    Defense Acquisitions: Tailored Approach Needed to Improve Service
    Acquisition Outcomes (09-NOV-06, GAO-07-20).

    Department of Defense (DOD) obligations for service contracts
    rose from $82.3 billion in fiscal year 1996 to $141.2 billion in
    fiscal year 2005. DOD is becoming increasingly more reliant on
    the private sector to provide a wide range of services, including
    those for critical information technology and mission support.
    DOD must maximize its return on investment and provide the
    warfighter with needed capabilities and support at the best value
    for the taxpayer. GAO examined DOD's approach to managing
    services in order to (1) identify the key factors DOD should
    emphasize to improve its management of services and (2) assess
    the extent to which DOD's current approach exhibited these
    factors.
    -------------------------Indexing Terms-------------------------
    REPORTNUM:   GAO-07-20
        ACCNO:   A63265
      TITLE:     Defense Acquisitions: Tailored Approach Needed to Improve
    Service Acquisition Outcomes
         DATE:   11/09/2006
      SUBJECT:   Contract administration
    	     Cost analysis
    	     Data collection
    	     Data integrity
    	     Defense procurement
    	     Department of Defense contractors
    	     Performance management
    	     Performance measures
    	     Policy evaluation
    	     Procurement policy
    	     Procurement practices
    	     Requirements definition
    	     Service contracts
    	     Strategic planning
    	     Program goals or objectives

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    GAO-07-20

         * [1]Results in Brief
         * [2]Background
         * [3]Managing Service Acquisition Requires Both a Strategic and a

              * [4]Strategic Focus: Knowing Where Service Acquisition Is Today

                   * [5]Leadership Must Establish Vision and Goals
                   * [6]Vision and Goals Must Be Communicated and Used to Measure
                     Pr
                   * [7]Structures and Processes Must Be Defined to Facilitate
                     Servi
                   * [8]Knowledge on Spending and Workforce Vital to Managing
                     Servic

              * [9]Transactional Focus: Buying the Right Individual Service the

                   * [10]Good Outcomes Begin with Sound Requirements
                   * [11]Appropriate Business Arrangements Provide Right Way to
                     Buy S
                   * [12]Actual Performance Must Be Managed and Assessed

         * [13]DOD Service Acquisition Approach Does Not Fully Address Key

              * [14]DOD's Strategic Level Approach Missing Key Elements

                   * [15]Normative Position of Service Acquisition Not Yet
                     Establishe
                   * [16]DOD Has Not Communicated Its Vision for Managing Service
                     Acq
                   * [17]Changes to Supporting Structures, Processes, and Roles
                     Have
                   * [18]Knowledge on Spending and Workforce Is Not Readily
                     Available

              * [19]DOD Transactional Approach Focuses Principally on Business A

                   * [20]Communication Challenges Hinder Establishment of Good
                     Requir
                   * [21]Business Arrangements Receive Majority of Management
                     Attenti
                   * [22]Limited Capability to Assess Service Acquisitions

              * [23]Attention to Strategic and Transactional Elements Has Improv

         * [24]Conclusions
         * [25]Recommendations for Executive Action
         * [26]Agency Comments and Our Evaluation
         * [27]GAO Contact
         * [28]Acknowledgements
         * [29]GAO's Mission
         * [30]Obtaining Copies of GAO Reports and Testimony

              * [31]Order by Mail or Phone

         * [32]To Report Fraud, Waste, and Abuse in Federal Programs
         * [33]Congressional Relations
         * [34]Public Affairs

    Report to the Subcommittee on Readiness and Management Support, Committee
    on Armed Services, U.S. Senate

    United States Government Accountability Office

    GAO

    November 2006

    DEFENSE ACQUISITIONS

    Tailored Approach Needed to Improve Service Acquisition Outcomes

    GAO-07-20

    Contents

    Letter 1

    Results in Brief 3
    Background 4
    Managing Service Acquisition Requires Both a Strategic and a Transactional
    Focus 8
    DOD Service Acquisition Approach Does Not Fully Address Key Elements at
    the Strategic or Transactional Levels 20
    Conclusions 33
    Recommendations for Executive Action 34
    Agency Comments and Our Evaluation 35
    Appendix I Scope and Methodology 38
    Appendix II Comments from the Department of Defense 41
    Appendix III GAO Contact and Staff Acknowledgements 48

    Tables

    Table 1: Changes in DOD's Use of Service Contract Obligations, Fiscal
    Years 1996 to 2005 5
    Table 2: Service Acquisitions Reviewed under DOD and Military Department
    Review Structure 24

    Figures

    Figure 1: Key Strategic and Transactional Factors for Service Acquisition
    9
    Figure 2: Key Factors in Achieving a Strategic Approach to Service
    Acquisition 10
    Figure 3: Key Factors for Managing Service Acquisitions at a Transactional
    Level 15

    Abbreviations

    DAU Defense Acquisition University DOD Department of Defense NETC Naval
    Education and Training Command

    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

    November 9, 2006

    The Honorable John Ensign Chairman The Honorable Daniel K. Akaka Ranking
    Minority Member Subcommittee on Readiness and Management Support Committee
    on Armed Services United States Senate

    In fiscal year 2005, the Department of Defense (DOD) obligated more than
    $141 billion on service contracts, a 72-percent increase since fiscal year
    1996. DOD is increasingly relying on the private sector to provide a wide
    range of services, including consulting and administrative support,
    information technology services, and weapon system and base operations
    support. As the largest buyer of services in the federal government, and
    operating in an environment in which the nation's large and growing
    structural deficit will require difficult resource decisions, DOD must
    maximize its return on investment and provide the warfighter with needed
    capabilities at the best value for the taxpayer.

    Our work and that of others has highlighted examples of long-standing
    concerns in planning, executing, and overseeing service acquisition. For
    example, GAO has identified DOD contract management to be at high risk of
    vulnerabilities to fraud, waste, abuse, and mismanagement for more than a
    decade. In our 2005 high-risk report update, we noted that with regard to
    service acquisition, DOD had not yet fully implemented a strategic
    approach to buying services; did not have a comprehensive plan to ensure
    it had the right skills and capabilities in its acquisition workforce; and
    did not always make sound use of the tools, such as performance-based
    service contracting, to acquire the services it needed.1

    To ensure that DOD acquires services by means that are in the best
    interest of the government and managed in compliance with applicable
    statutory requirements, sections 801 and 802 of the National Defense
    Authorization Act for Fiscal Year 2002 required DOD to establish a service
    acquisition management approach, including developing a structure for
    reviewing individual service transactions based on dollar thresholds and
    other criteria.2 Further, in January 2006, additional requirements were
    established pertaining to DOD's service contracting management structure
    and oversight processes.3 This report assesses DOD's overall approach to
    managing service acquisition. Specifically, we (1) identified the key
    factors necessary for DOD to emphasize to improve its management of
    services and (2) assessed the extent to which DOD's approach, including
    its current management structure, exhibited these factors.

    1GAO, High-Risk Series: An Update, [35]GAO-05-207 (Washington, D.C.:
    January 2005).

    To perform our review, we made extensive use of our prior work in this and
    other related areas, including our January 2002 report that identified how
    leading commercial companies took a strategic approach to acquiring
    services.4 For the transactional level, we used our prior work and that of
    others on issues related to individual service contract transactions and
    held detailed discussions with relevant contracting experts to confirm and
    validate key factors. In total, the results of these efforts proffer a
    model to improve results in service acquisition management. To assess the
    extent to which DOD's current approach exhibited these characteristics, we
    collected and reviewed relevant DOD guidance and policies, including those
    that established its current management structure and review processes. We
    interviewed officials responsible for implementing the management
    structure in the Office of the Secretary of Defense, as well as each of
    the cognizant offices within the military departments. We also obtained
    information on the types of activities and reviews conducted by these
    offices. We visited 20 commands and buying activities to understand the
    processes by which these organizations acquire services. We reviewed
    various contract files and process documentation for selected service
    acquisitions and discussed challenges faced in acquiring services and
    efforts to improve service acquisition with policy and contracting
    personnel at each of these locations. See appendix I for additional
    details on scope and methodology. We conducted our review from August 2005
    to September 2006 in accordance with generally accepted government
    auditing standards.

    2Pub. L. No. 107-107, S 801-802, (2001). Sec. 801 added new sections 2330
    and 2330a to title 10, U.S. Code.

    3Pub. L. No. 109-163, S 812, (2006). Sec. 812 amended 10 U.S.C. S 2330.

    4GAO, Best Practices: Taking A Strategic Approach Could Improve DOD's
    Acquisition of Services, [36]GAO-02-230 (Washington, D.C.: Jan. 18, 2002).

    Results in Brief

    Achieving good service acquisition outcomes--that is, obtaining the right
    service, at the right price, in the right manner--requires management
    attention at both a strategic and a transactional level. The strategic
    level requires the leadership, processes, and information necessary for
    mitigating risks, leveraging buying power, and managing outcomes across
    the enterprise. At this level, we identified four key factors for
    improving outcomes: strong corporate leadership and vision,
    results-oriented goals and metrics, defined responsibilities and support
    structures, and improved knowledge of spending. The strategic level also
    sets the context for the transactional level, where individual service
    acquisitions are executed. Key factors for good outcomes at the
    transactional level include clearly defined requirements, sound business
    arrangements, and appropriate contract management and oversight processes.
    At both levels, risks exist that can impair an organization's ability to
    get desired service acquisition outcomes. A comprehensive management
    approach tailors the strategic and transactional factors to address these
    risks. For example, by knowing where its service acquisitions are and
    setting a course for where they ought to be, an organization provides the
    context for making decisions on individual transactions.

    DOD's current approach to managing service acquisition has tended to be
    reactive and has not fully addressed the key factors for success at either
    the strategic or the transactional level. At the strategic level, DOD has
    not developed a normative position for gauging whether ongoing and planned
    efforts can best achieve intended results. Further, good information on
    the volume and composition of service acquisitions is still wanting,
    perpetuating the circumstance in which the acquisition of services tends
    to happen to DOD, rather than being proactively managed. For example,
    despite implementing a review structure aimed at increasing insight into
    service transactions, DOD is not able to determine which or how many
    transactions have been reviewed. The military departments have only
    slightly better visibility, having reviewed proposed acquisitions
    accounting for less than 3 percent of dollars obligated for services in
    fiscal year 2005. At the transactional level, DOD tends to focus primarily
    on those elements associated with awarding contracts, with much less
    attention paid to formulation of service acquisition requirements and to
    assessment of the actual delivery of contracted services. Moreover, the
    results of individual acquisitions are generally not used to inform or
    adjust strategic direction. As a result, DOD is not in a position to
    determine whether investments in services are achieving their desired
    outcomes.

    To put DOD in a position to proactively manage service acquisition
    outcomes, we are making six recommendations to assist DOD in identifying
    specific solutions at the strategic and transactional levels. In written
    comments on a draft of this report, DOD concurred with our recommendations
    and agreed that a more coordinated, integrated, and strategic approach for
    acquiring services is needed. DOD noted that it is developing an
    integrated assessment of how best to acquire services and expects this
    assessment will result in a comprehensive, departmentwide architecture.
    DOD expects its assessment will be completed in early 2007. Our
    discussions with DOD officials indicate that this architecture may hold
    the potential for making fundamental changes at the strategic and
    transactional levels. The extent to which DOD successfully integrates the
    key factors we identified as it develops and implements its architecture
    will be essential to fostering the appropriate attention and action needed
    to make service acquisitions a managed outcome. The full text of DOD's
    comments may be found in appendix II.

    Background

    Over the past decade, DOD has increasingly relied on private sector
    contractors to provide a range of services, including management and
    information technology support. For example, DOD's obligations on service
    contracts rose from $82.3 billion in fiscal year 1996 to $141.2 billion in
    fiscal year 2005 (see table 1). DOD committed 20 percent of its total
    service obligations in fiscal year 2005 for professional, administrative,
    and management support contracts. Overall, according to DOD, the amount
    obligated on service contracts exceeded the amount the department spent on
    supplies and equipment, including major weapon systems.

    Table 1: Changes in DOD's Use of Service Contract Obligations, Fiscal
    Years 1996 to 2005 (fiscal year 2005 dollars in billions)

                                  Service                              Percentage
                                obligations  Percentage of service change, fiscal
                                Fiscal year    obligations, fiscal  years 1996 to
    Service category           1996 2005              year 2005           2005
    Professional,             $10.8                          $28.3   20.0  161
    administrative, and
    management support
    Construction of             7.3                           11.7    8.3   62
    facilities
    Maintenance and repair      6.6                           11.4    8.1   74
    of equipment
    Information technology      4.9                           10.3    7.3  110
    Medical services            1.6                            8.0    5.6  412
    Housekeeping services       2.4                            4.8    3.4   98
    Transportation, travel,     2.4                            6.2    4.4  154
    and relocation
    All other services,        22.7                           23.6   16.7    4
    excluding research and
    developmenta
    All services excluding    $58.6                         $104.2   73.8   78
    research and development
    Research and development   23.7                           37.0   26.2   56
    Total, all service        $82.3                         $141.2  100.0   72
    contracts

    Source: DOD's DD350 database for all actions exceeding $25,000 (data); GAO
    (analysis).

    aOther services include photographic, mapping, and printing; education and
    training; and social services, among others.

    The growth in service acquisition spending results, in part, from recent
    trends and changes within DOD's acquisition environment, including the
    increased use of contracted services. For example, while spending on
    services has increased, DOD's civilian workforce shrank by about 38
    percent between fiscal years 1989 and 2002. DOD performed this downsizing
    without proactively shaping the civilian workforce to ensure that it had
    the specific skills and competencies needed to accomplish future DOD
    missions. In June 2006, DOD issued a human capital strategy that
    acknowledged that DOD's civilian workforce is not balanced by age or
    experience. DOD further noted that a proposed reduction of an additional
    55,000 personnel through fiscal year 2007, continuing increases in the
    number of retirement age employees, and the loss of experienced personnel
    and institutional knowledge could make it difficult to mentor its
    developing workforce. DOD's strategy identified a number of steps planned
    over the next 2 years to more fully develop a long-term approach to
    managing its acquisition workforce.

    The increased use of service contracts is also partly attributable to DOD
    acquiring capabilities through different acquisition approaches, as well
    as needing to meet new requirements and demands. For example, DOD
    historically bought space launch vehicles, such as the Delta and Titan
    rockets as products. Now, under the Evolved Expendable Launch Vehicle
    program, the Air Force purchases launch services using contractor-owned
    launch vehicles. Similarly, after the terrorist attacks on September 11,
    2001, increased security requirements and the deployment of active duty
    and reserve personnel resulted in DOD having fewer military personnel to
    protect domestic installations. Consequently, the U.S. Army awarded
    contracts worth nearly $733 million to acquire contract guards at 57
    installations.

    DOD has traditionally approached the acquisition of services differently
    than the acquisition of products. DOD and military department officials we
    interviewed noted that DOD generally views service acquisition as less
    risky than the acquisition of weapon systems, in part because many
    services are not tied directly to mission accomplishment and tend to be
    composed of far more numerous and lower dollar value contracts. DOD has
    long focused its attention, policies, and procedures on managing major
    weapon systems and typically does so using the cost of the weapon system
    as a proxy for risk. For example, DOD classifies its acquisition programs,
    including research and development efforts related to weapon systems and
    major automated information systems, in categories based upon estimated
    dollar value or designation as a special interest.5 The largest programs
    generally fall under the responsibility of the Under Secretary of Defense
    (Acquisition, Technology, and Logistics), while less complex and risky
    programs are overseen by the service or component acquisition executive.
    Overall, more than 25 percent of DOD's annual budget is managed under this
    framework. For example, as of December 2005, DOD managed 85 major defense
    acquisition programs currently estimated to cost about $1.6 trillion
    combined over their program life.

    Conversely, we previously reported that DOD's approach to buying services
    is largely fragmented and uncoordinated, as responsibility for acquiring
    services is spread among individual military commands, weapon system
    program offices, or functional units on military bases, with little
    visibility or control at the DOD or military department level.6 For
    example, we noted that

    5The policies and practices for these types of acquisitions are reflected
    in DOD Directive 5000.1 and Instruction 5000.2.

    6 [37]GAO-02-230 .

               o DOD's information systems could provide data on the amount spent
               on services, but the reliability of the information was
               questionable and the system itself was seldom used as a tool to
               manage or identify opportunities for managing DOD's supplier base.
               o Procurement processes within DOD were not always carried out
               efficiently and effectively.
               o There were few service contracting-related enterprisewide annual
               performance metrics, none of which measured the cost-effectiveness
               or quality of services obtained.

    Services differ from products in several aspects and can also be
    challenging when attempting to define requirements, establish measurable
    and performance-based outcomes, and assess contractor performance. For
    example, it can easily take over 10 years to define requirements and
    develop a product like a weapon system before it can actually be delivered
    for field use. Individual service acquisitions generally proceed through
    requirements, solution, and delivery more rapidly. Further, delivery of
    services generally begins immediately or very shortly after the contract
    is finalized.

    In response to the National Defense Authorization Act for Fiscal Year
    2002, DOD and the military departments established a service acquisition
    management structure, including processes at the headquarters level for
    reviewing individual, high-dollar acquisitions. In September 2003, we
    reported that this approach did not provide a departmentwide assessment of
    how spending for services could be more effective and recommended that DOD
    give greater attention to promoting a strategic orientation by setting
    performance goals for improvements and ensuring accountability for
    achieving those results.7 In its response, DOD concurred in principle and
    agreed that additional actions could strengthen the management structure
    as implemented, but also identified challenges for doing so based on
    organizational size, complexity, and acquisition environment.

    In January 2006, Congress again enacted legislation with specific
    requirements for managing the acquisition of services.8 Among other
    things, the legislation required DOD to

    7GAO, Contract Management: High-Level Attention Needed to Transform DOD
    Services Acquisition, [38]GAO-03-935 (Washington, D.C.: Sept. 10, 2003).

    8Pub. L. No. 109-163, S 812.

               o identify the critical skills and competencies needed to carry
               out the procurement of services;
               o develop a comprehensive strategy for recruitment, training, and
               deploying employees to meet the requirements for skills and
               competencies;
               o establish contract services acquisition categories, based on
               dollar thresholds, for the purpose of establishing the level of
               review, decision authority, and applicable procedures;
               o dedicate full-time commodity managers to coordinate the
               procurement of key categories of services;
               o ensure that contract services are procured by means of
               procurement actions that are in the best interests of DOD and
               entered into and managed in compliance with applicable laws,
               regulations, directives, and requirements;
               o ensure that competitive procedures and performance-based
               contracting are used to the maximum extent practicable; and
               o monitor data and periodically collect spend analyses to ensure
               that funds allotted for the procurement of services are expended
               in the most rational and economical manner practicable.

    The requirements pertaining to establishing contract service acquisition
    categories were to be phased in over a period of 3 years, with the first
    categories, for acquisitions with an estimated value of $250 million or
    more, to be established by October 2006. At the conclusion of our review,
    DOD issued a policy memorandum aimed at strengthening service acquisition
    management in response to the legislation. DOD is to report on its
    implementation by January 2007.

    Managing Service Acquisition Requires Both a Strategic and a Transactional Focus

    Several key factors are necessary to improve DOD's service acquisition
    outcomes--that is, obtaining the right service, at the right price, in the
    right manner. Our work found that to do this, an organization must
    understand the volume, sources, portfolios, and trends related to what it
    is buying, then ensure that requirements are valid and understood,
    services are purchased properly, and performance delivered with minimum
    risk and maximum efficiency. Success factors to achieve these goals can be
    defined at both the strategic and the transactional level, as shown in
    figure 1.

    Figure 1: Key Strategic and Transactional Factors for Service Acquisition

    The strategic level is where the enterprise sets the direction or vision
    for what it needs, captures the knowledge to enable more informed
    management decisions, ensures deparmentwide goals and objectives are
    achieved, determines how to go about meeting those needs, and assesses the
    resources it has to achieve desired outcomes. The strategic level also
    sets the context for the transactional level, where the focus is on making
    sound decisions on individual transactions. Our work found that officials
    need to ensure that individual service transactions have valid and
    well-defined requirements, have appropriate business arrangements, and
    that performance is being managed--again, while minimizing related risks
    and maximizing efficiency. A comprehensive approach would use the
    strategic and transactional factors in a complementary manner to tailor
    management activity to ensure preferred outcomes. Without this management
    attention, risks exist within each level that can impair an organization's
    ability to get desired service acquisition outcomes.

    Strategic Focus: Knowing Where Service Acquisition Is Today and Where It Should
    Be Tomorrow

    Our prior work with leading commercial firms found that a successful
    organization proactively identifies and manages outcomes of the services
    it acquires at a strategic, or enterprisewide, level. Effective service
    acquisition requires the leadership, processes, and information necessary
    for mitigating risks, leveraging buying power, and managing outcomes.
    Several factors are needed to implement a strategic approach, including
    (1) strong leadership to define and articulate a corporate vision,
    including specific goals and outcomes; (2) results-oriented communication
    and metrics; (3) defined responsibilities and associated support
    structures; and (4) increased knowledge and focus on spending data and
    trends. See figure 2 for key factors to achieve a strategic approach to
    acquiring services.

    Figure 2: Key Factors in Achieving a Strategic Approach to Service
    Acquisition

      Leadership Must Establish Vision and Goals

    Our work found that organizations seeking to significantly improve service
    acquisition outcomes must begin with an established vision and commitment
    from senior management. This can come in various ways, ranging from
    restructuring the corporate procurement function, providing greater
    insight into and authority over the company's service spending, or
    signaling support for a new way of doing business. With an articulated
    vision, leaders then have a basis for making commitments to factors
    important for realizing the desired end state, such as practices,
    procedures, structures, information, and human capital planning. Our work
    has shown that when corporate goals and expected outcomes are not defined,
    employees becomes less likely to accept new roles or understand the
    importance of upcoming changes that are necessary to reduce risks in
    service acquisition. These include allowing the sum total of individual
    transactions to define the strategy and not providing a context within
    which managers of individual transactions can make sound judgments about
    the risk and sensitivity of a particular service acquisition.

    Being able to define a strategic vision presupposes that leaders can
    determine and articulate a normative position for the future. A normative
    position would entail defining what end state or goals they want to
    achieve at a specified time. This position can then be translated into
    specifics, both in the aggregate and by type, such as

               o the current volume, type, location, and trends of service
               acquisitions;

               o the results the organization wants to achieve in a specified
               time frame;

               o the definition of a good service acquisition outcome; and

               o the characteristics of a service acquisition that make it
               desirable, undesirable, or sensitive.

    Critical to establishing a normative position is knowledge of current
    service acquisition expenditures, management priorities, and expected
    outcomes. The vision could also dictate which services represent risks to
    the organization. For example, acquisitions could be deemed low risk based
    on minimal cost exposure, high availability of service providers, or
    limited criticality for meeting mission requirements. Conversely,
    high-risk acquisitions may be those of higher dollar value,
    mission-critical requirements, services that are new or being acquired
    using a different approach, or any other services determined to need
    additional corporate-level involvement or oversight based on management
    priorities.

      Vision and Goals Must Be Communicated and Used to Measure Progress

    Once a vision and desired end state for service acquisition have been
    defined, senior management must be both active and persistent in
    supporting ongoing efforts, adjusting the strategy to reflect new
    information, and moving toward the established normative position.
    Communication and metrics are important management ingredients in terms of
    overcoming resistance, cultural barriers, and other impediments to
    achieving identified goals. Senior leaders also have the responsibility to
    communicate and demonstrate a commitment to sound practices deemed
    acceptable for the acquisition function. We have previously reported that
    DOD faces vulnerabilities in aspects of its senior leadership because of
    certain disconnects, including senior positions that have remained
    unfilled for long periods of time, the acquisition culture fostered by
    management's tone at the top, and the management approach used in new
    industry partnering relationships.9

    We have also noted the importance of leadership by senior agency officials
    to successfully transform other aspects of DOD's business operations and
    those of other federal agencies. For example, our prior work has shown
    that DOD's substantial financial and business management weaknesses
    adversely affect not only its ability to produce auditable financial
    information, but also its ability to provide accurate, complete, and
    timely information for DOD management and Congress to use in making
    informed decisions. We indicated that overcoming these weaknesses required
    sustained leadership at the highest level and a strategic and integrated
    plan.10

    9GAO, Contract Management: DOD Vulnerabilities to Contracting Fraud,
    Waste, and Abuse, [39]GAO-06-838R (Washington, D.C.: July 7, 2006).

    Metrics defining specified outcomes are vital to increasing the likelihood
    that changes to practices will successfully contribute to the
    organizational vision. While they can differ in nature and be used to
    varying degrees, metrics can be used to (1) evaluate and understand
    performance levels, (2) identify critical processes that require
    attention, (3) document results over time, and (4) report information to
    senior officials for decision-making purposes. To illustrate this, DOD
    spends 20 percent of its service dollars on professional and
    administrative management support contracts. If senior DOD officials
    believe that such volume poses risks, then it can use this information to
    establish targets to control and monitor the use of these services. For
    example, in March 2006 the Secretary of the Air Force issued a memorandum
    directing increased visibility and management of contract services in
    support of command functions, in an attempt to save over $6 billion that
    would then be used for other transformation initiatives. If the Air Force
    follows up by collecting timely data on the individual service
    transactions made in this area, it can see whether it is making progress
    toward its desired end state. For DOD, risks of not doing this at a
    strategic level entail losing momentum and failing to sustain positive
    change, and such failures can then be manifested in quick fixes, fire
    drills, or changes in policy statements that do not have a material effect
    on actual operations.

      Structures and Processes Must Be Defined to Facilitate Service Management
      Direction

    Successful service acquisition management also requires attention to the
    organization's ability to move from a fragmented manner of doing business
    to one that is more coordinated and strategically oriented. Primarily,
    this involves changing how services are acquired in terms of business
    processes, organizational structures, and roles and responsibilities. Our
    work with leading commercial firms found that typical changes in this area
    include

               o restructuring acquisition organizations and elevating the
               procurement function to improve coordination with other internal
               organizations and optimize available resources;

               o establishing new processes for routine tasks and using
               cross-functional teams made up of individuals with various skills
               to ensure the right mix of knowledge, technical expertise, and
               credibility; and

               o establishing full-time, dedicated commodity managers to provide
               more effective management over key services.

    10GAO, DOD Business Transformation: Sustained Leadership Needed to Address
    Long-standing Financial and Business Management Problems, [40]GAO-05-723T
    (Washington, D.C.: June 8, 2005).

    We reported in March 2005 that the Department of Homeland Security was
    pursuing similar approaches as it attempted to integrate the various
    acquisition functions it inherited upon its establishment in 2003. For
    example, the department designated a Chief Procurement Officer with broad
    responsibility for its acquisition function and established commodity
    councils composed of representatives from across the department that were
    assigned responsibility for assessing future purchasing strategies. We
    noted, however, that senior agency leadership needed to address a number
    of challenges before fully integrating its procurement function, such as
    clearly defining the roles and responsibilities of key offices, and
    establishing a structure to ensure continued support for commodity
    councils--such as appointing full-time commodity managers.11

    In essence, this move toward a more strategic orientation can be compared
    to a franchise model of business versus that of individually owned stores
    or units. While franchises, like individually owned businesses, operate at
    the local level and adapt to the specific needs and demands of a
    community, they still must adhere to the consistent set of standards and
    processes of the parent organization. For service acquisition, this
    translates into recognition that while unique local requirements need to
    be understood and met, individual acquisitions should also be viewed in
    the context of organizational goals, objectives, and strategies. In this
    regard, company officials indicated they can tailor delivery of services
    to meet local needs while helping to achieve organizational cost savings
    or quality improvement objectives. Risks here are twofold. First, if a
    single, monolithic process is used for every service acquisition
    regardless of size, sensitivity, or type, it could be overkill for some
    transactions and insufficient for others. Second, allowing local buying
    activities to operate independent of organizational standards and
    processes would impair or defeat an organization's ability to achieve
    desired aggregate goals or outcomes.

    11GAO, Homeland Security: Successes and Challenges in DHS's Efforts to
    Create an Effective Acquisition Organization, [41]GAO-05-179 (Washington,
    D.C.: Mar. 29, 2005).

      Knowledge on Spending and Workforce Vital to Managing Services

    Organizations also need basic, reliable data on how service dollars are
    being spent and the capabilities of the workforce in place to acquire and
    manage those services. Company officials who were successful with
    improving service acquisition management informed us it was critical to
    define the relevant types of information that were required and then
    develop the appropriate data systems to collect and provide reliable
    spending data. Such data enable senior managers to know not only the
    current state of service acquisition, but how far it is from the desired
    end state. While the type of information may vary depending on the
    organization and the types of services acquired, basic spend analysis data
    should include information and trends related to

               o the type of services being acquired;

               o the number of suppliers for a specific service the organization
               is using;

               o the amount the organization is spending for that service, in
               total and with each supplier; and

               o the units in the organization that are acquiring the services.

    We have previously reported that several civilian agencies have used this
    approach to leverage their buying power, reduce costs, and better manage
    suppliers of goods and services. For example, we reported in September
    2004 that the Departments of Agriculture and Veterans Affairs, among
    others, had launched or expanded spend analysis efforts and in turn
    realized savings ranging from $1.8 million to $394 million on related
    acquisitions.12 Similarly, we noted in 2005 that the Department of
    Homeland Security identified 15 commodity areas as having the potential to
    leverage the department's buying power. In fiscal year 2004, four
    commodity councils reported approximately $14.1 million in cost savings
    and avoidances.13 Some councils encountered difficulties due to a shortage
    of comprehensive data upon which to draw an accurate and detailed picture
    of what was being spent on certain commodities over time, thereby
    preventing them from taking full advantage of their strategic sourcing and
    spend analysis efforts.

    12GAO, Best Practices: Using Spend Analysis to Help Agencies Take a More
    Strategic Approach to Procurement, [42]GAO-04-870 (Washington, D.C.: Sept.
    16, 2004).

    13 [43]GAO-05-179 .

    Equally important and necessary is for an organization to have a workforce
    that is manned at the appropriate levels and equipped with the right
    skills and abilities. To do this, a comprehensive, data-driven workforce
    analysis must be performed in conjunction with establishing the corporate
    vision and goals. An organization cannot fully understand what skills and
    staffing commitments are necessary at each organizational level to meet
    service acquisition requirements until it understands where it wants to go
    and how it plans to get there. Once information on spending and workforce
    capabilities is known and understood, organizations can be more strategic
    in planning and managing service acquisition. The absence of such data
    creates several risks, including not knowing how and where money is being
    spent on service acquisition or not having the appropriate workforce
    skills or staffing levels to ensure it is using sound buying practices.

    Transactional Focus: Buying the Right Individual Service the Right Way

    While the strategic level defines the direction and manner in which an
    organization pursues improvements in service acquisition, it is through
    individual service transactions that the strategy is implemented. Key
    factors at this transactional level include (1) clearly defined and valid
    requirements; (2) appropriate business arrangements; and (3) effective
    contractor management and oversight. In short, an organization needs to
    assure itself that on individual service transactions it is buying the
    right thing in the right way and that doing so results in the desired
    outcome. See figure 3 for key factors for effectively managing service
    acquisitions at the transaction level.

    Figure 3: Key Factors for Managing Service Acquisitions at a Transactional
    Level

      Good Outcomes Begin with Sound Requirements

    Establishing a valid need and translating that into a service acquisition
    requirement is essential for obtaining the right outcome. Without this, an
    organization increases the risk that it will pay too much for the services
    provided, acquire services that do not meet its needs, or enter too
    quickly into a sensitive arrangement that exposes the organization to
    financial, performance, or other risks. Moreover, to establish accurate
    requirements, the customer organization would benefit by involving
    stakeholders that have knowledge about past transactions, current market
    capabilities and the potential supplier base, and budgetary and financial
    management issues. The makeup of stakeholders may vary across different
    transactions depending on the nature, complexity, and risks. In the end,
    the purpose of stakeholders with varied knowledge and skills is to ensure
    at the earliest point possible that all aspects of the acquisition are
    necessary, executable, and tailored to the level of risk commensurate with
    the individual transaction. We have found that when DOD uses similar
    teaming concepts to develop and deliver products, the results have
    included superior outcomes within predicted time frames and budgets. For
    example, we reported in April 2001 that the Advanced Amphibious Assault
    Vehicle program used teams to reduce the time needed to make a design
    decision from 6 months to about a week.14

    Because the nature of service contracts can vary, they naturally require
    different approaches in describing requirements. For example, the time,
    discipline, and sophistication of a team developing a requirement for
    repetitive building maintenance would be considerably less than that of a
    team developing a requirement for the first purchase of a space launch
    service. Observing these factors, tailored to the individual requirement
    at hand, can help to ensure that risks associated with a requirement for a
    service acquisition are fully considered before entering into a business
    arrangement. This is especially important for service acquisitions,
    because once requirements are developed, most transactions move very
    quickly into the business arrangement and contracting stages.

      Appropriate Business Arrangements Provide Right Way to Buy Services

    Once a requirement has been validated and defined, it becomes necessary to
    develop an appropriate business arrangement to meet that need while
    protecting the government's interests. Of course, without a sound
    requirement, the business arrangement could be relegated to buying the
    wrong service the right way. At a basic level, this includes defining a
    clear scope of expected contractor performance, developing an objective
    means to assess the contractor's performance, ensuring effective
    contractor selection based on competition and sound pricing, and selecting
    an appropriate contracting vehicle. Here again, while these are performed
    with respect to the individual transaction, they must be done in the
    context of the organization's strategic vision.

    14GAO, Best Practices: DOD Teaming Practices Not Achieving Potential
    Results, [44]GAO-01-510 (Washington, D.C.: Apr. 10, 2001).

    As an organization undergoes the process for selecting those contractors
    that will provide services, there should be clearly established
    relationships among what tasks the contractor is expected to perform, the
    contract terms and conditions, and performance evaluation factors and
    incentives. This is especially true as federal agencies makes adjustments
    to their acquisition practices. For example, in recent years, federal
    agencies have made a major shift in the way they buy services, turning
    increasingly to interagency contracts as a way to streamline the
    procurement process. In these cases, an agency can use an existing
    contract that has already been awarded by another agency, or turn to
    another agency to issue and administer task orders on its behalf, often
    for a fee.15 Requirements, roles, and responsibilities need to be clear to
    reduce risks. For example, we reported in July 2005 that DOD customers did
    not provide the awarding agency with detailed information about their
    needs.16 Without this information, these agencies did not translate DOD's
    needs into well-defined contract requirements that contained criteria to
    determine whether the contractor had performed successfully. In the
    absence of well-defined outcomes, DOD and the agencies lacked criteria to
    provide effective contractor oversight.

    Similarly, competition during the acquisition process is also important in
    getting reasonable prices, as offerors put forth their best bid and
    solution to meeting the proposed requirements and the government receives
    the benefit of market forces on pricing. We have noted, however, that DOD
    has, at times, sacrificed the benefits of competition for expediency. For
    example, we noted in April 2006 that DOD awarded contracts for security
    guard services supporting 57 domestic bases, 46 of which were done on an
    authorized, sole-source basis. The sole-source contracts supporting the
    last 37 installations were awarded by DOD despite recognizing it was
    paying about 25 percent more than previously paid for contracts awarded
    competitively.17

    15Task orders are placed against established contracts that provide for
    the issuance of orders for the performance of tasks during the period of
    the contract.

    16GAO, Interagency Contracting: Franchise Funds Provide Convenience, but
    Value to DOD is Not Demonstrated, [45]GAO-05-456 (Washington, D.C.: July
    29, 2005). GAO designated the management of interagency contracting a
    high-risk area in January 2005.

    When proper management controls are not in place, particularly in an
    interagency fee-for-service contracting environment, too much emphasis can
    be placed on customer satisfaction and revenue generation rather than on
    compliance with sound contracting policy and required procedures, such as
    competition. Significant problems in the way contracting offices carry out
    responsibilities in issuing the orders for services may not be detected or
    addressed by management. For example, in April 2005 we reported that a
    lack of effective management controls--in particular insufficient
    management oversight and a lack of adequate training--led to the
    breakdowns in the issuance and administration of task orders for
    interrogation and other services in Iraq, including:

               o issuing 10 out of 11 task orders that were beyond the scope of
               underlying contracts, in violation of competition rules;
               o not complying with additional DOD competition requirements when
               issuing task orders for services on existing contracts;
               o not properly justifying the decision to use interagency
               contracting;
               o not complying with ordering procedures meant to ensure best
               value for the government; and
               o inadequate monitoring of contractor performance.18

    Without appropriate attention, there is an increased risk that the
    government will pay too much for the purchased service, will be limited in
    its access to new and innovative alternatives, or will not be in the
    proper position to effectively manage the contractor after an arrangement
    is established.

      Actual Performance Must Be Managed and Assessed

    At the transactional level it is also important to implement a
    post-contract award process to effectively manage and assess contractor
    performance to ensure that the business arrangement is properly executed.
    Managing and assessing post-award performance entails various activities
    performed by government officials to ensure that the delivery of services
    meets the terms of the contract, including adequate surveillance
    resources, proper incentives, and a capable workforce for overseeing
    contractor activities. Each of these requires metrics and tools to
    encourage contractors to provide superior performance and to manage and
    document that the contractor's performance was acceptable. For example,
    one important element of this phase is having a plan for assessing
    performance that outlines how services will be delivered. In addition, the
    plan should provide a mechanism for capturing and documenting performance
    information so it can serve as past performance information on future
    contracts. Effective use of such a plan can allow the government to
    evaluate the contractor's success in meeting the specified contract
    requirements. Further, organizations can use monetary incentives, such as
    those provided through award and incentive fee contracts, to promote
    desired acquisition outcomes. Finally, quality assurance
    surveillance--oversight of the services being performed by the
    contractor--is important to ensure that contractors are providing timely
    and high-quality services and to help mitigate any contractor performance
    problems.

    17GAO, Contract Security Guards: Army's Guard Program Requires Greater
    Oversight and Reassessment of Acquisition Approach, [46]GAO-06-284
    (Washington, D.C.: Apr. 3, 2006).

    18GAO, Interagency Contracting: Problems with DOD's and Interior's Orders
    to Support Military Operations, [47]GAO-05-201 (Washington, D.C.: Apr. 29,
    2005).

    In an environment that demands increased interaction between DOD and the
    contractor to ensure expected outcomes, acquisition personnel must be
    adequately trained to understand each of these elements and have the
    skills to manage service contractors accordingly. Without appropriate
    attention through contract completion, we have found that risks exist that
    could result in poor contractor performance, services not being delivered
    as expected, or payment to contractors for more than the value of the
    services they performed. For example, our March 2005 review of 90
    contracts showed wide variance in the level of surveillance, including 15
    contracts that had no personnel assigned at all for these
    responsibilities.19 According to DOD officials, this condition existed
    because surveillance was not as important to contracting officials as
    awarding contracts and contracting oversight personnel were not properly
    assigned, evaluated on the performance of their duties, or provided enough
    time to complete surveillance tasks. In the same way that the development
    of requirements for services must be different from the development of
    requirements for products, so is the case for overseeing contractor
    performance. Given that performance thresholds may vary greatly,
    management and oversight of individual service acquisitions may need to be
    tailored to meet specific requirements. In some cases, dollar value may
    not be a good proxy for determining risk. For example, some high dollar
    contracts could pose relatively little risk to achieving the agency's
    mission. Conversely, certain lower dollar contracts, such as those used to
    obtain interrogation services in Iraq, may pose higher risk and,
    therefore, require greater management attention.

    19GAO, Contract Management: Opportunities to Improve Surveillance on
    Department of Defense Service Contracts, [48]GAO-05-274 (Washington, D.C.:
    Mar. 17, 2005).

    DOD Service Acquisition Approach Does Not Fully Address Key Elements at the
    Strategic or Transactional Levels

    DOD and the military departments have not yet fully addressed the key
    elements for managing service acquisition at a strategic or a
    transactional level. At the strategic level, DOD has not formed a
    normative position of where service acquisition needs to be and does not
    have the data necessary to know the state of service acquisition today. As
    a result, DOD is not in a position to determine whether investments in
    services are achieving their desired outcomes. These are precursors to
    defining and promoting improved outcomes. At the transactional level, most
    of DOD's efforts have been aimed at improving business arrangements,
    without commensurate focus on how requirements are established and
    communicated or how service contracts are executed. Despite the
    implementation of a senior-level review process, buying commands and
    activities have not made significant changes to how they manage individual
    service acquisitions.

    DOD's Strategic Level Approach Missing Key Elements

    DOD's overall approach to managing service acquisition suffers from the
    absence of several key elements. DOD has not developed a strategic vision
    and lacks sustained commitment to manage service acquisition risks and
    foster more efficient outcomes. As a result, DOD is not in a position to
    communicate to its workforce how it intends to improve its acquisition of
    services; determine needed changes to structures and processes to better
    identify and prioritize risks; or understand the current state of service
    spending and the skills of its current workforce. While DOD's current
    approach to managing service acquisition at the strategic level provides
    some additional insight into high-dollar value service acquisitions, it
    lacks an overall road map for managing risk and integrating key service
    acquisition initiatives.

      Normative Position of Service Acquisition Not Yet Established

    DOD has not yet identified the types and quantities of services it
    purchases; the outcomes needed in service acquisition so that necessary
    changes can be understood and evaluated; or metrics that can be used to
    assess whether those changes have actually achieved the expected outcomes.
    DOD and military department officials have acknowledged that DOD has not
    developed a comprehensive plan that targets areas needing improvements,
    coordinates ongoing and planned initiatives, and provides an overall road
    map to improve DOD's management of services. In the absence of such a
    vision, DOD's strategic level efforts do not position the department to
    proactively manage service acquisition outcomes, but rather relegate DOD
    to a reactive role in which the billions of dollars spent acquiring
    services simply reflects the sum total of individual actions.

    Further, DOD's efforts to transform its enterprisewide business operations
    may not translate into improved knowledge on how services are acquired.
    For example, DOD established the Business Transformation Agency in October
    2005 to lead and coordinate business transformation efforts across the
    department. The Business Transformation Agency is tasked primarily with
    modernizing key information technology systems and business processes
    intended to make reliable data more readily available while at the same
    time consolidating the overall number of information technology systems
    and ensure consistency across the department. However, the Business
    Transformation Agency has few ongoing activities directly related to the
    acquisition of services.

    In addition, DOD has pursued few opportunities to leverage its buying
    power to acquire services through the use of strategic sourcing concepts.
    While DOD has undertaken a number of pilot efforts, only a limited number
    of these focused specifically on services. In 2006, DOD appointed the
    Assistant Deputy Under Secretary of Defense for Strategic Sourcing and
    Acquisition Processes to coordinate efforts and assist other DOD
    components, including the military departments and the Defense Acquisition
    University (DAU), as they develop strategic sourcing plans and training
    processes. The Assistant Deputy Under Secretary stated that initial
    efforts were focused on developing a concept of operations to facilitate
    this requirement, but so far had been limited by a lack of staff and
    resources. Further, he acknowledged that his office does not play a role
    in DOD's service acquisition review process. In September 2006, a senior
    DOD official indicated that DOD was considering transferring this
    responsibility to the Office of the Director, Defense Procurement and
    Acquisition Policy. It is uncertain how this change, if implemented, would
    affect the roles and responsibilities previously assigned to the office.

      DOD Has Not Communicated Its Vision for Managing Service Acquisition

    Because it lacks a strategic vision, DOD is not in a position to
    communicate how it intends to improve its approach to service acquisition.
    DOD's primary policy for managing service acquisition came in the form of
    a memorandum issued in response to sections 801 and 802 of the Fiscal Year
    2002 National Defense Authorization Act. That memorandum, issued in May
    2002, noted DOD's intent to move to a more strategic and integrated
    approach to the acquisition of services and the need to treat this area as
    seriously as it does that of hardware.20 Similarly, DOD and senior
    military department officials have testified on the need to improve
    service acquisition management within their departments. Nevertheless, our
    discussions with command and buying activity officials found that while
    recognizing this need, without specific guidance from DOD, their
    acquisition practices remain unchanged. As a result, senior DOD
    leadership's call for change has had limited impact on acquisition
    practices at lower levels within the department.

    Further, one of the biggest obstacles to a more strategic approach to
    service acquisition is breaking down cultural barriers at different levels
    and across various functions of the acquisition process. In that regard,
    officials noted that the acquisition and contracting communities often do
    not have a shared vision for improving service acquisition or of their
    role in such a vision. For example, DOD has acknowledged that the use of
    performance-based service contracting techniques is generally perceived as
    a "contracting" initiative, with the rest of the acquisition community
    generally not fully participating or embracing the initiative.
    Consequently, DOD and military department officials indicate that without
    senior leadership and commitment, it is difficult to get support for
    changes in business practices within the acquisition community.

      Changes to Supporting Structures, Processes, and Roles Have Had Limited Effect

    As part of its May 2002 policy, DOD required the development of a review
    process for individual service acquisitions, established oversight
    thresholds, and specified which service acquisitions are to be reviewed.
    In addition, it required the military departments to establish a similar
    management review process. DOD officials noted in 2003 that this approach,
    combined with several other initiatives, was expected to have significant
    impact on the acquisition of services. The new management structure DOD
    implemented to address identified deficiencies associated with the
    management of services established three levels: (1) review by the Under
    Secretary of Defense (Acquisition, Technology, and Logistics) for services
    acquisitions valued over $2 billion; (2) review by the component or
    designated acquisition executive for service acquisitions valued between
    $500 million and $2 billion; and (3) review by a component-designated
    official for the acquisition of services valued at less than $500 million.
    In response to this guidance, the Air Force, Army, and Navy each developed
    individual service acquisition review processes and authorities to support
    the DOD review requirements and identified respective decision authorities
    responsible for conducting execution reviews to assess progress against
    metrics.

    20This policy memorandum was formalized on May 12, 2003.

    DOD and military department officials with whom we spoke indicated that
    the review structure has provided the reviewing office with additional
    insight on high-dollar value service acquisitions. However, the Office of
    the Under Secretary of Defense (Acquisition, Technology, and Logistics)
    lacked complete information on the number and scope of acquisitions of
    which it was notified and therefore could not give us a definitive
    response as to how many transactions were formally reviewed. Officials
    from that office provided a list of 19 service acquisitions that had been
    notified for review--9 Army and 2 Air Force acquisitions, in addition to 8
    acquisitions from the Office of the Assistant Secretary of Defense
    (Networks and Information Integration), which are subject to review under
    the guidance for major automated information systems--but provided no
    additional information on the results of those reviews.

    Data provided by officials at the military department level indicated that
    through September 2005, 69 acquisitions--representing just under 3 percent
    of service obligations--had been reviewed by the Air Force, Army, and Navy
    under the new process (see table 2).

    Table 2: Service Acquisitions Reviewed under DOD and Military Department
    Review Structure (dollars in millions)

                                       Number Fiscal year       Total  Percentage
                                           of        2005 fiscal year          of
                                     proposed obligations        2005 obligations
                                     contract        from obligations        from
    Review                         actions    reviewed         for    reviewed
    level/office   Criteriaa      reviewed    actionsb    services     actions
    Under          Proposed        Unknown
    Secretary of   service
    Defense        actions valued
    (Acquisition,  at $2 billion
    Technology,    or more.
    and Logistics)
    Army           Proposed             16        $326     $40,267        <1.0
                      service
    Assistant      acquisitions
    Secretary of   exceeding $500
    the Army       million
    (Acquisition,
    Logistics, and
    Technology)

    Deputy
    Assistant
    Secretary of
    the Army
    (Policy and
    Procurement)
    Navy           Proposed              9        $353     $23,123         1.5
                      actions
    Assistant      exceeding $1
    Secretary of   billion
    the Navy
    (Research,     Proposed
    Development,   service
    and            acquisitions
    Acquisition)   with a value
                      between $500
    Deputy         million and $1
    Assistant      billion
    Secretary of
    the Navy
    (Acquisition
    Management)
    Air Force      Proposed            44c      $1,735     $21,896         7.9
                      service
    Program        acquisitions
    Executive      exceeding $100
    Officer for    million or 300
    Combat and     or more
    Mission        full-time
    Support        equivalents
                      for A-76
                      requirements.
    Total                               69      $2,414     $85,286         2.8

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

    aDOD and the military departments can also review any service acquisition
    below established thresholds, but otherwise determined to be of special
    interest.

    bFigures in this column may include obligations for contracts or orders
    that included products and research and development-related services.

    cDoes not include one classified acquisition that underwent review.

    While the DOD reviews to date under this process have provided some
    additional visibility over high-dollar value service acquisitions, the
    reviews tend to focus more on ensuring compliance with applicable
    statutes, regulations, and other requirements, rather than on imparting a
    vision or tailored method for strategically managing service acquisition.
    Senior DOD and military department officials noted that the process is
    generally not intended to review program or customer decisions made at
    lower levels within the department as to the need for the particular
    services or to have a post-contract award follow-up assessment to ensure
    expected outcomes. Also, the reviews have not positioned DOD to regularly
    identify opportunities to leverage buying power. Further, they noted that
    the reviews are largely perceived as a function and responsibility of the
    DOD contracting organization, rather than a shared responsibility of the
    entire acquisition community, to include the program office and other
    customers for services.

    Moreover, DOD's policy does not require the Under Secretary of Defense
    (Acquisition, Technology, and Logistics) to actually review those
    acquisitions that exceed the $2 billion threshold. Service acquisitions
    that meet this threshold are first reviewed and approved at the military
    department level. In turn, the military departments notify the Under
    Secretary that a service acquisition exceeding the threshold is available
    for review. If there is no response within 10 days, the acquisition is
    allowed to proceed without further review. Additionally, at the military
    department level, most of the service acquisitions reviewed to date have
    been indefinite delivery/indefinite quantity contracts.21 There is no
    requirement to review individual task orders that are subsequently issued
    even if the value of the task order exceeds the review thresholds.

    We spoke to many officials at buying activities that had proposed service
    acquisitions for review under this process. For the most part, they did
    not believe the review significantly improved those acquisitions and noted
    very few examples of occasions when, as a result of review feedback,
    acquisition strategies were changed in a meaningful way. For example, the
    reviews tended to focus on compliance with applicable laws, regulations,
    and socioeconomic goals, such as small business participation or, in other
    words, that the business arrangements are proper--all of which are covered
    in the development of the acquisition strategy prior to the review. These
    officials indicated that the timing of the review process--which generally
    occurs well into the planning cycle--is too late to provide opportunities
    to influence the acquisition strategy. These officials told us that the
    reviews would be more beneficial if they were conducted earlier in the
    process, in conjunction with the program office or customer, and in the
    context of a more strategic approach to how best to meet the requirement,
    rather than simply from a secondary or tertiary review of the contract and
    in an area where they have considerable experience and expertise. In
    addition, contracting officials at one buying command stated that
    reviewing officials often lack the resources or technical expertise to
    provide useful and valuable feedback.

    21Indefinite-delivery/indefinite-quantity contracts establish basic terms
    in advance, enabling agency personnel to issue subsequent task or delivery
    orders for specific services or goods expeditiously. Orders must be within
    the contract's scope, issued within the period of performance, and be
    within the contract's maximum value. Federal Acquisition Regulation (FAR)
    Subpart 16.5 (2006).

      Knowledge on Spending and Workforce Is Not Readily Available

    DOD's ability to effectively manage service acquisition at either the
    strategic or the transactional level is hindered by the absence of
    reliable data on which to make informed decisions. DOD and military
    department officials acknowledge that the DOD contracting information
    systems available to the locations we visited do not provide information
    on forecasted demands for services; current and reliable information on
    what services are currently being procured; or data to assess whether
    these services are being acquired in line with cost, schedule and
    performance goals, or otherwise meeting customer needs.

    For its part, DOD has not identified the specific data it needs to better
    manage service acquisition outcomes or developed appropriate data systems
    that are essential for providing the information necessary for improving
    results. According to DOD documentation, there are thousands of individual
    information systems that have been implemented over decades to meet
    various mission needs, and rather than providing usable information, these
    systems can hinder collecting information needed by decision makers.
    Because these systems were developed independently--often not designed to
    be interoperable with other such systems--it is a challenge to share data
    with other locations or higher organizational levels in support of broader
    planning and decision making. Even collecting basic information on
    high-dollar services often proves time-consuming. For example, in April
    2005, DOD initiated a formal review of its service acquisition policy.
    According to DOD officials, after determining that its data systems were
    inadequate to identify and assess the status of service acquisition policy
    compliance, the department initiated a data call to each of the military
    components asking for a status review of the top 20 service acquisitions
    in each military department since inception of the policy. This data call
    took more than 6 months to collect, review, and report basic contracting
    data. Further, the results did not provide the types of knowledge DOD had
    expected.

    Finally, DOD has acknowledged that it faces significant workforce
    challenges that if not effectively addressed could impair the
    responsiveness and quality of acquisition outcomes. In response, DOD is in
    the process of identifying the current skill sets and gaps of the
    acquisition workforce that routinely are engaged in acquiring services.
    For example, DOD's 2006 Human Capital Strategic Plan noted there are
    currently efforts to develop a comprehensive competency model for each
    functional career field including the technical tasks, knowledge, skills,
    abilities, and personal characteristics required of the acquisition
    workforce. Similarly, DAU officials noted that they are revising the
    training curriculum for acquisition personnel, in part to provide an
    increased emphasis on service acquisition. For example, DAU has an ongoing
    effort to identify the critical competencies for service acquisition,
    determine which of these competencies require further workforce training,
    and develop the appropriate training. DAU officials stated the new courses
    will be initially targeted for contracting personnel. In addition, DOD
    officials stated that these courses will be made available to
    noncontracting acquisition personnel only as time and resources permit.

    DOD Transactional Approach Focuses Principally on Business Arrangement

    Our work found that at the transactional level, buying commands and
    activities have not significantly adjusted their acquisition practices
    since DOD implemented its new review structure. The current
    transactional-level approach does not always take the necessary steps to
    ensure customer needs are translated into well-defined contract
    requirements or that post-contract award activities result in expected
    outcomes. Instead, DOD service acquisition management activities focus
    primarily on awarding the contract. Without clearly defined requirements
    and attention after the contract is awarded, DOD cannot be sure it is
    buying the right service or using an appropriate means to assess
    contractor performance. As a result, DOD is potentially exposed to a
    variety of risks, including buying things that do not fully meet customer
    needs or that should be provided in a different manner or with better
    results.

      Communication Challenges Hinder Establishment of Good Requirements

    DOD and military department officials consistently identified poor
    communication and the lack of timely interaction between the acquisition
    and contracting personnel as key challenges to developing good
    requirements. These officials noted that developing well-defined and
    clearly articulated requirements in outcome-based performance measures is
    difficult in and of itself, but the challenges can be reduced if both
    communities work together early in the process. Several officials
    identified actions they have initiated to improve working relationships,
    but acknowledged that results have not been uniformly achieved. In part,
    these issues arise from cultural differences between the contracting and
    acquisition communities concerning their roles in managing various service
    acquisition elements.

    Generally the intended customer of a service, such as a program office,
    has the responsibility to identify what type of service it requires, the
    level of performance or quality needed, the period of performance, and the
    available budget. To avoid problems with the later stages of the
    acquisition process, and depending on the complexity of the services
    needed, early involvement of the contracting and other functional
    communities is important. However, contracting officers we spoke with
    frequently commented that the initial statements of work prepared by the
    customer were often insufficient, unclear, or not expressed in
    performance-based terms, requiring considerable rework. In addition,
    officials told us it is important that contracting officers fully
    understand exactly what the customer needs in order to get the best
    business arrangement for the government. However, contracting officers did
    not always have the necessary knowledge or expertise to understand the
    requirement, such as translating specific requirements into the statement
    of work. According to contracting officials, the resulting frustrations
    are heightened when customers identify the need to award a contract for
    the services in a short time period.

    Similarly, because services are generally funded on an annual basis,
    contracting officers are often faced with many pressures at the end of
    each fiscal year. For example, officials at the Navy Fleet Industrial
    Supply Center in Philadelphia noted the impact of DOD's recent policy
    requiring contracting officers to approve task orders with a value of
    $100,000 or more if they are issued against a non-DOD contract.22 While
    this does provide greater visibility in an area of previous concerns, the
    officials we spoke to indicated that the policy was issued without first
    assessing the impact on the contracting workforce or whether the customer
    was fully aware of the new process requirements. Consequently, contracting
    personnel were faced with a significant increase in workload, much of it
    at the end of the fiscal year. As many of these contracting officials had
    not been involved with the original negotiation or award of the contract,
    and because of the short time frames needed to issue the orders, they felt
    pressured to review and approve task orders without being able to fully
    assess whether the overall approach was the most effective or efficient.

    22DOD established this requirement in response to concerns about the
    improper use of interagency contracts.

    The lack of technical knowledge and training was raised as an issue at
    several commands we visited. For example, at many locations, officials
    commented on the lack of contracting knowledge on the part of the
    customer. One contracting manager told us he would be willing to pay for
    contracting-related training for customers, so that they could better
    understand how to prepare various contract documents, such as a
    performance-based statement of work or an award fee evaluation plan.
    Contracting officials told us that such documents can be difficult to
    prepare without sufficient planning and input from customers who are
    familiar with what needs to be accomplished. Similarly, contracting
    officers at one location told us that they sometimes have to alter
    acquisition approaches because it is too difficult to develop evaluation
    plans that can be used by customers to effectively evaluate contractor
    performance. Program officials also commented on the lack of technical
    knowledge on the part of the contracting community. One Air Force program
    official told us that he is required to use the general base contracting
    office to procure advanced medical services, even though the contracting
    officers usually do not have related technical knowledge and sometimes
    have difficulty understanding the requirement. Shared knowledge and
    communication are therefore important for ensuring that customers and
    contracting personnel are placed in the best position to achieve expected
    outcomes.

    Officials at some locations reported that better acquisition outcomes can
    result from establishing effective working partnerships. For example, Air
    Force Space Command officials noted that one of their major service
    acquisitions involves support for base operations in Thule, Greenland. The
    Air Force has relied on contractors to provide these services for more
    than four decades and believed their experience on the program illustrates
    key aspects needed to promote a successful acquisition. These officials
    noted that the service is a high priority and receives considerable
    attention from senior management. Additionally, the command employs a
    team-based approach to the acquisition, which means that personnel from
    both the customer and contracting communities are assigned and remain on
    the acquisition team throughout the development of the requirements,
    associated acquisition strategy, and contracting approach. Further, to
    help develop the requirements, the team receives considerable input from
    program personnel and the contracting officer's technical representative
    as to the contractor's performance, and makes use of monthly reports that
    measure key performance parameters. By including personnel from all stages
    of the acquisition process--program managers, contracting officers, and
    quality assurance personnel--Space Command officials believed they were
    able to make adjustments to their requirements that allowed the contract
    to be priced in a manner that reduced cost risk to the government. Command
    officials and those involved in the Thule service acquisition acknowledge,
    however, that they have not been able to consistently replicate this
    success on all other acquisitions.

    Because of the recognized need to improve communication and share
    knowledge between customers and the acquisition workforce, some of the
    buying commands we visited have taken actions to promote communication and
    timely interaction. For example, the Army's Communications and Electronics
    Command colocated senior contracting officers with customers to promote
    better communication and more cooperation between the two communities.
    These staff members, referred to as customer service representatives,
    establish early lines of communication by participating in management
    meetings with the customers to identify future acquisition needs. The
    representatives use this knowledge to help senior management in the
    contracting organization identify resources and approaches to meet
    customer needs.

      Business Arrangements Receive Majority of Management Attention, but Pressures
      to Meet Customer Needs Cited as Concerns

    Buying commands and activities we visited focused the majority of their
    attention on structuring business arrangements to ensure compliance with
    applicable laws and regulations. As a result, command officials generally
    indicated that their previous practices were already in line with
    requirements established under DOD's review process and therefore remain
    largely unchanged. In some cases, the commands have established additional
    procedures to review specific areas of interest, such as the proposed use
    of an interagency contract or to ensure that task orders under multiple
    award contracts comply with competition requirements.

    Despite these reviews, however, we have identified examples of potentially
    poor contracting practices and the pressure to meet customer demands. For
    example,

               o On one acquisition, an Army contracting officer issued a task
               order for a product that the contracting officer knew was outside
               the scope of the service contract. The contracting officer noted
               in an e-mail to the requestor that this deviation was allowed only
               because the customer needed the product quickly and cautioned that
               no such allowances would be granted in the future.

               o The Navy has established Seaport-enhanced, a centralized
               electronic ordering system that competes and issues task orders
               for multiple customers for program management support contracts.
               The Navy instructed buying activities within its virtual system
               command structure to use Seaport-enhanced as the "mandatory method
               of choice" for these services. However, officials at one Navy
               buying command told us they plan to submit waivers to avoid using
               Seaport-enhanced to meet their customer's preference for using
               particular contractors and to use time- and-materials contracts,
               neither of which would be possible using Seaport-enhanced.

               o An Air Force contracting official noted that his office intended
               to award a number of contracts to local firms so that the firms,
               in turn, could have increased opportunities to provide services to
               other civilian and military organizations in the region, through
               marketing themselves as having been awarded a federal contract.

    While these cases are anecdotal, they indicate that some contracting
    officers feel pressured to meet their customers' needs and had, or were
    considering, options that may not be in the bests interests of the
    government.

      Limited Capability to Assess Service Acquisitions

    Command and buying activities we reviewed generally had limited
    capabilities to assess the degree to which their service acquisitions were
    successful. For example, few of the commands or activities could provide
    us reliable or current information on the number of service acquisitions
    they managed, and others had not developed a means to consistently monitor
    or assess, at a command level, whether such acquisitions were meeting the
    performance objectives established in the contracts. Many command
    officials noted the difficulties in doing so, since service acquisitions
    involve a wide range of activities that necessitate different measures of
    quality or performance from each other or from acquisitions involving
    products or major weapon systems. Often, these officials noted that their
    measure of success is reflected in terms of customer satisfaction or the
    number of complaints received from the customers.

    Command officials noted that cost, delivery, or schedule performance
    measures may not be as effective on service contracts as for products or
    weapon systems. In this regard, the officials noted that services are
    often 1-year efforts in which schedule performance provides limited
    insights. Similarly, these officials noted that many of their service
    contracts, which are often cost reimbursable or time-and-materials in
    nature, are funded on a quarterly basis and are limited by the amount of
    funds made available. In these cases, program officials noted that if more
    funds are made available than expected, the customer may increase the
    number of staff or labor hours to be provided; conversely, funding
    reductions will be reflected in commensurate reductions in the number of
    staff or labor hours. In either case, measuring changes in cost or hours
    is more reflective of the availability of funding, rather than an
    indication of contractor performance. Command officials noted that their
    information systems generally do not provide a capability to assess
    service acquisition outcomes.

    Additionally, the ability to conduct oversight within DOD's management
    structure is often constrained by resources and workforce availability.
    For example, Air Force documentation suggests that 90 percent of planning
    activity is focused on getting the contract awarded, leaving very little
    for contract administration and oversight. Further, DOD officials noted
    that organizations like the Defense Contract Management Agency do not
    perform the same level of surveillance functions for services as they do
    for products. The Defense Contract Management Agency generally assembles
    integrated program support teams to deliver support at prime contractor
    facilities, which in turn supply business and technical support and
    furnish program managers with insight into program execution at the prime
    contract level, as well as the major and critical subcontract tiers.
    Senior DOD officials told us that because services tend not to rise to the
    level of a program, the Defense Contract Management Agency does not always
    provide the resources to support those acquisitions. Rather, the contract
    administration task is often assigned to a local contracting officer
    technical representative.

    Attention to Strategic and Transactional Elements Has Improved Some Service
    Acquisition Outcomes

    Just as commercial firms have reported positives changes after
    implementing management approaches that include strategic and
    transactional elements, there are also examples where DOD has had similar
    success. DOD officials who report success stated that this can be achieved
    by paying attention to and addressing the risks inherent in each of the
    key elements in the service acquisition process--at both the strategic and
    the transactional levels. For example, the Air Force, in conjunction with
    the Army, developed a strategic approach to acquiring wireless services
    and generated projected savings of 30 percent annually for just one of its
    service providers. According to Air Force officials, the combination of
    sustained leadership support, good data, a supporting structure, and
    communication with and among customers mitigated risks and set the context
    for the transactional level to achieve good acquisition outcomes. The Air
    Force's Chief Information Officer and the Deputy Assistant Secretary for
    Contracting actively participated in establishing and supporting the
    development of the Information Technology Commodity Council, which is
    responsible for managing information technology-related strategic sourcing
    initiatives. Clear roles and responsibilities were established within the
    supporting structure of the council, including appointing a single
    individual to lead the initiative; identifying stakeholders who were
    responsible for developing the requirements; and establishing a team to
    perform market research and obtain other necessary data.

    The team responsible for obtaining the data upon which to base its
    acquisition decisions consisted of Army and Navy officials. These
    officials worked together to perform a market analysis to understand the
    marketplace, develop a spend analysis to understand current expenditures,
    and forecast future demand to understand the needs of the military
    departments individually, and of DOD as a whole. As a result of the team's
    efforts, data are now available to help any agency within DOD save money
    when it acquires wireless services.

    Conclusions

    Over the past 10 years, DOD has seen large growth in the acquisition of
    services, to the point where the value of these acquisitions exceeds the
    value of major weapon systems. To a large extent, this growth has not been
    a managed outcome. Congress, concerned over these rapid increases, has
    directed DOD to take several actions to promote more oversight and
    discipline in service acquisition. DOD has taken action, but action has
    not necessarily equated to progress. At this point, DOD is not in a good
    position to say where service acquisition is today in terms of outcomes,
    where it wants service acquisition to be in the next few years, or how to
    get there. This makes it difficult to set the context within which
    individual organizations can make informed judgments on service
    acquisition transactions. Without this context, DOD will not be in a
    position to determine

               o the current volume, type, location, and trends of service
               acquisition;

               o the results DOD wants to achieve in the next 3 to 5 years in
               each of these areas;

               o the definition of a good service acquisition outcome;

               o the characteristics of a service acquisition that make it
               desirable, undesirable, or sensitive;
               o the risks that need to be managed at each stage of a
               transaction; and

               o the conditions under which a transaction should be referred for
               review.

    Given the diverse nature of services that DOD acquires, multiple sources
    of risk, and wide variety of organizations that are involved in individual
    acquisitions, until this basic information is available and understood, it
    may not be to possible to develop an ideal departmentwide review process
    or organizational structure. For example, while setting dollar thresholds
    as a basis for reviewing an individual service acquisition is an
    improvement over no review, dollars are not always a good proxy for risk.
    Moreover, when a service acquisition reaches the review stage, the
    requirement and proposed business arrangement are set and expediency
    becomes an issue as the contract is ready to be awarded. Ultimately, the
    majority of individual service acquisition decisions will be made by
    organizations at the local level. The people making these decisions will
    have to make judgments regarding the risks and soundness of requirements,
    sources, competition, contract types, and execution follow-up. Their
    decisions will also trigger which acquisitions receive higher level
    review. Of primary importance now is to provide a context for these
    organizations in which they can make tailored decisions and
    recommendations that remain consistent with DOD's overarching views of
    risk, desirable outcomes, and direction for service acquisition. That
    context does not yet exist.

    The strategic and transactional elements presented in this report can
    ultimately provide such a context. While not new, these elements, when
    considered together, offer the prospect of a cohesive approach--a
    necessary precursor to developing specific solutions to improve service
    acquisition outcomes. DOD will then be able to evaluate outcomes against
    expected results, provide the basis for making course corrections, and
    ultimately make service acquisitions a managed outcome.

    Recommendations for Executive Action

    We recommend the Secretary of Defense adopt a proactive approach to
    managing service acquisition that leverages strategic and transactional
    elements. Specifically, we recommend that the Secretary of Defense take
    the following six actions:

               o establish a normative position of how and where service
               acquisition dollars are currently and will be spent (including
               volume, type, and trends);

               o determine areas of specific risk that are inherent in acquiring
               services and that should be managed with greater attention
               (including those areas considered sensitive or undesirable in
               terms of quantity or performance);

               o on the basis of the above, clearly identify and communicate what
               service acquisition management improvements are necessary and the
               goals and timelines for completion;

               o ensure that decisions on individual transactions are consistent
               with DOD's strategic goals and objectives;

               o ensure that requirements for individual service transactions are
               based on input from key stakeholders; and

               o provide a capability to determine whether service acquisitions
               are meeting their cost, schedule, and performance objectives.

    Agency Comments and Our Evaluation

    DOD provided written comments on a draft of this report. DOD concurred
    with each of our recommendations and identified actions it has taken or
    plans to take to address them. These comments are reprinted in appendix
    II. As part of its comments, DOD provided its October 2006 policy
    memorandum that implements Section 812 of the National Defense
    Authorization Act for Fiscal Year 2006. We did not reprint the policy as
    it is publicly available through DOD's acquisition website (
    [49]www.acq.osd.mil/dpap/ ). DOD also provided technical comments, which
    we have incorporated as appropriate.

    DOD agreed that a more coordinated, integrated and strategic approach for
    acquiring services is needed. In particular, DOD noted that it is
    reassessing its strategic approach to acquiring services, including
    examining the types and kinds of services it acquires and developing an
    integrated assessment of how best to acquire such services. DOD expects
    this assessment will result in a comprehensive, departmentwide
    architecture for acquiring services that will, among other improvements,
    help refine the process to develop requirements, ensure that individual
    transactions are consistent with DOD's strategic goals and initiatives,
    and provide a capability to assess whether service acquisitions are
    meeting their cost, schedule and performance objectives. DOD expects its
    assessment will be completed in early 2007.

    DOD also noted that it has taken a number of initiatives to improve
    specific issues associated with acquiring services. For example, DOD noted
    that its October 2006 policy will modify certain aspects of the current
    management structure, including providing lower dollar thresholds for
    reviewing proposed services acquisitions and requiring senior DOD
    officials to annually review whether service contracts were meeting
    established cost, schedule and performance objectives. Further, DOD noted
    that it had made organizational changes to improve its strategic sourcing
    efforts; it is assessing the skills and competencies needed by its
    workforce to acquire services; and the military departments and defense
    agencies are currently conducting self-assessments intended to address
    contract management issues we identified in our January 2005 high-risk
    report.

    While these efforts are steps in the right direction, they appear to be
    primarily incremental improvements to DOD's current approach to acquiring
    services. Our discussions with DOD officials indicate that the
    architecture being developed may hold the potential for making the more
    fundamental changes at the strategic and transactional level that we have
    recommended. We have identified a number of elements that are needed at
    each of these levels, such as clearly articulating where DOD wants service
    acquisition to be in the next few years, setting the context for making
    informed and tailored decisions at the transactional level, and assuring
    that requirements are well-defined and consistent with DOD's strategic
    objectives. The extent to which DOD successfully integrates these elements
    as it develops and implements its new architecture will be the key to
    fostering the appropriate attention and action needed to make service
    acquisitions a managed outcome.

    We are sending copies of this report to interested congressional
    committees; the Secretary of Defense; the Secretaries of the Air Force,
    Army, and Navy; the Commandant of the Marine Corps; and the Director,
    Office of Management and Budget. We will provide copies to others on
    request. This report will also be available at no charge on GAO's Web site
    at [50]http:/www.gao.gov .

    If you or your staff have any questions about this report or need
    additional information, please contact me at (202) 512-4841 or
    francisp@gao.gov. Contact points for our Offices of Congressional
    Relations and Public Affairs may be found on the last page of this report.
    Staff acknowledgments are listed in appendix III.

    Paul Francis Director Acquisition and Sourcing Management

    Appendix I: Scope and Methodology

    To identify the key factors needed to improve service acquisition, we drew
    heavily on our prior work in this and other areas. We primarily used our
    January 2002 report that identified how leading commercial companies took
    a strategic approach to acquiring services.1 In addition, we reviewed
    previous GAO reports related to overall contract management and those
    related to individual service contract transactions, specifically in areas
    such as business transformation, interagency contracting, strategic
    sourcing, and contract surveillance. To confirm and validate key factors,
    we held detailed discussions with relevant defense contracting experts in
    the Office of the Under Secretary of Defense (Acquisition, Technology, and
    Logistics); the Office of the Assistant Secretary of Defense (Networks and
    Information Integration); the Office of the Deputy Undersecretary of
    Defense (Business Transformation); the Office of the Assistant Secretary
    of Defense (Health Affairs); and the Defense Acquisition University. In
    addition, we spoke with various offices within each of the military
    departments, including the Air Force Program Executive Office (Combat and
    Mission Support); the Deputy Assistant Secretary of the Army (Policy and
    Procurement); the Assistant Secretary of the Navy (Research, Development,
    and Acquisition); and the Air Force Information Technology Commodity
    Council.

    To assess the extent to which the Department of Defense (DOD) approach,
    including its current management structure, exhibited these
    characteristics, we reviewed relevant DOD guidance and policy memoranda,
    including those that established its current management structure and
    review processes. We interviewed officials responsible for implementing
    the management structure within the Office of the Secretary of Defense, as
    well as each of the offices mentioned above. Discussions with these
    officials focused on DOD and military department service acquisition
    approaches, including those in put in place in response to sections 801
    and 802 of the National Defense Authorization Act for Fiscal Year 2002 and
    other service contracting issues and initiatives. Data collected includes
    the number of service contract management reviews that have occurred under
    the newly implemented structure as well as the composition and purpose of
    those review boards. We obtained information on the types of activities
    and reviews conducted by these offices, including the number and value of
    service acquisitions they reviewed.

    1GAO, Best Practices: Taking A Strategic Approach Could Improve DOD's
    Acquisition of Services, [51]GAO-02-230 (Washington, D.C.: Jan. 18, 2002).

    To document and analyze the processes by which individual military
    commands and buying activities acquired services, we visited 20 locations.
    We selected these locations based both on recommendations from DOD
    officials and from our own internal knowledge. While our selection of
    locations cannot be generalized to the population of all DOD contracting
    locations, those selected represented each of the military services and
    represented a range of DOD service types. Locations visited include:

               o Air Force Space Command, Colorado Springs, Colorado;
               o Air Force 21st Space Wing, Peterson Air Force Base, Colorado
               Springs, Colorado;
               o Air Force 50th Space Wing, Schriever Air Force Base, Colorado
               Springs, Colorado;
               o Air Force 460th Space Wing, Buckley Air Force Base, Aurora,
               Colorado;
               o United States Air Force Academy, Colorado Springs, Colorado;
               o Army Contracting Center of Excellence, Arlington, Virginia;
               o Army Contracting Agency, Fort Carson, Colorado Springs,
               Colorado;
               o Army Communications and Electronics Command, Fort Monmouth, New
               Jersey;
               o Army Information Technology, E-Commerce and Commercial
               Contracting Center, Alexandria, Virginia;
               o Surface Deployment and Distribution Command, Alexandria,
               Virginia;
               o Naval Sea Systems Command, Washington Navy Yard, District of
               Columbia;
               o Naval Supply Systems Command, Mechanicsburg, Pennsylvania;
               o Navy Fleet and Industrial Supply Center, Philadelphia,
               Pennsylvania;
               o Navy Fleet and Industrial Supply Center, Norfolk, Virginia;
               o Navy Fleet and Industrial Supply Center, San Diego, California;
               o Naval Personnel Development Command, Norfolk, Virginia;
               o Navy Space and Warfare Command, San Diego, California;
               o Naval Education and Training Command (NETC), Pensacola Naval Air
               Station, Florida;
               o NETC Professional Development and Technology Center, Pensacola,
               Florida; and
               o TRICARE Management Activity, Acquisition Management and Support,
               Aurora, Colorado.

    We conducted field observations at these locations and distributed a
    structured set of questions to solicit information from contracting
    officials designated to respond to our inquiry. Discussions with these
    officials focused on the level and type of contracting activity and
    service acquisition management approaches. These discussions centered on
    topics such as service acquisition culture and relationships between
    contracting personnel and customers (including program office and user
    personnel), changes in policy and practice under the new review structure,
    challenges faced in acquiring services, efforts to improve individual
    service acquisitions; databases for capturing service contract data,
    performance based contracting, strategic sourcing, and other service
    acquisition initiatives. We discussed the review processes for selected
    service acquisitions (as determined by buying activity officials);
    including those that met criteria for review by either the Office of the
    Secretary of Defense or the military departments and, for comparison,
    those that were not subject to review at these levels. We reviewed
    contract file documentation to examine standard processes, review
    authority, requirements determination, and risk management activity.
    Information collected included contract solicitations, acquisition
    strategies, status reports, performance certifications; review and
    approval checklists, and other contract specific documents.

    Appendix II: Comments from the Department of Defense

    Appendix III: GAO Contact and Staff Acknowledgements

    GAO Contact

    Paul Francis (202) 512-4841 or francisp@gao.gov

    Acknowledgements

    In addition to the contact above, Tim DiNapoli, Assistant Director; Brian
    Mullins; Christina Cromley Bruner; Whitney Havens; Moshe Schwartz; Andrew
    Redd; Julia Kennon; and John Krump made key contributions to this report.

    (120415)

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    www.gao.gov/cgi-bin/getrpt?GAO-07-20 .

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    Highlights of [59]GAO-07-20 , a report to the Subcommittee on Readiness
    and Management Support, Committee on Armed Services, U.S. Senate

    November 2006

    DEFENSE ACQUISITIONS

    Tailored Approach Needed to Improve Service Acquisition Outcomes

    Department of Defense (DOD) obligations for service contracts rose from
    $82.3 billion in fiscal year 1996 to $141.2 billion in fiscal year 2005.
    DOD is becoming increasingly more reliant on the private sector to provide
    a wide range of services, including those for critical information
    technology and mission support. DOD must maximize its return on investment
    and provide the warfighter with needed capabilities and support at the
    best value for the taxpayer.

    GAO examined DOD's approach to managing services in order to (1) identify
    the key factors DOD should emphasize to improve its management of services
    and (2) assess the extent to which DOD's current approach exhibited these
    factors.

    [60]What GAO Recommends

    GAO recommends that DOD take a proactive approach to managing strategic
    and transactional level service acquisition elements. This includes
    establishing a normative position of service spending, determining risk
    areas for greater attention, and communicating these in a manner where
    individual transactions can then be made to support strategic goals and
    meet cost and performance objectives. DOD concurred with all of our
    recommendations and noted several actions the department is taking or
    plans to take to improve the acquisition of services.

    Several key factors are necessary to improve DOD's service acquisition
    outcomes--that is, obtaining the right service, at the right price, in the
    right manner. These factors can be found at both the strategic and the
    transactional levels and should be used together as a comprehensive, but
    tailored approach to managing service acquisition outcomes. At the
    strategic level, key success factors include (1) strong leadership that
    defines a corporate vision and normative goals; (2) sustained,
    results-oriented communication and metrics; (3) defined responsibilities
    and associated support structures; and (4) increased knowledge and focus
    on spending and data trends. The strategic level also sets the context for
    the transactional level, where the focus is on making sound decisions on
    individual transactions. Success factors at this level include having (1)
    valid and well-defined requirements; (2) properly structured business
    arrangements; and (3) proactively managed outcomes.

    DOD's current approach to managing service acquisition has tended to be
    reactive and has not fully addressed the key factors for success at either
    the strategic or transactional level. At the strategic level, DOD has yet
    to set the direction or vision for what it needs, determine how to go
    about meeting those needs, capture the knowledge to enable more informed
    decisions, or assess the resources it has to ensure departmentwide goals
    and objectives are achieved. For example, despite implementing a review
    structure aimed at increasing insight into service transactions, DOD is
    not able to determine which or how many transactions have actually been
    reviewed. The military departments, while having some increased
    visibility, have only reviewed proposed acquisitions accounting for less
    than 3 percent of dollars obligated for services in fiscal year 2005 and
    are in a poor position to regularly identify opportunities to leverage
    buying power or otherwise change existing practices. Actions at the
    transactional level continue to focus primarily on awarding contracts and
    do not always ensure that user needs are translated into well-defined
    requirements or that post-contract award activities result in expected
    performance.

    Key Strategic and Transactional Factors for Service Acquisition

    References

    Visible links
      35. http://www.gao.gov/cgi-bin/getrpt?GAO-05-207
      36. http://www.gao.gov/cgi-bin/getrpt?GAO-02-230
      37. http://www.gao.gov/cgi-bin/getrpt?GAO-02-230
      38. http://www.gao.gov/cgi-bin/getrpt?GAO-03-935
      39. http://www.gao.gov/cgi-bin/getrpt?GAO-06-838R
      40. http://www.gao.gov/cgi-bin/getrpt?GAO-05-723T
      41. http://www.gao.gov/cgi-bin/getrpt?GAO-05-179
      42. http://www.gao.gov/cgi-bin/getrpt?GAO-04-870
      43. http://www.gao.gov/cgi-bin/getrpt?GAO-05-179
      44. http://www.gao.gov/cgi-bin/getrpt?GAO-01-510
      45. http://www.gao.gov/cgi-bin/getrpt?GAO-05-456
      46. http://www.gao.gov/cgi-bin/getrpt?GAO-06-284
      47. http://www.gao.gov/cgi-bin/getrpt?GAO-05-201
      48. http://www.gao.gov/cgi-bin/getrpt?GAO-05-274
      49. http://www.acq.osd.mil/dpap
      50. http://www.gao.gov/
      51. http://www.gao.gov/cgi-bin/getrpt?GAO-02-230
      52. http://www.gao.gov/
      53. http://www.gao.gov/
      54. http://www.gao.gov/fraudnet/fraudnet.htm
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