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

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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

ï¿½ 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;

ï¿½ 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;

ï¿½ 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;

ï¿½ ensure that the electronic commerce program office has clear lines of
authority and funding necessary to implement a Department-wide program;

ï¿½ 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;

ï¿½ 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

ï¿½ 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.

ï¿½ The Standard Procurement System is expected to eliminate about 70
nonstandard procurement systems and bring improved business practices to the
overall procurement process.22

ï¿½ 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.

ï¿½ 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.

ï¿½ 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. ***