Acquisition Reform: Implementation of Title V of the Federal Acquisition
Streamlining Act of 1994 (Briefing Report, 10/31/96, GAO/NSIAD-97-22BR).

Congress has long been concerned that acquisition practices at federal
agencies are wasteful and add billions to acquisition costs. For
example, cost overruns of more than 100 percent have been reported in
Defense Department (DOD) and Federal Aviation Administration programs.
This report reviews how DOD and civilian agencies have implemented the
performance-based acquisition and management provisions of title V of
the Federal Acquisition Streamlining Act of 1994. Title V is intended to
foster the development of measurable cost, schedule, and performance
goals as well as incentives for acquisition personnel to reach these
goals. GAO discusses (1) the status of DOD's and civilian agencies'
implementation of title V requirements, (2) the agencies' progress in
implementing title V in the required time frames, and (3) significant
obstacles and barriers to effective implementation.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-97-22BR
     TITLE:  Acquisition Reform: Implementation of Title V of the 
             Federal Acquisition Streamlining Act of 1994
      DATE:  10/31/96
   SUBJECT:  Employee incentives
             Federal procurement policies
             Civilian employees
             Military procurement
             Military personnel
             Military cost control
             Cost control
             Personnel evaluation systems
IDENTIFIER:  Joint Tactical Unmanned Aerial Vehicle
             Comanche Joint Standard Target Acquisition Radar System 
             Ground Station Module
             Army Maneuver Control System
             
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Cover
================================================================ COVER


Briefing Report to the Chairman, Committee on Government Affairs,
U.S.  Senate

October 1996

ACQUISITION REFORM -
IMPLEMENTATION OF
TITLE V OF THE FEDERAL ACQUISITION
STREAMLINING ACT OF 1994

GAO/NSIAD-97-22BR

Acquisition Reform

(707168)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  FASA - Federal Acquisition Streamlining Act
  LMI - Logistics Management Institute
  OFPP - Office of Federal Procurement Policy
  OMB - Office of Management and Budget

Letter
=============================================================== LETTER


B-274241

October 31, 1996

The Honorable Ted Stevens
Chairman, Committee on Governmental Affairs
United States Senate

Dear Mr.  Chairman: 

As you requested, we reviewed the Department of Defense's (DOD) and
civilian agencies' implementation of the performance-based
acquisition management provisions of title V of the Federal
Acquisition Streamlining Act (FASA) of 1994 (P.L.  103-355). 
Specifically, we determined (1) the status of DOD's and civilian
agencies' implementation of title V requirements, (2) the agencies'
progress in implementing title V in the required time frames, and (3)
significant obstacles and barriers to effective implementation. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Congress has long been concerned that federal agencies' acquisition
practices are wasteful and add billions to acquisition costs.  For
example, cost overruns of more than 100 percent have been reported in
DOD and Federal Aviation Administration programs.  FASA, signed into
law on October 13, 1994, contained more than 200 sections changing
the laws that govern how agencies acquire almost $200 billion of
goods and services annually.  Title V of FASA is designed to foster
the development of (1) measurable cost, schedule, and performance
goals and (2) incentives for acquisition personnel to reach these
goals.  Title V performance-based management provisions are detailed
in subtitle A for DOD and subtitle B for civilian agencies. 

Within 1 year of FASA's enactment, or by October 13, 1995, major
elements of subtitles A and B require federal agencies to

  -- establish cost, schedule, and performance goals for acquisition
     programs and annually report on the progress in meeting these
     goals;

  -- establish personnel performance incentives linked to the
     achievement of these goals; and

  -- submit recommendations for legislative changes necessary to
     facilitate and enhance the management of acquisition programs
     and the acquisition workforce based on performance. 

Additionally, subtitle A requires DOD to report annually on whether
the time required for incorporating new technology into major weapon
systems has decreased by 50 percent and to review its acquisition
program cycle regulations.  Subtitle B requires the administrator of
the Office of Federal Procurement Policy (OFPP) of the Office of
Management and Budget (OMB), in consultation with the heads of
civilian agencies, to develop results-oriented acquisition process
guidelines for property and services. 

On September 24, 1996, we briefed your staff on our review.  This
report summarizes the information presented in that briefing. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

Table 1 summarizes federal agencies' status progress in complying
with title V timeframes and requirements. 



                                Table 1
                
                 Status of DOD's and Civilian Agencies'
                         Title V Implementation

Title V provision                       DOD         Civilian agencies
----------------------------------  --  ----------  ------------------
Establish cost, schedule, and           Yes         In process
performance goals

Implement personnel performance         No          No
incentives

Recommend personnel legislation,        None        None
if needed

Assess technology insertion             In process  N/A\a
timeframes

Review acquisition program cycle        Yes         N/A
regulations

Develop acquisition process             N/A         In process
guidelines
----------------------------------------------------------------------
Note:  Reflects implementation status for fiscal year 1995. 
Implementation status for fiscal year 1996 will be reported to
Congress in the second quarter of fiscal year 1997. 

\a N/A = not applicable. 

A more in-depth discussion of agencies' compliance in fiscal year
1995 with title V requirements follows. 


      DOD'S COMPLIANCE STATUS
---------------------------------------------------------- Letter :2.1

While DOD complied with the majority of title V's requirements, it
did not establish a personnel system with enhanced incentives within
1 year after FASA's enactment.  DOD currently plans to use personnel
system demonstration projects that may last several years before
doing so.  DOD did, however, contract with the Logistics Management
Institute (LMI) to benchmark commercial personnel incentive practices
and examine those available to DOD.  Based on LMI's findings, DOD
officials concluded that a significant barrier in establishing this
personnel system is the inability to pay monetary incentives to
military personnel.  Other barriers reported by DOD include the
inability to retain program savings for reinvestment purposes; the
lack of authority to promote civilians in place for accomplishing
specific acquisition objectives; and the conclusion that program
management does not have the necessary control over cost, schedule,
and performance goals.\1

DOD's plan for demonstration projects includes draft recommendations
for legislative changes to authorize performance payment incentives
to all members of a program team, including government civilians,
military personnel, and contractors.  (According to DOD, current
demonstration project authority permits civilians to be promoted in
place.) In addition, DOD would also link program savings and employee
efforts by authorizing the use of program funds to make performance
payments. 

As required by subtitle A, DOD reviewed its acquisition guidelines
and updated them, including information on how to establish and
measure cost, schedule, and performance goals.  It also reported in
the Secretary of Defense's Annual Report to the President and the
Congress for fiscal year 1995 that all but 4 of DOD's 74 major
acquisition programs met these established goals.  In addition, DOD
reported that the time required to insert technology into major
weapon systems had decreased from 115 to
113 months (or roughly from 9.5 to 9.4 years).  A DOD process action
team had reviewed acquisition program cycle regulations and DOD
updated them in its acquisition guidelines. 


--------------------
\1 We have reported that major sources of program instability (i.e.,
repetitive budget and program reviews by other participants in the
defense acquisition process) tend to limit program management's
overall control.  See Weapons Acquisition:  A Rare Opportunity for
Lasting Change (GAO/NSIAD-93-15, Dec.  1992). 


      CIVILIAN AGENCIES'
      COMPLIANCE STATUS
---------------------------------------------------------- Letter :2.2

Based on its initial assessment, OMB concluded that many civilian
agencies have not been applying performance-based management
techniques as required by subtitle B.  OMB lacked sufficient
information to evaluate whether the cost, schedule, and performance
goals for fiscal year 1995 had been met.  For example, only 14
agencies provided the requested information to OFPP and, based on our
review of the information, we determined that much of it was
incomplete, inconsistent, and generally not useful for establishing
goals and measuring their attainment. 

However, OMB is coordinating and monitoring civilian agencies'
attempts to address subtitle B requirements.  As its primary effort,
OMB issued Circular A-11, Part 3, "Planning, Budgeting, and
Acquisition of Fixed Assets" (July 16, 1996) that integrates title V
requirements with the planning, budgeting, and fixed assets
acquisition requirements of the Information Technology Management
Reform Act of 1996 and the annual performance plans called for by the
Government Performance and Results Act of 1993.  When these
requirements are fully implemented in fiscal year 1998, reporting on
cost, schedule, and performance goals for major acquisition programs
is expected to (1) be a formal part of civilian agencies' planning
and budgeting activities and (2) present a unified picture of
agencies' management activities. 

Although OMB's existing policy, OFPP Policy Letter 92-3, established
workforce requirements for purchasing and contracting officials, OMB
has not issued final guidelines on (1) acquisition workforce
management
(i.e., standards, training and education requirements, etc.) for
designated acquisition positions or (2) a personnel system with
enhanced incentives for acquisition employees. 

In December 1995, OFPP distributed draft guidance on acquisition
workforce requirements and on personnel performance incentives. 
Civilian agencies raised some significant concerns due to OMB's use
of the DOD model for its workforce requirements guidance.  Civilian
agencies also raised concerns about the draft personnel performance
incentives guidance, which they broadly characterized as "onerous and
burdensome." Additionally, OMB officials believed that another
barrier to implementing a personnel system with enhanced incentives
is that agencies have not developed a baseline for their acquisition
programs, a process that is expected to be completed by the end of
fiscal year 1998.  However, a limited pilot or test of an updated
personnel system may be conducted before the end of fiscal year 1998,
when full implementation is expected.  OMB advised us that it had not
identified any additional legislation necessary to facilitate
management of acquisition programs and performance-based management
of the acquisition workforce. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :3

In commenting on a draft of this report, DOD and OFPP generally
concurred with our findings.  They also provided some technical
corrections, which we have incorporated where appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :4

To determine the status of DOD's implementation of title V and
results to date, we obtained supporting documentation from officials
in the (1) Office of the Under Secretary of Defense for Acquisition
and Technology (Acquisition Reform) responsible for coordinating its
implementation and (2) Office of the Under Secretary of Defense for
Acquisition and Technology (Program Integration).  The documentation
allowed us to assess DOD's progress in meeting title V time frames
and document barriers to implementation identified by DOD.  We also
examined DOD's methodology used to ensure compliance with title V
cost, schedule, and performance requirements and discussed it with
appropriate officials. 

OMB is responsible for establishing guidance and coordinating and
assessing civilian agencies' implementation progress.  To determine
the status of civilian agencies' implementation of title V and
results to date, we obtained supporting documentation from OMB
officials in OFPP's Procurement Innovation Branch.  The documentation
allowed us to assess civilian agencies' progress in meeting title V
time frames.  We also discussed key implementation barriers
identified by OFPP. 

We did not independently verify the reliability of the agencies'
existing management information systems that title V required the
agencies to use for data collection. 

We performed our review from May 1996 to September 1996 in accordance
with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :4.1

We are sending copies of this report to the Secretary of Defense, the
Office of Management and Budget, and interested congressional
committees.  Copies of this report will also be made available to
others upon request. 


Please contact me at (202) 512-4841 if you or your staff have any
questions concerning this briefing report. 

Sincerely yours,

Louis J.  Rodrigues
Director, Defense Acquisitions Issues


BRIEFING SECTION I TITLE V
IMPLEMENTATION--DOD
============================================================== Letter 



   (See figure in printed
   edition.)


   DEFENSE ACQUISITION PROGRAM
   GOALS
------------------------------------------------------------ Letter :5


Even before the Federal Acquisition Streamlining Act's (FASA)
enactment, 10 U.S.C.  2435 required the Department of Defense (DOD)
to establish cost, schedule, and performance goals in an acquisition
program baseline document\1 for each major defense acquisition
program.  DOD has subsequently updated its acquisition policies to
accomplish several objectives, including the incorporation of new
laws such as FASA.  DOD Directive 5000.1 and DOD Regulation 5000.2-R,
issued March 1996, incorporate DOD's implementation of title V
performance-based management provisions. 

The Director of Acquisition Program Integration determines, at the
end of each fiscal year, if each major acquisition program has
reached 90 percent or more of its cost, schedule, and performance
parameters when compared to acquisition program baseline thresholds. 
The appropriate decision authority must make a similar determination
for nonmajor acquisition programs.  If 10 percent or more of a
program's parameters are missed, a timely review is required to
address whether the breached program is needed and to recommend
suitable action, including termination.  Major acquisition program
baselines must be coordinated with DOD's Comptroller before approval. 

DOD included the results of its annual review of major acquisition
programs in the Secretary of Defense's Annual Report to the President
and the Congress for fiscal year 1995.  DOD reported that, as of
September 30, 1995, all but 4\2 of 74 major acquisition programs met
more than 90 percent of their goals.  For these four programs, DOD
changed the acquisition program baselines on two, restructured one,
and terminated the remaining program.  Although the report excluded
information on nonmajor defense acquisition programs, DOD sent a
memorandum to Congress in June 1996 that (1) listed nonmajor programs
not meeting the requirements in accordance with subtitle A and (2)
explained the differences in reporting requirements for major and
nonmajor programs. 



   (See figure in printed
   edition.)


--------------------
\1 An acquisition program baseline document is an agreement between
the program management office and the appropriate decision authority
that establishes the cost, schedule, and performance objectives and
thresholds for each major acquisition program.  For most major
acquisition programs, the Under Secretary of Defense for Acquisition
and Technology is the decision authority.  For nonmajor programs, the
military service acquisition executive performs this function. 

\2 The report noted that the following programs were not meeting the
goals:  Comanche, Joint Standard Target Acquisition Radar System
Ground Station Module, Maneuver Control System, and Joint Unmanned
Aerial Vehicles. 


   PERSONNEL PERFORMANCE
   INCENTIVES
------------------------------------------------------------ Letter :6

DOD did not establish a personnel system with enhanced incentives
within a year of FASA's enactment, as required by subtitle A, because
DOD officials said that significant barriers prevented them from
complying.  For example, while they believed that any effective
personnel incentive system must treat military and civilian personnel
equally, 10 U.S.C.  1124 does not currently allow military personnel
to be paid monetary incentives.  Furthermore, DOD officials concluded
that program managers and their staffs did not have the control over
the attainment of cost, schedule, and

performance goals necessary to make such goals the basis for rewards
and punishments. 

DOD contracted with the Logistics Management Institute (LMI) to
benchmark commercial incentive practices and examine the incentives
available to DOD.  In its November 1995 report to DOD, LMI did not
recommend substantial changes to military service and defense agency
appraisal systems.  However, it did recommend that DOD ask Congress
to authorize a 4-year test period to develop and test a team
personnel incentive system with annual progress reporting at the end
of each fiscal year.  Based on the LMI report, DOD concluded that
although it could use the current performance appraisal system to
evaluate the extent to which program management personnel have
reached objectives within their control, it lacked the authority to,
among other things, retain program savings for reinvestment purposes,
promote civilians in place, or pay monetary incentives to military
personnel for achieving specific program goals. 

In a draft plan to address subtitle A requirements, DOD officials
stated that a key to any personnel system with enhanced incentives is
that the personnel must be able to directly and substantially
influence the progress toward reaching the goals.  DOD officials
believed that attaining cost and schedule goals is heavily influenced
by the program, budget, and appropriations process and that attaining
performance goals is heavily influenced by the requirements set by
the military services and the technological approach used by
industry. 

DOD officials indicated that they are currently designing
demonstration projects related to program team performance under the
authority of section 4308 of Public Law 104-106 (the National Defense
Authorization Act of 1996).  These demonstration projects, which may
require several years to complete, would provide the basis for the
new personnel system.  DOD's plan includes a request that Congress
approve legislation expanding this authority by allowing DOD to
provide pay incentives to all the members of a program team,
including government civilians, military personnel, and contractors. 
According to DOD, current demonstration project authority permits
civilians to be promoted in place.  In addition, DOD would link
program savings and employee efforts by authorizing the use of
program funds to make performance payments. 



   (See figure in printed
   edition.)


   TECHNOLOGY INSERTION
------------------------------------------------------------ Letter :7


Subtitle A requires DOD to report annually on whether the average
period for converting emerging technology to operational capability
(defined as the period of time from program initiation date to the
initial operating capability date) has decreased by 50 percent or
more since October 13, 1994 (the date of FASA's enactment).  The
results for major acquisition programs are included in the Secretary
of Defense's Annual Report to the President and the Congress for
fiscal year 1995.  DOD reported that, as of October 31, 1994, the
average period for converting emerging technology into operating
technology was 115 months (about 9.5 years).  By September 30, 1995,
the average period had declined to 113 months.  DOD expects to reduce
the time for technology insertion in the future by using commercially
available technologies; encouraging tradeoffs between cost, schedule,
and performance at various development stages; and expanding the use
of advanced concept technology demonstrations.\3

Initially, DOD had some difficulty determining all the appropriate
dates for program initiation.  There was little consistency on this
point because approval to begin an acquisition program does not
necessarily start at milestone 1,\4 especially in cases of upgrades
and nondevelopmental items.  We determined that DOD's Acquisition
Program Integration Office has updated its data collection activities
to specifically define program initiation dates for use in future
reporting. 



   (See figure in printed
   edition.)


--------------------
\3 An advanced concept technology demonstration is a DOD initiative
designed to field advanced technologies more rapidly. 

\4 Milestone 1 is a decision point in the defense acquisition process
designed to determine if the results of concept studies warrant the
establishment of a new acquisition program. 


   PROGRAM CYCLE REGULATIONS
------------------------------------------------------------ Letter :8


A DOD process action team reviewed acquisition program cycle
regulations.  In its December 1994 report, Reengineering the
Acquisition Oversight and Review Process, the team made several
recommendations to facilitate the milestone review process.  On April
28, 1995, the Under Secretary of Defense directed that the following
concepts be included in DOD Regulation 5000.2-R: 

  -- Integrated product teams consisting of the Office of the
     Secretary of Defense and service component staffs are to
     participate early in the process with the program office teams,
     resolving issues as they arise, rather than during the milestone
     decision final review.  The program managers are to work with
     the staffs of the Office of the Secretary of Defense and the
     service component organizations to develop programs with the
     highest opportunity for success. 

  -- The Under Secretary of Defense for Acquisition and Technology is
     to determine the number of milestone reviews and the milestone
     decision authority for each individual program at program
     initiation. 

  -- The documents applicable to a specific program milestone are to
     be determined individually through the integrated product team
     process and approved by the milestone decision authority. 
     Required documents determined under the concept are not based on
     any set minimum number of documents beyond those statutorily
     required. 


BRIEFING SECTION II TITLE V
IMPLEMENTATION--CIVILIAN AGENCIES
============================================================== Letter 



   (See figure in printed
   edition.)


   CIVILIAN ACQUISITION PROGRAM
   GOALS
------------------------------------------------------------ Letter :9


To help agencies prepare the initial assessment for fiscal year 1995,
the Office of Management and Budget (OMB) issued Bulletin 95-03
"Planning and Budgeting for the Acquisition of Fixed Assets" on June
27, 1995, requesting civilian agencies to provide OMB, with their
budget submission, information on all fixed asset acquisitions of $20
million or more.  The information was to include (1) baseline cost,
schedule, and performance goals; (2) status of program progress; (3)
comparison of baseline estimates with current estimates; and (4)
descriptions of actions taken to complete or terminate programs that
failed to achieve 90 percent of baseline goals.  According to the
Office of Federal Procurement Policy (OFPP), these requirements were
intended to (1) introduce agencies to performance-based management
concepts and benefits and (2) integrate OMB's review of acquisition
project status into the budget process. 

Based on the initial assessment, the OFPP administrator concluded
that many civilian agencies have not been applying performance-based
management techniques as required by subtitle B.  According to OFPP,
it lacked sufficient information to evaluate achievement of cost,
schedule, and performance goals for fiscal year 1995.  For example,
only 14 agencies provided the requested information to OFPP and, in
our view, the information provided was incomplete, inconsistent, and
generally not useful for establishing goals and measuring their
attainment.  Three agencies reported that they used performance-based
management systems to monitor progress.  Two of the three agencies
used an integrated project or earned value management\1 system on
some larger acquisitions, a concept OMB considers integral to
civilian agencies' acquisition management processes.  (See app.  I.)

OMB recognizes the need to improve the management of large
acquisitions.  OMB believes this can best be achieved by integrating
subtitle B requirements with other initiatives designed to (1)
improve the planning, budgeting, and management of agency operations
and (2) implement the use of procurement performance goals.  For
example, the Information Management Technology Reform Act of 1996
requires the Director, OMB to encourage the use of performance-based
and results-based management for information systems.  Further, the
Government Performance and Results Act of 1993 requires agencies to
develop mission statements, long-range strategic goals and
objectives, and annual performance plans.  OMB officials believe that
integrating these requirements (1) presents a unified picture of
agencies' management activities and (2) links acquisition performance
goals to the achievement of program and policy goals.\2

To implement this integrated approach to acquisition management, OMB
(1) initiated a major effort that involves the civilian agencies in
developing comprehensive capital programming guidance and (2) issued
Circular A-11, Part 3, "Planning, Budgeting, and Acquisition of Fixed
Assets" (July 16, 1996).  OMB Circular A-11, part 3 supersedes
previous guidance in OMB Bulletin 95-03 and revamps civilian
agencies' budget submission processes for the upcoming budget cycle
(i.e., fiscal year 1998).  Circular A-11 also

  -- reaffirms OMB's full funding policy, which requires civilian
     agencies to identify the full costs of asset acquisitions before
     decisions are made on providing resources;

  -- provides additional guidance on defining fixed assets;

  -- allows civilian agencies to designate their own major
     acquisition programs based on (1) the need for special
     management attention because of a program's importance to the
     agency's mission; (2) high development, operating, or
     maintenance cost; (3) high risk; (4) high return; or (5)
     significant role in the administration of agency programs,
     finances, property, or other resources;

  -- requires agencies to report on established baseline cost,
     schedule, and performance goals, any variances from goals,
     proposed corrective action, and proposed revisions to baseline
     goals;

  -- requires agencies to use performance-based management systems
     based on either an earned value management system or some other
     type of management system to monitor the achievement of, or
     deviation from, baseline goals; and

  -- requires cost goals to be reviewed by the Chief Financial
     Officer prior to inclusion in the budget submission. 




   (See figure in printed
   edition.)


--------------------
\1 Earned value is a management technique that determines the
variance between planned and actual work accomplished, costs,
expenditures, etc. 

\2 We reported on the need for agencies to integrate the
implementation of laws aimed at creating a more businesslike
environment for management and accountability.  See Executive Guide: 
Effectively Implementing the Government Performance and Results Act
(GAO/GGD-96-118, June 1996). 


   PERSONNEL PERFORMANCE
   INCENTIVES
----------------------------------------------------------- Letter :10


OMB has not yet issued final guidelines on (1) acquisition workforce
requirements (i.e., standards, training, education, etc.) for
designated acquisition positions or (2) a personnel system with
enhanced incentives for acquisition employees.  While an existing
policy (OFPP Policy Letter 92-3) establishes workforce requirements
for purchasing and contracting officials, OFPP is considering
guidelines for more specific capabilities based on the value and
complexity of the acquisition. 

In December 1995, OFPP distributed draft guidance on acquisition
workforce requirements and personnel performance incentives. 
Primarily because OMB used the DOD model for its workforce
requirements guidance, the civilian agencies raised some significant
concerns about the draft guidance, thereby delaying issuance of final
guidance.  In the meantime, Congress enacted new acquisition
workforce requirements as a part of the Federal Acquisition Reform
Act of 1996.  To implement those provisions, OFPP developed
qualification standards for purchasing and contracting officials, and
the civilian agencies are currently reviewing the guidance.  OMB is
still trying to develop qualification standards for program
management officials in civilian agencies. 

According to an OMB official, the civilian agencies also had
significant concerns about the draft personnel incentives guidance,
which they broadly characterized as "onerous and burdensome." OMB
officials believe that another barrier to implementing a personnel
system with enhanced incentives is that agencies have not baselined
their acquisition programs, a process that is expected to be
completed by the end of fiscal year 1998.  However, a limited pilot
or test of an updated personnel system may be conducted before the
end of fiscal year 1998, when full implementation is expected. 

OMB officials did not identify a need for any additional legislation
for facilitating and enhancing the management of acquisition programs
and the management of the acquisition workforce based on performance. 
However, they believe that the provisions of the Federal Acquisition
Reform Act of 1996 and the Information Technology Management Reform
Act of 1996 increase contracting officials' ability to focus on
results rather than process.  For example, the Federal Acquisition
Reform Act of 1996 increases flexibility in conducting procurements. 
The Information Technology Management Reform Act of 1996 requires
processes for analyzing information system risks and results, as well
as performance reports on the benefits achieved from information
systems acquisitions. 



   (See figure in printed
   edition.)


   PROCESS GUIDELINES
----------------------------------------------------------- Letter :11

To meet the requirements of title V of FASA and Information
Technology Management Reform Act of 1996, OFPP is participating in an
interagency work group to develop a single, integrated program to
plan and monitor acquisitions under the Government Performance and
Results Act of 1993.  The issuance of OMB Circular A-11, Part 3 was
the first step in the process.  The second step is for the work group
to develop a capital programming guide, which will accompany the 1997
update of Circular A-11.  This guide is intended to provide
information on

  -- managing the entire capital budgeting process, including
     planning, budgeting, procurement, and management of in-use
     items;

  -- establishing cost, schedule, and performance goals in the
     planning and budgeting phases and the use of performance
     management systems during the procurement phase to monitor goal
     attainment; and

  -- analyses of cost efficiency and program performance contribution
     of in-use items. 

When completed, the capital programming guide, in conjunction with
the following initiatives, will complete OMB's planned development
and implementation of the results-oriented acquisition process
guidelines required by title V. 

OFPP is also managing the performance-based service contract
initiative.  These contracts define the government's requirements in
terms of measurable performance standards.  Under this initiative,
government oversight is limited to measuring progress based on the
performance standards and contractors' payments are reduced if they
fail to meet standards.  This ensures that the government only pays
for the services actually received. 

In addition, the Director of OMB issued a memorandum, dated May 7,
1996, with (1) a report from the President's Management Council
Procurement Task Force to agency heads addressing the creation of a
"world class acquisition system" and (2) a guide to assist agency
senior managers in selecting appropriate performance measures.  The
Procurement Task Force's report requires each agency to develop a
plan by October 1996 for implementing performance measures within the
agency for fiscal year 1997.  The President's Management Council will
oversee the program at least until the initial round of measurements
are completed.  Agencies will be required to include their
measurement goals and results in the annual performance plan required
by the Government Performance and Results Act of 1993 beginning with
the fiscal year 1999 budget.  This will help ensure long-term focus
on procurement process improvement. 

OMB Circular A-11, Part 3 directs agencies to primarily use
commercial and nondevelopmental items to meet their requirements. 
For example, Circular A-11 states that "emphasis should be placed on
generating innovation and competition from private industry and on
the use of commercial off-the-shelf and nondevelopmental items .  . 
.  ." It further states that each fixed asset considered should be
quantitatively evaluated using a systematic analysis of expected
benefits and costs. 


ILLUSTRATIVE EXPLANATION OF EARNED
VALUE CONCEPT AND COST AND
SCHEDULE VARIANCES FOR FIXED
ASSETS
=========================================================== Appendix I



   (See figure in printed
   edition.)

Source:  OMB Circular A-11, part 3, page 17. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

David E.  Cooper
Clifton E.  Spruill
Arnett Sanders
John L.  Carter

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