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March 26, 2007: 

The Honorable Daniel K. Akaka: 
The Honorable John Ensign: 
Ranking Member: 
Subcommittee on Readiness and Management Support: 
Committee on Armed Services: 

United States Senate: 

Subject: Defense Services Acquisition: Questions for the Record: 

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

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

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

Signed by: 

Katherine V. Schinasi: 
Managing Director: 
Acquisition and Sourcing Management: 


Appendix I: GAO Responses to Questions for the Record: 

Interagency Contracting: 

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

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

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

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

Acquisition of Services: 

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

DOD has taken a number of steps to improve its acquisition of services, 
but these steps do not fully address our recommendations regarding 
strategic and tactical management. For example, DOD's October 2006 
memorandum identified a number of improvements in its current 
management structure, including providing lower dollar thresholds for 
reviewing proposed services acquisitions and requiring senior DOD 
officials to annually review whether service contracts were meeting 
established cost, schedule, and performance objectives. Further, in its 
comments to our November 2006 report[Footnote 2]on DOD services 
acquisitions, DOD noted that it had made organizational changes to 
improve its strategic sourcing efforts; it was assessing the skills and 
competencies needed by its workforce to acquire services; and the 
military departments and defense agencies were conducting self- 
assessments intended to address contract management issues we 
identified in our high-risk report. Each of these efforts are steps in 
the right direction, but in our view, appeared to be primarily 
incremental improvements to DOD's current approach to acquiring 

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

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

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

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

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

Acquisition Reform: 

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

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

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

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

Acquisition Workforce: 

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

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

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

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

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

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

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

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

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

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

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

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

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

Recruitment and Retention: 

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

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

Acquisition Practices: 

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

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

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


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

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

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

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

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

GAO-05-730 (Washington, D.C.: July 14, 2005). 

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

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

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

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

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