment would, DHS is investing in a number of
major, complex systems, such as TSA's Secure Flight program and
the Coast Guard's Deepwater program, that incorporate new
technology. Our work on these two systems highlights the need for
improved oversight of contractors and greater adherence to a best
practices approach to management review. Two examples follow.
We reported in February 20065 that TSA, in developing and managing
its Secure Flight program, had not conducted critical activities
in accordance with best practices for large scale information
technology programs. Program officials stated that they used a
rapid development method that was intended to enable them to
develop the program more quickly. However, as a result of this
approach, the development process has been ad hoc, with project
activities conducted out of sequence. TSA officials have
acknowledged that they have not followed a disciplined life cycle
approach in developing Secure Flight, and stated that they are
currently rebaselining the program to follow their standard
systems development life cycle process, including defining system
requirements. TSA officials also told us they are taking steps to
strengthen contractor oversight for the Secure Flight program. For
example, the program is using one of TSA's support contractors to
help track contractors' progress in the areas of cost, schedule,
and performance and the number of TSA staff with oversight
responsibilities for Secure Flight contracts has been increased.
TSA reports it has identified contract management as a key risk
factor associated with the development and implementation of
Secure Flight.
The Coast Guard's ability to meet its responsibilities depends on
the capability of its deepwater fleet, which consists of aircraft
and vessels of various sizes and capabilities. In 2002, the Coast
Guard began a major acquisition program to replace or modernize
these assets, known as the Deepwater program. Deepwater is
currently estimated to cost $24 billion. We have reported6 that
the Coast Guard's acquisition strategy of relying on a prime
contractor ("system integrator") to identify and deliver the
assets needed carries substantial risks. We found that well into
the contract's second year, key components for managing the
program and overseeing the system integrator's performance had not
been effectively implemented. As we recently observed, the Coast
Guard has made progress in addressing our recommendations, but
there are aspects of the Deepwater program that will require
continued attention. The program continues to face a degree of
underlying risk, in part because of the unique, system-of-systems
approach with the contractor acting as overall integrator, and in
part because it is so heavily tied to precise year-to year funding
requirements over the next two decades. Further, a project of this
magnitude will likely continue to experience other concerns and
challenges beyond those that have emerged so far. It will be
important for Coast Guard managers to carefully monitor contractor
performance and to continue addressing program management concerns
as they arise.
In closing, I believe that DHS has taken strides toward putting in
place an acquisition organization that contains many promising
elements. However, the steps taken so far are not enough to ensure
that the department is effectively managing the acquisition of the
multitude of goods and services it needs to meet its mission. More
needs to be done to fully integrate the department's acquisition
function, to pave the way for the CPO's responsibilities to be
effectively carried out in a modern-day acquisition organization,
and to put in place the strong internal controls needed to manage
interagency contracting activity and large, complex investments.
DHS' top leaders must continue to address these challenges to
ensure that the department is not at risk of continuing to exist
with a fragmented acquisition organization that provides stopgap,
ad hoc solutions. DHS and its components, while operating in a
challenging environment, must have in place sound acquisition
plans and processes to make and communicate good business
decisions, as well as a capable acquisition workforce to assure
that the government receives good value for the money spent.
Mr. Chairman, this concludes my statement. I would be happy to
respond to any questions you or other Members of the Committee may
have at this time. For further information regarding this
testimony, please contact Michael Sullivan at (202) 512-4841 or
[email protected] .
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Early Initiatives to Leverage Buying Power and Small Business Programs Fostered
Collaboration Among DHS Organizations
3 GAO, High Risk Series: An Update, GAO-05-207 (Washington, D.C.: January
2005).
DHS Faces Key Challenges In Creating An Integrated Acquisition Organization
Policy Directive Relies on Dual Accountability and Exempts Coast Guard and
Secret Service
Chief Procurement Officer's Staffing for Oversight Is Insufficient
Office of Procurement Operations' Heavy Use of Interagency Agreements
4 GAO, Transportation Security Administration: High-Level Attention Needed
to Strengthen Acquisition Function, GAO-04-544 (Washington, D.C.: May 28,
2004).
Review Process for Major Investments, Despite Use of Best Practices, Was
Inconsistent and Lacked Some Management Controls
5 GAO-05-356 and GAO-06-374T .
6 GAO, Coast Guard: Changes to Deepwater Plan Appear Sound, and Program
Management Has Improved, but Continued Monitoring Is Warranted, GAO-06-546
(Washington, D.C.: Apr. 28, 2006; Contract Management: Coast Guard's
Deepwater Program Needs Increased Attention to Management and Contractor
Oversight, GAO-04-380 (Washington, D.C.: Mar. 9, 2004).
(120584)
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Highlights of GAO-06-1012T, a testimony before the Committee on Government
Reform, House of Representatives
July 27, 2006
HOMELAND SECURITY
Challenges in Creating An Effective Acquisition Organization
The Department of Homeland Security (DHS) has some of the most extensive
acquisition needs within the U.S. government. In fiscal year 2005, the
department reported that it obligated almost $17.5 billion to acquire a
wide range of goods and services. DHS `s acquisition portfolio is broad
and complex, including procurements for sophisticated screening equipment
for air passenger security; technologies to secure the nation's borders;
trailers to meet the housing needs of Hurricane Katrina victims; and the
upgrading of the Coast Guard's offshore fleet of surface and air assets.
This testimony summarizes GAO reports and testimonies, which have reported
on various aspects of DHS acquisitions. It addresses (1) areas where DHS
has been successful in promoting collaboration among its various
organizations, and (2) challenges it still faces in integrating the
acquisition function across the department; and (3) DHS' implementation of
an effective review process for its major, complex investments. The
information in this testimony is based on work that was completed in
accordance with generally accepted government auditing standards.
Since its establishment in March 2003, DHS has been faced with assembling
23 separate federal agencies and organizations with multiple missions and
cultures into one department. This mammoth task involved a variety of
transformational efforts, one of which is to design and implement the
necessary management structure and processes for the acquisition of goods
and services. We reported in March 2005 that DHS had opened communication
among its acquisition organizations through its strategic sourcing and
small business programs. With strategic sourcing, DHS' organizations
quickly collaborated to leverage spending for various goods and
services-such as office supplies, boats, energy, and weapons-without
losing focus on small businesses, thus leveraging its buying power and
increasing savings. Its small business program, whose reach is felt across
DHS, is also off to a good start. Representatives have been designated in
each DHS procurement office to ensure small businesses can compete
effectively for the agency's contract dollars.
We also reported that DHS' progress in creating a unified acquisition
organization has been hampered by policy decisions that create ambiguity
about who is accountable for acquisition decisions. To a great extent, we
found that the various acquisition organizations within DHS were still
operating in a disparate manner, with oversight of acquisition activities
left primarily up to each individual organization. DHS continues to face
challenges in integrating its acquisition organization. Specifically, dual
accountability for acquisitions exists between the Chief Procurement
Officer (CPO) and the heads of each DHS component; a policy decision has
exempted the Coast Guard and Secret Service from the unified acquisition
organization; the CPO has insufficient capacity for department-wide
acquisition oversight; and staffing shortages have led the Office of
Procurement Operations, which handles a large percentage of DHS'
contracting activity, to rely extensively on outside agencies for
contracting support-often for a fee. We found that this office lacked the
internal controls to provide oversight of this interagency contracting
activity. This last challenge has begun to be addressed with the hiring of
additional contracting staff.
Some of DHS' organizations have major, complex acquisition programs that
are subject to a multi-tiered investment review process intended to help
reduce risk and increase chances for successful outcomes in terms of cost,
schedule, and performance. While the process includes many best practices,
it does not include two critical management reviews, namely a review to
help ensure that resources match customer needs and a review to determine
whether a program's design performs as expected. Our prior reports on
large DHS acquisition programs, such as the Transportation Security
Administration's Secure Flight program and the Coast Guard's Deepwater
program, highlight the need for improved oversight of contractors and
adherence to a rigorous management review process.
*** End of document. ***