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Before the Subcommittee on Defense, Committee on Appropriations, House 
of Representatives: 

United States Government Accountability Office: 


For Release on Delivery Expected at 10:00 a.m. EDT: 

Thursday, May 10, 2007: 

Defense Acquisitions: 

Improved Management and Oversight Needed to Better Control DOD's 
Acquisition of Services: 

Statement of John P. Hutton, Director: 
Acquisition and Sourcing Management: 


GAO Highlights: 

Highlights of GAO-07-832T, a testimony before the Subcommittee on 
Defense, Committee on Appropriations, House of Representatives 

Why GAO Did This Study: 

The Department of Defense (DOD) is relying more and more on contractors 
to provide billions of dollars in services. Congress has pushed DOD to 
employ sound business practices when using the private sector for 

This testimony discusses DOD’s 
(1) increasing reliance on contractors; (2) efforts to follow sound 
business practices when acquiring services; and (3) actions to improve 
its management and oversight of services. 

This testimony is based on GAO’s work spanning several years as well as 
recent reports issued by the Inspectors General. 

What GAO Found: 

Over the past decade, DOD has increasingly relied on contractors to 
provide a range of mission-critical services from operating information 
technology systems to providing logistical support on the battlefield. 
The growth in spending on services clearly illustrates this point. 
DOD’s obligations on service contracts, expressed in constant fiscal 
year 2006 dollars, rose from $85.1 billion in fiscal year 1996 to more 
than $151 billion in fiscal year 2006, a 78 percent increase. While 
obligations increased, the size of the civilian workforce decreased. 
Moreover, DOD carried out this downsizing without ensuring that it had 
the requisite skills and competencies needed to manage and oversee 
service acquisitions. Overall, our work found that to a large degree, 
this growth in spending on services simply happened and was not a 
managed outcome. 

The lack of sound business practices—poorly defined requirements, 
inadequate competition, the lack of comprehensive guidance and 
visibility on contractors supporting deployed forces, inadequate 
monitoring of contractor performance, and inappropriate use of other 
agencies’ contracts and contracting services—expose DOD to unnecessary 
risk, waste resources, and complicate efforts to hold contractors 
accountable for poor service acquisition outcomes. For example, DOD 
awarded contracts for security guard services supporting 57 domestic 
bases, 46 of which were done on an authorized, sole-source basis. The 
sole-source contracts were awarded by DOD despite recognizing it was 
paying about 25 percent more than previously paid for contracts awarded 
competitively. Further, the lack of sufficient surveillance on service 
contracts placed DOD at risk of being unable to identify and correct 
poor contractor performance in a timely manner and potentially paying 
too much for the services it receives. Overall, DOD’s management 
structure and processes overseeing service acquisitions lacked key 
elements at the strategic and transactional levels. 

DOD has taken some steps to improve its management of services 
acquisition, including developing a competency model for its 
contracting workforce; issuing policies and guidance to improve its 
management of contractors supporting deployed forces and its use of 
interagency contracts; and developing an integrated assessment of how 
best to acquire services. DOD leadership will be critical for 
translating this assessment into policy and, most importantly, 
effective frontline practices. At this point, DOD 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. 

What GAO Recommends: 

While GAO is making no recommendations in this testimony, GAO has made 
numerous recommendations through the years to help improve DOD’s 
contract management. DOD has generally concurred with these 
recommendations and is taking, or plans to take, action to improve the 
acquisition of services, but much remains to be done. 


To view the full product, including the scope and methodology, click on 
the link above. For more information, contact John P. Hutton at (202) 
512-4841 or 

[End of section] 

Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss challenges the Department of 
Defense (DOD) faces in acquiring services to support its operations. 
Although many of these challenges are long-standing, they have become 
more apparent in recent years as the department's reliance on 
contractors has grown in size and scope. In fiscal year 2006, DOD 
obligated more than $151 billion on service contracts, a 78 percent 
real increase since fiscal year 1996. As you know, however, DOD does 
not always use sound contracting practices when acquiring these 
services, and the department is operating with a deficit of people with 
the right skills to support its acquisitions. Consequently, DOD may not 
have always obtained good value when buying billions of dollars of 
services at a time when serious budget pressures face the nation. 

The challenges faced by DOD in acquiring services are not new, but 
rather are emblematic of a range of systemic and long-standing issues. 
In this regard, we identified DOD contract management to be high risk 
because of its vulnerability to fraud, waste, abuse, and mismanagement 
15 years ago[Footnote 1] and have reported on DOD's long-standing 
problems with management and oversight of support contractors since 
1997. In January 2005, we added the management of interagency 
contracting to our high-risk list. DOD is the largest user of 
interagency contracts. In a report issued in July 2006, we concluded 
that with awards to contractors large and growing, DOD will continue to 
be vulnerable to contracting fraud, waste, or misuse of taxpayer 
dollars, and abuse.[Footnote 2] While DOD has acknowledged its 
vulnerabilities and taken some actions to address them, many of the 
initiatives are still in their early stages, and it is too soon to tell 
what impact they may have. 

Today, I would like to discuss DOD's (1) increasing reliance on 
contractors, (2) efforts to follow sound business practices when 
acquiring services, and (3) actions to improve its management and 
oversight of services. My statement is based on work that GAO has 
completed over the past decade, which was conducted in accordance with 
generally accepted government auditing standards. Additionally, my 
statement draws on recent reports issued by the DOD Inspector General 
and the General Services Administration (GSA) Inspector General. 


Numerous persistent problems have resulted in reduced effectiveness and 
have exposed DOD to unnecessary risks when acquiring services. The 
growth in obligations on service contracts--from $85.1 billion in 
fiscal year 1996 to more than $151 billion in fiscal year 2006-- 
reflects a growing reliance on contractors to provide a range of 
mission-critical services. At the same time, DOD's civilian workforce 
was downsized without sufficient attention to requisite skills and 

Within this environment, our work, as well as that of some agency 
Inspectors General, have identified numerous instances of weak business 
practices--poorly defined requirements, inadequate competition, 
insufficient guidance and leadership, inadequate monitoring of 
contractor performance, and inappropriate uses of other agencies' 
contracts and contracting services. Collectively, these problems expose 
DOD to unnecessary risk, complicate efforts to hold DOD and contractors 
accountable for poor acquisition outcomes, and increase the potential 
for fraud, waste, or abuse of taxpayer dollars. 

DOD's structure and processes for managing services do not position the 
department to make service acquisitions a managed outcome. DOD has 
taken some actions to improve its management of services, including 
developing a competency model for its contracting workforce; issuing 
policies and guidance to improve DOD's management of contractors 
supporting deployed forces and its use of interagency contracts; and 
developing an integrated assessment of how best to acquire services. 
DOD leadership will be critical for translating this assessment and 
other actions into effective frontline practices. At this point, 
however, 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 taxpayer's interests. 

DOD Increasingly Relies on Contractor-Provided Services: 

Over the past decade, DOD has increasingly relied on contractors to 
provide a range of mission-critical services from operating information 
technology systems to providing logistical support on the battlefield. 
The growth in spending on services clearly illustrates this point. 
DOD's obligations on service contracts, expressed in constant fiscal 
year 2006 dollars, rose from $85.1 billion in fiscal year 1996 to more 
than $151 billion in fiscal year 2006, a 78 percent increase. More than 
$32 billion--or 21 percent--of DOD's obligations on services in fiscal 
year 2006 were for professional, administrative, and management support 
contracts. Overall, according to DOD, the amount obligated on service 
contracts exceeded the amount the department spent on supplies and 
equipment, including major weapon systems. 

Several factors have contributed to the growth in service contracts. 
For example, after the September 2001 terrorist attacks, increased 
security requirements and the deployment of active duty and reserve 
personnel resulted in DOD having fewer military personnel to protect 
domestic installations. For example, the U.S. Army awarded contracts 
worth nearly $733 million to acquire contract guards at 57 
installations. Growth was also caused by changes in the way DOD 
acquired certain capabilities. For example, DOD historically bought 
space launch vehicles, such as the Delta and Titan rockets as products. 
Now, under the Evolved Expendable Launch Vehicle program, the Air Force 
purchases launch services using contractor-owned launch vehicles. 
Similarly, the Air Force and Army turned to service contracts for 
simulator training primarily because efforts to modernize existing 
simulator hardware and software had lost out in the competition for 
procurement funds. Buying training as a service meant that operation 
and maintenance funds could be used instead of procurement 
funds.[Footnote 3] Overall, however, our work found that to a large 
degree, this growth simply happened and was not a managed outcome. 

As the amount and complexity of contracting for services have 
increased, the size of the civilian workforce has decreased. More 
significantly, DOD carried out this downsizing without ensuring that it 
had the requisite skills and competencies needed to manage and oversee 
service acquisitions. Consequently, DOD is challenged in its ability to 
maintain a workforce with the requisite knowledge of market conditions, 
industry trends, and the technical details about the services they 
procure; the ability to prepare clear statements of work; and the 
capacity to manage and oversee contractors. 

Participants in an October 2005 GAO forum on Managing the Supplier Base 
for the 21st Century commented that the current federal acquisition 
workforce significantly lacks the new business skills needed to act as 
contract managers. In June 2006, DOD issued a human capital strategy 
that acknowledged that DOD's civilian workforce is not balanced by age 
or experience. DOD's strategy identified a number of steps planned over 
the next 2 years to more fully develop a long-term approach to managing 
its acquisition workforce. For example, DOD's Director of Defense 
Procurement and Acquisition Policy testified in January 2007 that DOD 
has been developing a model that will address the skills and 
competencies necessary for DOD's contracting workforce. That model will 
be deployed this year. The Director stated that this effort would allow 
DOD to assess the workforce in terms of size, capability, and skill 
mix, and to develop a comprehensive recruiting, training, and 
deployment plan to meet the identified capability gaps. 

A report we issued in November 2006 on DOD space acquisition provides 
an example of downsizing in a critical area--cost estimating.[Footnote 
4] In this case, there was a belief within the government that cost 
savings could be achieved under acquisition reform initiatives by 
reducing technical staff, including cost estimators, since the 
government would be relying more on commercial-based solutions to 
achieve desired capabilities. According to one Air Force cost- 
estimating official we spoke with, this led to a decline in the number 
of Air Force cost estimators from 680 to 280. According to this 
official, many military and civilian cost-estimating personnel left the 
cost-estimating field, and the Air Force lost some of its best and 
brightest cost estimators. In turn, because of the decline in in-house 
resources, space program offices and Air Force cost-estimating 
organizations are now more dependent on support from contractors. For 
example, at 11 space program offices, contractors accounted for 64 
percent of cost-estimating personnel. The contractor personnel now 
generally prepare cost estimates while government personnel provide 
oversight, guidance, and review of the cost-estimating work. Reliance 
on support contractors raises questions from the cost-estimating 
community about whether numbers and qualifications of government 
personnel are sufficient to provide oversight of and insight into 
contractor cost estimates. 

Turning to Iraq, DOD has relied extensively on contractors to undertake 
major reconstruction projects and provide support to troops in Iraq. 
DOD is responsible for a significant portion of the more than $30 
billion in appropriated reconstruction funds and has awarded and 
managed many of the large reconstruction contracts, such as the 
contracts to rebuild Iraq's oil, water, and electrical infrastructure, 
as well as to train and equip Iraqi security forces. Further, U.S. 
military operations in Iraq have used contractors to a far greater 
extent than in prior operations to provide interpreters and 
intelligence analysts, as well as more traditional services such as 
weapons systems maintenance and base operations support. These services 
are often provided under cost-reimbursement-type contracts, which allow 
the contractor to be reimbursed for reasonable, allowable, and 
allocable costs to the extent prescribed in the contracts. Further, 
these contracts often contain award fee provisions, which are intended 
to incentivize more efficient and effective contractor 
performance.[Footnote 5] If contracts are not effectively managed and 
given sufficient oversight, the government's risk is likely to 
increase. For example, we have reported that DOD needs to conduct 
periodic reviews of services provided under cost-reimbursement 
contracts to ensure that services are being provided and at an 
appropriate level and quality. Without such a review, the government is 
at risk to pay for services it no longer needs. 

DOD Does Not Consistently Use Sound Business Practices to Acquire 

Our work, along with that of the Inspectors General, has repeatedly 
found problems with the practices DOD uses to acquire services. Too 
often, the department obtains services based on poorly defined 
requirements and inadequate competition. Further, DOD's management and 
use of contractors supporting deployed forces suffers from the lack of 
clear and comprehensive guidance, among other shortfalls. Similarly, 
DOD does not always oversee and manage contractor performance, in part 
due to capacity issues, once a contract is in place. Many of these 
problems show up in the department's use of other agencies' contracts. 
Collectively, these problems expose DOD to unnecessary risk, complicate 
efforts to hold DOD and contractors accountable for poor acquisition 
outcomes, and increase the potential for fraud, waste, or abuse of 
taxpayer dollars. 

Poorly Defined Requirements: 

Poorly defined or broadly described requirements have contributed to 
undesired service acquisition outcomes. To produce desired outcomes 
within available funding and required time frames, DOD and its 
contractors need to clearly understand acquisition objectives and how 
they translate into the contract's terms and conditions. The absence of 
well-defined requirements and clearly understood objectives complicates 
efforts to hold DOD and contractors accountable for poor acquisition 
outcomes. Contracts, especially service contracts, often do not have 
definitive or realistic requirements at the outset needed to control 
costs and facilitate accountability. This situation is illustrated in 
the following examples: 

* In June 2004, we found that during Iraqi reconstruction efforts, when 
requirements were not clear, DOD often entered into contract 
arrangements that introduced risks. We reported that DOD often 
authorized contractors to begin work before key terms and conditions, 
such as the work to be performed and its projected costs, were fully 
defined. In September 2006, we reported that, under this approach, DOD 
contracting officials were less likely to remove costs questioned by 
auditors if the contractor had incurred these costs before reaching 
agreement on the work's scope and price.[Footnote 6] In one case, the 
Defense Contract Audit Agency questioned $84 million in an audit of a 
task order for an oil mission. In that case, the contractor did not 
submit a proposal until a year after the work was authorized, and DOD 
and the contractor did not negotiate the final terms of the contract 
until more than a year after the contractor had completed the work. We 
will issue a report later this year on DOD's use of undefinitized 
contract actions. 

* In July 2004, we noted that personnel using the Army's Logistics 
Civil Augmentation Program (LOGCAP) contract in Iraq, including those 
who may be called upon to write statements of work and prepare 
independent government cost estimates, had not always received the 
training needed to accomplish their missions.[Footnote 7] We noted, for 
example, the statement of work required the contractor to provide water 
for units within 100 kilometers of designated points but did not 
indicate how much water needed to be delivered to each unit or how many 
units needed water. Without such information, the contractor may not be 
able to determine how to meet the needs of the Army and may take 
unnecessary steps to do so. Further, we have reported that contract 
customers need to conduct periodic reviews of services provided under 
cost-reimbursable contracts to ensure that services provided are 
supplied at an appropriate level. Without such a review, the government 
is at risk of paying for services it no longer needs. For example, the 
command in Iraq lowered the cost of the LOGCAP contract by $108 million 
by reducing services and eliminating unneeded dining facilities and 

Inadequate Competition: 

Competition is a fundamental principle underlying the federal 
acquisition process. Nevertheless, we have reported on the lack of 
competition in DOD's acquisition of services since 1998. We have 
reported that DOD has, at times, sacrificed the benefits of competition 
for expediency. For example, we noted in April 2006 that DOD awarded 
contracts for security guard services supporting 57 domestic bases, 46 
of which were done on an authorized, sole-source basis.[Footnote 8] The 
sole-source contracts were awarded by DOD despite recognizing it was 
paying about 25 percent more than previously paid for contracts awarded 
competitively. In this case, we recommended that the Army reassess its 
acquisition strategy for contract security guards, using competitive 
procedures for future contracts and task orders. DOD agreed and is in 
the process of revising its acquisition strategy. 

In Iraq, the need to award contracts and begin reconstruction efforts 
quickly contributed to DOD's using other than full and open competition 
during the initial stages of reconstruction. While full and open 
competition can be a tool to mitigate acquisition risks, DOD 
procurement officials had only a relatively short time--often only 
weeks--to award the first major reconstruction contracts. As a result, 
these contracts were generally awarded using other than full and open 
competition. We recently reported that DOD competed the vast majority 
of its contract obligations between October 1, 2003, through March 31, 
2006.[Footnote 9] We were able to obtain data on $7 billion, or 82 
percent, of DOD's total contract obligations during this period. Our 
ability to obtain complete information, however, on DOD reconstruction 
contract actions was limited because not all DOD components 
consistently tracked or fully reported this information. 

Insufficient Guidance and Leadership to Manage Contractors Supporting 
Deployed Forces: 

Since the mid-1990s, our reports have highlighted the need for clear 
and comprehensive guidance for managing and overseeing the use of 
contractors that support deployed forces. As we reported in December 
2006, DOD has not yet fully addressed this long-standing 
problem.[Footnote 10] 

Such problems are not new. In assessing LOGCAP implementation during 
the Bosnian peacekeeping mission in 1997, we identified weaknesses in 
the available doctrine on how to manage contractor resources, including 
how to integrate contractors with military units and what type of 
management and oversight structure to establish.[Footnote 11] We 
identified similar weaknesses when we began reviewing DOD's use of 
contractors in Iraq. For example, in 2003 we reported that guidance and 
other oversight mechanisms varied widely at the DOD, combatant command, 
and service levels, making it difficult to manage contractors 
effectively. Similarly, in our 2005 report on private security 
contractors in Iraq, we noted that DOD had not issued any guidance to 
units deploying to Iraq on how to work with or coordinate efforts with 
private security contractors.[Footnote 12] Further, we noted that the 
military may not have a clear understanding of the role of contractors, 
including private security providers, in Iraq and of the implications 
of having private security providers in the battle space. 

In our view, establishing baseline policies for managing and overseeing 
contractors would help ensure the efficient use of contractors in 
places such as Iraq. DOD addressed some of these issues when it issued 
new guidance in October 2005 on the use of contractors who support 
deployed forces.[Footnote 13] However, as our December 2006 report made 
clear, DOD's guidance does not address a number of problems we have 
repeatedly raised--such as the need to provide adequate contract 
oversight personnel, to collect and share lessons learned on the use of 
contractors supporting deployed forces, and to provide DOD commanders 
and contract oversight personnel with training on the use of 
contractors overseas before deployment. Since our December 2006 report 
was issued, DOD officials indicated that DOD was developing a joint 
publication entitled Contracting and Contractor Management in Joint 
Operations, which is expected to be distributed in May 2007. 

Our work has also highlighted the need for DOD components to comply 
with departmental guidance on the use of contractors. For example, in 
our June 2003 report we noted that DOD components were not complying 
with a long-standing requirement to identify essential services 
provided by contractors and develop backup plans to ensure the 
continuation of those services during contingency operations should 
contractors become unavailable to provide those services. Other reports 
highlighted our concerns over DOD's planning for the use of contractor 
support in Iraq, including the need to comply with guidance to identify 
operational requirements early in the planning process. When 
contractors are involved in planning efforts early and given adequate 
time to plan and prepare to accomplish their assigned tasks, the 
quality of the contractor's services improves and contract costs may be 

DOD's October 2005 guidance on the use of contractor support to 
deployed forces went a long way to consolidate existing policy and 
provide guidance on a wide range of contractor issues. However, as of 
December 2006, we found little evidence that DOD components were 
implementing that guidance, in part because no individual within DOD 
was responsible for reviewing DOD's and the services' efforts to ensure 
the guidance was being consistently implemented. In our 2005 report on 
LOGCAP we recommended DOD designate a LOGCAP coordinator with the 
authority to participate in deliberations and advocate the most 
effective and efficient use of the LOGCAP contract. Similarly, in 2006 
we recommended that DOD appoint a focal point within the Office of the 
Under Secretary of Defense for Acquisition, Technology, and Logistics-
-at a sufficiently senior level and with the appropriate resources-- 
dedicated to leading DOD's efforts to improve its contract management 
and oversight. DOD agreed with these recommendations. In October 2006, 
DOD established the office of the Assistant Deputy Under Secretary of 
Defense for Program Support to serve as the office of primary 
responsibility for contractor support issues, but the office's specific 
roles and responsibilities have not yet been clearly defined. 

Inadequate Management and Assessment of Contractor Performance: 

GAO has reported on numerous occasions that DOD did not adequately 
manage and assess contractor performance to ensure that the business 
arrangement was properly executed. Managing and assessing post-award 
performance entails various activities to ensure that the delivery of 
services meets the terms of the contract and requires adequate 
surveillance resources, proper incentives, and a capable workforce for 
overseeing contracting activities. If surveillance is not conducted, 
not sufficient, or not well documented, DOD is at risk of being unable 
to identify and correct poor contractor performance in a timely manner 
and potentially paying too much for the services it receives. 

Our work has found, however, that DOD is often at risk. In March 2005, 
for example, we reported instances of inadequate surveillance on 26 of 
90 DOD service contracts we reviewed.[Footnote 14] In each instance, at 
least one of the key factors to ensure adequate surveillance did not 
take place. These factors are (1) training personnel in how to conduct 
surveillance, (2) assigning personnel at or prior to contract award, 
(3) holding personnel accountable for their surveillance duties, and 
(4) performing and documenting surveillance throughout the period of 
the contract. Officials we met with during our review expressed 
concerns about support for surveillance. The comments included those of 
Navy officials who told us that surveillance remains a part-time duty 
they did not have enough time to undertake and, consequently, was a low-
priority task. 

More recently, in December 2006 we reported that DOD does not have 
sufficient numbers of contractor oversight personnel at deployed 
locations, which limits its ability to obtain reasonable assurance that 
contractors are meeting contract requirements efficiently and 
effectively.[Footnote 15] For example, an Army official acknowledged 
that the Army is struggling to find the capacity and expertise to 
provide the contracting support needed in Iraq. A LOGCAP program 
official noted that if adequate staffing had been in place, the Army 
could have realized substantial savings on the LOGCAP contract through 
more effective reviews of new requirements. A Defense Contract 
Management Agency official responsible for overseeing the LOGCAP 
contractor's performance at 27 locations noted that he was unable to 
visit all of those locations during his 6-month tour to determine the 
extent to which the contractor was meeting contract requirements. 

The lack of visibility on the extent of services provided by 
contractors to deployed forces contributes to this condition. Without 
such visibility, senior leaders and military commanders cannot develop 
a complete picture of the extent to which they rely on contractors to 
support their operations. We first reported the need for better 
visibility in 2002 during a review of the costs associated with U.S. 
operations in the Balkans.[Footnote 16] At that time, we reported that 
DOD was unaware of (1) the number of contractors operating in the 
Balkans, (2) the tasks those contractors were contracted to do, and (3) 
the government's obligations to those contractors under the contracts. 
We noted a similar situation in 2003 in our report on DOD's use of 
contractors to support deployed forces in Southwest Asia and 
Kosovo.[Footnote 17] Our December 2006 review of DOD's use of 
contractors in Iraq found continuing problems with visibility over 
contractors. For example, when senior military leaders began to develop 
a base consolidation plan, officials were unable to determine how many 
contractors were deployed and therefore ran the risk of over-or under-
building the capacity of the consolidated bases. 

DOD's October 2005 guidance on contractor support to deployed forces 
included a requirement that the department develop or designate a joint 
database to maintain by-name accountability of contractors deploying 
with the force and a summary of the services or capabilities 
contractors provide. The Army has taken the lead in this effort, and 
recently DOD designated a database intended to provide improved 
visibility over contractors deployed to support the military in Iraq, 
Afghanistan, and elsewhere. According to DOD, in January 2007, the 
department designated the Army's Synchronized Predeployment & 
Operational Tracker (SPOT) as the departmentwide database to maintain 
by-name accountability of all contractors deploying with the force. 
According to DOD, the SPOT database includes approximately 50,000 
contractor names. Additionally, in December 2006, the Defense Federal 
Acquisition Regulation Supplement was amended to require the use of the 
SPOT database by contractors supporting deployed forces. 

Inappropriate Use of Interagency Contracts: 

In January 2005, we identified management of interagency contracts as a 
high-risk area because of their rapid growth, limited expertise of 
users and administrators, and unclear lines of accountability. Since 
DOD is the largest user of interagency contracts in the government, it 
can ill-afford to expose itself to such risks. Relying on other 
agencies for contracting support requires sound practices. For example, 
under an interagency arrangement, the number of parties in the 
contracting process increases, and ensuring the proper use of these 
contracting arrangements must be viewed as a shared responsibility that 
requires agencies to define clearly who does what in the contracting 
process. However, the problems I discussed previously regarding 
defining requirements, ensuring competition, and monitoring contractor 
performance are frequently evident in interagency contracting. 
Additionally, DOD pays a fee to other agencies when using their 
contracts or contracting services, which could potentially increase DOD 

Our work, as well as that of the Inspectors General, found competition- 
related issues on DOD's use of interagency contracting vehicles. DOD is 
required to foster competition and provide all contractors a fair 
opportunity to be considered for each order placed on GSA's multiple- 
award schedules, unless certain exceptions apply.[Footnote 18] DOD 
officials, however, have on numerous occasions avoided the time and 
effort necessary to award individual orders competitively and instead 
awarded all the work to be performed to a single contractor. We found 
that this practice resulted in the noncompetitive award of many orders 
that have not always been adequately justified. 

In April 2005, we reported that a lack of effective management 
controls--in particular insufficient management oversight and a lack of 
adequate training--led to breakdowns in the issuance and administration 
of task orders for interrogation and other services in Iraq by the 
Department of the Interior on behalf of DOD.[Footnote 19] These 
breakdowns included: 

* issuing 10 out of 11 task orders that were beyond the scope of 
underlying contracts, in violation of competition rules; 

* not complying with additional DOD competition requirements when 
issuing task orders for services on existing contracts; 

* not properly justifying the decision to use interagency contracting; 

* not complying with ordering procedures meant to ensure best value for 
the government; and: 

* not adequately monitoring contractor performance. 

Because officials at Interior and the Army responsible for the orders 
did not fully carry out their responsibilities, the contractor was 
allowed to play a role in the procurement process normally performed by 
government officials. Further, the Army officials responsible for 
overseeing the contractor, for the most part, lacked knowledge of 
contracting issues and were not aware of their basic duties and 

In July 2005, we reported on various issues associated with DOD's use 
of franchise funds at the departments of the Interior and the Treasury-
-GovWorks and FedSource--that acquired a range of services for 
DOD.[Footnote 20] For example, GovWorks did not receive competing 
proposals for work and added substantial work to the orders without 
determining that prices were fair and reasonable. FedSource generally 
did not ensure competition for work, did not conduct price analyses, 
and sometimes paid contractors higher prices for services than were 
specified in the contracts, with no justification in the contract 
files. At both funds, we found that the files we reviewed lacked clear 
descriptions of requirements the contractor was supposed to meet. For 
its part, DOD did not analyze contracting alternatives and lacked 
information about purchases made through these arrangements. We also 
found DOD and franchise fund officials were not monitoring contracts 
and lacked criteria against which contractor performance could be 
measured to ensure that contractors provided quality services in a 
timely manner. 

We identified several causes for the lack of sound practices. In some 
cases, there was a lack of clear guidance and contracting personnel 
were insufficiently trained on the use of interagency contracting 
arrangements. In many cases, DOD users chose the speed and convenience 
of an interagency contracting arrangement to respond and meet needs 
quickly. Contracting service providers, under a fee-for-service 
arrangement, sometimes inappropriately emphasized customer satisfaction 
and revenue generation over compliance with sound contracting policies 
and procedures. These practices put DOD at risk of not getting required 
services at reasonable prices and unnecessarily wasting resources. 
Further, DOD does not have useful information about purchases made 
through other agencies' contracts, making it difficult to assess the 
costs and benefits and make informed choices about the alternatives 
methods available. 

Similarly, the DOD Inspector General recently reported on issues with 
DOD's use of contracts awarded by the departments of the Interior and 
the Treasury, GSA, and the National Aeronautics and Space 
Administration (NASA). For example, in November 2006, the Inspector 
General reported that DOD contracting and program personnel did not 
comply with acquisition rules and regulations when using contracts 
awarded by NASA, such as not always complying with fair opportunity 
requirements or not adequately justifying the use of a non-DOD 
contracting vehicle. As a result, the Inspector General concluded that 
funds were not used as intended by Congress, competition was limited, 
and DOD had no assurance that it received the best value.[Footnote 21] 
Additionally, the Inspector General found that DOD used Interior and 
GSA to "park" funds that were expiring. The agencies then subsequently 
placed contracts for DOD using the expired funds, thereby circumventing 
appropriations law. The Inspector General concluded that these problems 
were driven by a desire to hire a particular contractor, the desire to 
obligate expiring funds, and the inability of the DOD contracting 
workforce to respond to its customers in a timely manner. 

DOD and other agencies have taken steps to address some of these 
issues, including issuing an October 2006 memorandum intended to 
strengthen internal controls over the use of interagency contracts and 
signing a December 2006 memorandum of understanding with GSA to work 
together on 22 basic contracting management controls, including 
ensuring that sole-source justifications are adequate, that statements 
of work are complete, and that interagency agreements describe the work 
to be performed. Similarly, GSA has worked with DOD to identify unused 
and expired DOD funds maintained in GSA accounts. Further, according to 
the Inspector General, Interior has withdrawn numerous warrants in 
response to these findings. 

DOD Needs a Management Structure to Oversee Service Acquisition 
Processes and Outcomes: 

Congress and GAO have identified the need to improve DOD's overall 
approach to acquiring services for several years. In 2002, we noted 
that DOD's approach to buying services was largely fragmented and 
uncoordinated. Responsibility for acquiring services was spread among 
individual military commands, weapon system program offices, or 
functional units on military bases, and with little visibility or 
control at the DOD or military department level. Despite taking action 
to address the deficiencies and implement legislative requirements, 
DOD's actions to date have not equated with progress. DOD's current 
approach to acquiring services suffers from the absence of key elements 
at the strategic and transactional levels and does not position the 
department to make service acquisitions a managed outcome. 

Considerable congressional effort has been made to improve DOD's 
approach to acquiring services. For example, in 2001, Congress passed 
legislation to ensure that DOD acquires services by means that are in 
the best interest of the government and managed in compliance with 
applicable statutory requirements. In this regard, sections 801 and 802 
of the National Defense Authorization Act for Fiscal Year 2002 required 
DOD to establish a service acquisition management approach, including 
developing a structure for reviewing individual service transactions 
based on dollar thresholds and other criteria.[Footnote 22] Last year, 
Congress amended requirements pertaining to DOD's service contracting 
management structure, workforce, and oversight processes, among 
others.[Footnote 23] 

We have issued several reports that identified shortcomings in DOD's 
approaches and its implementation of legislative requirements. For 
example, we issued a report in January 2002 that identified how leading 
commercial companies took a strategic approach to buying services and 
recommended that DOD evaluate how a strategic reengineering approach, 
such as that employed by leading companies, could be used as a 
framework to guide DOD's reengineering efforts.[Footnote 24] In 
September 2003, we reported that DOD's actions to implement the service 
acquisition management structure required under Sections 801 and 802 
did not provide a departmentwide assessment of how spending for 
services could be more effective and recommended that DOD give greater 
attention to promoting a strategic orientation by setting performance 
goals for improvements and ensuring accountability for achieving those 
results.[Footnote 25] 

Most recently, in November 2006, we issued a report that identified a 
number of actions that DOD could take to improve its acquisition of 
services.[Footnote 26] We noted that DOD's overall approach to managing 
services acquisitions suffered from the absence of several key elements 
at both a strategic and transactional level. The strategic level is 
where the enterprise, DOD in this case, sets the direction or vision 
for what it needs, captures the knowledge to enable more informed 
management decisions, ensures departmentwide goals and objectives are 
achieved, determines how to go about meeting those needs, and assesses 
the resources it has to achieve desired outcomes. The strategic level 
also sets the context for the transactional level, where the focus is 
on making sound decisions on individual service acquisitions. Factors 
for good outcomes at the transactional level include valid and well- 
defined requirements, appropriate business arrangements, and adequate 
management of contractor performance. 

DOD's current approach to managing the acquisition of services tended 
to be reactive and did not fully addressed the key factors for success 
at either the strategic or the transactional level. At the strategic 
level, DOD had not developed a normative position for gauging whether 
ongoing and planned efforts can best achieve intended results. Further, 
DOD lacked good information on the volume and composition of services, 
perpetuating the circumstance in which the acquisition of services 
tended to happen to DOD, rather than being proactively managed. For 
example, despite implementing a review structure aimed at increasing 
insight into service transactions, DOD was not able to determine which 
or how many transactions had been reviewed.[Footnote 27] The military 
departments had only slightly better visibility, having reviewed 
proposed acquisitions accounting for less than 3 percent of dollars 
obligated for services in fiscal year 2005. Additionally, most of the 
service acquisitions the military services review involved indefinite 
delivery/indefinite quantity contracts. DOD's policy for managing 
service acquisitions had no requirement, however, to review individual 
task orders that were subsequently issued even if the value of the task 
order exceeded the review threshold. 

Further, the reviews tended to focus more on ensuring compliance with 
applicable statutes, regulations, and other requirements, rather than 
on imparting a vision or tailored method for strategically managing 
service acquisitions. Our discussions with officials at buying 
activities that had proposed service acquisitions reviewed under this 
process revealed that, for the most part, officials did not believe the 
review significantly improved those acquisitions. These officials 
indicated that the timing of the review process--which generally 
occurred well into the planning cycle--was too late to provide 
opportunities to influence the acquisition strategy. These officials 
told us that the reviews would be more beneficial if they were 
conducted earlier in the process, in conjunction with the program 
office or customer, and in the context of a more strategic approach to 
meeting the requirement, rather than simply from a secondary or 
tertiary review of the contract. 

At the transactional level, DOD tended to focus primarily on those 
elements associated with awarding contracts, with much less attention 
paid to formulation of service acquisition requirements and to 
assessment of the actual delivery of contracted services. Moreover, the 
results of individual acquisitions were generally not used to inform or 
adjust strategic direction. As a result, DOD was not in a position to 
determine whether investments in services are achieving their desired 
outcomes. Further, DOD and military department officials identified 
many of the same problems in defining requirements, establishing sound 
business arrangements, and providing effective oversight that I 
discussed previously, as the following examples show: 

* DOD and military department officials consistently identified poor 
communication and the lack of timely interaction between acquisition 
and contracting personnel as key challenges to developing good 

* An Army contracting officer issued a task order for a product that 
the contracting officer knew was outside the scope of the service 
contract. The contracting officer noted in an e-mail to the requestor 
that this deviation was allowed only because the customer needed the 
product quickly and cautioned that no such allowances would be granted 
in the future. 

* Few of the commands or activities could provide us reliable or 
current information on the number of service acquisitions they managed, 
and others had not developed a means to consistently monitor or assess, 
at a command level, whether such acquisitions were meeting the 
performance objectives established in the contracts. 

To address these issues, we made several recommendations to the 
Secretary of Defense. DOD concurred with our recommendations and 
identified actions it has taken, or plans to take, to address them. In 
particular, DOD noted that it is reassessing its strategic approach to 
acquiring services, including examining the types and kinds of services 
it acquires and developing an integrated assessment of how best to 
acquire such services. DOD expects this assessment will result in a 
comprehensive, departmentwide architecture for acquiring services that 
will, among other improvements, help refine the process to develop 
requirements, ensure that individual transactions are consistent with 
DOD's strategic goals and initiatives, and provide a capability to 
assess whether service acquisitions are meeting their cost, schedule, 
and performance objectives. 

In closing, I would like to emphasize that DOD has taken, or is in the 
process of taking, action to address the issues we identified. These 
actions, much like the assessment I just mentioned, however, will have 
little meaning unless DOD's leadership can translate its vision into 
changes in frontline practices. In our July 2006 report on 
vulnerabilities to fraud, waste, and abuse, we noted that leadership 
positions are sometimes vacant, that the culture to streamline 
acquisitions for purposes of speed may have not been balanced with good 
business practices, and that even in newly formed government-industry 
partnerships, the government needs to maintain its oversight 
responsibility. Understanding the myriad causes of the challenges 
confronting DOD in acquiring services is essential to developing 
effective solutions and translating policies into practices. While DOD 
has generally agreed with our recommendations intended to improve 
contract management, much remains to be done. At this point, DOD 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. 

Mr. Chairman and members of the subcommittee, this concludes my 
testimony. I would be happy to answer any questions you might have. 

In preparing this testimony, we relied principally on previously issued 
GAO and Inspectors General reports. We conducted our work in May 2007 
in accordance with generally accepted government auditing standards. 

Contact and Staff Acknowledgments: 

For further information regarding this testimony, please contact John 
P. Hutton at (202) 512-4841 or Contact points for our 
Offices of Congressional Relations and Public Affairs can be found on 
the last page of this testimony. Key contributors to this testimony 
were Theresa Chen, Timothy DiNapoli, Kathryn Edelman, and John Krump. 


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

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

[3] Various funds can be used to acquire services, depending on the 
nature of the service. 

[4] GAO, Space Acquisitions: DOD Needs to Take More Action to Address 
Unrealistic Initial Cost Estimates of Space Systems, GAO-07-96 
(Washington, D.C.: Nov. 17, 2006). 

[5] In December 2005, we reported that DOD programs engage in award fee 
practices that undermine efforts to motivate contractor performance and 
that do not hold contractors accountable for achieving desired 
acquisition outcomes. See GAO, Defense Acquisitions: DOD Has Paid 
Billions in Award and Incentive Fees Regardless of Acquisition 
Outcomes, GAO-06-66 (Washington, D.C.: Dec. 19, 2005). 

[6] GAO, Rebuilding Iraq: Continued Progress Requires Overcoming 
Contract Management Challenges, GAO-06-1130T (Washington, D.C.: Sept. 
28, 2006); and GAO, Iraq Contract Costs: DOD Consideration of Defense 
Contract Audit Agency's Findings, GAO-06-1132 (Washington, D.C.: Sept. 
25, 2006). 

[7] GAO, Military Operations: DOD's Extensive Use of Logistics Support 
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington, 
D.C.: July 19, 2004). 

[8] GAO, Contract Security Guards: Army's Guard Program Requires 
Greater Oversight and Reassessment of Acquisition Approach, GAO-06-284 
(Washington, D.C.: Apr. 3, 2006). 

[9] GAO, Rebuilding Iraq: Status of Competition for Iraq Reconstruction 
Contracts, GAO-07-40 (Washington, D.C.: Oct. 6, 2006). 

[10] GAO, Military Operations: High-Level DOD Action Needed to Address 
Long-standing Problems with Management and Oversight of Contractors 
Supporting Deployed Forces, GAO-07-145 (Washington, D.C.: Dec. 18, 

[11] GAO, Contingency Operations: Opportunities to Improve the 
Logistics Civil Augmentation Program, GAO/NSIAD-97-63 (Washington, 
D.C.: Feb. 11, 1997). 

[12] GAO, Rebuilding Iraq: Actions Needed to Improve Use of Private 
Security Providers, GAO-05-737 (Washington, D.C.: July 28, 2005). 

[13] Department of Defense Instruction 3020.41, Contractor Personnel 
Authorized to Accompany the U.S. Armed Forces (Oct. 3, 2005). 

[14] GAO, Contract Management: Opportunities to Improve Surveillance on 
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.: 
Mar. 17, 2005). 

[15] GAO-07-145. 

[16] GAO, Defense Budget: Need to Strengthen Guidance and Oversight of 
Contingency Operations Costs, GAO-02-450 (Washington, D.C.: May 21, 

[17] GAO, Military Operations: Contractors Provide Vital Services to 
Deployed Forces but Are Not Adequately Addressed in DOD Plans, GAO-03-
695 (Washington, D.C. June 24, 2003). 

[18] 10 U.S.C. 2304c. 

[19] GAO, Interagency Contracting: Problems with DOD's and Interior's 
Orders to Support Military Operations, GAO-05-201 (Washington, D.C.: 
Apr. 29, 2005). 

[20] GAO, Interagency Contracting: Franchise Funds Provide Convenience, 
but Value to DOD Is Not Demonstrated, GAO-05-456 (Washington, D.C.: 
July 29, 2005). 

[21] Department of Defense, Office of the Inspector General. 
Acquisition: FY 2005 DOD Purchases Made Through the National 
Aeronautics and Space Administration. Report No. D-2007-023. 
(Arlington, Va. Nov. 13, 2006). 

[22] Pub. L. No. 107-107, §§ 801, 802 (2001)(section 801 added new 
sections 2330 and 2330a to title 10, U.S. Code). 

[23] Pub. L. No. 109-163, § 812 (2006)(section 812 amended 10 U.S.C. § 

[24] GAO, Best Practices: Taking A Strategic Approach Could Improve 
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 

[25] GAO, Contract Management: High-Level Attention Needed to Transform 
DOD Services Acquisition, GAO-03-935 (Washington, D.C.: Sept. 10, 

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

[27] The management structure has three review levels: (1) review by 
the Under Secretary of Defense (Acquisition, Technology, and Logistics) 
for services acquisitions valued over $2 billion; (2) review by the 
component or designated acquisition executive for service acquisitions 
valued between $500 million and $2 billion; and (3) review by a 
component-designated official for the acquisition of services valued at 
less than $500 million. The Air Force, Army, and Navy each developed 
review processes and authorities to support the DOD review requirements.

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