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

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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 ( [email protected] ).
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
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