Defense Management: Electronic Commerce Implementation Strategy Can Be Improved (Letter Report, 07/18/2000, GAO/NSIAD-00-108). Pursuant to a congressional request, GAO reviewed the Department of Defense's (DOD) efforts to implement its Joint Electronic Commerce Program, focusing on: (1) issues DOD needs to resolve to successfully implement its vision for electronic commerce; and (2) the implementation status and performance measures associated with key electronic commerce initiatives. GAO noted that: (1) DOD faces several implementation issues that, if not resolved, could adversely effect the success of its electronic commerce program; (2) DOD has not yet: (a) completed a detailed plan to implement its strategic vision; (b) developed an electronic commerce architecture; (c) determined how to best manage the electronic commerce program; and (d) fully implemented key security measures that are needed for electronic commerce; (3) the officials responsible for developing a Department-wide implementation plan have not been able to draft a plan that is acceptable to DOD's military services and agencies; (4) a Department-wide plan has thus been put on hold, and DOD's components are developing individual plans; (5) without an overarching, Department-wide plan to guide the military service and Defense agency efforts, the individual plans that result may not be consistent with program goals; (6) in addition, DOD has made little progress in developing a common electronic commerce architecture, which is needed to provide a framework to integrate the individual parts or systems; (7) Department components may develop separate architectures, which may lead to systems and capabilities that are redundant or unable to share information; (8) DOD established an electronic commerce program office, but its authority is unclear and its chain of command is cumbersome and, as a result, the office has been hampered in carrying out its program planning and implementation responsibilities; (9) DOD is taking steps to improve the program office's effectiveness, but these steps may not be sufficient; (10) DOD's ability to transact business electronically, particularly over the Internet, will not be as secure as desired until it completes ongoing work necessary to better protect and authenticate electronic transactions and data; (11) DOD is implementing a number of specific, electronic business- related initiatives that it believes will help modernize selected business processes; (12) these initiatives, which are at various stages of implementation, include: (a) expanding the use of purchase cards to streamline aspects of the procurement process; (b) establishing an electronic mall as a source of supplies for DOD customers, and (c) making aspects of the contracting process paper-free; and (13) many of these initiatives began several years ago, and they predate the Defense Reform Initiative and the electronic commerce program. --------------------------- Indexing Terms ----------------------------- REPORTNUM: NSIAD-00-108 TITLE: Defense Management: Electronic Commerce Implementation Strategy Can Be Improved DATE: 07/18/2000 SUBJECT: Electronic data interchange Information resources management Strategic information systems planning Performance measures Smart cards Computer networks Systems design Defense procurement Computer security IDENTIFIER: DOD Defense Reform Initiative Internet DOD Public Key Infrastructure Program DOD Joint Electronic Commerce Program ****************************************************************** ** This file contains an ASCII representation of the text of a ** ** GAO Testimony. ** ** ** ** No attempt has been made to display graphic images, although ** ** figure captions are reproduced. Tables are included, but ** ** may not resemble those in the printed version. ** ** ** ** Please see the PDF (Portable Document Format) file, when ** ** available, for a complete electronic file of the printed ** ** document's contents. ** ** ** ****************************************************************** GAO/NSIAD-00-108 Appendix I: Objectives, Scope, and Methodology 28 Appendix II: Selected Electronic Commerce Initiatives 30 Appendix III: DOD Electronic Business Strategic Goals, Objectives, and Strategies 57 Appendix IV: Comments From the Department of Defense 60 Appendix V: GAO Contacts and Staff Acknowledgments 64 65 Table 1: Status of Selected Electronic Commerce Initiatives 20 Table 2: Percent of Contracting Transactions Completed Electronically, as of December 1999) 45 Table 3: Purchase Card Transactions by DOD Component (Fiscal Year 1999 Totals) 48 Table 4: Electronic Business Goals, Objectives, and Strategies 57 Figure 1: Organizations Involved in Electronic Commerce 7 DOD Department of Defense DISA Defense Information Systems Agency DLA Defense Logistics Agency National Security and International Affairs Division B-283283 July 14, 2000 The Honorable Herbert H. Bateman Chairman, Subcommittee on Military Readiness Committee on Armed Services House of Representatives Dear Mr. Chairman: The Department of Defense's (DOD) Joint Electronic Commerce Program is an outgrowth of the Defense Reform Initiative.1 Established in May 1998, the program is intended to increase the use of electronic business practices that are common in private sector companies, practices such as using the Internet and commercially available computer software to conduct business. Through this program, the Department expects that all of its business functions--from acquisitions to health care--will be able to reduce operating costs and streamline business processes. In doing this, the Department hopes to freeup funds for weapon systems modernization as well as to improve operations. Since the Defense Reform Initiative was announced, the Department has begun laying the groundwork for moving to electronically based business practices. During 1999, it unveiled its first electronic business/electronic commerce strategic plan. At its core, the plan attempts to express a vision in which technologies are used not to simply automate existing processes but to also help fundamentally change the way the Department does business. Besides developing this plan, the Department already has a number of electronic commerce initiatives under way, many of which predate the Defense Reform Initiative and the electronic commerce program. At your request, we have periodically monitored and reported on the Department's overall progress in implementing the Defense Reform Initiative. This is the first report to focus on the electronic commerce program alone. Specifically, it addresses (1) issues the Department needs to resolve to successfully implement its vision for electronic commerce and (2) the implementation status and performance measures associated with key electronic commerce initiatives. The Department of Defense faces several implementation issues that, if not resolved, could adversely effect the success of its electronic commerce program. The Department has not yet (1) completed a detailed plan to implement its strategic vision, (2) developed an electronic commerce architecture,2 (3) determined how to best manage the electronic commerce program, and (4) fully implemented key security measures that are needed for electronic commerce. The officials responsible for developing a Department-wide implementation plan have not been able to draft a plan that is acceptable to the Department's military services and agencies. A Department-wide plan has thus been put on hold, and the Department's components are developing individual plans; without an overarching, Department-wide plan to guide the military service and Defense agency efforts, the individual plans that result may not be consistent with program goals. In addition, the Department has made little progress in developing a common electronic commerce architecture, which is needed to provide a framework to integrate the individual parts or systems. Consequently, Department components may develop separate architectures, which may lead to systems and capabilities that are redundant or unable to share information. The Department established an electronic commerce program office, but its authority is unclear and its chain of command is cumbersome; as a result, the office has been hampered in carrying out its program planning and implementation responsibilities. The Department is taking steps to improve the program office's effectiveness, but these steps may not be sufficient. Finally, the Department's ability to transact business electronically, particularly over the Internet, will not be as secure as desired until it completes ongoing work necessary to better protect and authenticate electronic transactions and data. The Department is implementing a number of specific, electronic business-related initiatives that it believes will help modernize selected business processes. These initiatives, which are at various stages of implementation, include (1) expanding the use of purchase cards to streamline aspects of the procurement process, (2) establishing an electronic mall as a source of supplies for DOD customers, and (3) making aspects of the contracting process paper-free. Many of these initiatives began several years ago, and they predate the Defense Reform Initiative and the electronic commerce program. While the initiatives may improve aspects of the Department's business processes, it is not yet clear if and how they will fit into its electronic commerce architecture and support its strategic vision. Moreover, because the initiatives are assessed largely through output rather than outcome performance measures, their potential to improve the Department's existing business processes is unclear. We are recommending that the Department of Defense place a high priority on completing an electronic commerce implementation plan; finishing an electronic commerce architecture; establishing clearer lines of program management responsibility, authority, and accountability; and ensuring that all new electronic commerce initiatives support the Department's strategic goals and have meaningful performance measures. In commenting on a draft of this report, the Department concurred with our findings and recommendations. The emphasis on adopting commercial best practices and electronic commerce capabilities has its roots in the Federal Acquisition Streamlining Act of 1994 and the Clinger-Cohen Act of 1996, which called for business improvements and singled out technology as a vehicle for making the needed improvements. In November 1997, when DOD announced the Defense Reform Initiative, the notion of electronic business was given additional emphasis. The Defense Reform Initiative called for the Department to revolutionize its business operations by adopting best business practices, particularly those that promote electronic business operations. In May 1998, to move ahead on the reform effort, the Deputy Secretary of Defense established a Joint Electronic Commerce Program to accelerate the use of electronic business practices and associated information technologies to improve Defense operations.3 Besides establishing a Joint Electronic Commerce Program, the Deputy Secretary assigned Department-wide policy and oversight responsibilities for the program to the Department's Chief Information Officer. Centralizing policy and oversight responsibilities for the electronic commerce program under the Chief Information Officer complements his role of overseeing information technology policy throughout the Department. The Deputy Secretary also established the Joint Electronic Commerce Program Office and designated it as the executive agent for supporting, facilitating, and accelerating the use of electronic commerce throughout the Department. The program office reports to the Deputy Secretary of Defense through the Chief Information Officer. However, the program office receives its funding and personnel through the Defense Information Systems Agency (DISA) and the Defense Logistics Agency (DLA). This arrangement reflects the Defense Reform Initiative's goal to streamline headquarters organizations by not creating new organizations under the Office of the Secretary of Defense. Together, the Chief Information Officer and the joint program office are responsible for ensuring that DOD's electronic commerce program meets the requirements of the Clinger-Cohen Act. This act provides a framework for making information technology decisions to help ensure that initiatives (1) are implemented at acceptable costs and within reasonable time frames and (2) contribute to improvements in mission performance. In addition to the Chief Information Officer and the Joint Electronic Commerce Program Office, other DOD organizations have a direct role in implementing the Department's electronic commerce program. The military services have established electronic business/electronic commerce offices to oversee implementation in their respective service. Also, DOD established the Electronic Business/Electronic Commerce Panel to provide a DOD-wide forum for sharing information and addressing problems important to all stakeholders involved in implementing electronic commerce operations. This panel is comprised of representatives of numerous principal staff assistants to the Secretary of Defense,4 the military services, the larger Defense agencies, and the Joint Staff. Figure 1 depicts these relationships. In March 1999, after establishing the Joint Electronic Commerce Program Office, DOD issued overall policy guidance for the program. The policy guidance identified (1) a strategic plan, (2) an overarching implementation plan, and (3) an overarching electronic commerce architecture as essential elements of the program. Together, these elements form the roadmap the Department believes is needed to achieve its electronic commerce goals. In May 1999, the Department issued an Electronic Business/Electronic Commerce Strategic Plan that identifies the goals, objectives, and strategies DOD will pursue over the next 10 years to achieve an electronic business operations environment. (As used in this report, the term electronic commerce is synonymous with electronic business). As called for by the Defense Reform Initiative, the plan broadened the scope of electronic commerce to include all of DOD's business processes, not just the buying and selling activities traditionally associated with electronic commerce. The plan includes 41 strategies aimed at achieving broad goals such as improving productivity and promoting cultural changes in the Department; the goals are to be achieved through the 41 strategies that call for actions such as establishing training programs, partnering with industry, and basing new electronic commerce applications on commercial standards and practices. In addition, the plan embodies the principles of the Government Performance and Results Act of 1993 in that it establishes strategic goals for the Department, points out the need for the military services and Defense agencies to link their strategic goals and objectives to the Department's, and encourages the use of outcome-oriented performance measures to track progress.5 See appendix III for a complete list of DOD's electronic commerce goals, objectives, and strategies. Although a strategic plan is in place, other key implementation issues have not been addressed. Efforts to develop a Department-wide implementation plan have ceased, and work on an electronic commerce systems architecture is lagging. In addition, organizational issues affecting the Joint Electronic Commerce Program Office's ability to manage a DOD-wide program have not been resolved. Finally, efforts to strengthen and improve departmental capabilities to safeguard and verify the authenticity of electronically based data and transactions are under way, but these capabilities are not likely to be in place for at least 2 years. If these issues are not addressed, the military services and Defense agencies may proceed with efforts that do not support DOD's overall electronic commerce goals and that put the Department at risk of developing systems and capabilities that are inadequate, redundant, or not interoperable with other systems and processes. Abandoned DOD has abandoned efforts to develop an implementation plan primarily because the Chief Information Officer and the Joint Electronic Commerce Program Office were unable to reach agreement with the military services and Defense agencies on the scope and content of an overarching implementation plan. The implementation plan is key to guiding all of DOD in meeting the goals, objectives, and strategies included in its strategic plan. Without the plan, DOD has no assurance that the military services and Defense agencies will proceed with their individual electronic commerce programs in a manner that is consistent with the goals and objectives of the strategic plan. After the strategic plan was issued in May 1999, the joint program office prepared two draft implementation plans that the military services and Defense agencies reviewed. Military service officials and others were not satisfied with the drafts, primarily because they believed the draft plans were narrowly focused on the joint program office's responsibilities and projects. The draft plans did not, in their view, (1) describe how the 41 strategies in DOD's strategic plan would be implemented,6 (2) identify who would be responsible for implementing the strategies, (3) describe how progress would be assessed, or (4) address the amounts and sources of funding that would be needed. Military service officials said they needed this information to develop supporting implementation strategies and plans. For example, one of the 41 strategies called for DOD to consolidate its electronic commerce requirements to increase the private sector's participation in the Department's electronic commerce program. Another strategy called for DOD to incorporate electronic commerce requirements into its planning and budgeting process. The draft implementation plans did not describe how these strategies would be implemented; consequently, accountability and milestones for accomplishing them were not established. The Army commented that "the plan does not seek to incorporate the respective service and component implementation plans and, accordingly, may be missing an opportunity to provide a true joint picture of what is planned within the Department." The Air Force commented that the military services were being asked to "implement the Joint Electronic Commerce Program Office's vision without additional funding and manpower." The Navy commented that the plan "does not provide clear guidance…[on] what each of the components need to do to support the overall DOD implementation plan." We reviewed the initial draft plan and discussed the unresolved issues surrounding both draft plans with the program office and military services; our observations are similar to those of the military services. Representatives of the DOD Chief Information Office and the Joint Electronic Commerce Program Office attempted to address these concerns. However, the concerns persisted among the military services and, in a February 2000 Electronic Business/Electronic Commerce Panel meeting, the panel's participants decided to abandon efforts to develop a DOD-wide plan. Instead, the joint program office, the military services, and three of the larger Defense agencies7 will issue separate plans. According to representatives from the Chief Information Office, aspects of the separate plans may be merged into a DOD-wide plan at some point in the future. However, no specific approach or date for doing this has been established. In the meantime, the military services and Defense agencies have proceeded with their respective electronic commerce efforts without an overarching implementation plan to guide these efforts. For example, in October 1999, the Army issued its Electronic Business/Electronic Commerce Implementation Plan. This plan was tied to its March 1998 Army Strategic Plan for Electronic Commerce. It made no mention of DOD's strategic plan or the DOD-wide goals and objectives included in the DOD plan. Likewise, the Air Force issued its implementation plan in February 2000. The Air Force implementation plan does make reference to DOD's strategic plan and its guiding principles and goals. However, its implementation plan is tied to the requirements of its Global Combat Support System, which is a concept that provides for the development, integration, and deployment of agile combat support information systems. While the services' plans may support and advance electronic business operations in their areas, they are not linked to a Department-wide plan and, therefore, may not support DOD's overall electronic commerce goals and objectives. Although the Department is making efforts to develop an electronic commerce architecture (i.e., an information systems blueprint), little progress has been made. An architecture is needed to integrate business processes and information systems across the military services and Defense agencies. Without an architecture, the Department runs the risk of having the services and Defense agencies develop and implement initiatives that are redundant, do not readily share information, and do not maximize the Department's investments in information technology. In general, architecture development begins by analyzing the functional requirements of each business area--such as acquisition, financial management, and logistics--and identifying improved business processes and underlying systems that will be used to satisfy the requirements. Next the analysis identifies the information that must be shared among the modernized processes and systems to ensure that they can readily exchange this information. Our work at other agencies, such as the Customs Service and the Internal Revenue Service, has illustrated the criticality of an agencywide architecture in helping reduce systems development risk and minimizing investment costs.8 Our work showed that, consistent with best business practices, architectures for these agencies are essential for identifying relationships among business processes and systems. These agencies ran into difficulties that delayed their modernization efforts, in part, because they did not develop an overarching architecture to help move them toward their strategic goals. The joint program office--which has been assigned the responsibility for developing an electronic commerce architecture--has taken several steps to begin the effort. In August 1999, it briefed and received approval from the DOD Architecture Coordination Council9 on how it planned to proceed with development. In November 1999, it held a DOD-wide "town hall" meeting to discuss the need for an electronic commerce architecture and to present an approach for analyzing the various business areas. At that meeting, the program office did two things: (1) it showcased or modeled the analysis the procurement community had completed to develop procurement architecture requirements, and (2) it emphasized the need for other DOD components to follow DOD's prescribed framework for developing architecture requirements.10 DOD principal staff assistants are integral to the program office's architecture development approach; these officials are expected to take the lead in analyzing their respective business areas and defining their architecture requirements. Despite the efforts made thus far, much work remains to be done to develop an electronic commerce architecture. Altogether, Department officials estimate that the number of business areas that need to be analyzed range from as few as 8 to as many as 21.11 However, only one business area--procurement--has identified architecture requirements, and analysis of this business area actually began before DOD called for an electronic commerce architecture. In December 1998, the Deputy Secretary called for a complete analysis of the procurement process;12 this analysis was part of a broader effort to improve DOD contract administration and related financial management processes across the Department. The analysis was completed in about 15 months and involved nearly 200 participants. It describes how DOD expects to support and process procurement actions in the future. It was clear from our discussions with representatives of the Joint Electronic Commerce Program Office that the Deputy Secretary's direction played an important role in getting the analysis completed in a timely manner. Only a few other business areas, such as transportation, have some architecture development efforts under way, but these efforts are not complete. DOD officials representing the Chief Information Officer and the joint program office estimate the initial architecture development effort might take 3 to 5 years to complete if all principal staff assistants work diligently toward developing architecture requirements for their respective business areas.13 However, DOD components have not fully embraced the architecture development approach being put forth by the joint program office. They have been concerned about the amount of time and funding that might be required, the utility of an architecture, and the role other DOD organizations were to play in architecture development. In February 2000, representatives of the Chief Information Officer met with the principal staff assistants for major functional areas, such as acquisition, logistics, and financial management, to address their concerns and to determine how to move ahead on developing an electronic commerce architecture. In the meantime, the military services are addressing architecture development within their respective services. For example, the Air Force is tying its electronic commerce initiatives to its Global Combat Support System.14 Army officials we spoke with stated that the Army has its own electronic commerce architecture and questioned the value of a DOD-wide electronic commerce architecture. Consequently, these separate approaches may not support the Department's electronic commerce strategic objectives, such as achieving systems interoperability across the Department and streamlining its processes before implementing electronic commerce technologies. Implementation DOD may have difficulty effectively implementing its electronic business goals because of the way its joint program office has been set up. The office is organizationally situated to receive its funding and personnel through two Defense agencies--the Defense Logistics Agency and the Defense Information Systems Agency. Consequently, it has had to report through these agencies' chains of command as well as to the Chief Information Officer, creating a number of problems. For example, the organizational setup has diluted the Chief Information Officer's authority over the joint office, thereby hampering his ability to guide the Department's overall efforts. Memoranda and decisions have often been passed up the Defense Logistics Agency and Defense Information Systems Agency chains of command before being forwarded to the Chief Information Officer, slowing communications. At other times, the Chief Information Officer has been left out of communications altogether. For example, in conjunction with the Defense Logistics Agency, the joint program office prepared a memorandum to be sent to the Director of the Defense Reform Office. The memorandum addressed issues involving the Department's electronic mall. When we discussed this memorandum with representatives of the Chief Information Officer, we found they had not been involved with the decision to prepare the memorandum although they have oversight responsibilities for initiatives such as the electronic mall. In addition, ambiguities over who is in charge have created day-to-day management issues that have impeded the joint office's effectiveness. For example, the Defense Information Systems Agency has withheld about $4.4 million of the joint office's fiscal year 2000 funds because the agency's officials have viewed those funds as the agency's first and the program office's second, giving the agency the discretion to use the funds for other priorities. According to program office officials, this withholding of funds has created shortfalls that could require the office to delay progress on certain projects. The joint office's affiliation with the two Defense agencies has raised doubts about the office's independence and even its long-term viability. Officials assigned to the Defense Reform Office and the Chief Information Officer expressed concern that the office may already be too closely affiliated with the agencies' specialized missions and agendas. Specifically, they told us that the close alignment with the Defense Logistics Agency could result in the joint office being perceived as having more of an acquisition and inventory management orientation that mirrors the Logistics Agency's mission. If so, this could impede DOD's goal of expanding electronic commerce across other business areas. If other DOD organizations view the program office in this manner, the office may not have enough influence to negotiate the diverse interests of the military services and Defense agencies. Also, the joint office's reliance on other organizations for its resources has led some DOD officials to question whether the office will continue to exist in the long term; they reason that the program office's staff and funds could be easily folded into the Defense Logistics Agency and the Defense Information Systems Agency. The Department is taking steps to address weaknesses associated with the joint office's organizational structure and alignment. In a March 2000 decision memorandum, the Deputy Secretary of Defense directed that (1) an electronic commerce board of directors be established to provide direction and to coordinate activities across the Department and (2) the joint office director's position be funded by the Defense Logistics Agency rather than the Defense Information Systems Agency. The memorandum, however, did not specify who is to serve on the board of directors or how it is to function; instead, it directed the Chief Information Officer to develop a charter for the board, which will provide these details. Also, the memorandum did not change the way the joint office is staffed or funded. Consequently, it is not clear what impact these actions will have. Complete The Department's electronic commerce goals cannot be fully realized unless it improves its ability to safeguard and verify the authenticity of electronic data and transactions. DOD has launched many initiatives to improve security over its information, but one effort--the Public Key Infrastructure15 Program--is seen as crucial because it will provide important safeguards. Although this effort is under way, it will be several years before it is fully implemented. Officials representing the Chief Information Officer and the Defense Information Assurance Program Office readily acknowledge that the Department's systems and networks are more vulnerable than the Department would like. DOD did not dispute the findings of an August 1999 GAO report which said serious weaknesses in DOD information security continue to provide hackers and hundreds of thousands of authorized users the opportunity to modify, steal, inappropriately disclose, and destroy sensitive DOD data.16 The report made a number of recommendations to strengthen the Department's security oversight program. In its response to the findings, DOD stated that it was working to correct the deficiencies cited in the report and was making progress in reducing the risks to its information systems. Moreover, in its March 1999 update of the Defense Reform Initiative Report, the Department had recognized that its increasing reliance on interconnected networks of computers puts it at increased risk of having data stolen or of being adversely affected by attacks. According to the updated report, DOD's shift toward the electronic environment it envisions only amplifies these risks and further underscores the need for better information security. DOD officials responsible for information security consider the Public Key Infrastructure Program essential for allowing the Department to achieve its electronic commerce goals. It is key to improving security because it will allow DOD to ensure that (1) the data contained in electronic transactions and messages have not been tampered with, (2) systems users can confirm who is on the other end of an electronic transaction, (3) the parties involved in a transaction cannot later deny they participated in the transaction, and (4) the transaction or message data cannot be accessed and read without proper authorization. The program will achieve these assurances by giving DOD personnel digital signature and encryption capabilities. These capabilities are needed, for example, to carry out paperless contracting, which cannot become truly paperless until contracts can be signed digitally and those signatures can be verified, stored, and recreated for the life span of the documents, which can be up to 30 years for weapon system acquisitions. Similarly, DOD's ability to transact business over the Internet may suffer if personnel are not assured that confidential information, such as a vendor's bank account number, will stay confidential. The Public Key Infrastructure Program, however, is not a simple undertaking for the Department. The "infrastructure" in the program's title refers to the policies, procedures, systems, facilities, and organizations that need to be involved in issuing, managing, and revoking digital "certificates," which vouch for a user's identity and contain the keys that are used to digitally sign and encrypt documents and data. Although the technology supporting the planned public key infrastructure is being piloted by many federal agencies, including DOD, it is still not mature. Technical issues, including problems with scalability, interoperability, and ease-of-use, have not been fully resolved. Moreover, for the infrastructure to work properly, DOD will have to confirm the identity of each user, mass distribute the so-called "tokens" that will carry the mathematical keys, make sure personnel's computer workstations have the necessary hardware to accept the tokens, and ensure that DOD software and systems can accept and process the information on the tokens. The details associated with all of these tasks are still being worked out. Consequently, it is not clear when the digital signature and encryption capabilities will be fully in place. The Deputy Secretary of Defense originally called for completing this task by October 1, 2001, and for more secure versions of these capabilities to be phased in beginning in January 2002. DOD is revising these timetables, however. Public Key Infrastructure Program officials said the program is making progress, but new requirements are expected to create some delays. In November 1999, the Department decided to issue smart cards, which are credit card-sized cards with a computer chip, as the token that will carry an individual's digital signature and provide encryption capabilities. Setting up an infrastructure to issue and control the cards will take some time. (See app. II for more information about smart cards and how they support DOD's public key infrastructure effort.) In addition to addressing these issues, the Department must also make a substantial upfront investment to establish a public key infrastructure. However, the infrastructure's full cost is not yet clear. Although DOD has projected that it will spend about $700 million from fiscal years 2001-2005, several costs still need to be determined. For example, DOD is still assessing what needs to be done to enable its systems and software to accommodate the digital signature and encryption capabilities. Similarly, the Department is also assessing how much it will cost to use smart cards as part of its public key infrastructure efforts. Notwithstanding the implementation issues discussed above, the Department has a number of specific electronic commerce initiatives under way. Most of the initiatives have not been fully implemented and the extent to which they will provide their expected benefits is uncertain. The current initiatives cover aspects of several DOD business processes--primarily acquisition, logistics, and financial management. In general, they are directed at reducing operating costs and improving responsiveness to DOD personnel, contractors, and vendors. For example, the Business Opportunities web site supports the acquisition process. It is accessible via the Internet and identifies solicitations issued by acquisition organizations throughout the Department. The Defense Travel System is intended to improve aspects of financial management by streamlining travel administration and payment procedures and by relying more on the private sector to help travelers make travel arrangements. The DOD electronic mall is intended to streamline aspects of acquisition and logistics by allowing buyers to search for and compare products available from both DOD supply organizations and commercial vendors. Table 1 identifies the status and nature of the key initiatives (a more detailed discussion of each one appears in app. II). The initiatives are in various stages of implementation; consequently, progress is mixed. Some--such as the Business Opportunities site, Central Contractor Registration system, and the Purchase Card Program--have been successfully implemented. Several, such as the Paperless Contracting initiative, are still under development. Some, such as the electronic mall and Defense Travel System, are experiencing technical and other problems. For example, substantial progress has been made on paperless contracting (an initiative that was expected to make all aspects of major weapon system contracting paperless by January 1, 2000), but new standard bill paying and procurement systems that are needed to fully implement this initiative will not be available until 2002 and 2003, respectively. In addition, technical issues, such as developing an electronic signature capability, are still being resolved. Similar issues have delayed progress on DOD's initiative to reengineer its travel management system. This initiative, which is to significantly improve DOD's process for requesting, approving, and paying for employee travel, may not be fully deployed until 2003--about 2 years later than expected. Some of the problems encountered include insufficient internal controls (such as allowing travel payments to be made without first obligating funds to cover the cost of the travel) and interfaces between the travel system and financial systems that do not work as designed. The benefits that may be realized from some of these initiatives are uncertain because many have not been fully implemented. Also, the current performance measures have limitations. As shown by table 1, the Department is assessing most initiatives through output measures, which provide status information (such as completing an action in a specified time frame), rather than outcome measures, which show results or outcomes in terms of effectiveness, cost reduction, and/or impact. In our previous work on the Defense Reform Initiative, we pointed out that the Department had opportunities to add to or improve existing performance measures.17 These opportunities continue to exist. For example, paperless contracting is supposed to help the Department acquire and pay for goods in a more efficient manner. Yet, no outcome-oriented measures, such as cost reductions or improvements in contract administration time, exist to show how paperless contracting is contributing to this goal. Without this kind of outcome-oriented data, DOD cannot clearly determine if the initiative is successful in achieving its goals. Likewise, the Department wants to reduce supply inventories and points to the prime vendor program as one of the methods being used to accomplish this goal, but the performance measures being used for the prime vendor program do not show how this method contributes to this goal. DOD officials recognize the value of having outcome-oriented measures and told us the Department has efforts under way to improve the measures used to gauge the progress of its reform initiatives. Initiative Goal/milestone Business area Status Performance measures DOD uses two measures to track the Central Contractor Provide a central Registration registration system System's Central and database of performance--the Contractor vendors who conduct Acquisition System has been number of Registration business with DOD. and financial implemented. registrants System Vendors must management (which is an register to receive output measure) contract awards and and the amount of payments. time needed to process a registration (which is an outcome measure). Performance measures have not been established. As planned, performance will be measured Defense Travel System against 28 cost implementation has been elements that By October 2000, delayed. As of April were used in the implement a 2000, it had not been Defense Travel reengineered travel implemented at any System's economic Defense Travelsystem for official Financial location. The system analysis. DOD System DOD travel. Begin management encountered problems plans to collect initial during testing that have data at implementation in not been resolved. preselected sites April 1998. Initial implementation prior to and will be delayed at least after 2 years. implementation so that it can compare expected costs against actual costs. Provide a single web site and search DOD uses several capability for output oriented vendors to locate measures to track and access DOD the Business solicitations. Opportunities DOD Business Through the web System has been performance. Opportunities site, vendors can Acquisition implemented. These include the link to the number of hits appropriate military daily, average service or agency length of time and make offers on users spend at specific the site, and solicitations. peak usage hours. Expand the use of a DOD electronic mall. Although not complete, By July 1998, allow DOD is working on for on-line payment integrating other Several with purchase cards. military service output-oriented By January 1, 2000, electronic malls into a measures are use purchase cards single, DOD-wide mall in being used. The for all mall accordance with program office is purchases. Integrate Acquisition; congressional direction. tracking the DOD Electronicother military logistics; and Payments can now be made number of Mall service electronic financial with the purchase card. purchase malls into a single, management However, the mall is transactions made DOD-wide mall in experiencing low user on the mall, the accordance with acceptance, low vendor dollar value of direction in the participation, and low sales, and the Strom Thurmond sales volumes. Sales for number of people National Defense fiscal year 1999 were registered to use Authorization Act about $2 million. the mall. for Fiscal Year Numerous implementation 1999. problems exist. DOD plans to use the following Streamline and Progress has been measures, which simplify the process limited. DOD plans to are for managing the evaluate two outcome-oriented Household movement of Department-wide pilot measures, to Goods household goods Personnel and programs aimed at evaluate the Reengineering associated with logistics improving the movement of pilots: (1) changes in the household goods. DOD quality of life, permanent duty expects to have a new (2) cost, (3) station of DOD process in place sometime impact on small personnel. during 2002. businesses, and (4) process improvements. DOD uses Progress is being made, output-oriented but the January 1, 2000, measures to track goal was not met. By this performance. They date, about 78 percent of measure progress, DOD's contracting both DOD-wide and transactions were being by military accomplished service and electronically. Defense agency, Implementation will take against six By January 1, 2000, longer than expected due generic components of the Paperless make all aspects of Acquisition to system integration and contracting Contracting the major weapon and financial development requirements. process: systems contracting management Two key systems--the process paperless. Standard Procurement requirements; System and the Wide Area solicitations; Workflow system--are not awards and fully implemented. Also, modifications; to operate effectively, receipts and the initiative requires acceptance of the availability of a goods and public key infrastructure services; which is still under invoices and development. payments; and close-out actions. Increase the use of prime vendors (private-sector providers who help Overall, DLA prime vendor store, distribute, sales have increased. and manage Sales reached about $1.8 inventory) for billion for fiscal year DLA-managed items. 1999. However, progress To help do this, by in some supply Currently, DLA January 1, 1999, categories, such as uses output- and have prime vendor hardware items, has been outcome-oriented contracts in place Logistics slow. Contracts for measures to track prime vendor Prime Vendors for one category of (inventory maintenance, repair, and performance. hardware management and operating materiel are items--maintenance, distribution) available for use by the These include repair, and military services, but sales volumes, operating they are not widely used. vendor response material--for all Prime vendor sales times, and order major installations represented less than 10 fill rates. in the United percent of the $670 States. These million spent on this contractors must materiel during fiscal provide a capability year 1999. for DOD customers to place orders via the Internet. DOD tracks Program exceeded its purchase card goal. Over 90 percent of performance using micropurchases are now several By fiscal year 2000, being made with the output-oriented 90 percent of purchase card rather than measures: number micropurchases Acquisition using traditional of cards issued, Purchase Cards(orders of $2,500 or and financial purchasing methods. Some number of less) should be management implementation issues transactions, acquired using the remain; for the most dollar volume of purchase card. part, they involve system purchases, and integration issues and percent of expanding the program's micro-purchases use of the Internet. made with the card. For the DOD-wide program, smart card measures have not been finalized. DOD officials are Begin implementation considering of a DOD-wide smart Thus far, the Navy has output- oriented card program in been DOD's primary user measures, such as fiscal year 2001. of smart cards. The whether DOD has Smart cards will be requirement that smart met its an integral part of cards be used for timetables for DOD efforts to identity cards and to the cards' increase security increase security over distribution, and information and provide outcome- oriented Smart Card over its systems and All business access to DOD systems and measures, such as networks. DOD processes personnel will be networks is a recent how the new card issued smart cards decision (November 1999). has helped reduce for physical access DOD expects to begin paperwork. to buildings and issuing smart cards Likewise, the controlled areas and throughout the Department Navy has not for access to DOD's in fiscal year 2001 and established systems and complete this effort in measures but is networks. 2002. planning to track the number of cards that have been issued and the specific applications being used at Navy locations. DOD has identified several output-oriented performance measures for PowerTrack that Progress is being made, include the Reduce costs, but some problems have dollar amount of eliminate been encountered. DOD shipments, government-unique decided to use a transaction documentation commercial-off-the-shelf volumes, the (government bills of software package call number of DOD lading) and replace PowerTrack to process shippers using it with commercial transportation bills and PowerTrack, the documentation, payments. As of April number of improve billing and 2000, DOD was using carriers using payment accuracy, PowerTrack at about 150 PowerTrack, and the time it takes Transportationincrease the use of Logistics and sites and was paying the Defense Reengineering electronic commerce, financial about 50 percent of its Finance and and adopt best management transportation bills with commercial practices the software. Some Accounting in the billing and problems still need to be Service to pay paying processes. In resolved. They involve bills. DOD has addition, DOD will Internet access, system not finalized the test the use of a security, and data performance third-party reliability. In May 2000, measures it will logistics provider DOD issued a Request for use to assess the to provide Proposals to pilot test third-party transportation third-party logistics logistics services. support. Proposals are provider pilot. due to DOD in July 2000. This will occur after the Department receives proposals and selects a contractor. Note: With the exception of the smart card initiative, the table includes only initiatives in the Defense Reform Initiative and the Electronic Business/Electronic Commerce Strategic Plan. It therefore is not an exhaustive list of DOD electronic business initiatives. It does not include the initiatives that are unique to the military services and Defense agencies and that may be included in their individual electronic commerce plans once they are all completed. Source: Our analysis of DOD data. As the military services and Defense agencies move forward with their individual plans, the list of proposed electronic commerce initiatives is likely to increase. Ideally, all initiatives involving information technology, new ones as well as those already under way, will be linked to and evaluated against outcome-based performance measures, the Department's strategic plan, and an electronic commerce architecture. The Clinger-Cohen Act of 1996 as well as the Department's implementing guidance calls for information technology investments to be linked to strategic goals and use outcome-based performance measures to evaluate and manage the project or investment. In the short term, initiatives that are not linked in these ways may bring improvements to DOD's current business processes. However, until DOD completes its electronic commerce roadmap, particularly its system architecture, it will not know if and how these initiatives will support its future processes. The Department's vision of using electronic commerce technologies to transform and streamline its business processes is at risk because key elements of its overall electronic commerce roadmap--an implementation plan and electronic commerce architecture--have not been completed. Without these elements, the Department does not have the unifying direction needed to carry out its electronic commerce program. With each of the military services and Defense agencies developing its own plan and supporting initiatives, the Department may further risk applying its resources to initiatives that may be redundant or unnecessary. Also, it may not realize the fundamental changes in its business processes that it is seeking across the Department. Communicating a common vision and expectations across the Department, assigning responsibilities for these expectations, establishing schedules, and resolving implementation issues, would help minimize program risk. An implementation plan and an electronic commerce architecture can help do this as well as provide criteria and a framework for reviewing and approving new initiatives. Completing an implementation plan and architecture requires a program management organization with sufficient authority and a Department-wide perspective. Currently, it is not clear whether the Joint Electronic Commerce Program Office has the authority and is appropriately placed to carry out these responsibilities. Strengthening the role of its program management office and the office's line of communication to the Chief Information Officer would help in achieving the vision in its strategic plan. The Department recently took steps to address this problem. However, these steps may not be adequate. First, the program office appears to be closely aligned with a Defense agency that is focused on acquisition and inventory management functions. Thus it may not have the perspective and influence it needs to carry out an electronic commerce program across all of the Department's business areas. Second, the membership, role, and authority of the proposed electronic commerce board of directors have not been determined. Until these decisions are made, it is unclear to what extent the board will help implement a Department-wide program. The Department does not yet have the secure environment it is seeking to safeguard and authenticate electronic commerce transactions. DOD has recognized this and is moving forward on a Public Key Infrastructure Program to help improve security. However, the public key infrastructure is not a simple undertaking, and numerous technical issues still need to be resolved. Until these issues are resolved, realistic program costs and implementation dates will remain uncertain. Moreover, because security is crucial to all of the Department's business processes, these uncertainties have the potential to affect its overall electronic commerce program. While DOD has grappled with these management issues, it is moving ahead on a number of electronic commerce initiatives. These initiatives have or may bring improvements to aspects of various business processes, but the Department has very few outcome-oriented performance measures in place to help it assess their effectiveness. While output measures are often necessary to track progress of the initiatives, outcome measures are needed to determine if the initiatives have accomplished desired service improvements or cost reduction goals. As DOD continues its efforts to reform its business processes, DOD could better assess results of the initiatives individually and collectively by increasing its emphasis on outcome measures. To strengthen the Department's electronic commerce program, we recommend that the Secretary of Defense � direct that the Chief Information Officer develop an implementation plan that has a Department-wide focus, one that explicitly addresses the strategic plan's goals, objectives, and strategies; � direct that the Chief Information Officer, in consultation with the principal staff assistants, military services, and Defense agencies, identify the approach and schedule to be followed by all DOD business areas to develop a Department-wide electronic commerce architecture; � provide the members of the proposed electronic commerce board of directors with sufficient authority to see that electronic commerce policies, plans, and architecture development are supported and implemented across the Department as well as in their respective services and agencies; � ensure that the electronic commerce program office has clear lines of authority and funding necessary to implement a Department-wide program; � ensure that realistic time frames and costs are established for carrying out the tasks necessary to transition the Department's personnel, processes, and systems to the planned public key infrastructure to enhance security; � direct that all new electronic commerce initiatives sponsored by the military services and Defense agencies support the Department's strategic goals and electronic commerce architecture; and � direct that both output- and outcome-oriented performance measures are identified for all new and ongoing electronic commerce initiatives. In commenting on a draft of this report, the Department agreed with all of our findings and recommendations. It stated that it has actions under way that respond to the report's recommendations and that the Department's Chief Information Officer will ensure that the actions are implemented. The Department also provided a number of technical comments, which we incorporated into the report where appropriate. DOD's comments in their entirety are included in appendix IV. With the following exceptions, the Department's planned and ongoing actions appear responsive to our recommendations. First, it is unclear to what extent the Department plans to act on our recommendation that it develop a DOD-wide implementation plan. DOD responded that it will continue its current decentralized approach of allowing the military services and agencies to develop their own implementation plans. The response noted that some of these plans might be tied to the Department's strategic plan. It also stated that it anticipates identifying a framework for a DOD implementation plan when it updates its strategic plan early next year. We continue to believe that the Department needs an overall implementation plan that addresses the goals, objectives, and strategies in its strategic plan. Such an implementation plan is essential for focusing, coordinating, and unifying the efforts of the services and agencies. Second, it is both unclear and uncertain how and how quickly the Department will act on our recommendation to identify a schedule for developing a Department-wide electronic commerce architecture. DOD's response stated that the new electronic commerce board of directors' initial architectural efforts will concentrate on presenting an electronic commerce conceptual framework to use as a model for architecture development. However, it is not clear if the board of directors will make architecture development a high priority. Moreover, as we point out in the report, the Department already has a prescribed framework and model for architecture development. It needs to use these to move ahead expeditiously and begin the first step of identifying the appropriate business areas and analyzing their respective functional requirements. Third, the Department agreed with our recommendation that its electronic commerce program office needs the authority and funding necessary to carry out its responsibilities. However, in its response, the Department stated that a program office may or may not be required. Consequently, it is not clear how the Department will implement our recommendation. Regardless of whether the electronic commerce program office remains intact or is reorganized in some manner, we continue to believe that the organization ultimately responsible for DOD' electronic commerce program needs to have sufficient authority, funding, and independence to act from a DOD-wide perspective as it carries out its responsibilities. We are sending copies of this report to the Honorable William S. Cohen, Secretary of Defense; the Honorable Arthur Money, Assistant Secretary of Defense (Command, Control, Communications, and Intelligence); Lt. Gen. Henry T. Glisson, Director, Defense Logistics Agency; Lt. Gen. David J. Kelley, Director, Defense Information Systems Agency; Ms. Scottie Knott, Director, Joint Electronic Commerce Program Office; the Honorable Jacob J. Lew, Director, Office of Management and Budget; and interested congressional committees and members. We will also make copies available to others upon request. If you or your staff have any questions concerning this letter, please contact me on (202) 512-8412. Other GAO contacts and staff acknowledgments are identified in appendix V. Sincerely yours, David R. Warren, Director Defense Management Issues Objectives, Scope, and Methodology Because of the challenges the Department of Defense (DOD) faces as it seeks to implement Defense reform initiatives, the Subcommittee on Military Readiness, House Committee on Armed Services, asked us to review the Department's progress in implementing the Defense Reform Initiative. As part of the Subcommittee's request, we were asked to review DOD's implementation of electronic commerce. This report discusses the (1) implementation issues the Department needs to address to successfully achieve the electronic environment it envisions and (2) implementation status of selected electronic commerce initiatives. To identify issues that the Department must address to successfully implement electronic commerce, we met with senior management officials from the Office of the Secretary of Defense, including the Chief Information Officer and the Defense Reform Office. We also met with the director and staff of the Joint Electronic Commerce Program Office and representatives of the military services to discuss the strategy and implementation approach for bringing electronic business operations to the Department. We also reviewed Office of Management and Budget and DOD policy memoranda and other guidance for developing a strategic plan, an implementation plan, and an electronic commerce architecture. We also reviewed DOD's Electronic Business/Electronic Commerce Strategic Plan and a draft of its implementation plan. We discussed the memoranda, guidance, and draft implementation plan with Joint Electronic Commerce Program Office officials responsible for developing the implementation plan and architecture. Among other things, we asked senior officials about and obtained documentation on DOD's implementation plan and whether it fully addressed the goals and objectives included in DOD's strategic plan. During discussions with representatives of the Defense Reform Office, we identified and obtained documentation related to issues being addressed by four subgroups working under the umbrella of the Electronic Commerce Coalition Working Group. This group is being jointly sponsored by the Defense Reform Office and the Association for Enterprise Integration. The working subgroups are comprised of senior private sector and DOD officials. We also met with management officials from the Defense Information Assurance Program Office, the Public Key Infrastructure Program Management Office, and the Navy Smart Card office to discuss issues involving security over DOD systems and networks and to obtain documentation on these issues. To assess the implementation status of key electronic commerce initiatives, we obtained and reviewed tracking information and performance measures maintained by the Defense Reform Office and the Joint Electronic Commerce Program Office. We also met with military service and Defense agency representatives responsible for overseeing and implementing specific initiatives and obtained information about the progress and problems associated with each initiative. While we did not conduct an in-depth review of each initiative, we obtained and reviewed documentation related to their goals, status, costs, and benefits. We also discussed their progress in terms of meeting the implementation schedules called for in the Defense Reform Initiative report and DOD planning and policy guidance. During our work, we interviewed officials in the Office of the Secretary of Defense, including representatives of the Under Secretary of Defense (Acquisition, Technology, and Logistics), the Under Secretary of Defense (Comptroller), the Assistant Secretary of Defense (Command, Control, Communication, and Intelligence), and the Director of the Defense Reform Office. We also interviewed officials in the Joint Electronic Commerce Program Office located at Fort Belvoir, Virginia. We met with program managers and other representatives responsible for the initiatives discussed in this report, including the Defense Travel System, the Paperless Contracting Integrated Product Team, and the Navy Smart Card Program Management Office located in Arlington, Virginia; the Purchase Card Joint Program Management Office located in Falls Church, Virginia; the Central Contractor Registration System, the DOD Business Opportunities web site, and the DOD electronic mall located at Fort Belvior, Virginia; the Public Key Infrastructure Program Management Office located at Fort Meade, Maryland; and the DOD Transportation Policy Directorate located in Washington, D.C. We also conducted work at Army Headquarters, Air Force Headquarters, and Navy Headquarters in Washington, D.C.; Defense Finance and Accounting Service Headquarters, Arlington, Virginia; and Defense Logistics Agency Headquarters, Fort Belvoir, Virginia. We also met with representatives of the Association for Enterprise Integration located in Arlington, Virginia. We performed our work from July 1999 through April 2000 in accordance with generally accepted government auditing standards. Selected Electronic Commerce Initiatives The Department has under way specific program initiatives related to the concept of electronic commerce. As previously noted, most of the initiatives have not been fully implemented and the extent to which they will provide expected benefits is uncertain. The following provides additional summary information on 10 initiatives. Before conducting business with DOD, contractors and vendors must be registered in the Central Contractor Registration System, which was created by DOD. The Central Contractor Registration System is a central database, accessible over the Internet that contains procurement and financial information about contractors and vendors that do business with DOD. This Registration System supports the government's efforts to reengineer its acquisition processes. Before the Central Contractor Registration System was developed, contractors who wanted to do business with more than one DOD organization were required to provide the same business information to each and every organization. This paperwork redundancy created an administrative burden for both the government and the contractor and was also the source of errors and expense. The Administration's emphasis on acquisition reform, along with the Federal Acquisition Streamlining Act of 1994, provided the impetus for developing the system. One aspect of the Department's acquisition reform efforts is focused on presenting a "single face to industry." To help provide a single face to industry, the Department identified a centralized electronic registration process, which eventually became the Central Contractor Registration System, as the single registration site for businesses that want to become suppliers or trading partners with the Department. Development of the Registration System began in 1995, as a program under the Deputy Under Secretary of Defense for Acquisition Reform. At that time, the focus of those developing the system was to work with contractors and vendors to implement electronic data interchange capabilities. Later, its scope was expanded to support the Debt Collection Improvement Act of 1996, which, among other things, generally requires federal agencies to use electronic funds transfer to pay contractors and vendors. The Department implemented the Central Contractor Registration System in two phases. The first phase, which was completed in June 1998, involved entering contractors' and vendors' electronic funds transfer information and tax identification numbers into the database. This information was needed to enable the Defense Finance and Accounting Service to pay contractors and vendors electronically. The second phase, which was completed in September 1999, involved improving the technical capabilities of the database and developing electronic connections to the Department's procurement and contracting systems. These new connections have provided more efficient support to the Department's solicitation and contracting activities. In particular, they provide DOD contracting officials with past performance information about contractors and vendors. Now, with the two development phases complete, the system is undergoing other improvements. These include building links to several newer systems that support the acquisition process, such as the DOD Business Opportunities web site, the DOD Electronic Mall, and the Standard Procurement System. The Registration System is becoming an integral part of the acquisition process. Currently, contractors and vendors can register by using the Internet, electronic data interchange transactions, and paper registration forms. However, the vast majority of registrations occur over the Internet. From December 1997 to March 2000, the number of contractors and vendors that had registered grew from about 22,000 to about 163,000. In December 1997, it took contractors and vendors about 30 days to have a registration processed. In March 2000, the average processing time had been reduced to about 2 days. The Registration System is also helping to streamline DOD's operations. Before awarding a contract, DOD organizations can electronically access the system to verify that a contractor or vendor is properly registered. Also, the Defense Finance and Accounting Service receives daily updates from the system to support its electronic funds transfer program. As of March 2000, the Registration System program manager reported that about 85 percent of the electronic fund transfer payments made by the Finance and Accounting Service for contracts awarded by the military services and Defense agencies were made using the information in the system. In addition, the Defense Logistics Agency and the military services were receiving information from the Registration System to update vendor information in their systems. This Central Contractor Registration System program management office does not have complete information on the development costs of the system. It received about $9.2 million for fiscal years 1998 through 2000 to implement the system; however, a portion of this funding has been and is being used to sustain, rather than develop, the system. Although the benefits have not been quantified, the Registration System has improved aspects of the acquisition and financial management processes for both industry and DOD. According to the program manager, it has centralized the registration procedures that contractors and vendors must follow, significantly reduced the registration time, and provided ready access and information to DOD organizations that have contracting and financial management responsibilities. In September 1993, the National Performance Review called for an overhaul of DOD's temporary duty travel administration process. In response, DOD created the Travel Reengineering Task Force to evaluate the process. The Task Force concluded that the travel administration process was fragmented, inefficient, and expensive and that it occasionally impeded mission accomplishment. In December 1995, under the direction of the Under Secretary of Defense (Comptroller) and the Under Secretary of Defense (Acquisition and Technology), the Department began an initiative, called the Defense Travel System, to reengineer the process. The Defense Reform Initiative report called for the reengineered system to be implemented throughout the Department by October 2000. As planned, the Defense Travel System will be a paperless system designed to handle all aspects of temporary duty travel for the approximately three million DOD travelers. The travelers will be able to process all travel arrangements--from requesting travel orders to making airline and hotel reservations--by accessing the system through the Internet or software available on personal computers or DOD networks. Travel orders and payment vouchers will be submitted and approved electronically using digital signatures. The Travel System is also supposed to perform automated checks on travel requests to ensure that they conform to DOD travel policies. Once a traveler completes his/her trip, he/she is supposed to submit an electronic voucher for payment. After the payment is electronically computed and approved, the system is supposed to be able to split the payment between the traveler and the credit card company. Payment and accounting data are supposed to be electronically exchanged with DOD accounting and disbursing systems. DOD's acquisition strategy was to buy travel services, not a travel system. Following this strategy, in May 1998, DOD competitively awarded a contract to BDM International (a subsidiary of TRW International) to develop the travel system that would provide the Department travel services. Under the contract, TRW International is responsible for developing and testing the travel system. Before it can be implemented, TRW International must resolve all problems identified during testing and ensure that the system interfaces properly with external systems, such as DOD accounting and disbursing systems and commercial reservation systems. Once the system is operational, the Department will pay TRW International for use of the system. The payments will include a one-time registration fee for each user and a transaction fee each time a traveler uses the system. A transaction is defined as travel authorization, travel arrangements, and computation of entitlement. A traveler must complete all parts of a transaction before DOD is obligated to pay the user fee. DOD estimates that the transaction fee will be about $4.90 to $5.40. Based on anticipated use, the contract was initially valued at $263.7 million for a 5-year period (1998-2002) with three 1-year options. According to the Defense Reform Initiative report, DOD expected to begin using the Defense Travel System in April 1998 and have it available throughout the Department by October 2000. However, due to a number of problems, it will not be implemented as planned. Once the problems are resolved and the system is ready for use, DOD estimates that it will take about 3 years to implement. Consequently, the Defense Travel System will not be fully operational until sometime in 2003--about 2 years later than expected. The system's problems, some of which do not yet have a solution, fall into several categories. DOD has assigned each problem to one of five priority categories, with priority one having the highest priority and so on. Priority one and priority two problems must be resolved before the system can be used. As of February 15, 2000, DOD had identified 83 priority one and two problems. Of the 83 problems, 31 were being researched but did not have solutions, 7 had temporary solutions (called workarounds), 32 had proposed solutions that were ready to be tested, and 13 had solutions that had not yet been implemented. As of mid-March 2000, a DOD representative stated that the 31 problems without a solution had been reduced to 20. The Travel System program office provided examples of priority one and two problems. For example, one problem is that the Travel System will pay a traveler without first having funds obligated to cover the cost of the travel. Another problem is that, in some instances, the system does not correctly process a travel order amendment and, as a result, the system will not pay the traveler. Because the Department does not know when the Defense Travel System will be operational, it decided to provide travelers with an interim travel system--the Defense Travel System-Limited. On February 7, 2000, DOD modified its contract with TRW International to include the purchase and implementation of the Defense Travel System-Limited. This increased the contract value by $6.8 million. The interim system is a commercial off-the-shelf product. As an interim travel system, the Limited system is supposed to provide some of the same features as the Defense Travel System, including making travel arrangements, authorizing travel, and computing entitlements. For the $6.8 million, TRW International will process up to 1 million travel transactions, provide 60 training classes, install the software at 40 locations, and maintain the software for 1 year. The Department made the Limited system available to the military services and Defense agencies in April 2000. However, its use is not mandatory. DOD military services and Defense agencies can choose to use the Limited system or continue using the existing travel system called the Integrated Automated Travel System. The Limited system, however, does not electronically interface with other DOD systems, such as accounting, budgeting, and disbursing systems. The services and agencies can choose whether or not they want to develop these interfaces; if they choose to do this, they will have to absorb the costs. The Department estimated that the Defense Travel System would save about $4.4 billion from fiscal years 1999 through 2011. The estimate was based on an economic analysis that compared the current travel administration process to the process to be used by the Defense Travel System. The analysis was based on processing 4,687,271 travel vouchers annually. It assumed that the Travel System would begin operating in fiscal year 1999, would be fully implemented in fiscal year 2001, and would have a 10-year system life cycle. The economic analysis estimated the cost of continuing with the current process would be about $11.7 billion, while the cost of using the new system would be about $7.2 billion. Thus, savings attributable to the Defense Travel System were estimated at $4.4 billion. However, implementation delays are likely to reduce savings. As of February 2000, DOD had obligated $13.6 million against the contract with TRW International. This included the $6.8 million for the Limited system. DOD Business Opportunities is a World Wide Web site that was established in 1998 to support the Department's efforts to move to paperless contracting. Referred to as "DODBusOpps.com," the site provides a starting point in the contracting process by providing vendors with information about the goods and services that DOD organizations want to buy. A vendor can conduct searches on the types of opportunities that are available by viewing the solicitations and identifying whom to contact to submit a bid. The site was established after DOD officials determined that vendors had no single place to go to get this type of information. Before DODBusOpps was developed, several DOD organizations had established web sites to provide vendors with access to this information. However, these sites had limitations. First, DOD officials found that several did not capture all of the solicitations for their respective organizations. Second, they found that a number of other organizations had no sites at all. As a result, officials estimated that only about 40 percent of DOD's total solicitation volume was being posted on the Internet. And the information that was being posted was scattered among a number of different sites, making it difficult for vendors to identify the full range of opportunities in DOD. DOD decided to remedy this situation by developing a central, web-based gateway. The task has involved making sure that information on DOD's solicitations was being captured electronically and posted to an Internet site, either on an existing site or on a newly established one. It also entailed building a centralized site that could receive information feeds from these disparate sites to provide a DOD-wide index of the available information. The DODBusOpps effort got under way in May 1998, and by November 1998, the first version went on the Web. Later, by February 1999, a search engine was put in place to help users find information more easily. Now, although changes continue to be made to the site, project officials consider it to be well established. According to the project office, as of January 2000, the site was posting 15,000 to 30,000 solicitations a month from 267 buying locations worldwide, reflecting 85 percent of DOD's total solicitation volume. It was also experiencing an average of 860,000 inquiries or "hits" a month from prospective vendors or contractors, with the average user inquiry lasting about 8 minutes. When vendors conduct a search, DODBusOpps sifts through its index of solicitations, produces a list of solicitations that correspond to the search criteria used, and provides links to the actual sources of data. Moreover, the site provides links to a limited number of DOD data repositories to allow businesses to view the technical specifications on some of the products being sought. And finally, it provides a link to the Central Contractor Registration System, where all businesses must first register before bidding on DOD contracts. Now that the site has been established, DOD is trying to increase to 100 percent the portion of DOD solicitations available on the site. This task, which the project office hopes to complete by July 2000, entails making sure that information from a host of smaller organizations, which only generate anywhere from 1 to 50 solicitations a year, is fed to DODBusOpps. In addition, DOD plans to continue enhancing the site's features. These enhancements include better integrating DODBusOpps and the contractor registration system to allow DOD to electronically alert already registered businesses that solicitations are being issued for the goods and services they provide. The enhancements also include increasing the number of DOD organizations that can accept bids electronically and making DODBusOpps the central point for receiving and disseminating the bids, expanding the number of links to data repositories that contain technical specifications on the products DOD organizations are seeking, and ensuring that information available through DODBusOpps is also posted on the Electronic Posting System, the federal government's equivalent of the DOD site. Relative to other electronic commerce initiatives, DOD's Business Opportunities web site is a low-cost effort. As of February 2000, DOD had spent about $1.25 million to construct and maintain the site. About one-fifth of this cost is attributable to the site's hardware and software needs, while the rest reflects the cost of hiring contractors for the project team. DOD expects to retain these contractors on the project through at least 2001 under a 1-year, $1.2 million contract signed in February 2000. As for benefits, DOD has not tried to quantify what it stands to gain from DODBusOpps. The Department, however, believes that shifting to electronically based practices will improve efficiencies by allowing information to be disseminated and responded to more quickly. These practices are also expected to help reduce the administrative and clerical burdens that have always accompanied the paper-bound solicitation and bidding processes. In addition to process improvements, the Department believes DODBusOpps can help stimulate competition by making solicitations more accessible to the general public. The DOD Electronic Mall is an Internet site that DOD personnel can access to order needed supplies either from the DOD supply system or directly from vendors. Items include such things as military clothing, nuts and bolts, and light bulbs. The idea is to provide personnel with a one-stop way of shopping and comparing prices across a wide range of supply sources, including internal DOD stocks and external commercial offerings. Currently, Electronic Mall users can access the site, search for the specific items they need, fill up a virtual shopping cart, and then pay for the items using the government purchase card. The Mall's target market consists of so-called discretionary buyers, who buy items in small quantities outside of the normal inventory-management mechanisms that logisticians and supply officials use. Traditionally, these buyers have made purchases from a variety of sources, including internal DOD stocks, local retailers, mail-order catalogs, and vendors' individual web sites. Although the Electronic Mall provides users a single point of entry, it is not a stand-alone database. Rather, it utilizes a distributed network, which allows the various catalogs to reside in separate databases but still be accessed through a single site or point of entry. The originators of the catalogs, such as vendors, have to maintain and update their own catalogs. The Electronic Mall stems from DOD's desire to make greater use of Internet-based electronic shopping catalogs to help improve the purchasing process. According to the 1997 Defense Reform Initiative report, such catalogs could help "democratize" the acquisition process by giving greater freedom to the people who actually need the items. DOD's acquisition personnel would pave the way by establishing broad purchasing arrangements and negotiating favorable contract terms and prices with vendors. Then, personnel could call the vendors' electronic catalogs up on their computer screens and make purchases against these standing contracts using the government purchase card. According to the report, this approach would allow personnel to avoid the traditional process of going to their local procurement offices and initiating what can sometimes be a complex contracting process. To move forward with the Mall, the report called for DOD to allow for on-line payment with purchase cards by July 1998 and to use purchase cards for all Mall purchases by January 1, 2000. Shortly after the Defense Reform Initiative report was issued, the Congress directed that a Department-wide Electronic Mall be established to provide a central gateway to these disparate catalogs. The Strom Thurmond National Defense Authorization Act for Fiscal Year 1999 directed that this gateway provide a single-view access and ordering capability for all DOD catalogs. Establishing this Mall has involved determining what needs to be done to integrate the existing catalogs into a single site, developing a cross-catalog browsing capability, and setting up the ordering and payment mechanisms, among other tasks. Although the Electronic Mall is available to DOD shoppers, it is not a completed effort. Several pieces are still under development. First, despite congressional direction to integrate the military services' existing electronic catalogs into the site, this has not been done. Second, the Mall does not carry the range of items envisioned. Eventually, DOD wants to have four "shopping corridors" on the Mall that would group items under the categories of commodities, information technology, services, and training. As of March 2000, only the commodities and information technology corridors had been established, with most items falling under the commodities' corridor. Electronic Mall sales continue to be lower than DOD officials would like, with fiscal year 1999's sales totaling $2 million.18 These sales figures are particularly striking when compared to the Mall's $4.26 billion estimated target market for fiscal year 1999. Eighty-four percent of that estimated market represents purchases made with the government purchase card,19 with the remainder reflecting purchases costing $2,500 or less that were made with the traditional purchasing methods. Electronic Mall officials believe one of the keys to boosting its use is to increase the number of commercial catalogs available on it. As of March 2000, the Mall carried only a small portion of commercial offerings--only about 240,000 of the Mall's 2.3 million items were available from commercial catalogs; the rest were available from the Defense Logistics Agency (DLA). Since DOD supply and logistics organizations have other ordering mechanisms in place for these items, personnel often do not need to go to the Mall to buy them, officials said. Increasing the number of commercial offerings, however, has been difficult because, according to Mall officials, the process for establishing the underlying contracts is difficult and slow. Moreover, Mall officials believe vendors might be reluctant to include their offerings on the Mall because it allows shoppers to compare prices. Other DOD officials also believe that some vendors, especially small businesses, are reluctant to participate because they do not want to incur the costs of maintaining an Internet-based catalog and meeting the Electronic Mall's technological requirements. The limited number of commercial offerings, however, is just one of several factors affecting low use. Mall officials, as well as others, have found that some military service policies have effectively discouraged its use. For example, one military service organization instructed users to go to the Mall only for commercial items, while another instructed its personnel not to use the government credit card over the Internet. DOD officials said use has also suffered because the Mall does not automatically feed accounting and demand data to the organizations making the purchases, which acts as a disincentive because organizations say they need this data to manage their operations. And finally, DOD officials believe potential customers have been discouraged because, in these officials' opinions, the Mall is not user friendly and is not powerful enough for effective cross-catalog searches. To help determine why the Electronic Mall use is low, officials have recently begun pilot projects at several military service locations. The pilots are supposed to (1) identify the types of commercial items needed at these locations, (2) arrange to get electronic catalogs offering these items onto the Mall, (3) determine if the additional catalogs are increasing its use, and (4) identify the advantages and disadvantages of using the Mall. Officials have not established completion dates for the pilots. We have not examined the Electronic Mall in depth; however, the DOD Inspector General's Office issued a report on the Mall in December 1999. The report cited several problems, including inadequate cross-catalog search capabilities, the lack of effective performance measures, and poor up-front planning. The report further suggested that better planning, such as assessing barriers to Mall use at the outset, could have headed off some of its current problems. The joint program office, in its response to the report, did not agree with all of its findings. The response stated that the Mall's implementation should not have been started with a long, up-front planning process. It also noted that several of the problems had been corrected. Mall officials expect to spend $2.9 million in fiscal year 2000 on development, operations, and maintenance. This figure is up from fiscal year 1999's budget of $2 million. Electronic Mall benefits have not been quantified. However, DOD believes it can help streamline procurement processes by reducing repetitive purchases of low-dollar value items and their associated administrative burdens. Instead, items would be bought through the Mall using the long-term contracts underlying the commercial catalogs offered through the Mall. In addition, DOD believes the Mall can reduce transaction costs by eliminating the traditional, labor-intensive process of identifying sources of supply and shopping for the items needed. And finally, officials believe that, if DOD can significantly increase the number of vendors' catalogs on the Mall, the expanded selection will encourage greater competition, not only on price but also on services such as delivery times, leading to savings and better service for the government. DOD has long been concerned about the quality of service it provides military personnel and their families when they relocate. It spends approximately $3 billion annually to transport, store, and manage household goods and unaccompanied baggage. According to the Defense Reform Initiative report, DOD moves more household goods than any U.S. corporation, yet its system gives its personnel some of the worst service in the nation. The report stated that, of all DOD moves, 25 percent end with damage claims, compared to 10 percent in the private sector. Also, best-in-class movers have customer satisfaction rates of 75 percent, while DOD's have rates of only 23 percent. Because of these and other problems, DOD proposed, as early as 1994, to improve the household goods moving process. The initiative received additional impetus through a June 1997 management reform memorandum and the November 1997 Defense Reform Initiative report. Both called for streamlined and simplified policies and procedures for moving household goods. The primary goals of the initiative are to substantially improve the quality of service that military personnel and their families receive from DOD's contracted movers; simplify the entire process, from arranging moves to settling claims; and base the program on business processes characteristic of world-class customers and suppliers. To the extent practical, electronic commerce capabilities and commercially available software are to be incorporated into the reengineered process. The Under Secretary of Defense (Logistics) assigned the U.S. Transportation Command overall responsibility for reengineering the household goods process. Since 1994, DOD has initiated a number of pilot programs to improve the process for shipping household goods. The Military Traffic Management Command (a subcommand of the Transportation Command), the Army, and the Navy have initiated pilots. Some, such as the Army's Hunter Pilot Project, have been ongoing for several years.20 In February 1999, the Department proposed a fourth pilot called the Full Service Moving Project. DOD is attempting to bring a Department-wide focus to the reengineering initiative. To do this, the Transportation Command will evaluate two of the pilot tests--the Military Traffic Management Command's pilot and the Full Service Moving Project. The Traffic Management Command's pilot involves selecting carriers on the basis of performance and not merely price. The Full Service Moving Project includes outsourcing the personal property office function to a move manager. The Transportation Command plans to evaluate the pilots to determine which pilot, or portions thereof, could provide better long-term results. It plans to have the new process in place sometime during 2002. In 1999, we testified before the Subcommittee on Military Readiness, Committee on Armed Services, House of Representatives, that improving DOD's personal property program has been a slow, complex process and that before any type of conclusion about these efforts can be reached, DOD must have accurate and credible data to determine the type and extent of changes that should be made.21 To its credit, DOD is developing an evaluation plan to measure the performance of the pilots in relation to each other and against the current in-house program. However, DOD is experiencing some delays in developing the plan. Officials are trying to resolve issues related to the format and questions to be included in customer satisfaction surveys and how best to capture cost information. It is unclear at this time to what extent the pilots will incorporate electronic commerce capabilities. According to a representative of the Office of the Secretary of Defense (Transportation), one of the pilots is expected to use a commercial off-the-shelf software package, called PowerTrack, to bill and pay for the moves and to provide visibility of costs. (PowerTrack is discussed under the Transportation Reengineering initiative.) DOD makes millions of purchases annually. While the majority of the purchases, about 9 million transactions in fiscal year 1999, are under $2,500 and are made using purchase cards, several million purchases are made using DOD's contracting processes, which are carried out at over 900 locations around the world. Until recently, these contracting processes remained inefficient and paperbound. Each military service and Defense agency used different processes--nonstandard organizational structures, systems, data formats, and operating procedures--to carry out its respective contracting and contract administration processes. Moreover, these processes were largely manual, paper intensive, redundant, and slow. These conditions resulted in pervasive contract administration inefficiencies, not the least of which were inaccurate accounting records and payments. DOD's paperless contracting initiative is trying to improve this situation by bringing more efficiency to the various contracting processes. Integral to this improvement effort is eliminating paper from the process. The effort began with a May 1997 Management Reform Memorandum that established a target completion date of January 2000. The Defense Reform Initiative reemphasized the DOD goal of making all aspects of its contracting process for major weapons systems paper free by January 1, 2000. DOD established a working-level integrated process team to monitor and report status on the effort. To achieve the paperless contracting goals, the process team has focused on six generic components of the various contracting processes used by the military services and Defense agencies. The six components are (1) identifying requirements, (2) issuing solicitations, (3) issuing contracts and contract modifications, (4) accepting and processing receipts, (5) accepting invoices and processing payments, and (6) closing out the contract. Specific tasks that must be completed by the military services and Defense agencies are associated with each component. Moreover, the paperless contracting initiative is actually a number of technologies and systems that must work together and share information electronically to achieve paperless processing for the six components. For DOD to fully realize its goals, several automated systems or electronic commerce initiatives now under development need to be fully deployed. These include the following systems, which will help standardize the procurement process, electronically accept and process receipts and invoices, electronically pay contractors, and provide the necessary security over electronic transactions. � The Standard Procurement System is expected to eliminate about 70 nonstandard procurement systems and bring improved business practices to the overall procurement process.22 � The Defense Procurement Payment System is expected to become the DOD standard procurement payment system; as planned, it will make contract and vendor payments as well as grant entitlements. � The Wide Area Workflow process, which relies on a number of already available technologies and capabilities, is expected to allow the services and agencies to electronically receive, accept, and share receiving reports and invoices. � The DOD public key infrastructure is expected to provide the digital signature and data encryption capabilities that are needed to control access to DOD systems and networks and authenticate electronic transactions. The Standard Procurement System has been partially implemented, but it is not expected to be available to support major weapon system procurement actions until sometime in 2003. The Defense Procurement Payment System, the bill-paying system, will not be implemented until August 2002. The Wide Area Workflow process has been partially implemented. Until these systems and processes are fully deployed, DOD will continue to rely on numerous existing systems to support paperless contracting processes. To some extent, DOD can and has achieved its paperless contracting goals without these systems. Nevertheless, the Department considers them important for realizing its longer term goals of bringing additional standardization, efficiencies, and security to its processes. Besides depending on numerous system developments to be completed, the paperless contracting initiative must address other issues. Foremost is the Department-wide issue of how to implement a public key infrastructure to control access to its systems and networks. Public key infrastructure implementation includes the use of digital or electronic signatures to ensure that authorizations and approvals, such as accepting goods and making payments, are authentic. Not only must various technologies and systems work together to provide a paperless contracting process, but participants in the process--DOD organizations and vendors--must be able to verify or authenticate transactions. Currently, DOD relies on user identification codes--primarily passwords--to do this. In November 1999, DOD decided to use smart cards (see discussion of smart cards on pp. 50-51) to support its planned public key infrastructure. However, the infrastructure implementation will probably not begin until late 2000. Although it has made substantial progress, DOD did not achieve its goal of having a completely paperless contracting process in place by January 1, 2000. The process team reported to the Deputy Secretary of Defense that, by the end of 1999, about 78 percent of DOD's contracting transactions were being accomplished electronically. DOD senior managers have recognized that it will likely be several years before paperless contracting is fully realized because it will take time for key systems to be fully deployed. Table 2 shows the progress DOD reported at the end of 1999. Contract Solicitation Awards/ Receipts/ Invoice/ Contract requirements modifications acceptancepayment closeout DOD-wide 95 95 88 73 64 75 Air Force 68 90 56 48 N/A N/A Army 79 87 90 0 N/A N/A Navy 64 81 61 22 N/A N/A DLA Supply 100 99 97 93 N/A N/A DLA Contract Administration N/Aa N/A 49 52 N/A 92 Defense Finance and Accounting 75 N/A 75 57 49/78b 70 Service aN/A=not applicable. bThe Defense Finance and Accounting Service separates invoices and payments into separate categories. As of December 1999, the Finance and Accounting Service received 49 percent of its invoices and made 78 percent of its payments electronically. Source: DOD Paperless Contracting Integrated Product Team. DOD has not quantified the costs or expected benefits for the initiative. According to DOD officials, costs are not being accumulated primarily because the military services and Defense agencies have to fund the effort from their respective budgets. Also, some system developments that support the initiative, such as the Standard Procurement System and the Defense Procurement Payment System, are formal programs and have their own budgets. Moreover, because the paperless contracting initiative is not being managed as a formal program, it is not subject to costing, budgeting, and reporting requirements typical of large DOD programs. DOD believes savings will be realized from the initiative. Although they have not been quantified, they are expected to result from process improvements associated with implementing new systems and streamlining processes. The process improvements include eliminating paper, redundant data input tasks, and inaccurate and duplicate payments to contractors. DLA is implementing best commercial practices for acquiring and distributing consumable-type supplies. These practices include the prime vendor concept. This concept has helped DOD reduce its inventories and improve the responsiveness of the logistics systems to DOD customers. The prime vendor concept relies on private sector distribution capabilities and electronic data processing capabilities to fulfill DOD customers' needs. Under the prime vendor concept, a portion of the inventory management responsibilities is transferred to a single vendor, referred to as the prime vendor. The prime vendor buys inventory from a variety of suppliers and stores the inventory in commercial warehouses. DOD customers are able to electronically order supplies directly from the prime vendor and pay for them using a government purchase card. The prime vendor then ships the order directly to the customer. With regard to advancing electronic commerce practices and techniques, electronic ordering is the primary practice employed by prime vendor arrangements. The electronic ordering occurs over the Internet. The prime vendor contracts that are being awarded require this capability. The Defense Reform Initiative highlighted the need to increase the use of prime vendors to manage parts, reduce government inventories, and improve delivery times for all types of commodities managed by the Defense Logistics Agency. In particular, it called for the Logistics Agency to establish prime vendor contracts for one category of hardware items--maintenance, repair, and operating materiel. Examples of these types of supplies include lumber, paint, small tools, and electrical, plumbing, and heating items. The military services are expected to work with the Defense Logistics Agency to implement this initiative. Most prime vendor contracts have been for consumable items that are managed by DLA. Beginning in 1993, DLA has awarded numerous contracts that cover the following supply categories: pharmaceutical, medical, subsistence (food), food service equipment, clothing and textiles, wood products, automotive, maintenance and repair, industrial gases, fire-fighting, marine lifesaving and diving, and metals. Overall, prime vendor sales have increased. Sales reached about $1.8 billion for fiscal year 1999. DLA's most effective prime vendor efforts to date have been for medical and food items. These efforts occurred from 1993-96; during this period, the Agency began to emphasize this program and awarded a number of prime vendor contracts. Since 1998, DLA has expanded its prime vendor program to include contracts for hardware and clothing. However, these initiatives have had only a limited impact on business operations. Hardware items make up 95 percent of the consumable items managed by DLA but over 90 percent of the estimated fiscal year 1999 sales in this category were not covered by prime vendor arrangements. In terms of maintenance, repair, and operating materiel, the Defense Logistics Agency met the Defense Reform Initiative goal of establishing prime vendor contracts that would be available to all major military installations in the United States. However, these contracts have not been widely used. Sales under these contracts represented less than 10 percent of the $670 million spent on this materiel during fiscal year 1999. The prime vendor program has demonstrated that it can provide benefits. For example, the medical and food initiatives resulted in a reduction of DOD inventory levels and related costs, and they improved service to military customers. However, the overall potential benefits for the program appear to be significant since the majority of DLA sales involve hardware items and only a small portion of these items are being bought and distributed under prime vendor arrangements.23 In fiscal year 1999, DOD made about 9 million purchases valued at $2,500 or less (referred to as micropurchases) with purchase cards. Purchase cards are commercial credit cards--either VISA or Master Cards--that are issued to authorized DOD personnel to acquire and pay for supplies and services. DOD implemented the card program to help streamline the acquisition process. By using the card, DOD organizations can buy directly from vendors and contractors, as well as government inventories, and avoid processing requisitions and purchase orders through DOD procurement offices. It is a less costly and more efficient purchasing alternative. The emphasis on using purchase cards has grown over the last decade. The cards were first introduced in the federal government in the early 1980s. In 1989, the General Services Administration awarded the first governmentwide purchase card contract. In 1993, the National Performance Review identified the purchase card as a major acquisition reform and recommended that all federal agencies increase their use of the card to cut the red tape normally associated with the federal procurement process. The Federal Acquisition Streamlining Act of 1994 established $2,500 as the micropurchase threshold and eliminated certain procurement restrictions for purchases within that threshold. In 1995, the Federal Acquisition Regulation designated the purchase card as the preferred method of payment for micropurchases. Later, the National Defense Authorization Act for Fiscal Year 1998 required that at least 90 percent of DOD's micropurchases be made with the purchase card by October 1, 2000. The Defense Reform Initiative report also called for DOD to increase the use of the purchase card; however, it set a more ambitious goal of using the card for at least 90 percent of its micropurchases by fiscal year 2000. The Purchase Card Program transaction volume has grown significantly over the last 5 years. It met the Defense Reform Initiative goal of using the card for at least 90 percent of micropurchase transactions by fiscal year 2000. In fiscal year 1994, less than 1 million transactions were made with a purchase card--this total represented only about 15 percent of DOD's micropurchases. In fiscal year 1998, the transaction volume grew to about 7.5 million. During fiscal year 1999, the transaction volume grew to about 9 million--this total represented just over 91 percent of micropurchases. Table 3 shows the program status as of September 1999. Number of Number of Sales Percentage of cardholders transactions micro-purchases DOD-wide 242,551 8,932,080 $4,596,122,124 91.6 Air Force 74,820 2,480,193 1,086,317,345 98.2 Army 108,425 3,637,817 1,756,841,043 97.6 Navy 49,068 2,356,379 1,405,865,002 96.7 Defense Agencies 10,238 457,691 347,098,734 42.7 Source: DOD Purchase Card Program office. The Purchase Card Program has exceeded the Department's reform goals, but DOD is still addressing several issues associated with the card's use. First, DOD does not know what items and how many of each are being bought with purchase cards. Inventory managers have expressed concern about DOD not collecting this data. The managers believe the data are needed so that the Department can buy or negotiate more efficiently and plan for wartime scenarios. However, the program office stated that its basic philosophy on this issue is that demand data should not be necessary for purchase card items because they are primarily commercial items that should be routinely available from commercial suppliers. Second, DOD previously sought congressional support for legislation that would increase the micropurchase threshold to $10,000. Increasing the threshold would further reduce the volume of purchase transactions going through DOD's procurement processes. The Congress, however, did not take action on this proposal. According to the Purchase Card Program manager, the Congress was concerned about issues raised by labor representatives and small businesses. As of May 2000, the Department had no plans to request an increase to the micropurchase authority. DOD is still seeking ways to improve or expand the program. According to the program manager, DOD's current emphasis is on using the card as a payment vehicle for larger procurements where an underlying contract is in place. Also, DOD has given its deployed forces overseas authority to use the card for purchases up to $25,000. In addition, DOD is trying to improve support for the program through better use of the Internet. For example, according to the DOD Purchase Card Program manager, the contractors included on the current General Services Administration purchase card master contract were supposed to have the capability to establish new accounts and issue new cards via Internet-based applications. This would let account managers and cardholders review monthly statements and dispute and/or question transactions over the Internet. These capabilities were expected to further streamline aspects of administering the Purchase Card Program. The contractors selected by DOD did not have this capability when they were issued task orders to support the program. They did, however, develop this capability by the end of fiscal year 1999. Another important enhancement to the program involves the capability of DOD and contractor systems to exchange data. Currently, contractor systems supporting the DOD Purchase Card Program cannot electronically exchange data with the Defense Finance and Accounting Service systems. Consequently, the obligation of funds and the billing, paying, and accounting processes are not as efficient as they could be. The program office, in conjunction with the contractors, is testing this capability and expects it to be in place by the end of 2000. The Purchase Card Program has produced savings for DOD mainly because it is a less costly and more efficient way for DOD organizations to buy needed goods and services directly from vendors. Moreover, the Department expects the program to provide savings well into the future. The purchase card eliminates the need to process purchase requests through finance, supply, and procurement offices, thereby avoiding the administrative and documentation requirements of the traditional contracting processes. It also reduces the number of invoices that the Defense Finance and Accounting Service must process for payment. Together, these improvements reduce process time and personnel requirements, thereby producing savings. However, reliable DOD-wide savings estimates are not available for several reasons. First, the military services and Defense agencies use different procurement processes. As a result, the impact of purchase card use on these processes varies by DOD component. Only the Army has a reliable estimate of savings. According to an Army Audit Agency report, issued in 1996, each purchase card transaction saved the Army about $92 per transaction in processing costs. Comparable data are not available for other DOD components. Second, data that would show the impact on the Defense Finance and Accounting Service's payment process have not been collected. For example, the number of nonpurchase card transactions valued at $2,500 or less decreased from about 5 million in fiscal year 1994 to about 1.2 million in fiscal year 1998. This should have resulted in a corresponding decrease in the number of invoices processed. However, the Defense Finance and Accounting Service did not begin collecting the data until October 1998. Nevertheless, the data that are available show that the card program should be providing DOD with savings. A smart card is a credit card-sized card with an integrated circuit chip that allows the card to handle the functions of a computer. These functions include the ability to store, update, and manipulate data, with capabilities largely limited by the size of the chip's memory. The memory in cards that are currently available is still small so its applications are also limited. Today, the cards are not widely used by the general public, but private sector organizations are using them to support a variety of business functions, including health care, financial services, and telecommunications. Although their potential to change business practices remains somewhat unclear, smart card advocates expect the private sector and the government to find ways to use the cards to improve their business processes. While all of the military services and the Defense Finance and Accounting Service are using smart cards, the Navy is currently the federal government's largest smart card user, accounting for the majority of the government's estimated 200,000 cardholders. Uses include a so-called "man overboard" application, in which shipboard personnel insert their cards into card readers at central gathering points, or "mustering stations," during drills or actual emergencies. The resulting electronic head counts eliminate the need for the slower and sometimes less accurate manual head counts traditionally used. Other applications include using smart cards to store selected information from individuals' medical and dental records. This practice helps reduce the volume of paper files traditionally used, making it easier for personnel to carry their health histories with them, and also eliminates redundant data entry requirements. In November 1999, DOD decided to expand its use of the cards in two ways. First, DOD plans to distribute smart cards to all personnel to serve as the Department's common access card and its public key infrastructure token. As an access card, the smart card will be issued to all active duty military, selected Reserve personnel, civilian employees, and eligible contractors and used to control access to buildings and other restricted areas. It will replace the Uniformed Services Identification Card and become the standard identification card for civilian employees. As the public key infrastructure token, the card will carry the mathematical codes, or "keys," that will enable DOD personnel to digitally sign and encrypt documents and data, providing better security over information. DOD plans to have the cards fully distributed and in use as access cards by the end of fiscal year 2002. Public key infrastructure capabilities will be phased in over the same time period and beyond. Second, the Navy plans to continue implementing various smart card applications. These efforts are being driven in part by the fiscal year 2000 National Defense Authorization Act, which directed the Navy to draw up plans to implement smart-card use in a naval region in each of the Atlantic and Pacific Commands' area of operations.24 The Navy, however, plans to go beyond these requirements and expand usage Navy-wide. With respect to DOD-wide efforts, the Department plans to begin issuing smart cards on a large scale in fiscal year 2001. It is targeting an estimated 4 million people: all active duty, reserve, and National Guard military personnel; civilian personnel; and contractors working on DOD systems. DOD plans to issue cards to an estimated one-third of this population, or about 1.3 million people, in 2001. The remaining portion is scheduled to receive the cards in fiscal year 2002. In the meantime, through fiscal year 2000, the Department will concentrate on planning and development issues, such as determining what information should be stored on the card and preparing to mass issue the cards. It also plans to test the issue processes and procedures. The Department plans to distribute smart cards using the existing infrastructure for issuing military identification cards. This infrastructure, however, will need to be modified to accommodate the smart card requirements. For example, DOD will need to equip the offices that will issue the cards with the means to personalize the cards, such as by adding a photograph of the cardholder and loading cardholder-specific data on the card's computer chip. In addition, the offices need to be equipped to accommodate the public key infrastructure requirements, which involves some reprogramming of existing systems that will be used to issue the cards. The Navy plans to begin its expansion efforts in April 2000. It will initially target sites in the Atlantic and Pacific regions, which encompass an estimated 530,000 Navy and Marine Corps personnel. Remaining locations worldwide will then be phased in. The specific uses to be implemented fall under 11 categories such as food service, personnel visibility, and property accountability. Smart cards carry the data that support these 11 functions. They have been tested and are already in use at various Navy locations. DOD has budgeted about $78 million for smart card and common access card implementation for fiscal years 2000 and 2001. For fiscal year 2000, this includes $18.5 million for the Navy program and $13.1 million for the common access card and public key infrastructure tokens. For fiscal year 2001, the amounts include $14.4 million and $31.9 million, respectively, for these efforts. However, DOD officials involved with the smart card efforts expect these amounts to increase. They said many costs still need to be determined or refined. For example, until the Navy begins negotiating with installation commanders on what applications are to be used, it cannot fully determine the cost of implementation. Moreover, the Department is still developing smart card estimates for future years' budgets. For example, to accommodate the smart card's use for the public key infrastructure, DOD needs to install card readers on its computers to allow the cards to interface with its systems. The Department is currently evaluating potential costs for fiscal years 2002 and beyond and expects to complete the evaluation in time for DOD's next budget cycle. As for benefits, the specific gains vary depending on how the cards are used and are not always readily quantifiable, officials said. From an access card standpoint, the smart cards will enable DOD personnel to use a single card for building access and identification, compared to the multiple cards personnel often have to use now. Moreover, DOD will eventually be able to replace the different infrastructures used to issue the current cards with the single smart card infrastructure, possibly freeing up resources for other uses. The benefits of using smart cards for the public key infrastructure token stem from the improved information security associated with digital signature and encryption capabilities. And, according to Navy officials, the Navy and the Marine Corps have already realized some business process improvements, including reductions in administrative requirements and improved data accuracy. DOD and Navy officials hope that, once smart card capabilities are in place, advances in technology and more familiarity with the cards will lead personnel to identify new ways to use the cards to improve DOD operations. Numerous studies over many years have shown that DOD's transportation management organizational structure and its related processes are costly and inefficient. In 1996, we reported that the fragmentation and duplication inherent in this structure leads to higher transportation costs for Defense customers.25 In response, the Department stated it would implement several initiatives, including reengineering transportation financial processes. This initiative began in July 1997. The objectives of the transportation reengineering initiative are to reduce infrastructure costs, eliminate government-unique documentation, reduce data requirements, improve data accuracy, increase the use of electronic commerce, and employ best commercial practices. In March 1998, the Deputy Secretary of Defense approved a reengineering concept and implementation of prototypes for the four primary modes of DOD transportation--airlift, sealift, surface, and express. Through the prototypes, DOD evaluated the use of commercial transportation documents in lieu of government-unique documents, purchase cards to pay transportation bills, and a commercial software package called PowerTrack to process bills and make payments. DOD also assessed the ability of a third-party logistics provider to satisfy domestic freight transportation requirements. In February 1999, as a result of the prototypes, the Deputy Secretary of Defense directed the implementation of the transportation reengineering initiative throughout DOD. Thus far, DOD has taken several actions to implement the initiative. It has begun (1) using commercial documentation instead of Government Bills of Lading and military manifests, (2) using PowerTrack, and (3) developing a prototype for outsourcing transportation management functions, including paying carriers. In the past, the Department has used the Government Bills of Lading and military manifests to pay transportation bills. However, commercial transportation documents are less data intensive and easier to use. By switching from government-unique to commercial documentation, the Department expects to eliminate 1.6 million documents annually. The use of commercial documentation, along with PowerTrack, will reduce the workload of the Defense Finance and Accounting Service and help streamline the payment process. The Department has begun using PowerTrack and plans to have it fully implemented by December 2000. PowerTrack is designed to track transportation transactions and pay transportation bills. It is an on-line database accessible to DOD and its carriers via the Internet, Electronic Data Interchange, and telephone. PowerTrack receives shipment information and stores it in a central database, provides an auditable record of transportation movement and payment transactions, automatically reconciles bills, and provides on-line dispute resolution. PowerTrack charges carriers a transaction fee ranging from 1 to 2 percent, but in return carriers will have a faster and easier payment process. DOD's goal is to pay carriers within 3 days of delivery. As of April 2000, the Department had 153 sites and 177 carriers using PowerTrack and was paying about 50 percent of its transportation bills with it. Finally, in May 2000, the Department issued a Request for Proposals to pilot test third-party logistics support. Proposals are due to DOD in July 2000, and a contract is expected to be awarded after they are evaluated. Through this contract, DOD plans to determine if third-party logistics practices and capabilities can improve freight transportation within the continental United States. While DOD has made some progress in reforming its transportation processes, some problems have surfaced with PowerTrack. These problems involve Internet access, system security, and data reliability. For example, DOD has been unable to implement PowerTrack at some installations because they do not have the equipment or technical infrastructure necessary for accessing the Internet. Also, it has not resolved issues regarding the level of security needed to safeguard PowerTrack against computer hackers. And finally, some DOD systems feed inaccurate and unreliable data to PowerTrack, which will adversely affect PowerTrack's ability to automatically reconcile bills. DOD estimates a total investment cost for its transportation reengineering effort of $41.4 million for fiscal years 1997-2000. This estimate includes $8.4 million for the pilot and prototype tests, $25 million for system hardware and software modifications, $5.9 million for contractor support, and $2.1 million for the program management office. DOD does not have to pay for its use of PowerTrack; however, DOD carriers will have to pay a fee ranging from 1 to 2 percent every time they use PowerTrack. This cost could eventually be passed on to DOD in the form of increased freight charges. DOD believes that implementation of its transportation reengineering effort will yield a minimum of about $11.2 million in savings annually. The Department attributes about $8.4 million to a reduction in workload at the Defense Finance and Accounting Service because it will process fewer transactions as a result of the use of commercial documentation. In addition, PowerTrack streamlines the payment infrastructure. DOD expects carriers to be paid more quickly, the number of billing documents to be reduced, and billing disputes to be resolved more efficiently. For example, after delivery of a shipment, PowerTrack can automatically pay a carrier within 3 days if the carrier's electronic bill matches the expected service cost. Under the old system, carrier payment could take as long as 60 to 90 days. Further, PowerTrack enables DOD transportation managers to verify receipt of the shipment prior to authorizing payment to the carrier. This feature is a significant improvement over the current process. DOD has not identified benefits related to outsourcing the transportation management function. DOD officials told us that they will determine benefits after the prototype is completed. DOD Electronic Business Strategic Goals, Objectives, and Strategies The following table identifies the goals, objectives, and strategies included in DOD's May 1999 Electronic Business/Electronic Commerce Strategic Plan. Achieve global flexibility, increased productivity, and a Goal 1 dynamic working environment through the application of electronic business/electronic commerce. Develop and implement collaborative electronic business/electronic commerce strategies that permit Objective 1.1 electronic business/electronic commerce functions to achieve electronic interoperability within DOD and between DOD and its federal agency and private sector business partners. Evaluate existing electronic business/electronic commerce Strategy 1.1.1 initiatives and develop plans to achieve cross-functional and cross-organizational integration. Establish an electronic business/electronic commerce senior Strategy 1.1.2 advisory group under the DOD Chief Information Officer Council. Develop and publish a DOD directive establishing Strategy 1.1.3 departmental policy on electronic business/electronic commerce. Develop, publish, and integrate appropriate principal staff Strategy 1.1.4 assistant, military service, and agency electronic business/electronic commerce planning and implementation strategy documents. Establish electronic business/electronic commerce guidance in the Defense Planning Guidance and Program Objectives Strategy 1.1.5 Memorandum instructions and represent electronic business/electronic commerce resource needs in the Planning, Programming, and Budgeting Systems processes. Establish an efficient, cost-effective, centralized Strategy 1.1.6 oversight and management process for the DOD electronic business/electronic commerce effort that supports strategic implementation and maximizes the use of scarce resources. Participate in federal and industry groups and consortia to Strategy 1.1.7 ensure that DOD and its business partners are fully interoperable using existing and emerging commercial standards and practices. Use commercial applications and standards to maximize Objective 1.2 consistency, availability, and the exchange of electronic data. Establish a clearinghouse for tracking successful DOD and Strategy 1.2.1 commercial electronic business/electronic commerce solutions. Establish relationships with the commercial sector to Strategy 1.2.2 accurately impart DOD business requirements and concerns so it can better satisfy DOD needs. Broaden and formalize DOD participation in industry Strategy 1.2.3 electronic business/electronic commerce-related standards efforts. Strategy 1.2.4 Expedite implementation of commercial standards and adoption of commercial applications where appropriate. Establish an infrastructure that allows the electronic Objective 1.3 business/electronic commerce systems of DOD and its business partners to communicate, maximizing the use of commercial standards and communication systems. Provide an infrastructure that facilitates a seamless, Strategy 1.3.1 secure, and reliable interface to the Department's business partners. Strategy 1.3.2 Provide for data accessibility from the single, consistent, best source of information. Strategy 1.3.3 Use commercial standards for the electronic exchange of all data within DOD and between DOD and its business partners. Foster industry partnerships to seek common approaches, to Strategy 1.3.4 resolve obstacles to enabling interoperable business operations, and to implement easier, simpler, and less costly solutions. Provide increased use of the Internet and World Wide Web as a secure, reliable electronic business/electronic commerce Strategy 1.3.5 communications vehicle. Design a process for identifying, developing, and executing electronic business/electronic commerce common user services. Establish mechanisms to consolidate and aggregate DOD Strategy 1.3.6 electronic business/electronic commerce requirements to better ensure commercial response to collective DOD needs. Instill trust and confidence in electronic Objective 1.4 business/electronic commerce processes by establishing privacy and security measures. Use a system for digital signature and public key infrastructure for electronic business/electronic commerce Strategy 1.4.1 applications to provide adequate identification, authentication, and integrity checks commensurate with business needs and security requirements. Strategy 1.4.2 Provide adequate protection to ensure confidentiality commensurate with data content. Strategy 1.4.3 Provide for privacy and confidentiality of trading partners' data. Strategy 1.4.4 Employ risk management techniques to balance security costs with expected losses. Achieve efficient and effective responses to changing Goal 2 environments by the rapid introduction of business process improvements or reengineering and the exploitation of electronic business/electronic commerce technologies. Objective 2.1 Identify, evaluate, and adopt best business practices for their applicability to DOD electronic business operations. Establish a process to continually identify and benchmark Strategy 2.1.1 electronic business/electronic commerce business practices of the public and private sectors. Establish streamlined procedures for policy changes and Strategy 2.1.2 budgetary reallocations to support adoption of reengineered efforts. Champion electronic business/electronic commerce Strategy 2.1.3 investments that support streamlined processes, fuel innovation, and improve mission performance. Strategy 2.1.4 Establish outreach mechanisms to share electronic business/electronic commerce solutions and techniques. Strategy 2.1.5 Establish mechanisms to apply best business solutions and techniques when reengineering programs and processes. Leverage business process reengineering activities to Objective 2.2 achieve streamlined processes prior to implementing electronic business/electronic commerce technologies. Strategy 2.2.1 Design, develop, and promote solutions that support paperless initiatives. Evaluate existing electronic business operations for Strategy 2.2.2 migration to commercial applications, standards, and practices. Provide education and training on electronic Strategy 2.2.3 business/electronic commerce technologies and opportunities to process reengineering activities. Maximize existing and emerging electronic Objective 2.3 business/electronic commerce technologies to achieve interoperability across the enterprise. Strategy 2.3.1 Promote Internet and World Wide Web-based commerce solutions. Strategy 2.3.2 Base new electronic business operations on best industry practices and on commercial applications and standards. Seek industry partnerships in reengineering business Strategy 2.3.3 processes using electronic business/electronic commerce technologies. Achieve cultural changes and shifts from current business Goal 3 practices through guidance and the attainment of necessary skills for implementation of electronic business/electronic commerce. Objective 3.1 Develop education programs that promote the use of electronic business/electronic commerce. Establish education programs that focus on best electronic Strategy 3.1.1 business/electronic commerce practices, policies, principles, and technologies. Develop a recognition program for DOD activities that have Strategy 3.1.2 established an aggressive and effective program for implementing electronic business/electronic commerce. Evaluate and incorporate electronic business/electronic Strategy 3.1.3 commerce training opportunities into Defense educational institutions and schools. Actively seek to market DOD success stories and best Strategy 3.1.4 practices in mainstream publications. Seek to garner industry recognition and awards. Objective 3.2 Establish a DOD-wide source for advice to aid in the implementation of electronic business/electronic commerce. Establish functional and technical consulting services for Strategy 3.2.1 the application of electronic business/electronic commerce concepts and technologies. Develop an on-line conveyance mechanism for electronic Strategy 3.2.2 business/electronic commerce technical and functional advice. Establish improved communications with industry and other Objective 3.3 federal agencies to better define and articulate DOD requirements. Broaden and formalize DOD participation in industry Strategy 3.3.1 electronic business/electronic commerce conferences and symposia. Establish processes and procedures to promulgate electronic Strategy 3.3.2 business/electronic commerce capabilities, successes, and requirements across DOD and with trading partners. Establish an organization with the responsibility for Strategy 3.3.3 coordinating public relations activities for all DOD electronic business/electronic commerce activities. Note: The table identifies a total of 41 strategies that support DOD's goals and objectives. Source: DOD Electronic Business/Electronic Commerce Strategic Plan dated May 1999. Comments From the Department of Defense GAO Contacts and Staff Acknowledgments David Warren, (202) 512-8412 Barry Holman (202) 512-8412 In addition to those named above, James Hatcher, James Fuquay, Leticia Bates, and Jeanne Willke made key contributions to this report. Related GAO Products Defense Inventory: Opportunities Exist to Expand the Use of Defense Logistics Agency Best Practices (GAO/NSIAD-00-30 , Jan. 26, 2000). Defense Transportation: Process Reengineering Could Be Enhanced by Performance Measures (GAO/NSIAD-00-7 , Dec. 20, 1999). Defense Inventory: Improved Management Framework Needed to Guide Air Force Best Practice Initiatives (GAO/NSIAD-00-2 , Nov. 18, 1999). Defense Inventory: Improved Management Framework Needed to Guide Navy Best Practice Initiatives (GAO/NSIAD-00-1 , Oct. 21, 1999). Defense Inventory: Improved Management Framework Needed to Guide Army Best Practice Initiatives (GAO/NSIAD-99-217 , Sept. 14, 1999). DOD Information Security: Serious Weaknesses Continue to Place Defense Operations at Risk (GAO/AIMD-99-107 , Aug. 26, 1999). Defense Infrastructure: Improved Performance Measures Would Enhance Defense Reform Initiative (GAO/NSIAD-99-169 , Aug. 4, 1999). Defense Transportation: The Army's Hunter Pilot Project Is Inconclusive but Provides Lessons Learned (GAO/NSIAD-99-129 , June 23, 1999). Defense Transportation: Plan Needed for Evaluating the Navy Personal Property Pilot (GAO/NSIAD-99-138 , June 23, 1999). Air Force Supply: Management Actions Create Spare Parts Shortages and Operational Problems (GAO/NSIAD/AIMD-99-77 , Apr. 29, 1999). Defense Reform Initiative: Organization, Status, and Challenges (GAO/NSIAD-99-87 , Apr. 21, 1999). Defense Transportation: Progress of MTMC Pilot (GAO/NSIAD-99-130R , Apr. 15, 1999). Defense Transportation: DOD and GSA Personal Property Programs (GAO/NSIAD-99-139R , Apr. 15, 1999). DOD Financial Management: More Reliable Information Key to Assuring Accountability and Managing Defense Operations More Efficiently (GAO/T-AIMD/NSIAD-99-145 , Apr. 14, 1999). Defense Transportation: Efforts to Improve DOD's Personal Property Program (GAO/T-NSIAD-99-106 , Mar. 18, 1999). Defense Reform Initiative: Progress, Opportunities, and Challenges (GAO/T-NSIAD-99-95 , Mar. 2, 1999). Acquisition Reform: NASA's Internet Service Improves Access to Contracting Information (GAO/NSIAD-99-37 , Feb. 9, 1999). Major Management Challenges and Program Risks: Department of Defense (GAO/OCG-99-4 , Jan. 1, 1999). Financial Management: Improvements Needed in Air Force Vendor Payment Systems and Controls (GAO/AIMD-98-274 , Sept. 28, 1998). Information Security: Serious Weaknesses Place Critical Federal Operations and Assets at Risk (GAO/AIMD-98-92 , Sept. 23, 1998). DOD Information Services: Improved Pricing and Financial Management Practices Needed for Business Area (GAO/AIMD-98-182 , Sept. 15, 1998). Inventory Management: More Information Needed to Assess DLA's Best Practice Initiatives (GAO/NSIAD-98-218 , Sept. 2, 1998). Defense Transportation: The Army's Hunter Pilot Project to Outsource Relocation Services (GAO/NSIAD-98-149 , June 10, 1998). Customs Service Modernization: Architecture Must Be Complete and Enforced to Effectively Build and Maintain Systems (GAO/AIMD-98-70 , May 5, 1998). Executive Guide: Information Security Management−Learning From Leading Organizations (GAO/AIMD-98-68 , May 1, 1998). Joint Military Operations: Weaknesses in DOD's Process for Certifying C4I Systems Interoperability (GAO/NSIAD-98-73 , Mar. 13, 1998). Acquisition Reform: Implementation of Key Aspects of the Federal Acquisition Streamlining Act of 1994 (GAO/NSIAD-98-81 , Mar. 9, 1998). Inventory Management: DOD Can Build on Progress by Using Best Practices for Reparable Parts (GAO/NSIAD-98-97 , Feb. 27, 1998). Tax Systems Modernization: Blueprint Is a Good Start But Not Yet Sufficiently Complete to Build or Acquire Systems (GAO/AIMD/GGD-98-54 , Feb. 24, 1998). Financial Management: Seven DOD Initiatives That Affect the Contract Payment Process (GAO/AIMD-98-40 , Jan. 30, 1998). Defense Inventory Management: Expanding Use of Best Practices for Hardware Items Can Reduce Logistics Costs (GAO/NSIAD-98-47 , Jan. 20, 1998). Acquisition Reform: Classes of Contracts Not Suitable for the Federal Acquisition Computer Network (GAO/NSIAD-97-232 , Sept. 17, 1997). Acquisition Reform: Obstacles to Implementing the Federal Acquisition Computer Network (GAO/NSIAD-97-26 , Jan. 3, 1997). Inventory Management: Greater Use of Best Practices Could Reduce DOD's Logistics Costs (GAO/T-NSIAD-97-214 , July 24, 1997). Acquisition Reform: Purchase Card Use Cuts Procurement Costs, Improves Efficiency (GAO/NSIAD-96-138 , Aug. 6, 1996). Travel Process Reengineering: DOD Faces Challenges in Using Industry Practices to Reduce Costs (GAO/AIMD/NSIAD-95-90 , Mar. 2, 1995). (709436) Table 1: Status of Selected Electronic Commerce Initiatives 20 Table 2: Percent of Contracting Transactions Completed Electronically, as of December 1999) 45 Table 3: Purchase Card Transactions by DOD Component (Fiscal Year 1999 Totals) 48 Table 4: Electronic Business Goals, Objectives, and Strategies 57 Figure 1: Organizations Involved in Electronic Commerce 7 1. The Defense Reform Initiative was established in November 1997 to increase funding for weapon system modernization programs by reducing infrastructure costs and streamlining business processes. 2. Architecture development is a primary means of integrating business areas or processes across an organization in a cost-effective manner. Architectures align information system requirements with the business areas and processes that they support and promote systems that readily exchange and share information. A system architecture defines the critical attributes of an agency's collection of information systems in both business/functional and technical/physical terms. 3. This direction was in the form of Defense Reform Initiative Directive Number 43, titled Defense-wide Electronic Commerce. Defense Reform Initiative Directives are memoranda signed by the Deputy Secretary of Defense that assign responsibility, identify specific actions, and set milestones for implementing aspects of the Defense Reform Initiative. 4. The principal staff assistants represent the Secretary of Defense. They have responsibility for specific DOD business areas. The business areas include procurement, logistics, financial management, medical, and personnel. For example, the Under Secretary of Defense (Acquisition, Technology, and Logistics) is the principal staff assistant for the procurement and logistics business areas/processes. The Under Secretary of Defense (Comptroller) is the principal staff assistant for the financial management business area. 5. The Results Act requires federal agencies to set strategic goals, measure performance, and report on the degree to which goals are met. Its intent is to focus agencies on results, service delivery, and program outcomes. It is expected to provide the Congress and other decisionmakers with objective information on the relative effectiveness and efficiency of federal programs. 6. The strategic plan sets out three overall goals for the Department. These goals are supported by 10 objectives, which are supported by 41 sub-objectives or strategies. These goals, objectives, and strategies are listed in appendix III. 7. These agencies are the Defense Finance and Accounting Service, the Defense Logistics Agency, and the Defense Information Systems Agency. 8. See Tax Systems Modernization: Blueprint Is a Good Start But Not Yet Sufficiently Complete to Build or Acquire Systems (GAO/AIMD/GGD-98-54 , Feb. 24, 1998) and Customs Service Modernization: Architecture Must Be Complete and Enforced to Effectively Build and Maintain Systems (GAO/AIMD-98-70 , May 5, 1998). 9. The Architecture Coordination Council provides strategic direction on architecture issues. It oversees DOD-wide application of the Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance Architecture Framework and, in that capacity, reviews and approves major integrated architecture development plans for the Department. The Council is chaired by the Under Secretary of Defense (Acquisition, Technology, and Logistics), the Assistant Secretary of Defense (Command, Communication, Computers, and Intelligence), and the Director, Command, Control, Communications, and Computer Systems, Joint Chiefs of Staff. 10. The requirements are documented in DOD's Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance Architecture Framework. This framework prescribes how DOD architectures are to be developed. The framework, first published in 1996, provides a common approach for the commanders in chief, the military services, and Defense agencies to follow in developing their architectures. The framework is intended to facilitate, improve, and ensure compatibility, interoperability, and integration among Command, Control, Communications, Computers, Intelligence, Surveillance, and Reconnaissance capabilities. 11. As of late January 2000, the Department had not determined the number and scope of the business areas that need to be analyzed to develop an electronic commerce architecture. At that time, staff assigned to the Chief Information Officer and the Joint Electronic Commerce Program Office had identified over 10 areas that could potentially encompass the Department's business processes. These areas include procurement; life-cycle support; health affairs; military personnel; civilian personnel; financial management; programming, planning, and budgeting; nuclear, biological, and chemical programs; inspections and audits; and legal. 12. The Deputy Secretary decision was formalized in Defense Reform Initiative Directive Number 47, titled End-to-End Procurement Process. 13. Most of the critical work is expected to be done over a 3- to 5- year period, but changing requirements, new technologies, and improved business practices will cause the initial architecture to continually evolve. 14. According to the Air Force's Electronic Business/Electronic Commerce Implementation Plan, the concept of a Global Combat Support System supports the Air Force's goal of providing its war-fighters a real-time integrated view of the entire spectrum of combat support. As envisioned, it relies on technology to bring business processes and information into the integrated view. 15. The Public Key Infrastructure Program revolves around establishing a Department-wide system for managing special types of encryption "keys," which allow personnel to digitally sign and encrypt documents and data. 16. DOD Information Security: Serious Weaknesses Continue to Place Defense Operations at Risk (GAO/AIMD-99-107, Aug. 26, 1999). 17. Defense Infrastructure: Improved Performance Measures Would Enhance Defense Reform Initiative (GAO/NSIAD-99-169 , Aug. 4, 1999). 18. DOD has at times listed Electronic Mall sales for fiscal year 1999 at $51 million, but that figure is misleading because it includes sales of clothing and textiles through the Defense Logistics Agency's Automated System for Cataloging and Ordering Textiles. Although DOD personnel can access this system's offerings through the Mall, the vast majority of purchases are made outside of it; the Electronic Mall portion of this system's sales are included in the Mall's $2 million sales figure. 19. The portion of the Electronic Mall target market that could be realized from the use of purchase cards is not equal to total card purchases. A March 1999 cost-benefit analysis on the Electronic Mall determined that about 84 percent of DOD credit-card purchases were feasible through the Mall, so target market figures are calculated by taking 84 percent of total purchase card purchases. For fiscal year 1999, the target market amounted to about $3.7 billion, which is about 84 percent of the $4.6 billion purchase card total. 20. See Defense Transportation: The Army's Hunter Pilot Project Is Inconclusive but Provides Lessons Learned (GAO/NSIAD-99-219, June 23, 1999). 21. Defense Transportation: Efforts to Improve DOD's Personal Property Program (GAO/T-NSIAD-99-106, Mar. 18, 1999). 22. The scope of the Standard Procurement System extends beyond the paperless contracting initiative. The success of the paperless contracting initiative depends on some but not all of the capabilities included in the system. 23. See Defense Inventory: Opportunities Exist to Expand the Use of Defense Logistics Agency Best Practices (GAO/NSIAD-00-30, Jan. 26, 2000). 24. This direction followed up a smart card mandate in the fiscal year 1999 Defense Authorization Act, which directed the Navy to implement smart cards within at least one carrier battle group, one carrier air wing, and one amphibious readiness group for both its Atlantic and Pacific Fleets by June 30, 1999. In a June 29, 1999, letter to the Congress, the Secretary of the Navy certified that the Department had completed this task. The Navy's smart card manager said this mandate served to accelerate Navy efforts to implement the cards, which got under way in the mid-1990s. Also, although the Navy is by far DOD's largest smart card user, the other services have also been testing various smart cards applications. 25. Defense Transportation: Streamlining of the U.S. Transportation Command Is Needed (GAO/NSIAD-96-60, Feb. 22, 1996). *** End of document. ***