Defense Services Acquisition: Questions for the Record		 
(26-MAR-07, GAO-07-640R).					 
                                                                 
On January 17, 2007, GAO testified before Congress on the	 
Department of Defense's (DOD) management of its acquisition of	 
services. GAO made several key points during the hearing. First, 
DOD's long-standing problems with contract management have become
more prominent as DOD's reliance on contractors to provide	 
services continues to grow. Second, DOD lacks sound contracting  
practices when acquiring services. Third, DOD's acquisition	 
workforce has been downsized without sufficient attention to	 
requisite skills and competencies. Fourth, DOD's acquisitions	 
have resulted in outcomes that have cost the department valuable 
resources. And, finally, while DOD is taking some steps to	 
address these problems, it does not know how well its services	 
acquisition processes are working, which part of its mission can 
best be met through buying services, and whether it is obtaining 
the services it needs while protecting DOD's and the taxpayer's  
interests. Within this context, members of Congress requested	 
that GAO provide additional comments on DOD's efforts regarding  
the following topics: interagency contracting, acquisition of	 
services, acquisition reform, and the acquisition workforce.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-07-640R					        
    ACCNO:   A67246						        
  TITLE:     Defense Services Acquisition: Questions for the Record   
     DATE:   03/26/2007 
  SUBJECT:   Accountability					 
	     Contract administration				 
	     Contract oversight 				 
	     Contracts						 
	     Defense procurement				 
	     Department of Defense contractors			 
	     Procurement practices				 
	     Service contracts					 
	     Staff utilization					 
	     Strategic planning 				 

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GAO-07-640R

   

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March 26, 2007

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

Subject: Defense Services Acquisition: Questions for the Record

On January 17, 2007, I testified before the Subcommittee on the Department
of Defense's (DOD) management of its acquisition of services.^1 I made
several key points during the hearing. First, DOD's long-standing problems
with contract management have become more prominent as DOD's reliance on
contractors to provide services continues to grow. Second, DOD lacks sound
contracting practices when acquiring services. Third, DOD's acquisition
workforce has been downsized without sufficient attention to requisite
skills and competencies. Fourth, DOD's acquisitions have resulted in
outcomes that have cost the department valuable resources. And, finally,
while DOD is taking some steps to address these problems, it does not know
how well its services acquisition processes are working, which part of its
mission can best be met through buying services, and whether it is
obtaining the services it needs while protecting DOD's and the taxpayer's
interests.

Within this context, members of the Subcommittee requested that GAO
provide additional comments on DOD's efforts regarding the following
topics: interagency contracting, acquisition of services, acquisition
reform, and the acquisition workforce. The questions and our answers are
provided in appendix I. The responses are generally based on work
associated with previously issued GAO products, which were conducted in
accordance with generally accepted government auditing standards. Because
the responses are based on prior work, we did not obtain comments from
DOD.

We will make copies of this letter available to others upon request, and
it will be available at no charge on the GAO Web site at
http://www.gao.gov . If you have any questions about this letter or
need additional information please contact me on (202) 512-4841 or
[email protected] . Contact points for our Offices of Congressional
Relations and Public Affairs may be found on the last page of this letter.
Key contributors to this letter were Timothy DiNapoli, James Fuquay, Sara
Margraf, Sylvia Schatz, Amelia Shachoy, and William Woods.

^1GAO, Defense Acquisitions: DOD Needs to Exert Management and Oversight
to Better Control Acquisition of Services, GAO-07-359T (Washington, D.C.:
Jan. 17, 2007).

Katherine V. Schinasi

Managing Director
Acquisition and Sourcing Management

Attachment

Appendix I: GAO Responses to Questions for the Record

Interagency Contracting

Question: What is the potential effectiveness of two corrective actions
DOD has recently taken to improve oversight of interagency contracting--a
December 2006 memorandum from the Director of Defense Procurement and an
October 2006 memorandum from the Defense Comptroller's office?

The October 2006 memorandum from the Comptroller, which was sent to DOD
components, established policies and procedures for ordering goods and
services that are not subject to the Economy Act that are purchased from
non-DOD agencies. For example, it requires officials to provide evidence
of market research and acquisition planning, and a statement of work that
is specific, definite, and certain for non-Economy Act orders above the
simplified acquisition threshold. The memorandum also included a checklist
and responsibilities for DOD officials to use as guidance when placing
orders through interagency contracts. These actions should help to address
prior GAO recommendations for better defining contract requirements and
outcomes, and the need for guidance on the use of interagency contracts.

The December 2006 Memorandum of Agreement between DOD and the General
Services Administration (GSA) serves to establish expectations for the
parties involved in an interagency contracting transaction. For example,
the memorandum proscribes that statements of work are complete,
interagency agreements describe the work to be performed, and surveillance
and oversight requirements are defined and implemented. The planned
quarterly meetings for DOD and GSA to evaluate the effectiveness of the
Memorandum of Agreement are a positive step.

However, as the Acting Inspector General, DOD, pointed out during the
January 2007 hearing, the risks associated with interagency contracting
are not new and require sustained attention. The use of these types of
contracts continues to increase governmentwide, and our work and the work
of the Inspector General have found that users and administrators lack
expertise about how to use these contracts. In addition, adequate
oversight is lacking. For example, DOD issued guidance that was signed in
October 2004 (effective January 1, 2005) that outlines procedures to be
developed and general factors to consider in making the decision to use
another agency's contract. However, recent Inspector General audits have
found that the guidance is not always followed. In March 2006, the DOD
Comptroller issued a memorandum to the military departments, defense
agencies, and other components stating that DOD purchases made through
non-DOD entities continue to violate policies, existing regulations, and
practices regarding the use and control of DOD funds under interagency
agreements; the memorandum also stated that this situation needed
improvement. Therefore, although recent DOD actions are welcome, DOD will
need to continue to monitor its use of interagency contracts and do more
to define who is responsible for what in the contracting process.

Acquisition of Services

Question: How do recent steps taken by DOD, such as the Under Secretary of
Defense's October 2006 memorandum concerning the reform of services
acquisitions, compare to your recommendations regarding strategic and
tactical management?

DOD has taken a number of steps to improve its acquisition of services,
but these steps do not fully address our recommendations regarding
strategic and tactical management. For example, DOD's October 2006
memorandum identified a number of improvements in its 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, in its comments to our
November 2006 report^2  on DOD services acquisitions, DOD noted that it
had made organizational changes to improve its strategic sourcing efforts;
it was assessing the skills and competencies needed by its workforce to
acquire services; and the military departments and defense agencies were
conducting self-assessments intended to address contract management issues
we identified in our high-risk report. Each of these efforts are steps in
the right direction, but in our view, appeared to be primarily incremental
improvements to DOD's current approach to acquiring services.

Question: What do you think DOD needs to do to further address the
problems in the acquisition of services?

At a fundamental level, we believe DOD needs to begin to proactively
manage services acquisitions outcomes, an action that will involve making
changes at both the strategic and transactional levels. In contrast, DOD's
approach to managing the acquisition of services has tended to be
reactive, and, as noted above, DOD's reform efforts appear to be primarily
incremental improvements to existing processes. In our view, such
incremental improvements will not place DOD in a position to proactively
manage services.

As we noted in our November 2006 report, DOD stated that it was examining
the types and kinds of services it acquired and developing an integrated
assessment of how best to acquire such services. DOD expected that this
assessment would result in a comprehensive, departmentwide architecture
for acquiring services that would, among other improvements, help refine
the processes to develop requirements, ensure that individual transactions
are consistent with DOD's strategic goals and initiatives, and provide a
capability to assess whether services acquisitions were meeting their
cost, schedule and performance objectives. DOD expected this assessment
would be completed in early 2007. Our discussions with DOD officials
indicated that this architecture may hold potential for making the more
fundamental change at the strategic and transactions levels that we have
recommended. We cautioned, however, that the extent to which DOD
successfully integrated the elements we identified would be key to
fostering the appropriate attention and action needed to make services
acquisitions a managed outcome.

^2GAO, Defense Acquisitions: Tailored Approach Needed to Improve Service
Acquisition Outcomes, GAO-07-20 (Washington, D.C.: Nov. 9, 2006).

Question: Do you have any recommendations that Congress should consider to
ensure that the progress made endures?

Congressional oversight, including hearings such as this, plays a
significant and important role in helping to assess progress, identify
challenges, focus senior management attention, and hold DOD accountable
for its actions.

Acquisition Reform

Question: How do, or should, reforms in the acquisition of services fit
within this Committee's broader acquisition reform efforts?

We believe that three elements transcend the type of goods or services DOD
buys: recognizing that mission success depends heavily on a successful
acquisition function and elevating senior leadership attention and
accountability accordingly; ensuring that the government negotiates the
best deal possible, a precursor of which is the market-based discipline of
competition; and monitoring the outcome of acquisition decisions to ensure
that the government gets what it pays for. Although improvements should be
targeted according to facts and circumstances, the line between acquiring
goods and acquiring services is blurring as DOD contracts out the
management of its major systems acquisitions. The Subcommittee's efforts
to promote good practices are relevant for both the acquisition of goods
and the acquisition of services.

Question: Are there common lessons learned or processes to be applied
between major weapon systems acquisition and services acquisitions reform?

Services acquisitions parallel major weapon system acquisitions in that
both should start with well-defined requirements, conduct sufficient
market research, maximize competition, use qualified contractors,
appropriately incentivize contractor performance, provide oversight or
surveillance of the contractor's performance, and accept and pay for only
quality outcomes. Our work has repeatedly found weaknesses in these
processes. As we noted in our January 2007 testimony before the
Subcommittee, DOD does not know how well its services acquisition
processes are working and whether it is obtaining the services it needs
while protecting DOD's and the taxpayers' interests. Key to achieving
better outcomes will be DOD's ability to translate well-meaning guidance
and policy into actual practice. In trying to improve the acquisition of
both goods and services, the underlying incentives that drive
behavior--particularly funding--are most often ignored.

Acquisition Workforce

Question: The DOD workforce is an aging workforce and is losing much of
its talent through retirement. The talent that does remain may not match
up well with the skills needed to buy software-intensive, net-centric
weapons. What are your views on the health and composition of the
acquisition workforce?

Although defining the acquisition workforce as the focus of attention is
appropriate in some respects, the problems facing DOD today are broader as
the increased demands on the acquisition workforce also stem, in part,
from declines in the capacity of the overall DOD workforce and, in part,
from the demands emanating from the requirements process. That said, we
have raised concerns about the health and composition of DOD's acquisition
workforce for several years. DOD's acquisition workforce must have the
right skills and capabilities if it is to effectively implement best
practices and properly manage the goods and services it buys. We noted in
reports issued in 2003 and July 2006, however, that procurement reforms,
changes in staffing levels, workload, and the need for new skill sets have
placed unprecedented demands on the acquisition workforce.

Further, DOD's current civilian acquisition workforce level reflects the
considerable downsizing that occurred in the 1990s. DOD carried out this
downsizing without ensuring that it had the specific skills and
competencies needed to accomplish DOD's mission. As a result, these
factors have challenged DOD's ability to maintain a workforce with the
requisite knowledge of market conditions and industry trends, the ability
to prepare clear statements of work, an understanding of the technical
details about the services they buy, and the capacity to manage and
oversee contractors. In the case of the $160-billion Future Combat Systems
program, for example, the Army chose to use a lead systems integrator
because it did not believe it had the in-house resources or flexibility to
field such a complex system in the time required.^3

DOD has acknowledged that it faces significant workforce challenges that
if not effectively addressed could impair the responsiveness and quality
of acquisition outcomes. In June 2006, DOD issued a human capital strategy
that identified a number of steps planned over the next 2 years to more
fully develop a long-term approach to managing its acquisition workforce,
including developing a comprehensive competency model for each functional
career field including the technical tasks, knowledge, skills, abilities,
and personal characteristics required of the acquisition workforce.

^3The Future Combat Systems program is a family of weapons, including 14
manned and unmanned ground vehicles, air vehicles, sensors and munitions
that will be linked by an information network.

Question: What are the immediate priorities that must be addressed to
ensure that the workforce can meet the demands of today's acquisitions?

First, we have reported that senior DOD leaders need to set the
appropriate tone at the top and ensure that its personnel adhere to sound
contracting practices.^4 Senior leadership is a critical factor in
providing direction and vision as well as in maintaining the culture of
the organization. As such, senior leaders have the responsibility to
communicate and demonstrate a commitment to sound practices deemed
acceptable for the acquisition function. Without sustained and prominent
senior leadership, DOD increases its vulnerability to contracting fraud,
waste, and abuse if it does not ensure that its decision makers,
personnel, and contractors act in the best interests of DOD and taxpayers.
DOD has emphasized making contract awards quickly; sometimes, however, the
focus on speed has come at the expense of sound contracting techniques.

Second, DOD needs to determine what skill sets its current workforce has,
and what skill sets the workforce needs, to carry out DOD's mission. As I
previously noted, DOD's June 2006 strategic human capital plan identified
a number of steps planned over the next 2 years to more fully develop a
long-term approach to managing its acquisition workforce, including
developing a comprehensive competency model for each functional career
field. The model should identify the technical tasks, knowledge, skills,
abilities, and personal characteristics required of the acquisition
workforce. As part of this effort, DOD also needs to assess whether it has
sufficient numbers of adequately trained personnel to plan, negotiate and
award contracts, and to manage and assess contractor performance.

Question: Are you concerned that we are relying too much on service
contractors to augment DOD program offices?

We have expressed concern about DOD's growing reliance on contractors.
This reliance is a governmentwide phenomenon and is occurring across a
wide variety of activities and functions, including support for program
offices. In recent years, for example, DOD has been using a lead systems
integrator approach that allows one or more contractors to define weapon
system's architecture and then manage both the acquisition and integration
of subsystems into the architecture. This approach relies on contractors
to fill roles and handle responsibilities that differ from the more
traditional prime contractor relationship the contractors had with the
program offices and can blur the oversight responsibilities between the
lead systems integrator and DOD program management representatives. To
illustrate this point, the Army's Future Combat Systems program is managed
by a lead systems integrator that assumes the responsibilities of
developing requirements, selecting major system and subsystem contractors,
and making trade-off decisions among costs, schedules, and capabilities.
While this management approach has some advantages for DOD, we found that
the extent of contractor responsibility in many aspects of program
management is a potential risk.  Given the growing role of contractors, we
believe it is important for DOD to identify the functions and tasks
contractors are performing, the reasons or justifications for choosing a
contractor instead of using a government employee, and the costs and risks
inherent in such choices. In addition, we believe it is important for DOD
to identify and mitigate the risks that can accompany increased reliance
on contractors--risks such as organizational or personal conflicts of
interest and insufficient in-house capacity to ensure that contractors
meet cost, schedule, and performance requirements. We are conducting work
to explore these issues.

^4GAO, Contract Management: DOD Vulnerabilities to Contracting Fraud,
Waste, and Abuse, GAO-06-838R (Washington, D.C.: July 7, 2006).

Question: The Congress has provided many different tools to DOD to improve
the hiring and training of acquisition personnel. Have the tools for rapid
hiring authority been given to the acquisition workforce?

We have not evaluated the use of the tools that have been provided to DOD
for rapid hiring authority.

Question: In your opinion, do the new authorities under the National
Security Personnel System (NSPS) for performance management offer an
opportunity for improved accountability? If, so, have you made such a
recommendation to DOD leadership?

Our past testimonies and work indicate that evaluating the effect of NSPS
will be an ongoing challenge. However, we believe NSPS does offer an
opportunity for improved accountability. In our July 2005 report on DOD's
efforts to design NSPS, we recommended that DOD develop procedures for
evaluating NSPS that contain results-oriented performance measures and
reporting requirements.^5 Our prior work also indicates that involving
employees and other stakeholders helps to improve overall confidence and
belief in the fairness of the system, enhance their understanding of how
the system works, and increases their understanding and ownership of
organizational goals and objectives. Organizations have found that the
inclusion of employees and their representatives needs to be meaningful,
not just pro forma. Results-oriented performance measures and reporting
requirements along with employee involvement can improve accountability.

Recruitment and Retention

Question: The vast number of retirement-eligible federal employees
presents a manpower challenge across the federal government, and
specifically in adequately replacing members of the acquisition workforce.
What innovative recruitment, retention, hiring, and/or training methods
have been employed to address the inevitable reduction in the acquisition
workforce? What methods have proved successful thus far? What limitations
stymie more robust recruiting and retention results, and are there
legislative changes or authorities that would enhance DOD's efforts in
this area?

^5GAO, Human Capital: DOD's National Security Personnel System Faces
Implementation Challenges,

Our prior work has shown that DOD needs to conduct comprehensive
acquisition workforce planning to address recruitment, hiring, retention,
and training issues. We reported in April 2002 that DOD recognized the
need as well as the substantial challenges involved in implementing a
strategic approach to shaping the acquisition workforce.^6 In June 2004,
we reported that DOD had taken steps to develop and implement civilian
strategic workforce plans to address future civilian workforce needs, but
these plans generally lacked some key elements essential to successful
workforce planning.^7 None of the plans included analyses of the gaps
between critical skills and competencies currently needed by the workforce
and those that will be needed in the future. Without including analyses of
gaps in critical skills and competencies, DOD and its components may not
be able to design and fund the best strategies to fill its talent needs
through recruiting and hiring or to make appropriate investments to
develop and retain the best possible workforce. Such gap analyses need to
be completed to address acquisition workforce shortcomings and to identify
methods that might prove successful for recruiting and retention. While we
made several recommendations to improve DOD's strategic workforce planning
efforts, the work we have completed has not identified the need for
legislative changes or authorities to enhance DOD's efforts in the areas
of recruitment and retention. However, we continue to be concerned about
strategic human capital issues at DOD, as well as across the federal
government, as we point out in our recently issued high-risk report.^8

Acquisition Practices

Question: The Administration has made clear the priority of success in the
global war on terrorism, and the DOD has an enormous role in this fight.
Given your finding that DOD needs significant improvement in both contract
oversight and interagency contracting practices, DOD clearly faces
multiple challenges on the contracting front as part of its role in global
war on terrorism support. What are your recommendations for how DOD might
simultaneously improve contract practices in its Iraq reconstruction
mission and develop and implement strategic acquisition processes?

As the Comptroller General noted during testimony in February 2007, the
challenges faced by DOD on its reconstruction and support contracts in
Iraq often reflected systemic and long-standing shortcomings in DOD's
capacity to manage contractor efforts.^9 Such shortcomings result from
various factors, including poorly defined or changing requirements; the
use of poor business arrangements; the absence of senior leadership and
guidance; and an insufficient number of trained contracting, acquisition,
and other personnel to manage, assess, and oversee contractor performance.
In turn, these shortcomings manifest themselves in higher costs to
taxpayers, schedule delays, unmet objectives, and other undesirable
outcomes.

^6GAO, Acquisition Workforce: Department of Defense's Plans to Address
Workforce Size and Structure Challenges, GAO-02-630 (Washington, D.C.:
April 30, 2002).

^7GAO, DOD Civilian Personnel: Comprehensive Strategic Workforce Plans
Needed, GAO-04-753 (Washington, D.C.: June 30, 2004).

^8GAO, High Risk Series: An Update, GAO-07-310 (Washington, D.C.: January
2007).

Through the years, we have made recommendations to help DOD address these
shortcomings, including recommendations intended to assure that adequate
acquisition staff and other resources are available to support future
operations, to emphasize the need to clearly define contract requirements
in a timely manner, to improve the management of interagency contracting,
and to resolve long-standing issues with regard to the management and use
of support contractors. DOD has generally agreed with our recommendations
and has some actions underway to address them. However, senior DOD
leadership is needed to address these issues on a systemic level and
ensure that subsequent changes in DOD's policies and practices are
implemented, as appropriate, in Iraq.

^9GAO, Rebuilding Iraq: Reconstruction Progress Hindered by Contracting,
Security, and Capacity Challenges, GAO-07-426T (Washington, D.C.: Feb. 15,
2007).

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