    Interagency Contracting: Improved Guidance, Planning, and
    Oversight Would Enable the Department of Homeland Security to
    Address Risks (27-SEP-06, GAO-06-996).

    The Department of Homeland Security (DHS) has some of the most
    extensive acquisition needs within the federal government. In
    fiscal year 2005, DHS spent $17.5 billion on contracted
    purchases, $6.5 billion, or 37 percent, of which was through the
    use of other agencies' contracts and contracting services, a
    process known as interagency contracting. While these types of
    contracts offer the benefits of efficiency and convenience, in
    January 2005, GAO noted shortcomings and designated the
    management of interagency contracting as a governmentwide
    high-risk area. Given the department's critical national security
    mission and the results of our earlier work, GAO reviewed the
    extent to which DHS manages the risks of interagency contracting
    and assessed DHS' guidance, planning, and oversight of
    interagency contracting.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-06-996
        ACCNO:   A61488
      TITLE:     Interagency Contracting: Improved Guidance, Planning, and
    Oversight Would Enable the Department of Homeland Security to
    Address Risks
         DATE:   09/27/2006
      SUBJECT:   Contract administration
    	     Contract administration management
    	     systems

    	     Federal procurement
    	     Financial management
    	     Interagency relations
    	     Monitoring
    	     Policy evaluation
    	     Procurement planning
    	     Procurement policy
    	     Procurement practices
    	     Risk management

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    GAO-06-996

         * Results in Brief
         * Background
         * Enhanced Guidance and Expertise Could Help DHS Address Inter
              * DHS Guidance Could be Expanded to All Types of Interagency C
              * Additional Training Could Help Reduce Management Risks
              * Other Large Agencies Have Developed Guidance and Emphasized
         * DHS Did Not Always Assess Total Value When Choosing Interage
              * Speed and Convenience, Rather Than Planning and Analysis, Of
              * Recent Planning Requirement Does Not Include Evaluation Crit
         * DHS Oversight Program Does Not Assess Outcomes of Interagenc
              * DHS Does Not Monitor or Assess Use of Interagency Contractin
              * DHS Has Begun to Develop an Oversight Program, but Is Facing
         * Conclusions
         * Recommendations for Executive Action
         * Matter for Congressional Consideration
         * Agency Comments and Our Evaluation
         * 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

    Report to Congressional Requesters

    United States Government Accountability Office

    GAO

    September 2006

    INTERAGENCY CONTRACTING

    Improved Guidance, Planning, and Oversight Would Enable the Department of
    Homeland Security to Address Risks

    GAO-06-996

    Contents

    Letter 1

    Results in Brief 3
    Background 4
    Enhanced Guidance and Expertise Could Help DHS Address Interagency
    Contracting Risks 7
    DHS Did Not Always Assess Total Value When Choosing Interagency Contracts
    12
    DHS Oversight Program Does Not Assess Outcomes of Interagency Contracting
    16
    Conclusions 19
    Recommendations for Executive Action 20
    Matter for Congressional Consideration 20
    Agency Comments and Our Evaluation 21
    Appendix I Scope and Methodology 24
    Appendix II Department of Homeland Security Interagency Contracting 28
    Appendix III Comments from the Department of Homeland Security 29

    Tables

    Table 1: Department of Homeland Security Interagency Contracting in Fiscal
    Year 2005 (dollars in millions) 9
    Table 2: Examples of Need for Improved Training and Expertise 10
    Table 3: Cases with Limited Planning and No Assurance of Good Value 15
    Table 4: DHS Acquisition Oversight Program 18
    Table 5: Fiscal Year 2005 Cases Reviewed at Office of Procurement
    Operations, Customs and Border Protection, and Coast Guard 26
    Table 6: Interagency Contracting Methods Used by DHS 28

    Figures

    Figure 1: Growth in DHS Contracting 6

    Abbreviations

    CBP Customs and Border Protection DHS Department of Homeland Security DOD
    Department of Defense FedSim Federal Systems Integration and Management
    Center FAR Federal Acquisition Regulation FPDS-NG Federal Procurement Data
    System-Next Generation GSA General Services Administration

    GWAC Governmentwide Acquisition Contract OCPO Office of the Chief
    Procurement Officer OPO Office of Procurement Operations

    This is a work of the U.S. government and is not subject to copyright
    protection in the United States. It may be reproduced and distributed in
    its entirety without further permission from GAO. However, because this
    work may contain copyrighted images or other material, permission from the
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    separately.

    United States Government Accountability Office

    Washington, DC 20548

    September 27, 2006

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

    The Honorable Daniel K. Akaka Ranking Minority Member Subcommittee on
    Oversight of Government Management, Federal Workforce, and the District of
    Columbia Committee on Homeland Security and Governmental Affairs United
    States Senate

    The Honorable Bennie G. Thompson Ranking Minority Member Committee on
    Homeland Security House of Representatives

    The Department of Homeland Security (DHS) performs a comprehensive
    homeland security mission encompassing protecting the nation's borders,
    airports and critical infrastructure, and response and recovery in the
    event of national emergencies. DHS meets these goals with some of the most
    extensive acquisitions within the federal government. Now one of the
    largest procuring agencies, DHS spent about $17.5 billion on contracted
    purchases in fiscal year 2005.1 Over $6.5 billion, or approximately 37
    percent of the department's total fiscal year 2005 contract dollars, was
    for purchases made through the use of other agencies' contracts and
    contracting services, a process known as interagency contracting.2 While
    these types of contracts offer the benefits of efficiency and convenience,
    in January 2005, GAO noted shortcomings and designated the management of
    interagency contracting as a governmentwide high-risk area. Our work and
    the work of others has identified the need for improved guidance and
    expertise, planning, and oversight to manage and mitigate the risks of
    these types of contracts. In March 2005, we reported that DHS was not
    effectively managing acquisition, in particular interagency purchases, of
    the multitude of goods and services it needed to meet its mission.3

    1This amount includes procurement obligations and interagency agreements
    as reported by DHS.

    2For the purposes of this review, interagency contracting includes the
    following: (1) interagency agreements in which one federal agency
    transfers funds to another federal agency to make a purchase through a
    contractual arrangement, such as purchases made through franchise funds
    and other fee-for-service operations; (2) orders placed through the
    General Services Administration's (GSA) schedules; and (3) orders placed
    through governmentwide acquisition contracts (GWAC) and other government
    agencies' contracts.

    Given the department's critical national security mission and the results
    of our earlier work, you asked us to review the extent to which DHS
    manages interagency contracting. To address this question, we assessed (1)
    DHS guidance for the use of interagency contracts; (2) DHS planning and
    evaluation of contracting alternatives when using interagency contracts;
    and (3) DHS practices for overseeing the performance of interagency
    contracts.

    To conduct our work, we selected 17 cases totaling $245 million. Each case
    represented $5 million or more in orders placed through several types of
    interagency contracting arrangements in fiscal year 2005. These cases
    represented orders placed by DHS' Office of Procurement Operations (OPO),
    Customs and Border Protection (CBP), and Coast Guard, which were the
    largest users of interagency contracts in fiscal year 2005. We interviewed
    senior procurement officials at the three components and at the Office of
    the Chief Procurement Officer (OCPO), interviewed contracting officers and
    program managers at the three components, and reviewed the guidance and
    oversight at the departmental level and at the components to address the
    management and planning of interagency contracting.4 We obtained data on
    procurement actions from DHS and compared it with data from the Federal
    Procurement Data System-Next Generation (FPDS-NG) and determined that the
    data were sufficiently reliable for our purposes. For more information on
    our scope and methodology, see appendix I. We conducted our work from
    February through August 2006 in accordance with generally accepted
    government auditing standards.

    3GAO, Homeland Security: Successes and Challenges in DHS's Effort to
    Create an Effective Acquisition Organization, GAO-05-179 (Washington,
    D.C.: Mar. 29, 2005).

    4For the purposes of this review we refer to all DHS agencies and
    procurement organizations as components. We refer to those program
    managers or contracting officers using interagency contracts as DHS users.

                                    Results in Brief

    While DHS continues to rely heavily on interagency contracts to fill its
    purchasing needs, the departmentwide guidance on how to effectively manage
    and mitigate the risks of interagency contracting could be improved. These
    risks include not receiving good value and lack of expertise of users. DHS
    has issued specific guidance associated with the largest area of
    interagency contracting, which is performed under interagency agreements,
    but not for other types, such as GSA schedules and governmentwide
    acquisition contracts, which amounted to nearly $1.5 billion in DHS
    spending in fiscal year 2005. We also found that some DHS users may have
    lacked expertise and could benefit from guidance and training in the use
    of these types of interagency contracts. For example, we found that
    controls, such as the annual review of purchase agreements for discounts
    on purchases through the GSA schedules, required by the Federal
    Acquisition Regulation to ensure that prices still represent the best
    value, were not in place. OCPO officials explained that their staff are
    needed to respond to crises at components, such as the Federal Emergency
    Management Agency during the response to Hurricanes Katrina and Rita,
    taking their attention away from acquisition policy efforts, such as
    developing guidance.

    According to DHS officials, the department did not always select
    interagency contracts based on planning and analysis and instead made
    decisions based on the benefits of speed and convenience-not total value
    including cost. This contracting method is often chosen because it
    requires less planning than establishing a new contract, and users have
    typically relied on the servicing agency or the agency that manages the
    contracts to conduct planning, ensuring that prices are competitive and
    following proper procedures. However, our prior work has highlighted the
    importance of evaluating the use of these contracts for specific purchases
    because proper planning does not always occur. In our review, we found
    that DHS users conducted limited evaluation of interagency contracting
    alternatives. In the four cases for which an analysis of alternatives was
    required, it was not conducted. As of July 2005, DHS guidance requires
    planning for all types of purchases, including those made through
    interagency contracting, to include a discussion of alternative methods
    considered, but this policy does not include specific criteria to consider
    when analyzing alternative contracting methods.

    DHS does not yet have in place sound oversight practices that would enable
    it to evaluate the outcomes of its use of interagency contracts. DHS has
    not been monitoring its use of interagency contracts and could not readily
    provide data, such as the total cost including fees paid to other agencies
    for the use of these vehicles, which could help in assessing costs and
    benefits of interagency contracting. OCPO officials said they do not know
    how much DHS pays in fees to other agencies. OCPO is in the early stages
    of implementing an Acquisition Oversight Program. As part of this program,
    DHS plans to produce data through assessments and reviews to be conducted
    by the end of fiscal year 2007; however, this program is not expected to
    evaluate whether these interagency contracts provided good outcomes for
    the department. OCPO officials explained that in the few years since the
    department was created, their efforts have been focused on procurement
    execution rather than oversight due to urgent needs at component agencies
    and limited staffing. As of August 2006, OCPO officials said that they had
    five staff assigned to departmentwide oversight responsibilities for $17.5
    billion in acquisitions. In March 2005, we recommended that OCPO be
    provided sufficient enforcement authority and resources to provide
    effective oversight of DHS' acquisition policies and procedures. As of
    August 2006, OCPO still lacks authority to perform effective
    departmentwide oversight of the acquisition function across the component
    procurement organizations, which limits its ability to ensure that needed
    improvements are made.

    To improve the management of interagency contracting at DHS, we are making
    recommendations to the Secretary of Homeland Security to consider the
    adequacy of the OCPO's resources and develop consistent, comprehensive
    guidance and training; establish criteria to consider in selecting an
    interagency contract; and implement oversight to evaluate the outcomes of
    using interagency contracts.

    Because the Secretary has not taken action to ensure departmentwide
    acquisition oversight, Congress should require the Secretary to report on
    efforts to provide the Chief Procurement Officer with sufficient authority
    over procurement activities at all components.

    In written comments on a draft of this report, DHS concurred with our
    recommendations and indicated planned actions to address them. DHS
    comments are reproduced in their entirety in appendix III.

                                       Background

    In recent years, federal agencies have been making greater use of
    interagency contracting-a process by which agencies can use another
    agency's contracting services or existing contracts already awarded by
    other agencies to procure many goods and services. An agency can enter
    into an interagency agreement with a servicing agency and transfer funds
    to the servicing agency to conduct the acquisition on its behalf, or an
    agency can order directly from a servicing agency's contract, such as the
    GSA schedules or GWACs. When funds are transferred to another agency, the
    contracting service can be provided through entrepreneurial,
    fee-for-service organizations, which are government-run but operate like
    businesses. Interagency contracts are designed to leverage the
    government's aggregate buying power and simplify procurement of commonly
    used goods and services. In this way, the contracts offer the benefits of
    improved efficiency and timeliness in the procurement process.

    Determining the value of a particular contracting method includes
    considering benefits such as timeliness and efficiency as well as
    cost--including price and fees. Although interagency contracts can provide
    the advantages of timeliness and efficiency, use of these types of
    vehicles can also pose risks if they are not properly managed. GAO
    designated management of interagency contracting a governmentwide
    high-risk area in 2005. A number of factors make these types of contracts
    high risk, including their rapid growth in popularity along with their
    administration and use by some agencies that have limited expertise with
    this contracting method, and their contribution to a much more complex
    procurement environment in which accountability has not always been
    clearly established.5 In an interagency contracting arrangement, both the
    agency that holds, and the agency that makes purchases against, the
    contract share responsibility for properly managing the use of the
    contract. However, these shared responsibilities often have not been
    well-defined. As a result, our work and that of some inspectors general
    has found cases in which interagency contracting has not been well-managed
    to ensure that the government was getting good value. For example, in our
    review of the Department of Defense's (DOD) use of two franchise funds, we
    found that the organizations providing these services did not always
    obtain the full benefits of competitive procedures, did not otherwise
    ensure fair and reasonable prices, and may have missed opportunities to
    achieve savings on millions of dollars in purchases.6 In another review,
    we found task orders placed by DOD on a GSA schedule contract did not
    satisfy legal requirements for competition because the work was not within
    the scope of the underlying contract.7 Recent inspector general reviews
    have found similar cases. For example, the Inspector General for the
    Department of the Interior found that task orders for interrogators and
    other intelligence services in Iraq were improperly awarded under a GSA
    schedule contract for information technology services.8

    5GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: Jan.
    2005).

    6GAO, Interagency Contracting: Franchise Funds Provide Convenience, but
    Value to DOD Is Not Demonstrated, GAO-05-456 (Washington, D.C.: July 29,
    2005).

    7GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and
    Management Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004).

    The Federal Acquisition Regulation (FAR) is the primary regulation
    governing how most agencies acquire supplies and services with
    appropriated funds. The regulation provides general guidance for
    interagency agreements that fall under the authority of the Economy Act
    and for the GSA schedules and GWACs. The FAR precludes agency acquisition
    regulations that unnecessarily repeat, paraphrase, or otherwise restate
    the FAR, limits agency acquisition regulations to those necessary to
    implement FAR policies and procedures within an agency, and provides for
    coordination, simplicity, and uniformity in the federal acquisition
    process. There are several types of interagency contracting. For more
    information on those included in our review, see appendix II.

    DHS spends significant and increasing amounts through interagency
    contracting-a total of $6.5 billion in fiscal year 2005, including $5
    billion through interagency agreements and about $1.5 billion by placing
    orders off other agencies' contracts (see fig. 1). DHS' total spending on
    interagency contracting increased by about 73 percent in just 1 year.

    Figure 1: Growth in DHS Contracting

    8U.S. Department of the Interior, Office of the Inspector General, Review
    of 12 Procurements Placed Under General Services Administration Federal
    Supply Schedules 70 and 871 by the National Business Center,
    W-EV-055-0075-2004 (Washington, D.C.: July 16, 2004).

    DHS was established as of March 1, 2003, by merging the functions of 23
    agencies and organizations that specialize in one or more aspects of
    homeland security. OCPO is responsible for creating departmentwide
    policies and processes to achieve integration and to manage and oversee
    the acquisition function but does not have enforcement authority to ensure
    that initiatives are carried out.

    There are seven acquisition offices within DHS that pre-date the formation
    of DHS and continue to operate at the components. OPO was formed with the
    new department to serve the newly established entities and those
    components that did not have a separate procurement operation. Of those
    that pre-date DHS, the Coast Guard and CBP provide different examples of
    the types of components that formed DHS. The Coast Guard, previously under
    the Department of Transportation, already had an extensive procurement
    operation, whereas CBP was created by combining the United States Customs
    Service, formerly part of the Department of the Treasury, Border Patrol
    and the inspectional parts of the Immigration and Naturalization Service,
    and portions of the Department of Agriculture's Animal Plant and Health
    Inspection Service. Thus, CBP has been faced with the added challenge of
    creating a procurement organization to meet its new mission. Our prior
    work has found that an effective acquisition organization has in place
    knowledgeable personnel who work together to meet cost, quality, and
    timeliness goals while adhering to guidelines and standards for federal
    acquisition.

     Enhanced Guidance and Expertise Could Help DHS Address Interagency Contracting
                                         Risks

    While DHS has developed guidance on the use of interagency agreements-the
    largest category of interagency contracting at DHS, which amounted to $5
    billion in fiscal year 2005-it does not have specific guidance for other
    types of interagency contracting, including GSA schedules and GWACs, which
    accounted for almost $1.5 billion in fiscal year 2005. Moreover, we found
    that some DHS users may have lacked expertise in the proper use of
    interagency contracts. Although some DHS acquisition officials believe the
    FAR provides adequate guidance on the use of interagency contracts, such
    as the GSA schedules, our prior work and inspector general reviews have
    found numerous cases in which these contracting methods have not been
    properly used. For example, users have requested work that was not within
    the scope of the contract and administrators have not ensured fair and
    reasonable prices. Recognizing this concern, other large agencies, such as
    DOD and the Department of Energy, have identified the need to carefully
    manage the use of these contracts and have issued supplemental guidance
    and emphasized training programs to mitigate these risks.

    DHS Guidance Could be Expanded to All Types of Interagency Contracting

    DHS departmentwide acquisition guidance covers interagency agreements but
    not other types of interagency contracting. In December 2003, DHS issued
    the Homeland Security Acquisition Regulation and the Homeland Security
    Acquisition Manual to provide departmentwide acquisition guidance. In
    addition, DHS issued a departmentwide directive on how to use interagency
    agreements by which funds are transferred to other agencies to award and
    administer contracts or to provide contracting services on behalf of DHS.
    However, as we reported in March 2005, the directive was not being
    followed for purchases made through these agreements. For example, there
    was little indication that required analyses of alternatives were
    performed or that required oversight was in place. Although DHS began
    revising the directive in fiscal year 2004, the revisions have yet to be
    issued. According to OCPO officials, its limited policy and oversight
    resources provide assistance to the components as needed, taking time away
    from acquisition policy efforts, such as developing guidance. For example,
    OCPO officials provided contracting assistance to the Federal Emergency
    Management Agency in the response to Hurricanes Katrina and Rita.

    To supplement departmentwide DHS guidance on interagency agreements, each
    of the components we reviewed has issued some implementing guidance. OPO
    issued guidance addressing the appropriate use of interagency agreements
    that requires program officials and contracting officers to research other
    available contract vehicles. In contrast, CBP guidance addresses the goals
    of an analysis of alternatives, but emphasizes the process and the
    documentation necessary to execute the interagency agreement. The Coast
    Guard's supplemental guidance focuses mainly on the ordering and billing
    procedures for interagency agreements. However, none of the components we
    reviewed had implementing guidance for other types of interagency
    contracts. While DHS acquisition officials acknowledge the need to manage
    the risks of interagency agreements, some do not see other types of
    interagency contracting, such as the GSA schedules and GWACs, as needing
    the same type of attention and believe sufficient guidance is available in
    the FAR. In fiscal year 2005, the three components we reviewed spent a
    total of $832 million through GSA schedules, GWACs, and other interagency
    contracts (see table 1). This is a 53 percent increase over the prior
    year.

    Table 1: Department of Homeland Security Interagency Contracting in Fiscal
    Year 2005 (dollars in millions)

                                                                            Total
                             Interagency     GSA schedules, GWACs and interagency
    DHS component          agreements  other interagency contracts contracting
    Office of Procurement      $3,463                         $280      $3,743
    Operations
    Bureau of Customs and         427                          341         768
    Border Protection
    U.S. Coast Guard              483                          211         694
    Bureau of Immigration         311                          254         565
    and Customs
    Enforcement
    Federal Emergency             245                          255         500
    Management Agency
    Transportation                 49                           82         131
    Security
    Administration
    U.S. Secret Service            42                           31          73
    Federal Law                    12                           17          29
    Enforcement Training
    Center
    Total                      $5,032                       $1,471      $6,503

    Source: GAO analysis of DHS data.

    Note: GSA schedule amounts include blanket purchase agreements negotiated
    by the components to receive volume discounts for repetitive purchases
    from the GSA schedule contracts.

    Additional Training Could Help Reduce Management Risks

    We have previously reported that use of interagency contracts demands a
    higher degree of business acumen and flexibility on the part of users and
    administrators than in the past, and acquisition officials need sufficient
    training and expertise to ensure the proper use of these types of
    contracts in an increasingly complex procurement environment. During our
    review, we identified several examples that showed that DHS may not have
    obtained a good value for millions of dollars in spending and indicated a
    need for improved training and expertise (see table 2).

    Table 2: Examples of Need for Improved Training and Expertise

    No assurance of good
    value                     Cases
    No review of purchase     CBP's contracting officers placed seven orders
    agreements for            totaling $51.7 million through two blanket
    competitive prices        purchase agreements against the GSA schedules
                                 without assurance that these agreements were
                                 reviewed annually as required by the FAR and CBP
                                 standard operating procedures to ensure prices
                                 still represent the best value.a In one of these
                                 cases, program officials said that they had been
                                 using blanket purchase agreements to acquire
                                 information technology services for as long as
                                 15 years, but the contracting officers did not
                                 determine whether the proposed orders were
                                 within the scope of the agreement or whether the
                                 agreements were still a good value for the
                                 department.
    Inability to recoup costs CBP terminated an order placed with a GSA
                                 schedule contractor because of lack of
                                 performance and sought re-procurement costs in
                                 the amount of $1.3 million. The contractor
                                 asserted that its performance failures were
                                 excusable, and CBP failed to refer the dispute
                                 to the GSA contracting officer as required by
                                 the FAR. Because of this error, CBP was unable
                                 to pursue recovery of its costs.
    Contract files missing    OPO had difficulty locating the contract files
    key documentation         we requested for our review, and when the files
                                 were found, they lacked key documentation such
                                 as an analysis of alternatives for purchases
                                 made through interagency agreements. This is
                                 consistent with OPO's March 2006 internal review
                                 of 10 interagency agreements totaling $114.2
                                 million, which found 5 lacked the required
                                 analysis of alternatives, 4 lacked a
                                 determination and findings, 8 lacked terms and
                                 conditions, and most lacked evidence that
                                 adequate contractor oversight was being
                                 performed. The study also found that the
                                 required sole source/limited source
                                 justification was missing or was not well
                                 documented for orders off the GSA schedule. The
                                 review noted that OPO contracting officials did
                                 not seem to understand the significance of a
                                 thorough and complete evaluation for determining
                                 best value.
    Transferring funds to a   CBP transferred funds to a franchise fund late
    franchise fund at         in fiscal year 2005, and, according to
    year-end                  contracting and program officials, as of June
                                 2006, the funds had not been obligated. CBP
                                 received $5 million in additional funding for a
                                 vehicle license plate reader program late in the
                                 fiscal year, and there was little time to
                                 conduct a competitive procurement before the end
                                 of the fiscal year. CBP used an interagency
                                 agreement to transfer the $5 million to
                                 GovWorks, the Department of the Interior's
                                 franchise fund. According to the program manager
                                 and contracting officials, the $5 million in
                                 fiscal year 2005 funds was "parked" with the
                                 franchise fund until a contract could be
                                 awarded, and as of June 2006, the funds remained
                                 with GovWorks.b Franchise funds are not intended
                                 for parking funds. In fact, this practice has
                                 been the subject of recent DOD Inspector General
                                 reviews that found mismanagement of funds
                                 transferred to GSA for contracting services
                                 resulted in DOD losing over $1 billion.c

    Source: GAO analysis of DHS data.

    aFAR, Subpart 8.405-3(d) and CBP's Office of Procurement Standard
    Operating Procedure Number 2004-14.

    bThe term to "park" funds refers to the transfer of appropriated funds by
    one agency to another agency's acquisition center for the procurement of
    goods and services under circumstances where a bona fide need
    determination is in doubt.

    cDepartment of Defense, Office of the Inspector General, Acquisition: DOD
    Purchases Made through the General Services Administration, D-2005-096
    (Arlington, Va.: July 29, 2005).

    Several contracting officials stated that additional training is needed in
    the use of interagency contracts but that there was not much training
    available. In addition, other contracting officials told us that they were
    not aware of the range of available alternatives for interagency
    contracting.

    Other Large Agencies Have Developed Guidance and Emphasized Training for all
    Types of Interagency Contracting

    To ensure the proper use of all types of interagency contracts, other
    large procuring agencies, including DOD and the Department of Energy, have
    issued guidance to supplement the FAR and have emphasized specialized
    training. DOD is the largest user of other agencies' contracts and the
    Department of Energy reported that it spent about $1.7 billion on other
    agencies' contracts in fiscal year 2005-a substantial amount, but less
    than DHS. For example, DOD issued special guidance to ensure that proper
    procedures and management practices are used when using other agencies'
    contracts including GSA schedules. The guidance requires DOD acquisition
    personnel to evaluate, using specific criteria, whether using a non-DOD
    contract for a particular purchase is in the best interest of the
    department.9 The criteria include the contract's ability to satisfy the
    requirements in a timely manner and provide good value. DOD's guidance
    also emphasizes using market research to help identify the best
    acquisition approach to meet the requirement and states that the
    contracting officer should document this research.10 The Department of
    Energy also has issued guidance addressing the proper use of GSA schedules
    and GWACs. This guidance emphasizes that these contracts are not to be
    used to circumvent agency regulations and that the contracting officer
    should ensure that the original order and all future orders are within the
    scope of the contract. In the case of the GSA schedules, the contracting
    officer should seek and document advice from GSA's contracting officer on
    the proper use of the schedules whenever an issue is in doubt.

    In 2004, GSA took a step toward improving the management of GSA contracts
    and services by implementing the "Get It Right" program in part to secure
    the best value for federal agencies, improve education and training of the
    federal acquisition workforce on the proper use of GSA contracts and
    services, and ensure compliance with federal acquisition policies,
    regulations, and procedures. As part of the program, DOD and GSA have
    partnered to offer updated training on the proper use of GSA schedules. In
    addition, the Department of Energy has instituted training to emphasize
    the proper use and the need for planning when using the GSA schedules and
    GWACs.

    9This October 29, 2004, memo, entitled "Proper Use of Non-DOD Contracts,"
    was issued by the Acting Under Secretary of Defense (Acquisition,
    Technology and Logistics) and the Principal Deputy Under Secretary of
    Defense (Comptroller).

    10This requirement applies to procurements above the simplified
    acquisition threshold, which is generally $100,000.

    DHS Did Not Always Assess Total Value When Choosing Interagency Contracts

    Interagency contracts are intended to offer a simplified procurement
    process whereby users commonly rely on planning that has already been
    conducted by the agency that established the contract to ensure that the
    prices are competitive. However, our recent work, as well as the work of
    others, has found that not all interagency contracts provide good value
    when considering both timeliness and cost. This suggests the need for
    evaluating the selection of an interagency contract. According to DHS
    contracting officials the benefits of speed and convenience-not total
    value including cost-have often driven decisions to choose interagency
    contracting vehicles. As of July 2005, DHS has required an analysis of
    alternatives for all purchases. Of the 17 cases in our review, this
    analysis was only required for the four interagency agreements. None of
    these interagency agreements indicated that the required analysis was
    conducted. Without an evaluation of interagency contracting alternatives,
    DHS users cannot be sure they are obtaining a good value.

    Speed and Convenience, Rather Than Planning and Analysis, Often Determined
    Contract Selection

    A sense of urgency has prevailed in DHS' acquisition decision-making
    process, according to officials from the Office of Inspector General. For
    example, one official said that expediting program schedules and contract
    awards limits time available for adequate procurement planning, which can
    lead to higher costs, schedule delays, and systems that do not meet
    mission objectives.11 Eight of the 16 contracting officers we interviewed
    at OPO, CBP, and Coast Guard told us that using interagency contracts was
    a quick and convenient way to acquire needed products and services. A few
    DHS contracting officers felt that interagency contracts-in particular,
    GSA schedules-were the only viable alternatives given time constraints. In
    some cases, officials told us that it could take 4 to 6 months to
    establish and obtain goods and services through an in-house contract. In
    other cases, officials stated that purchase requests were received too
    close to the end of the fiscal year to use anything other than an
    interagency contract. None of the contracting officials said they chose to
    use interagency contracts because they also provided good value to DHS in
    terms of total cost.

    11Testimony before a joint hearing of the Subcommittee on Economic
    Security, Infrastructure Protection, and Cyber-Security, Committee on
    Homeland Security, and the Subcommittee on Criminal Justice, Drug Policy,
    and Human Resources, Committee on Government Reform, House of
    Representatives, on July 20, 2006; and before the Committee on Government
    Reform, House of Representatives, on July 27, 2006.

    Interagency contracts are designed to be convenient to use and require
    less planning than entering into a full and open competition for a new
    contract, and users commonly rely on planning that has already been
    conducted by the agency that established the contract. However, we found
    that GSA schedule prices may not always be the most competitive, and
    agencies do not always obtain the required competition when using the
    schedules, thus, there is no assurance that these contracts are providing
    good value.12 In another review, we found that fees charged by the agency
    that provides the contracting service may not make these contracts
    cost-effective in some cases. Purchasing agencies also sometimes pay fee
    on top of fee for the use of another agency's contract because servicing
    agencies may be using other agencies' contracts-including GSA schedules-to
    make purchases.13 Fees charged for the use of GWACs also range between
    0.65 and 5 percent. Given these concerns, evaluating the selection of an
    interagency contract is a sound management practice used by other large
    agencies.

    Pursuant to DHS acquisition policy, purchases made through interagency
    agreements require an analysis of alternatives to determine that the
    approach is in the government's best interest; however, in the four cases
    we reviewed that fell under this requirement, there was no indication that
    this analysis was performed. In one case, CBP used FedSim, one of GSA's
    contracting service providers, to place an order for $9 million for
    information technology support for systems security. In another case, CBP
    transferred $5 million to a franchise fund for the purchase of license
    plate readers. In the two remaining cases, OPO used FedSim to place orders
    totaling about $45 million against one contract to provide information
    technology support for the Homeland Secure Data Network. In these
    examples, there was little evidence that DHS users determined whether this
    was the best method for acquiring the needed services. These findings are
    consistent with our March 2005 review, in which we did not find an
    analysis of alternatives in 94 percent of the cases where it was required.
    Recent internal reviews at OPO and CBP cited similar findings in which
    evidence that a determination of findings or an analysis of alternatives
    was conducted was missing.

    12GAO, Contract Management: Opportunities to Improve Pricing of GSA
    Multiple Award Schedules Contracts, GAO-05-229 (Washington, D.C.: Feb. 11,
    2005).

    13 GAO-05-456 .

    In our review of 17 cases, we also found several examples where
    contracting officers placed orders to fulfill what were perceived to be
    critical needs, for convenience without comparing alternatives, or to
    spend funds at the end of the fiscal year without obtaining competing
    proposals. While an analysis of alternatives was not required in most of
    these cases, performing such an analysis could have helped DHS users to
    address some of the known concerns about these types of contracts to
    ensure that they obtained good value for the department14 (see table 3).

    14As of July 2005, DHS required an analysis of alternatives for all
    acquisitions. Because our review covered fiscal year 2005, which extended
    from October 1, 2004, to September 30, 2005, this requirement did not
    apply to most of the cases in our review.

    Table 3: Cases with Limited Planning and No Assurance of Good Value

    DHS' decision factor Cases
    Critical need        We found that OPO placed $33.4 million in orders and
                            modifications against a GSA schedule without
                            obtaining competing proposals as required by the FAR.
                            In this case, OPO used a GSA schedule to establish a
                            temporary "bridge" arrangement without competition to
                            avoid disruption of critical support services. The
                            need for this arrangement became critical in December
                            2004 when DHS' general counsel advised OPO to
                            discontinue the contracting arrangement with the
                            Department of Veterans Affairs, which provided
                            contracting services to DHS via an interagency
                            agreement, as the required work was grossly beyond
                            the scope of the contract. To ensure that critical
                            support services continued, DHS used GSA schedules to
                            acquire services from the incumbent on a sole-source
                            basis. This was to be a temporary measure for an
                            initial amount of $18 million to continue services
                            until OPO could establish new competitive contracts.
                            However, according to the contracting officer this
                            order had been modified 20 times; 10 modifications,
                            totaling $15.5 million, occurred in fiscal year 2005.
                            As of July 2006, this arrangement was still being
                            used to provide some services to DHS organizations.
    Convenience          To maintain information technology services and
                            maintain and upgrade several safety systems, in
                            fiscal year 2002, the Coast Guard placed two orders
                            with one GWAC because the contracting officer thought
                            it was convenient, a timely way to complete the
                            purchases, and thought it was probably less costly
                            than other options. We found that only one order
                            contained a comparison of contracting alternatives,
                            and according to the contracting officer, no analysis
                            of fees charged for the use of the GWAC was performed
                            on either order. Three years later, in fiscal year
                            2005, the Coast Guard placed work orders against the
                            original orders 47 times for a total of $19.5
                            million.
    Year-end spending    We found two cases in which orders were placed at the
                            end of the fiscal year without comparing
                            alternatives. In one case, when placing an order for
                            $2 million for computer equipment on September 26,
                            2005, the CBP program office requested that the
                            contracting officer place the order against a
                            specific blanket purchase agreement without comparing
                            alternatives. Both the purchase request and the order
                            were issued near the end of the fiscal year.

    Source: GAO analysis of DHS data.

    Recent Planning Requirement Does Not Include Evaluation Criteria

    As of July 2005 DHS has required an analysis of alternatives for all
    acquisitions, including all types of interagency contracts. DHS policy now
    states that all acquisition plans must include an analysis of alternatives
    including a discussion of why the acquisition process was chosen and the
    processes considered. The guidance states that the plan must contain
    information about the type of contract selected. However, the guidance
    does not include factors to consider or specific criteria for making a
    good choice among alternative contracting options. We have found that some
    agencies have established factors to consider in making this decision. For
    example, DOD and the Department of Energy have established factors that
    incorporate considerations of value, policy and regulatory requirements,
    customer needs, and administrative responsibilities. Following are some of
    the factors these agencies use:15

               o  Value: cost (including applicable fees or service charges);
               whether using an interagency contract is in the best interest of
               the department.
               o  Policy and regulatory requirements: departmental funding
               restrictions; departmental policies on small business,
               performance-based contracting, and competition.
               o  Customer needs: schedule; scope of work; unique terms,
               conditions and requirements.
               o  Contract administration: including oversight, monitoring, and
               reporting requirements.

    DHS Oversight Program Does Not Assess Outcomes of Interagency Contracting

    Although DHS' spending through interagency contracting totals billions of
    dollars annually and increased by 73 percent in the past year, the
    department does not systematically monitor its use of these contracts to
    assess whether this method for acquiring goods and services is being
    properly managed and provides good outcomes for the department. While OCPO
    has established a framework for an acquisition oversight program, the
    program is not designed to assess the outcomes of different contracting
    methods including interagency contracting. According to officials, DHS'
    acquisition oversight program has been hindered by limited resources and
    authority.

    DHS Does Not Monitor or Assess Use of Interagency Contracting

    DHS does not systematically monitor spending on its interagency contracts,
    which totaled $6.5 billion in fiscal year 2005-37 percent of DHS'
    procurement spending for that year. This type of monitoring could provide
    DHS with useful information to assess its use of this contracting method.
    For example, as part of its strategic sourcing initiative, DHS officials
    said they reviewed the component's use of information technology and
    telecommunications contracts and determined that the department could
    achieve savings of $22.5 to $45 million in fees and reduced prices by
    establishing its own departmentwide contracts. However, DHS does not have
    available information to make comparable assessments for interagency
    contracts. For example, DHS officials were not able to readily provide
    data on the amounts spent through different types of interagency
    contracts. To respond to our request for information, OCPO prepared a
    special report on the use of GSA schedules and GWACs. For information on
    interagency agreements, OCPO had to request data from components.
    Ultimately, however, we had to compile a summary and clarify information
    obtained from components.

    15DOD memorandum dated October 24, 2004, entitled "Proper Use of Non-DOD
    Contracts" issued by the Acting Under Secretary of Defense (Acquisition,
    Technology and Logistics) and the Principal Deputy Under Secretary of
    Defense (Comptroller). Department of Energy Acquisition Letter Number
    2005-05 revised, dated April 26, 2005.

    DHS also does not collect data on the amount of service fees paid to other
    agencies for the use of contracting services or vehicles regarding
    interagency contracting, such as the amount of service fees paid to other
    agencies, and the components, which pay the fees, also do not collect this
    data. In prior work in this area, we have found that these fees can range
    from less than 1 percent to 8 percent. In March 2005, we found that OPO,
    the largest user of interagency contracts among the components, alone paid
    $12.9 million in service fees in fiscal year 2004.16 Given that the volume
    of DHS' interagency contracting has increased by $2.7 billion, or about 73
    percent, since fiscal year 2004, it is likely that the fees paid also have
    increased substantially. This lack of data is not unique to DHS. Although
    the need to collect and track data on interagency contracting transactions
    has become increasingly important governmentwide, there is no
    governmentwide system to collect this data.17 In fact, the Office of
    Management and Budget has an effort underway to collect basic information
    on interagency contracting from all federal agencies.

    While each of the components we visited has established its own internal
    reviews to evaluate contracting practices, including the use of
    interagency contracts, these reviews are compliance-based and are not
    designed to evaluate the outcomes of interagency contracting. For example,
    OPO, which has taken a comprehensive approach, established procedures for
    reviewing and approving procurement actions. The review includes an
    assessment of the documentation for compliance with acquisition
    regulations or policies; soundness of the acquisition strategy; use of
    business judgment; and completeness, consistency, and clarity. OPO also
    had a study completed to determine whether its contracts, task orders,
    interagency agreements, and other transactions were awarded and
    administered in compliance with procurement laws, regulations, and
    internal DHS and OPO operating policies and procedures. While the review
    found that much improvement was needed to comply with policies and
    procedures, it was not designed to address areas such as timeliness, total
    cost including price and fees paid, and customer service to determine
    whether a particular contract method resulted in the best outcome.

    16 GAO-05-179 .

    17GAO, Improvements Needed to the Federal Procurement Data System-Next
    Generation, GAO-05-960R (Washington, D.C.: Sept. 27, 2005).

    DHS Has Begun to Develop an Oversight Program, but Is Facing Challenges

    In December 2005, OCPO issued a policy that provides a framework for a
    departmentwide acquisition oversight program. However, the framework does
    not evaluate the outcomes of different contracting methods, including
    interagency contracting, to determine whether the department obtained good
    value. Additionally, the Chief Procurement Officer lacks the authority
    needed to ensure the department's components comply with its procurement
    policies and procedures that would help to establish an integrated
    acquisition function.

    The framework includes four key reviews (see table 4). According to DHS
    officials, the acquisition planning review was operational as of August
    2006, and an on-site review was ongoing at the Federal Emergency
    Management Agency. DHS plans to implement the full program in fiscal year
    2007.

    Table 4: DHS Acquisition Oversight Program

    Review                     Purpose
    Self assessment            The head of contracting for each component
                                  assesses the component's staff, processes, and
                                  programs.
    Acquisition planning       Each component's contracting activity annually
    reviews                    reviews its programs and assesses the
                                  acquisition planning.
    Operational status reviews The Chief Procurement Officer and the head of
                                  contracting for each component assess, on a
                                  quarterly basis, the status of the acquisition
                                  function.
    On-site reviews            These reviews, conducted triennially, assess
                                  each component's contracting activity,
                                  strategic capability to support DHS' mission,
                                  and compliance with acquisition regulations,
                                  policies, and guiding principles.

    Source: GAO analysis of DHS data.

    According to OCPO officials, while DHS expects to track interagency
    contracting through this framework, it will not gather data to determine
    whether these contracts were used effectively. For example, through the
    operational status reviews, DHS plans to track the number and dollar value
    of orders placed using interagency agreements and GSA schedules and GWACs.
    However, these reviews will not collect data on cost including the price
    of goods and services and fees paid, timeliness, or customer service, that
    would help them to evaluate whether specific interagency contracts were a
    good value.

    In addition, the Chief Procurement Officer, who is held accountable for
    departmentwide management and oversight of the acquisition function, lacks
    the authority and has limited resources to ensure compliance with
    acquisition policies and processes. As of August 2006, according to OCPO
    officials, only five staff were assigned to departmentwide oversight
    responsibilities for $17.5 billion in acquisitions. According to OCPO
    officials, their small staff faces the competing demands of providing
    acquisition support for urgent needs at the component level. As a result,
    they have focused their efforts on procurement execution rather than
    oversight. Officials also noted that limited resources have delayed the
    oversight program's implementation.

    DHS' acquisition function was structured to rely on cooperation and
    collaboration among DHS components to accomplish the department's goals.
    While this structure was intended to make efficient use of resources
    departmentwide, it has limited the Chief Procurement Officer's ability to
    effectively oversee the department's acquisitions, manage risks, and has
    ultimately wasted time and other resources. In our prior work, we have
    found that in a highly functioning acquisition organization, the chief
    procurement officer is in a position to oversee compliance with
    acquisition policies and processes by implementing strong oversight
    mechanisms. In March 2005, we recommended that OCPO be provided sufficient
    enforcement authority and resources to provide effective oversight of DHS'
    acquisition policies and procedures. In a 2005 review of the department's
    organization, the Secretary focused on mission initiatives and, as of
    August 2006, has not changed the structure of the operational functions to
    provide additional authority to the Chief Procurement Officer.

                                      Conclusions

    One of the largest procuring agencies in the federal government, DHS
    relies on contracts for products and services worth several billions of
    dollars to meet its complex homeland security mission. Effective
    acquisition management must include sound policies and practices for
    managing the risks of large and rapidly increasing use of other agencies'
    contracts. While the use of these types of contracts provides speed and
    convenience in the procurement process, the agencies that manage the
    contracts and DHS users have not always adhered to sound contracting
    practices. Guidance and training that could help DHS to address risks is
    not in place; planning was not always conducted; and adequate monitoring
    and oversight were not performed. While DHS has developed a framework for
    an oversight program, until such oversight is in place, DHS cannot be sure
    that taxpayer's dollars are being spent wisely and purchases are made in
    the best interest of the department. While the challenges to effective
    management of an acquisition function in any organization with a
    far-reaching mission are substantial, these challenges are further
    complicated at DHS by an organizational structure in which the Chief
    Procurement Officer lacks direct authority over the components. Without
    such authority, the department cannot be sure that necessary steps to
    implement improvements to its acquisition function will be taken.

                          Recommendations for Executive Action

    To improve the department's ability to manage the risks of interagency
    contracting, we recommend that the Secretary of Homeland Security consider
    the adequacy of the Office of the Chief Procurement Officer's resources
    and implement the following three actions:

               o  develop consistent, comprehensive guidance, and related
               training to reinforce the proper use of all types of interagency
               contracts to be followed by all components;

               o  establish, as part of the department's planning requirement for
               an analysis of alternatives, criteria to consider in making the
               decision to use an interagency contract; and

               o  implement oversight procedures to evaluate the outcomes of
               using interagency contracts.

                         Matter for Congressional Consideration

    Because the Secretary has not taken action to ensure departmentwide
    acquisition oversight, Congress should require the Secretary to report on
    efforts to provide the Chief Procurement Officer with sufficient authority
    over procurement activities at all components.

                           Agency Comments and Our Evaluation

    We provided a draft of this report to DHS for review and comment. In
    written comments, DHS concurred with all of our recommendations and
    provided information on what action would be taken to address them. The
    department's comments are reprinted in appendix III.

    Regarding the recommendation for guidance and training to reinforce the
    proper use of all interagency contracts, DHS stated that it will issue a
    revised management directive in the near future. This directive will
    require the reporting of data on interagency agreements. DHS also will
    issue additional direction to the components on reporting the use of other
    types of interagency contracts. With regard to training, the OCPO will
    introduce specific training with respect to all types of interagency
    contracting for all contracting personnel during fiscal year 2007. With
    regard to establishing criteria to consider in making the decision to use
    an interagency contract, DHS will revise the acquisition planning guide to
    address this recommendation. With regard to implementing oversight
    procedures to evaluate the outcomes of using interagency contracts, DHS
    plans to incorporate oversight procedures assessing the proper use of
    interagency contracts and agreements into its acquisition oversight
    program.

    Concerning the overall use of interagency contracts, the department's
    comments stated that it is the goal of the OCPO to reduce the number and
    value of contracts awarded through the use of interagency contracts or
    agreements. This will be accomplished in part through the use of new
    departmentwide contracts for information technology equipment and
    services. We believe this is a positive step toward improving DHS'
    contract management.

    In responding to the Matter for Congressional Consideration that the
    Secretary report on efforts to provide the Chief Procurement Officer with
    sufficient authority over procurement activities, DHS noted some steps
    that the Secretary has taken to improve acquisition oversight.

               o  revised the investment review process, placing the Chief
               Procurement Officer in a key position to review and provide
               oversight of the Department's most critical programs;
               o  supported an increase of 25 OCPO positions to improve
               acquisition and management oversight; and
               o  directed the Chief Procurement Officer to work with all
               component heads to report on departmentwide progress in key
               acquisition areas.

    While these actions should help, they do not provide the Chief Procurement
    Officer with sufficient authority to ensure effective oversight of DHS'
    acquisition policies and procedures, and we continue to believe that the
    Congress should require the Secretary to report on efforts to address this
    lack of authority.

    We are sending copies of this report to the Secretary of the Department of
    Homeland Security, and to other interested agencies and congressional
    committees. We will also make copies available to others upon request. In
    addition, this report will be available at no charge on the GAO Web site
    at http://www.gao.gov .

    If you have any questions about this report or need additional
    information, please contact me at (202) 512-4841 ( huttonj@gao.gov ).
    Contact points for our Offices of Congressional Relations and Public
    Affairs may be found on the last page of this report. Other staff making
    key contributions to this report were Amelia Shachoy, Assistant Director;
    Greg Campbell; Christopher Langford; Eric Mader; Bill McPhail; Russ
    Reiter; Karen Sloan; and Karen Thornton.

    John P. Hutton, Acting Director Acquisition and Sourcing Management

    Appendix I: Scope and Methodology

    To determine the level of interagency contracting at the Department of
    Homeland Security (DHS), we requested data from each component on fiscal
    year 2005 purchases made through all types of interagency contracts. We
    compiled a summary of purchases made through interagency agreements, the
    General Service Administration's schedules and governmentwide acquisition
    contracts (GWAC) from the individual reports we received from each
    component. We found that the Office of Procurement Operations (OPO),
    Customs and Border Protection (CBP), and Coast Guard were the largest
    users of interagency contracts in fiscal year 2005. Based on a review of
    this data, we selected 17 cases, totaling $245 million. Interagency
    contracting actions for these components represented a sample of GSA
    schedule, GWAC, and interagency transactions made through fee-for-service
    contracting providers. See table 5. The 17 cases were selected to
    represent procurement actions of $5 million or more at three DHS
    components. Because our findings included similar problems across these
    activities, we believe they represent common problems in DHS' procurement
    process. To assess the reliability of this data, we compared the data
    obtained from DHS to the data maintained in the Federal Procurement Data
    System-Next Generation (FPDS-NG). Based upon the comparison, we determined
    that the data were sufficiently reliable for our purposes.1

    To assess the extent to which DHS manages the risks of interagency
    contracting, we reviewed guidance and oversight at the departmental level
    and at the three components in our sample-OPO, CBP and Coast Guard, and we
    interviewed officials in the Office of the Chief Procurement Officer
    (OCPO) and senior officials of the components under review. To determine
    how other large agencies address the management risks of interagency
    contracting, we reviewed relevant guidance and training at the Departments
    of Defense and Energy. We also reviewed relevant GAO and Inspector General
    reports.

    To assess DHS planning for the use of interagency contracts, we conducted
    fieldwork at CBP's National Acquisition Center in Indianapolis, Indiana;
    National Data Center in Springfield, Virginia; and at the Coast Guard's
    procurement office in Norfolk, Virginia, and reviewed contract files and
    completed a data collection instrument for each of the 17 cases we
    selected. We also interviewed the contracting officer, program manager and
    Contracting Officer's Technical Representative to discuss each case. In
    conducting our review, we identified the reasons for using interagency
    contracts and the reasons for choosing a particular interagency contract.

    1We have previously reported on the shortcomings of the Federal
    Procurement Data System-both the legacy and the Next Generation versions.
    However, the current system remains the most comprehensive database on
    federal procurement actions.

    We performed our review between February and August 2006 in accordance
    with generally accepted government auditing standards.

    Table 5: Fiscal Year 2005 Cases Reviewed at Office of Procurement
    Operations, Customs and Border Protection, and Coast Guard

    Component program               Type of service
    Office of Procurement
    Operations
    Multi-office support services   Support services such as financial
                                       tracking, acquisition and human capital
                                       planning and budget support
    Homeland Secure Data Network    Information technology support for
                                       Homeland Secure Data Network
    Homeland Secure Data Network    Information technology support or Homeland
                                       Secure Data Network
    Protective Security Division    Technical and operational services for
    Vulnerability Assessment        vulnerability, identification and
    Support                         protective measures
    District of Columbia Rail       Security corridor on rail line near
    Security Corridor Pilot System  Washington, D.C.
    U.S. Visit                      Customer service for U.S. Visit program
    Domestic Nuclear Detection      Science, engineering, and technical
    Office                          assistance support services
    Total Office of Procurement Operations orders
    Customs and Border Protection
    CBP Nationwide Onsite           Information technology technical support
    Information Technology Supporta services
    U.S. Visit and Automated        Information technology hardware and
    Commercial Environment (ACE)    software
    programsb
    CBP Information Technology      Enterprise-wide information technology
    System Security                 systems security support
    mySAP Business Suite Software   Software license for CBP SAP products
    Applied Technology Division     Inspection system for checking cargo
                                       containers
    Distributed Systems Engineering Mainframe computer storage devices
    Storage Area Network
    Enhancement
    Northern Border Initiative      License Plate Reader system
    Total Customs & Border
    Protection orders
    Coast Guard
    Systems Engineering and         Information technology engineering and
    Technical Services II           technical services
    Maintenance and Technical       Maintain & upgrade National VHF-FM
    Support Program                 Distress System, Vessel Traffic Systems
                                       and Ports and Waterway Safety System
    Information Technology          Information technology engineering and
    Engineering and Technical       technical services
    Services
    Total Coast Guard orders
    Total all agencies

    Source: GAO analysis of DHS data.

                         Interagency contracting method
                                       General        General
                                       Services       Services                   Total
    General                      Administration Administration                order
    Services    General Services governmentwide    blanket                   amount
    Administration Administration's  acquisition      purchase    Interior's       (in
      schedules         FedSim         contract      agreement     GovWorks  millions)
                                                                                         $33.4
                                                                                          23.2
                                                                                          21.9
                                                                                          14.5
                                                                                           9.8
                                                                                           9.0
                                                                                           6.0
          3               2               1              1                  0           $117.8
                                                                                         $45.9
                                                                                           5.8
                                                                                           9.1
                                                                                           8.1
                                                                                           7.4
                                                                                           5.2
                                                                                           5.0
          3               1               0              2                  1            $86.5
                                                                                         $21.0
                                                                                          13.7
                                                                                           5.8
          0               0               3              0                  0            $40.5
          6               3               4              3                  1           $244.8

    Note: Total dollars include fiscal year 2005 orders and modifications.

    aThe total for this blanket purchase agreement includes four task orders
    issued in fiscal year 2005.

    bThe total for this blanket purchase agreement includes three task orders
    issued in fiscal year 2005.

    Appendix II: Department of Homeland Security Interagency Contracting

    Table 6: Interagency Contracting Methods Used by DHS

    Contracting method   Description                     Authority
    Interagency          Any agreement between two       The Economy Act of
    agreement            federal agencies in which one   1932 (31 U.S.C.
                            agency purchases goods or       1535). This authority
                            services from the other. These  applies to
                            agreements are allowed by a     interagency
                            number of authorities. In some  agreements for which
                            cases these agreements are used more specific
                            when obtaining contracting      statutory authority
                            services through                does not exist.
                            government-run, self-supporting
                            businesslike enterprises        The Government
                            managed by federal employees,   Management Reform Act
                            such as franchise funds like    of 1994 (P.L.
                            the Department of Interior's    103-356, S: 403)
                            GovWorks.a GSA's Federal        authorized the Office
                            Systems Integration and         of Management and
                            Management Center (FedSim) also Budget to designate
                            provides contracting services   six federal agencies
                            to agencies including access to to establish
                            GWACs and other types of        franchise funds.
                            contracts. These service
                            providers charge a fee for      GSA's FedSim derives
                            their contracting services.     its authority from
                                                            the Brooks Act (40
                                                            U.S.C. 1101 et seq.)
                                                            as amended.
    GSA schedules        Under the GSA schedules         Federal Property and
                            program, GSA negotiates         Administrative
                            contracts with vendors for a    Services Act of 1949
                            wide variety of goods and       (P.L. 94-519, S:
                            services at varying prices.     102); Federal
                            These contracts permit other    Acquisition
                            agencies to place orders        Regulation Subpart
                            directly with the vendors,      8.4.
                            providing agencies with a
                            simplified process of acquiring
                            goods and services while
                            obtaining volume discounts.
    Blanket purchase     This contracting arrangement    Federal Acquisition
    agreement            provides a simplified method of Regulation 8.405-3
                            filling anticipated repetitive  and 13.303.
                            needs for supplies and
                            services, allowing agencies to
                            establish "charge accounts"
                            with qualified vendors that can
                            be GSA schedule contractors.
    Governmentwide       A GWAC is a task or delivery    Clinger-Cohen Act of
    acquisition contract order contract for information  1996 (40 U.S.C.
                            technology established by one   11302). This act
                            agency for governmentwide use.  gives the Office of
                            The purchasing agency can       Management and Budget
                            either order directly from a    the authority to
                            GWAC, as with the GSA           designate federal
                            schedules, or request the GWAC  agencies as executive
                            executive agent to provide      agents for GWACs.
                            contracting services for a fee.
                            These services can range from
                            limited contracting assistance
                            to an approach in which the
                            executive agent handles all
                            aspects of the procurement.

    Source: GAO analysis.

    aFranchise fund enterprises are a type of intragovernmental revolving
    fund, all of which have similar legal authority and operations and are
    generally created to provide common administrative services. An
    intragovernmental revolving fund is established to conduct continuing
    cycles of businesslike activity within and between government agencies. An
    intragovernmental revolving fund charges for the sale of goods or services
    and uses the proceeds to finance its spending, usually without the need
    for annual appropriations.

    Appendix III: Comments from the Department of Homeland Security
    Now on page 20

    (120526)

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    www.gao.gov/cgi-bin/getrpt? GAO-06-996 .

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    Highlights of GAO-06-996 , a report to congressional requesters

    September 2006

    INTERAGENCY CONTRACTING

    Improved Guidance, Planning, and Oversight Would Enable the Department of
    Homeland Security to Address Risks

    The Department of Homeland Security (DHS) has some of the most extensive
    acquisition needs within the federal government. In fiscal year 2005, DHS
    spent $17.5 billion on contracted purchases, $6.5 billion, or 37 percent,
    of which was through the use of other agencies' contracts and contracting
    services, a process known as interagency contracting. While these types of
    contracts offer the benefits of efficiency and convenience, in January
    2005, GAO noted shortcomings and designated the management of interagency
    contracting as a governmentwide high-risk area. Given the department's
    critical national security mission and the results of our earlier work,
    GAO reviewed the extent to which DHS manages the risks of interagency
    contracting and assessed DHS' guidance, planning, and oversight of
    interagency contracting.

    What GAO Recommends

    GAO recommends that the Secretary of Homeland Security consider the
    adequacy of the Office of the Chief Procurement Officer's resources and
    develop guidance and training; establish criteria to consider in the
    decision to use an interagency contract; and implement oversight to
    evaluate the outcomes of interagency contracts. DHS agreed with these
    recommendations. In addition, Congress should require the Secretary to
    report on efforts to provide the Chief Procurement Officer with sufficient
    authority.

    DHS has developed guidance on how to manage the risks of some but not all
    types of interagency contracts. The department has guidance for
    interagency agreements-the largest category of interagency contracting at
    the department- but does not have specific guidance for using other types
    of contracts such as the General Services Administration (GSA) schedules
    and governmentwide acquisition contracts (GWAC), which amounted to almost
    $1.5 billion in fiscal year 2005. Moreover, in some cases we found users
    may have lacked expertise that could be addressed through guidance and
    training on the use of these types of contracts.

    DHS did not always consider alternatives to ensure good value when
    selecting among interagency contracts. While this contracting method is
    often chosen because it requires less planning than establishing a new
    contract, evaluating the selection of an interagency contract is important
    because not all interagency contracts provide good value when considering
    timeliness and cost. As of July 2005 DHS has required planning and
    analysis of alternatives for all acquisitions. In this review, we found
    that in all four cases for which an analysis of alternatives was required,
    it was not conducted. DHS officials said benefits of speed and
    convenience-not total value including cost-have often driven decisions to
    choose these types of contracts.

    DHS does not systematically monitor its total spending on interagency
    contacts and does not assess the outcomes of its use of this contracting
    method. According to officials, DHS' acquisition oversight program has
    been hindered by limited resources and authority. As of August 2006, the
    Office of the Chief Procurement Officer had five staff assigned to
    departmentwide oversight responsibilities for $17.5 billion in
    acquisitions. In March 2005, GAO recommended that the Chief Procurement
    Officer be provided sufficient authority to provide effective oversight of
    DHS' acquisition policies and procedures. Without this authority, DHS
    cannot be certain that acquisition improvements are made.

    Growth in DHS Contracting
    *** End of document. ***