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entitled 'Satellite Communications: Strategic Approach Needed for DOD's 
Procurement of Commercial Satellite Bandwidth' which was released on 
December 10, 2003.

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Report to Congressional Requesters:

United States General Accounting Office:

GAO:

December 2003:

Satellite Communications:

Strategic Approach Needed for DOD's Procurement of Commercial Satellite 
Bandwidth:

GAO-04-206:

GAO Highlights:

Highlights of GAO-04-206, a report to congressional requesters 

Why GAO Did This Study:

In recent years, the Department of Defense (DOD) has come to rely more 
heavily on commercial satellite communications to plan and support 
operations and move toward a network-centric warfare environment. DOD 
acquires commercial satellite bandwidth services to support a variety 
of critical missions such as surveillance performed by unmanned aerial 
vehicles. GAO was asked to assess (1) whether DODís process for 
acquiring these services is fair to vendors and providers, (2) whether 
the process meets usersí needs, and (3) whether spending on these 
services is managed effectively and efficiently.

What GAO Found:

DOD has for many years augmented its internally owned and operated 
satellite communications capability by leasing commercial fixed 
satellite bandwidth services primarily through the Defense Information 
Systems Agency (DISA) and its Defense Information Technology 
Contracting Organization (DITCO). DISA does not acquire commercial 
bandwidth directly from satellite service providers. Instead, it 
procures bandwidth through several competitively selected vendors, 
which, in turn, compete work among individual service providers.

GAO found that the process for acquiring commercial satellite 
bandwidth is fair to DODís vendors and their subcontractors, which are 
the ultimate commercial satellite bandwidth service providers.

However, some major DOD users of commercial satellite bandwidth 
services are dissatisfied with DISAís process. They view the process 
as being too lengthy, particularly for time-critical military 
operations, and they believe that the cost is too high. They also 
indicated that the contracts resulting from the process are often too 
inflexible. As a result, some users are bypassing the DISA process, 
either by formally obtaining a waiver or by procuring services without 
a waiver. In fiscal year 2002, nearly 20 percent of DODís reported 
spending on satellite bandwidth services occurred outside the process, 
and one DOD official stated that the true percentage is probably much 
higher. By allowing users to bypass the DISA waiver process, DOD is 
hampering its ability to ensure that its communications networks are 
interoperable and to minimize redundancies.

Further, DOD does not know exactly how much it is spending on 
commercial satellite bandwidth services, nor does it know much about 
its service providers or whether customer needs are really being 
satisfied. Without this knowledge, DOD cannot take steps to leverage 
its buying power, even though it is the largest customer for 
commercial satellite bandwidth. Moreover, neither DOD nor DISA is 
making a concerted effort to collect forecasts of bandwidth needs from 
users and ensure those needs can be met by the commercial sector. 
These are also important steps toward optimizing DODís spending.

If DISA is to remain as DODís primary agent to acquire satellite 
bandwidth, then it must implement a more strategic management approachó
one that ensures that services can be acquired in a fair, timely, and 
cost-effective way that meets usersí needs. Doing so will be a 
considerable challenge, however, given the current environment and 
potential resistance within DISA and from its users. Commitment is 
needed from senior leaders within DISA and DOD to overcome challenges 
associated with implementing a strategic approach.

What GAO Recommends:

GAOís recommendations to DOD focus on the need to develop and 
implement a strategic approach to acquire commercial satellite 
bandwidth services, along with correcting specific oversight and 
management weaknesses. To ensure the successful implementation of a 
strategic management framework, GAO recommends that DOD develop 
performance metrics to assess user satisfaction, strengthen core 
internal technical expertise and information systems, and assess 
whether the existing acquisition process requires changes to 
facilitate a strategic approach. In comments on a draft of this 
report, DOD generally concurred with GAOís recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-206.

To view the full product, including the scope and methodology, click 
on the link above. For more information, contact William T. Woods at 
(202) 512-4841 or woodsw@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

DOD's Process Is Fair to Both Vendors and Service Providers:

Some Major Users Are Dissatisfied with DISA Process for Acquiring 
Commercial Satellite Bandwidth Services:

Lack of Strategic Approach to Managing Services Diminished DOD's 
Ability to Optimize Spending:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Scope and Methodology:

Appendix I: Comments from the Department of Defense:

Tables:

Table 1: Major Global and Regional Commercial Providers of Fixed 
Satellite Service Bandwidth:

Table 2: Details on Key Players in the DISA Process:

Table 3: Total Number and Dollar Value of DSTS-G Task Orders for 
Bandwidth Awarded, by Vendor:

Table 4: Teaming among DSTS-G Vendors and Service Providers:

Table 5: Proposal Submission Teaming among Vendors and 
Service Providers:

Table 6: Time to Process Satellite Service Requests:

Table 7: Options That Could Improve DOD's Practices in Leveraging Its 
Buying Power:

Figures:

Figure 1: Overview of DOD Commercial Bandwidth Acquisition Process:

Figure 2: Highlights of Analysis of DISA's Commercial Satellite 
Communications Utilization Report--Fiscal Year 2002:

Abbreviations:

ASD/NII: Assistant Secretary of Defense for Networks and Information 
Integration:

CIO: Chief Information Officer:

DISA: Defense Information Systems Agency:

DITCO: Defense Information Technology Contracting Organization:

DOD: Department of Defense:

DSTS-G: Defense Information Systems Network Satellite Transmission 
Services-Global:

FAR: Federal Acquisition Regulation:

GIG: Global Information Grid:

IDIQ: Indefinite-Delivery, Indefinite-Quantity:

MTC: Managed Transponder Contract:

ORBIT: Open-market Reorganization for the Betterment of International 
Telecommunications Act:

RFS: Request for Service:

TR: Telecommunications Request:

TSO: Telecommunications Service Order:

TSR: Telecommunications Service Request:

United States General Accounting Office:

Washington, DC 20548:

December 10, 2003:

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

The Honorable James M. Inhofe: 
United States Senate:

The Honorable Joseph I. Lieberman: 
United States Senate:

The Department of Defense (DOD) relies on a vast network of ground and 
space-based systems to meet its telecommunications needs--both for 
military and business operations. Over the past 12 years, DOD has 
experienced a ten-fold increase in the demand for telecommunication 
bandwidth[Footnote 1] from satellites to support the war-fighting 
combatant commands, the military services, and defense agencies, and 
some experts predict another fivefold or sixfold jump in demand by 
2010.[Footnote 2] Currently, DOD-owned and -operated satellites cannot 
satisfy all of DOD's telecommunication requirements, and both DOD and 
other sources project sizeable shortfalls in bandwidth capacity needed 
by the year 2010.[Footnote 3] As a result, DOD has been leasing 
bandwidth on commercial satellites to support a variety of critical 
missions such as surveillance being performed by unmanned aerial 
vehicles and communications between commanders and field units.

Given the importance of DOD's growing demand for commercial 
fixed satellite service[Footnote 4] bandwidth, you requested that we 
assess the effectiveness of its process for acquiring this service--
specifically (1) whether the process is fair to vendors and providers, 
(2) whether the process meets user needs, and (3) whether spending is 
managed effectively and efficiently.

Results in Brief:

DOD's process for acquiring commercial fixed satellite bandwidth 
services is fair to both its vendors and their subcontractors, which 
are the ultimate commercial satellite bandwidth service providers. Of 
53 orders we reviewed that were issued between March 2000 and June 
2003, all met general standards for ensuring fairness laid out in 
federal regulations. At the subcontract level, we also found that the 
satellite industry service providers have had ample and fair chances to 
create solutions and to compete for and win subcontracts under DOD's 
newest contracts for bandwidth. In 48 of the orders we reviewed, 12 
service providers offered DOD a total of 211 potential solutions.

Some major DOD users of commercial satellite bandwidth services, 
however, are dissatisfied with the DOD's process, which is managed by 
the Defense Information Systems Agency (DISA). They view the process as 
being too lengthy, particularly for time-critical military operations, 
and they believe that the cost is too high. In some cases, they 
reported that they could acquire services directly from providers for 
hundreds of thousands of dollars less per year than if they used DISA's 
process and that they could do so in shorter time periods than DISA. 
They also indicated that the contracts resulting from the DISA process 
are often too inflexible. As a result, some users are bypassing the 
DISA process, either by formally requesting a waiver or by procuring 
services without a waiver. For fiscal year 2002, we were able to 
determine that, at a minimum, nearly 20 percent of DOD's reported 
spending on fixed satellite service bandwidth occurred outside the DISA 
process, and one DOD official stated that the true percentage is 
probably much higher.

We identified a number of management and oversight weaknesses that 
preclude DOD from assuring the mandated DISA process[Footnote 5] is 
used, and more importantly, from optimizing its spending on commercial 
bandwidth services. Little attention is paid to collecting or 
addressing customer complaints; business processes are inefficient; and 
oversight is poor. In fact, DOD does not know exactly how much it is 
spending on commercial satellite bandwidth services, nor does it know 
much about its service providers or whether customer needs are really 
being satisfied. Without this knowledge, DOD cannot take steps to 
leverage its buying power, even though it is the largest customer for 
commercial satellite bandwidth. Further, neither DOD nor DISA is making 
a concerted effort to collect forecasts of bandwidth needs from users 
and ensure those needs can be met by the commercial sector. These 
efforts are also important steps toward optimizing its spending.

Our past work[Footnote 6] has identified specific practices that can be 
employed to manage services from a more strategic perspective, thereby 
enabling an organization like DOD to leverage its buying power and 
achieve significant savings. These practices include establishing a 
central agent or manager for acquiring services, gaining visibility 
over spending, and revising business processes to enable the 
organization to leverage its buying power. Our seven recommendations to 
DOD focus on the need to develop and implement a strategic approach, 
along with correcting specific oversight and management weaknesses. In 
comments on a draft of this report, DOD concurred with four 
recommendations and partially concurred with three recommendations.

Background:

DOD has for many years augmented its internally owned and operated 
satellite communications capability by leasing additional external 
telecommunications capacity on commercially owned and operated 
satellites. Demand has been increasing in recent years, as the military 
has come to rely more heavily on commercial satellite communications to 
plan and support operations and move toward a network-centric warfare 
environment. According to industry sources, DOD's current estimated 
$300-400 million spending on such services has made it the satellite 
communications industry's biggest customer.

DOD leases commercial satellite bandwidth services primarily through 
DISA and its Defense Information Technology Contracting Organization 
(DITCO). DISA does not acquire commercial bandwidth directly from 
satellite service providers. Instead it procures bandwidth through 
several competitively selected vendors, which in turn compete work 
among individual bandwidth service providers.

There are two primary contract structures through which DISA procures 
bandwidth through these vendors. The first is known as the Managed 
Transponder Contract (MTC). It was competitively awarded in 1995 to 
one vendor, and served as the primary acquisition vehicle for several 
years. The second is an indefinite-delivery, indefinite-quantity (IDIQ) 
multiple-award contract structure known as the Defense Information 
Systems Network Satellite Transmission Services-Global (DSTS-G) 
contracts. They were awarded competitively in February 2001, after 
users found the MTC contract to be inflexible, too costly, and limited 
in terms of the breadth of services it could provide. Awards were made 
to three small business vendors that acquire bandwidth for DISA from 
the ultimate service providers. Recently, DISA has been relying more on 
this second contract structure. The agency placed 48 orders for 
bandwidth under the DSTS-G contracts through June 2003 versus only 5 
new orders under the MTC contract from March 2000 through June 2003.

DISA's vendors obtain satellite services from a commercial satellite 
industry market segment that has been growing at a high rate. The 
commercial satellite industry is a global industry that includes many 
foreign-owned businesses as well as partnerships between U.S. and 
foreign corporations. Table 1 lists major global and regional satellite 
bandwidth providers. While there are 10 companies listed, only 6 of 
them have provided needed bandwidth through the DISA acquisition 
process during recent years.

Table 1: Major Global and Regional Commercial Providers of Fixed 
Satellite Service Bandwidth:

Global: * SES Global; Regional: * Eutelsat S.A. LLC.

Global: * Intelsat; Regional: * SES Americom.

Global: * PanAmSat; Regional: * Star One.

Global: * Loral Global Alliance; Regional: * Asiasat.

Global: * New Skies Satellites N.V.; Regional: * Arabsat.

Source: GAO analysis of Satellite Industry Association data.

[End of table]

The acquisition process that DISA uses to determine user requirements 
and acquire bandwidth is similar to the process it uses to acquire 
other telecommunications services for its customers. Generally, the 
process begins with users identifying a need and contacting DISA to 
fulfill that need. Technical experts within DISA assist users in 
engineering a potential solution. Other offices within DISA decide how 
the service should be procured and prepare a request for the vendors to 
propose solutions. Once DISA has determined which contract structure to 
use and has asked for proposed solutions, an evaluation team within 
DISA reviews the proposals and awards a task order or delivery order 
under the winning vendor's contract. Figure 1 and table 2 further 
detail this process.

Figure 1: Overview of DOD Commercial Bandwidth Acquisition Process:

[See PDF for image]

[End of figure]

Table 2: Details on Key Players in the DISA Process:

Users; Users are the operating level units within the various DOD 
combatant commands, military services, and defense agencies that have 
the actual communication need. Users contact their organization's 
internal communications services focal point to begin processing their 
requirements. Each prepares an extensive document in accordance with 
DISA directives called a Request for Service (RFS), which is used to 
initially request telecommunications services.

DISA or service provisioners; DISA provisioners in regional offices 
around the world provide technical expertise to help decide how the 
user's need can best be satisfied: existing terrestrial links, DOD-
owned satellites, or commercial satellites. For those needs to be 
satisfied by a lease of commercial bandwidth, the provisioners review 
RFS documentation and validate user funding. Once funding is 
validated, the RFS becomes a Telecommunications Service Request (TSR) 
and is sent back to the provisioners, who then add necessary technical 
direction and information, turning the TSR into a Telecommunications 
Service Order[A] (TSO), which is then transmitted to DISA's Commercial 
Satellite Communications Branch.

DISA Commercial Satellite Communications Branch; This office assists 
the user in preparing an accurate RFS that is subsequently converted 
into a TSR or TSO, decides whether the requirement can be best 
satisfied through the MTC, DSTS-G, or other contracts and transmits 
the final document and any additional procurement direction to its 
supporting contracting office.

DITCO; DITCO is a contracting organization within DISA. This office 
reviews the requirements, secures any needed contract action 
approvals, and creates a Telecommunications Request (TR), also known 
as an inquiry. This inquiry is then sent to either the MTC vendor or 
the three DSTS-G vendors, asking for technical solutions and prices 
for the specified requirements.

Vendors (prime contractors); Vendors include the MTC contract holder, 
and the three DSTS- G contract holders, which are responsible for 
reviewing the requirement, formulating potential solutions, 
coordinating with various potential service providers, and submitting 
proposals to DISA.

Service providers (subcontractors); Service providers are companies 
that receive requests for solutions from the vendors; help engineer 
the best (or lowest cost) solutions, depending upon the announced 
evaluation criteria; price the solutions; and submit one or more of 
them to the vendors.

Evaluation team; The team includes DISA's Commercial Satellite 
Communications Branch, supported by its technical support contractor, 
and the contracting office, DITCO. The Commercial Satellite 
Communications Branch evaluates the technical soundness of proposed 
solutions and DITCO reviews pricing proposals. The selection of the 
winning vendor and its solution is usually a joint process, and DITCO 
then issues an order under the winning vendor's contract.

Award of subcontract; This occurs when the winning vendor awards a 
commercial contract to the service provider that provided the winning 
solution input. 

Source: GAO.

[A] A Telecommunications Service Order is needed to start, continue, or 
stop the existence of a circuit.

[End of table]

If circumstances dictate, users can request a waiver through DOD's 
Global Information Grid (GIG) Waiver Panel[Footnote 7] to use an 
alternative network and alternative acquisition process instead of the 
DISA process. A business case must be made for the requested waiver and 
there must be plans outlined to migrate the outlying network back under 
the telecommunications infrastructure and to bring the resulting 
contract under the control of DITCO. After a waiver is approved, the 
user's procurement organization takes steps to procure the bandwidth.

DOD's Process Is Fair to Both Vendors and Service Providers:

DOD's process through DISA for acquiring commercial fixed satellite 
service bandwidth is fair to both its vendors and their subcontractors, 
which are the ultimate commercial satellite bandwidth providers. The 
majority of bandwidth orders in recent years have been made under the 
DSTS-G contracts, where competition exists at both the vendor and 
service provider levels. Only five orders have been placed under the 
MTC contract, which by its nature is not as competitive as the DSTS-G 
contract, since it was designed to obtain service through one vendor.

The Federal Acquisition Regulation (FAR), as supplemented by DOD and 
DISA, requires DITCO to provide a fair opportunity to the three DSTS-G 
vendors at the prime contract level. Generally, this entails:

* writing broad, needs-based requirements able to be satisfied by 
multiple vendors rather than only one;

* providing notice and opportunity to be considered[Footnote 8] to each 
of the vendors;

* giving notice of the evaluation criteria to be used to select a 
winning vendor; and:

* evaluating proposals, conducting discussions, and awarding delivery 
orders or task orders in accordance with the evaluation criteria 
stated.

We analyzed 48 task orders that were awarded under the DSTS-G contract 
from its inception in February 2001 through June 2003 to determine 
whether these criteria were generally followed.

DSTS-G Vendors Had Fair Opportunity to Win Task Orders:

We found that the acquisition process employed by DISA and DITCO 
generally met FAR criteria, as supplemented, and was fair to competing 
vendors under the DSTS-G contracts. Though we found some orders awarded 
under exceptions established in FAR, the rationale for these exceptions 
was documented in each task order file.

The common set of technical questions that users are required to answer 
when submitting their bandwidth requests helps not only to document 
their technical environment but also to preclude writing an overly 
narrow or restrictive requirement. While a few valid user situations 
demanded a repeat solution or narrowed the range of possible solutions, 
they did not unduly impair the vendors' fair opportunity to compete.

Of the 48 task orders for bandwidth, 41 were competed among the 
three vendors; six were renewals of previously competed task orders; 
and only one was sole-source, awarded without vendor competition. 
Documentation justifying the one sole-source action was included in the 
task order file, as required.

The distribution of task order awards among the three vendors is 
illustrated in table 3. The table shows the number and percentage of 
the 48 task orders awarded to each of the three vendors under their 
respective DSTS-G contracts along with the associated dollar values 
and percentages.

Table 3: Total Number and Dollar Value of DSTS-G Task Orders for 
Bandwidth Awarded, by Vendor:

Vendor A; Number of task orders: 11; Percent of total task orders 
awarded: 23; Dollars awarded: $17,255,942; Percent of dollars awarded: 
11.

Vendor B; Number of task orders: 14; Percent of total task orders 
awarded: 29; Dollars awarded: 58,632,446; Percent of dollars awarded: 
36.

Vendor C; Number of task orders: 23; Percent of total task orders 
awarded: 48; Dollars awarded: 87,562,627; Percent of dollars awarded: 
54.

Total; Number of task orders: 48; Percent of total task orders awarded: 
100; Dollars awarded: $163,451,015; Percent of dollars awarded: 100[A].

Source: GAO.

[A] Percentages of dollars awarded do not add to 100 percent due to 
rounding.

[End of table]

The evaluation criteria DISA used to select a winning vendor were 
contained in each inquiry that was competed. Evaluation of the 
proposals, discussions, and the award of task orders complied with the 
stated evaluation and selection criteria.

DISA used the following two selection frameworks to evaluate proposals:

* DISA awarded 18 of the 41 competitive task orders worth $54,255,114 
under a source selection process called "best value," using a cost/
technical trade-off process. Under this approach, the selection 
official trades off cost and non-cost factors, identified in the 
inquiry, in determining award decisions. In some cases, greater weight 
may be placed on a contractor's technical approach resulting in the 
selection of what may not be the lowest priced proposal.

* DISA awarded the remaining 23 competitive task orders worth 
$78,645,239 under the "lowest price technically acceptable" framework. 
Under this approach, the technical solution proposals are all evaluated 
by DISA's Commercial Satellite Communications Branch and its supporting 
contractor and placed in either a "technically sufficient" category or 
"not technically sufficient" category. The winner is that proposal in 
the "technically sufficient" category with the lowest total evaluated 
cost.

While both evaluation methods are common under FAR procurements, best 
value with tradeoffs is more suitable where the risk of potential 
substandard performance does not leave room for errors or service 
degradation. Either method of evaluation requires a high level of 
technical expertise to effectively evaluate proposed solutions.

DSTS-G Subcontractors Have Also Had Ample and Fair Chances to Team 
with Vendors:

At the subcontract level where the FAR criteria regarding fair 
opportunity generally do not apply to the business arrangements among 
commercial companies, we also found that commercial satellite service 
providers have had ample and fair chances to team with the three DSTS-
G vendors to create solutions and to compete for and win subcontracts. 
All three vendors stated that they are motivated by competition to find 
technically sufficient and low-cost solutions to DOD's needs and to 
involve all feasible service providers in doing so. Further, the 
vendors are also required by a FAR clause in their DISA contracts to 
select their subcontractors on a competitive basis.[Footnote 9] To 
determine which service providers are potentially capable of fulfilling 
a given DISA requirement, the vendors told us they consider many 
factors, such as:

* location of satellites,

* "look angle" at the desired location,

* power,

* bandwidth,

* age and condition of satellites,

* available capacity on satellites, and:

* other factors, such as meeting schedule, acceptance of government 
terms and conditions, business relationships, and prices.

Our analysis showed that six different service providers have won 
subcontracts from one or more of the DSTS-G vendors. Each vendor has 
won task orders using at least four of the six providers, although more 
than 70 percent of the wins have been with just two providers. The 
distribution of task order awards to vendors and the service providers 
with which they teamed for each of the 48 task orders is illustrated in 
table 4.

Table 4: Teaming among DSTS-G Vendors and Service Providers:

Winning vendor: Vendor A; Task orders won: 11; Satellite 
service providers: A: 1; Satellite service providers: B: 4.5; Satellite 
service providers: C: 3; Satellite service providers: D: 0.5; Satellite 
service providers: E: 0; Satellite service providers: F: 2.

Winning vendor: Vendor B; Task orders won: 14; Satellite 
service providers: A: 0; Satellite service providers: B: 5; Satellite 
service providers: C: 6; Satellite service providers: D: 1; Satellite 
service providers: E: 2; Satellite service providers: F: 0.

Winning vendor: Vendor C; Task orders won: 23; Satellite 
service providers: A: 4; Satellite service providers: B: 9; Satellite 
service providers: C: 7; Satellite service providers: D: 1; Satellite 
service providers: E: 2; Satellite service providers: F: 0.

Winning vendor: Total; Task orders won: 48; Satellite service 
providers: A: 5; Satellite service providers: B: 18.5; Satellite 
service providers: C: 16; Satellite service providers: D: 2.5; 
Satellite service providers: E: 4; Satellite service providers: F: 2.

Winning vendor: Percent of total; Task orders won: 100[A]; 
Satellite service providers: A: 10.4; Satellite service providers: B: 
38.5; Satellite service providers: C: 33.3; Satellite service 
providers: D: 5.2; Satellite service providers: E: 8.3; Satellite 
service providers: F: 4.2.

Source: GAO analysis of DISA data.

Note: In the columns showing the teaming arrangements for each 
provider, a 0.5 is credited where the satellites of two different 
service providers were needed to satisfy a DISA requirement.

[A] Percentage totals do not add to 100 percent due to rounding.

[End of table]

Another indicator of participation among service providers and access 
to the DSTS-G vendors is the opportunity to propose a solution for a 
DISA requirement. We determined that there were 211 bandwidth solutions 
proposed to DISA for the 48 task orders, or approximately 4.4 per task 
order. Removing the seven instances where there was only one proposed 
solution (because they were renewals of previously competed 
requirements or sole-source), the average number of proposed solutions 
per competitive task order was 4.9, with a range from 2 to 15. 
Moreover, there were several additional potential teaming proposals 
considered by at least one of the vendors, but not ultimately submitted 
to DISA. Table 5 illustrates the teaming arrangements in the 211 
proposed solutions.

Table 5: Proposal Submission Teaming among Vendors and 
Service Providers:

Vendor: Vendor A; Number of proposals: 63; Satellite service 
providers: A: 2; Satellite service providers: B: 24.5; Satellite 
service providers: C: 23.5; Satellite service providers: D: 3; 
Satellite service providers: E: 5; Satellite service providers: F: 5; 
Satellite service providers: G: 0; Satellite service providers: H: 0; 
Satellite service providers: I: 0; Satellite service providers: J: 0; 
Satellite service providers: K: 0; Satellite service providers: L: 0.

Vendor: Vendor B; Number of proposals: 52; Satellite service 
providers: A: 4; Satellite service providers: B: 21; Satellite service 
providers: C: 19; Satellite service providers: D: 3; Satellite service 
providers: E: 4; Satellite service providers: F: 1; Satellite service 
providers: G: 0; Satellite service providers: H: 0; Satellite service 
providers: I: 0; Satellite service providers: J: 0; Satellite service 
providers: K: 0; Satellite service providers: L: 0.

Vendor: Vendor C; Number of proposals: 96; Satellite service 
providers: A: 12; Satellite service providers: B: 32; Satellite service 
providers: C: 28; Satellite service providers: D: 4; Satellite service 
providers: E: 10; Satellite service providers: F: 3; Satellite service 
providers: G: 2; Satellite service providers: H: 1; Satellite service 
providers: I: 1; Satellite service providers: J: 1; Satellite service 
providers: K: 1; Satellite service providers: L: 1.

Vendor: Total; Number of proposals: 211; Satellite service 
providers: A: 18; Satellite service providers: B: 77.5; Satellite 
service providers: C: 70.5; Satellite service providers: D: 10; 
Satellite service providers: E: 19; Satellite service providers: F: 9; 
Satellite service providers: G: 2; Satellite service providers: H: 1; 
Satellite service providers: I: 1; Satellite service providers: J: 1; 
Satellite service providers: K: 1; Satellite service providers: L: 1.

Vendor: Percent of total; Satellite service providers: A: 8.5; 
Satellite service providers: B: 36.7; Satellite service providers: C: 
33.4; Satellite service providers: D: 4.7; Satellite service providers: 
E: 9.0; Satellite service providers: F: 4.3; Satellite service 
providers: G: 1.0; Satellite service providers: H: 0.5; Satellite 
service providers: I: 0.5; Satellite service providers: J: 0.5; 
Satellite service providers: K: 0.5; Satellite service providers: L: 
0.5.

Vendor: Percent of proposed solutions resulting in subcontracts; 
Satellite service providers: A: 27.8; Satellite service 
providers: B: 23.9; Satellite service providers: C: 22.7; Satellite 
service providers: D: 25.0; Satellite service providers: E: 21.1; 
Satellite service providers: F: 22.2; Satellite service providers: G: 
No award; Satellite service providers: H: No award; Satellite service 
providers: I: No award; Satellite service providers: J: No award; 
Satellite service providers: K: No award; Satellite service providers: 
L: No award.

Source: GAO.

Note: In the numbers of proposals for each provider, a 0.5 is credited 
where the satellites of two different service providers were needed to 
satisfy a DISA requirement.

[End of table]

We noted that the top two service providers in terms of proposals 
submitted, labeled B and C in table 5, had more than 70 percent of the 
total proposals submitted. According to the vendors, this was because 
those two providers had large numbers of satellites located in the 
areas of interest to DOD over the past 2 years, were willing to offer 
multiple solutions, and had low prices for bandwidth. Some service 
providers did not always see DOD as a preferred customer, did not 
always have available capacity in the required areas, or declined to 
propose because they knew they did not have the best coverage or 
prices. All six of the service providers that won subcontracts had very 
similar percentages of winning proposals, all between 21 and 
28 percent.

Despite the involvement of a number of competitors at the subcontractor 
level in the DISA acquisition process, we found several occasions where 
DISA directed and justified the use of a specific service provider. 
This occurred in 15 of the 41 competitive DSTS-G task orders. In all 15 
of those cases, however, the acquisition team had adequate 
justifications in files to explain the need for directing that 
subcontract. Specifically, in 11 of the justifications, users or DISA 
technical staff determined that only one particular satellite could 
adequately satisfy certain technical parameters contained in the 
requirement. In three cases, customers explained that any deviation 
from the existing satellite provider could cause an interruption of 
service and could potentially cause loss of life. In the remaining 
case, both justifications applied. These requirements were submitted by 
responsible officials in the combatant commands or military services 
and concurred in by the DISA provisioners, the DISA Commercial 
Satellite Communications Branch engineers, and the DITCO contracting 
officer. Directed subcontracts were justified for three different 
service providers, with none getting a disproportionately large share.

MTC Contract Is the Result of an Earlier Competition:

The MTC contract was structured to award delivery orders to one vendor, 
thus competition, after the initial competition to select a vendor, has 
been limited. From March 2000 to June 2003, DISA awarded only five 
new delivery orders for bandwidth under the MTC contract. All were 
awarded directly to the incumbent contractor that had previously won a 
competition among four companies in 1995 to manage this contract for 
up to 10 years. These five new orders totaled $17.8 million. There was 
also limited competition at the subcontract level. Three orders were 
awarded directly to service providers without competition. The 
remaining two orders were competed between two providers.

Some Major Users Are Dissatisfied with DISA Process for Acquiring 
Commercial Satellite Bandwidth Services:

Some major users of commercial satellite bandwidth services are 
dissatisfied with the DISA process. In particular, they view the 
process as being too lengthy and costly. They also believe that the 
process results in contracts that are often too inflexible. As a 
result, some users have bypassed the process, either by formally 
requesting a waiver or by procuring services without a waiver. For 
fiscal year 2002, we determined that, at a minimum, nearly 20 percent 
of DOD's reported spending on services occurred outside the process, 
and one DOD official stated that the true percentage is probably much 
higher.

Users Do Not Believe Process Meets Their Needs:

According to some major users, DISA's process takes too long to meet 
their needs, particularly for time-critical operations. Our analysis 
showed that on average from submittal of a request for service to the 
award of a task order under the DSTS-G contract took 79 days--more than 
a month longer than the average of 42 to 45 days advertised by 
DISA.[Footnote 10] Moreover, as table 6 shows, only 18 of the 48 task 
orders we reviewed were awarded in less than a month. In addition, only 
29 were awarded within the DISA advertised time frame of 45 days.

Table 6: Time to Process Satellite Service Requests:

Days to process: 30 days or less; Number of actions: 18; Percent of 
actions: 37.5.

Days to process: 31-60 days; Number of actions: 15; Percent of actions: 
31.3.

Days to process: 61-90 days; Number of actions: 5; Percent of actions: 
10.4.

Days to process: 91-120 days; Number of actions: 5; Percent of actions: 
10.4.

Days to process: Over 121 days; Number of actions: 5; Percent of 
actions: 10.4.

Days to process: Total; Number of actions: 48; Percent of actions: 
100.0.

Source: GAO analysis of DISA data.

[End of table]

Further, users told us they have to spend additional time before a 
Request for Service is submitted to DISA to seek out and determine all 
of the technical information required in that document, and there is 
also additional time between the task order award and the subcontract 
award to the winning service provider and for the set up or preparation 
before the start of the service. For example, under the DSTS-G 
contracts, the vendors have up to 30 days to provide required service 
in normal circumstances, or 5 days in emergencies. According to DISA, 
when users are not familiar with RFS development or satellite services, 
DISA spends substantial amounts of time educating users on requirement 
development, the acquisition process, and available satellite services. 
Timelines can also be extended for other reasons, according to DISA, 
including instances where customer equipment is not on hand when the 
service is available. Therefore, the actual time to fully satisfy a 
customer's request from realization of the need to initiation of the 
service is even longer than the mean 79-day paperwork flow time.

By contrast, users told us that the time to receive bandwidth services 
outside the DISA process was considerably shorter. In one U. S. Army 
example, the user was able to acquire satellite bandwidth needed to 
operate a multimedia communications system during Operation 
Enduring Freedom in Afghanistan within a few weeks. In another example, 
a U.S. Navy office was able to acquire service to support its 
commercial wideband satellite program in less than a month after 
receiving the GIG waiver approval. It was critical that the Navy 
acquire this service quickly as it was notified that one of its leased 
satellites would fail within 30 days.

Users also reported that estimated prices they received under the DISA 
process were sometimes significantly higher than those that would be 
paid directly to a commercial company for the same or similar services. 
For example, the Army was able to acquire satellite services for the 
communications system supporting Operation Enduring Freedom for about 
$34,700 a month. DISA had quoted a price estimate earlier at $139,000 a 
month. When the Army later found it needed to install another ground 
terminal for this system, it acquired services for about $240,000, 
whereas DISA's initial price estimate was $579,000. In another example, 
in acquiring service to support its commercial wideband satellite 
program, a U.S. Navy office found that the monthly price for the 
service it could acquire outside the DISA process ranged from $30,000 
to $90,000 a month less than the initial DISA estimate. Over the 5 
years projected for the task order, the savings on bandwidth was nearly 
$4.6 million. These projected savings, while not always calculated on a 
strict "apples-to-apples" basis, were nevertheless deemed significant 
enough that the GIG Waiver Panel used them when deciding to grant 
waivers to these organizations to buy outside the DISA process.

The current pricing structure of the DISA acquisition process can 
result in users being charged from 9 to 12 percent more than the 
bandwidth cost from the service provider. Part of this added cost is 
due to profit and overhead charges that DISA vendors add on to 
bandwidth cost. This can total between 1 and 4 percent of the price of 
the service and is kept low because of the competition among vendors to 
win each task order.

Another part of the added costs is attributable to surcharges that DISA 
adds to prices in order to recoup their costs for tasks they perform in 
acquiring the service. The surcharges--6 percent of the total price 
from the vendor for DISA's Commercial Satellite Communications Branch's 
efforts and another 2 percent for DITCO's efforts--are a normal 
practice for DISA and other DOD activities that operate under the 
Defense Working Capital Fund, which is designed to ensure that defense 
activities that carry out business operations for others can recover 
their costs--neither making a profit nor incurring a loss in the course 
of their work. If users acquired the service themselves, they may well 
incur similar administrative costs, but those costs would not be as 
visible to them as when receiving an itemized bill from DISA for 
services. However, they would not normally have to pay extra for an 
intermediary agent when procuring services directly from industry.

Some portion of the user-reported projected savings may be attributable 
to high initial estimates provided by DISA based on outdated pricing 
proposals of vendors' contract line item prices. While DISA stated that 
users were advised that the actual prices might be significantly lower, 
users still had to commit their budget in the amount of the original 
estimate. Use of this high initial estimate has been a long-standing 
flaw in the DISA acquisition process that DISA has only recently taken 
steps to correct. However, DISA's solution to this problem--asking the 
vendors to produce more detailed and more realistic original price 
estimates--will likely result in more days added to an already lengthy 
process.

Another reason for the difference between DISA's estimates and industry 
quotes may be that DISA's estimates are based on features in its 
contracts with vendors that may call for a different level of services 
or equipment than required. For example, in one U.S. Army case, the 
bandwidth acquired to operate its communications network was less than 
the minimum bandwidth capacity that satellite providers were required 
to provide under the DSTS-G contract.

In addition, users told us that the DISA process results in contract 
terms that are often too inflexible. Some of the features that are 
common in commercial contracts for satellite services are not in the 
contracts awarded through the DISA process. For example, DISA's 
contracts for commercial bandwidth, according to the three DSTS-G 
vendors, do not contain the common commercial clause, "Portability of 
Services," or anything comparable. This clause would typically allow a 
user to transfer the remaining time from one satellite, in an area no 
longer requiring coverage, to another satellite, where service is now 
required, at no additional cost. Industry representatives cited this 
clause as an example of flexibility that commercial customers have 
sought, as a best practice, but DOD has not.

Further, DOD users often do not have the ability to change or cancel 
requirements, if necessary, without continuing to pay for the original 
ones. For example, while DISA's contracts with vendors contain the 
"Termination for Convenience" clause, which should allow the government 
to terminate service that is no longer needed and to stop incurring 
costs for the unused portion, vendors' contracts with service providers 
do not have this clause. In fact, the contracts that vendors have with 
the service providers reflect an industry practice that holds the 
vendors responsible for the remainder of the noncancelable lease, 
regardless of whether the government terminates the vendors' contract. 
Therefore, any remaining lease costs would be paid to the service 
provider by the vendor and then submitted as part of the vendor's 
termination settlement proposal to DOD, which would then bear some or 
all of these costs as agreed to in the negotiated termination 
settlement.

Some Users Are Bypassing the DISA Process to Get Timely, More Flexible, 
and Less Costly Services:

Some users are bypassing the DISA acquisition process to acquire 
commercial bandwidth through alternative processes, either by formally 
requesting a waiver from the DISA process or by improperly procuring 
services without a waiver. We identified 10 instances where bandwidth 
was procured through an alternative process. In four of these, waiver 
requests were submitted and approved in advance of the procurement 
action, as called for in DOD policy. In the remaining six instances, 
however, users had independently procured bandwidth without processing 
waivers, inconsistent with DOD policy.

We were initially given access to information on the four procurement 
actions with approved waivers and on three of the actions that had 
occurred without waivers. These latter three procurements had been 
brought to the attention of the Chairman of the GIG Waiver Panel, who 
then made the offending organizations process "after-the-fact" waivers. 
While we were interviewing user organization representatives on these, 
we uncovered three additional procurement actions that should have had 
waivers processed, but had not. We turned this information over to the 
Chairman of the GIG Waiver Panel, who will determine whether "after-
the-fact" waivers are also to be processed for these cases. 
Representatives of the offices that had bypassed the DISA process and 
used an alternative acquisition process to acquire needed bandwidth 
indicated in interviews and in briefing documents that they had been 
able to achieve faster procurements, often resulting in more flexible 
contract instruments, and at lower (sometimes significantly lower) 
prices.

According to DOD officials, users throughout DOD have been 
independently acquiring bandwidth, without an approved waiver, for 
years. One knowledgeable DISA official estimated that, if all the 
services and DOD entities had accurately reported their fixed satellite 
service bandwidth usage costs for fiscal year 2002, the total would 
likely have been $200 million higher than the amount actually reported, 
nearly doubling the reported amount of $221.7 million. As it was, we 
determined that, at a minimum, $42.4 million, or nearly 20 percent of 
the $221.7 million self-reported dollars spent, was spent outside the 
DISA process.

Lack of Strategic Approach to Managing Services Diminished DOD's 
Ability to Optimize Spending:

Our past work has identified specific practices that can be employed to 
manage services from a more strategic perspective, thereby enabling an 
organization like DOD to leverage its buying power and achieve 
significant savings.[Footnote 11] These include establishing a central 
agent or manager for acquiring services, gaining visibility over 
spending, and revising business processes to enable the organization to 
leverage its buying power. While there are challenges to implementing 
this process, DOD has recognized its importance and called on agencies 
to embrace a strategic approach for acquiring services. Even though 
DISA is supposed to serve as a central manager for the acquisition of 
satellite bandwidth services, it is not following a strategic approach. 
Little attention is paid to collecting or addressing customer 
complaints, business processes are inefficient, and oversight is 
limited. Moreover, neither DOD nor DISA is making a concerted effort to 
collect forecasts of bandwidth needs from users, ensure those needs can 
be met by the commercial sector, and take steps needed to leverage its 
buying power with commercial providers.

Strategic Approach Is Paramount to Optimizing Acquisitions of Services:

Our previous work has found that leading organizations have adopted 
practices and activities that enabled them to acquire services in a 
more strategic manner and in turn achieve dramatic cost reductions and 
service improvements. Faced with an increased dependence on services, 
growing market pressures, and an economic downturn, the companies we 
studied examined their service spending and found that they did not 
have a good grasp of how much was actually being spent and where these 
dollars were going. These companies found that responsibility for 
acquiring services resided largely with individual business units or 
functions, hindering efforts to coordinate purchases across the 
company. They also came to realize that they lacked the tools needed to 
make sure that the services they purchased met their business needs at 
the best overall value.

To turn this situation around, these companies reengineered their 
approaches to buying services. This began with taking a hard look at 
how much they were spending on services and from whom. By arming 
themselves with this knowledge, the companies could identify 
opportunities to leverage their buying power, reduce costs, and better 
manage their suppliers. The companies also instituted a series of 
structural, process, and role changes aimed at moving away from a 
fragmented acquisition process to a more efficient and effective 
enterprisewide process. For example, the companies we studied often 
established or expanded the role of corporate procurement organizations 
to help business managers acquire key services and made extensive use 
of crossfunctional teams to help the companies better identify service 
needs, select providers, and manage contractor performance. These 
companies also developed information systems to enable them to track 
their spending and better match their needs with potential providers. 
They also implemented performance measures to track their progress and 
make further enhancements to their processes wherever needed. Taking a 
strategic approach clearly paid off, as companies found that they could 
save millions of dollars and improve the quality of services received 
by instituting these changes.

DOD Process Is Hampered by Oversight and Management Weaknesses:

DOD's current process for acquiring commercial satellite bandwidth is 
not strategic. While DISA is supposed to serve as a centralized 
acquisition function, some users are, in effect, allowed to bypass the 
process, and there is little visibility over what is actually being 
spent on commercial satellite bandwidth services.

For example, DOD has a formal waiver process--the GIG waiver process--
in place to ensure that any acquisition made outside the DISA process 
is justified and that the service being procured is not duplicative of 
other existing services, preserves interoperability, and meets network 
control requirements. But the waiver process, at least until recently, 
has not been enforced. This past year, officials who manage this 
process recognized the problem and are now requiring users that already 
bypassed the process to obtain waivers after-the-fact. According to DOD 
officials, some users have been acquiring services outside the DISA 
process for years.

In addition, other DOD organizations responsible for overseeing the 
DISA process--including the Assistant Secretary of Defense for Networks 
and Information Integration and the Office of the Chairman of the Joint 
Chiefs of Staff--have not been enforcing requirements for reporting, 
nor have they developed, nor required DISA to develop, performance 
metrics that could be used to assess user satisfaction, timeliness, and 
other factors that would give them a better sense of whether the 
process is efficient and effective. DOD directives since at least 1998 
have required that DISA prepare a use and associated cost report on 
commercial bandwidth. DISA only recently submitted its first report. 
Further, no acquisition process measures exist at the oversight level, 
and DISA itself has not yet developed performance metrics to measure 
customer satisfaction. Officials indicated that preliminary data have 
been collected from customers, but there was no evidence of their being 
used to improve any parts of the process.

Moreover, neither DOD nor DISA has developed a complete picture of what 
is being spent on bandwidth--the cornerstone to identifying what can be 
done to improve the process and to leverage DOD's buying power. Our 
analysis indicated that the information contained in the fiscal year 
2002 report on users and costs is incomplete, inaccurate, lacks proper 
identification of users, and contains costs associated with fiscal year 
2003, impairing its reliability. Figure 2 highlights examples of our 
findings. Moreover, the self-reported user information that DISA 
collected did not reflect many purchases that were made outside of the 
DISA process. A 1998 DOD Inspector General report also found that DOD 
could not determine the total leased satellite communications bandwidth 
used among component commands or the total costs associated with 
obtaining that capacity.

Figure 2: Highlights of Analysis of DISA's Commercial Satellite 
Communications Utilization Report--Fiscal Year 2002:

[See PDF for image]

[End of figure]

DOD also does not routinely maintain information on its ultimate 
providers of bandwidth services. While DOD maintains summary totals 
for task orders awarded to its three DSTS-G vendors, these data do not 
provide detailed information such as which actual bandwidth service 
providers competed the most, or least, or which ones were actually 
providing the most or next most service in terms of numbers of 
procurements or dollars to DOD.

Steps Have Not Been Taken to Leverage Buying Power:

Even though DOD is the largest buyer of bandwidth in the commercial 
market, neither DOD nor DISA has taken steps essential to fully 
leveraging that buying power and to ensuring that future needs can be 
met by the commercial sector. There are options based on common 
commercial practices that are available to DOD for doing so, such as 
requesting most favored customer status with providers or maximizing 
business volume discounts. Table 7 discusses several of these options 
and their possible application to DOD's current practices in more 
detail.

Table 7: Options That Could Improve DOD's Practices in Leveraging Its 
Buying Power:

Alerting current and new providers about projected requirements to 
provide them the opportunity to develop additional capabilities. 
Application: While there have been isolated instances of this practice 
occurring, it was initiated by the DSTS-G vendors, not DOD. This could 
include launching new satellites or repositioning current assets, 
focusing more on DOD's security needs, and creating more flexible 
solutions.

Requesting "Most Favored Customer" status with service providers. 
Application: Through DOD's mandated DISA process, DOD typically cannot
order bandwidth in large quantities or for long durations as 
commercial customers can do. However, DOD, in the aggregate, is the 
market segment's largest single customer, which should warrant DOD 
some favored status. DOD could use its position to request such 
treatment; however, it does not, according to two major service 
providers we spoke with. 

Maximizing business volume discounts. Application: Some large service
providers do provide DOD some volume discounts. However, total DOD 
spending volume is fragmented among three DSTS-G vendors, the MTC 
prime contractor, and an unknown number of individual procurement 
organizations that are used by those customers/ users that avoid the 
DISA process. By eliminating this fragmentation, DOD could aggregate 
its buying power to obtain better business volume discounts. 

Requesting portability of services to other satellites or other areas 
of coverage. Application: A couple of the service providers, which 
have larger numbers of satellites in various locations, have been 
willing to offer bandwidth on alternate satellites when the original 
satellite and its location were no longer needed. DOD could request 
that all service providers agree to this provision in its 
subcontracts. Such a request, however, would probably have a cost 
associated with the risk to the service providers, but the added 
flexibility may well be worth the increased cost. 

Obtaining "Promised Duration" discounts. Application: Two major 
service providers told us they would be willing to give discounts for 
lease durations of more than 1 year, the standard ordering term for 
DOD. They said that DOD could obtain better prices by committing to 
longer lease periods, thus getting it out of the "spot market" and 
into the long-term market, where most of their commercial customers 
operate. DOD cannot normally commit to periods of service beyond 1 
year, because DOD gets its operations and maintenance funding 1 year 
at a time and current law requires funding to be available up front to 
cover multiple-years' obligations of termination liability.

Requesting discounts for use of new satellites and/or older 
satellites. Application: Being the first or one of only a few 
customers on a new satellite, or likewise being willing to use an 
older satellite which has gone into an inclined orbit can result in 
substantial savings. Such instances are rare, but if DOD is in a 
position to know about the possibility and can make quick decisions, 
DOD can benefit. This requires up-to-date knowledge of the service 
provider industry.

 Obtaining "Termination for Convenience" protections. Application: 
Currently, DOD is not fully protected in the event it must terminate a 
task order before its completion. DOD has required the three DSTS-G 
vendors and the MTC contractor to accept this clause and the risk that 
goes along with it. The vendors do not have such a clause with their 
providers, so the vendors are potentially in the position of receiving 
a Termination for Convenience from the DOD but having to continue to 
pay for the leased bandwidth with the provider for the remaining lease 
period. DOD allows these payments on the remainder of the lease period 
to be submitted by the vendor as part of the termination settlement 
proposal, and thus DOD would bear some or all of the costs for the 
unused portion of the lease. 

Source: GAO.

[End of table]

While these options would position DISA to achieve cost savings, they 
require DISA to be able to project its future requirements and to be 
more proactive in dealing with its vendors. This is not being done. 
Instead, bandwidth is usually purchased on the "spot market" on an as-
needed basis--when it is most expensive compared to longer duration 
leases. With few exceptions, individual small requirements are not 
aggregated by DISA to take advantage of DOD's potential leverage in 
acquiring bandwidth in larger and less expensive quantities. According 
to DISA, users often decline opportunities to aggregate their 
requirements with other users. Two providers we interviewed indicated 
that they would be willing to develop creative solutions for 
consolidated requirements but would need to know in advance about 
future requirements to do so effectively.

Several DOD and industry officials told us that DOD could benefit if 
bandwidth were acquired through a program office with central funding 
authority for that bandwidth. In this situation, it would be necessary 
for users to submit their plans and forecasts of requirements to the 
central program office. Currently, users have their own bandwidth 
funding and generally do not forward forecasts of requirements to DISA. 
If all user requirements were submitted to this single program office, 
it would then be able to aggregate bandwidth requirements in order to 
leverage buying power. In addition, some of these officials indicated 
that such a program office could allow increased visibility and control 
over DOD-wide bandwidth acquisitions.

Adopting a Strategic Approach Will Be Challenging:

Longer-term changes to the DISA process that are necessary to implement 
more strategic management processes--including establishing better 
visibility over spending, revamping business processes, strengthening 
technical expertise within the agency, and securing a commitment from 
senior leadership--will be challenging to implement. DOD is aware of 
these challenges and has begun to study its processes.

We found that leading organizations that applied a strategic approach 
to their purchases of services often spent months piecing together data 
from various financial and management information systems and examining 
individual orders just to get a rough idea of what they were spending 
on services. The companies found it was necessary to develop new 
information systems that could provide them with reliable spending data 
in a timely fashion. The task of gaining accurate visibility over 
spending will be equally, if not more, difficult for DOD given the lack 
of information systems available to provide spending data and the 
magnitude and breadth of spending involved with commercial satellite 
bandwidth services.

Companies we studied also found that in establishing new procurement 
processes, they needed to overcome resistance from individual business 
units reluctant to share decision-making responsibility and to involve 
staff that traditionally did not communicate with each other. While 
DISA will likely face similar resistance within the agency, we believe 
it will also need to overcome resistance from users that manage their 
own operations and maintenance funds and have long been dissatisfied 
with the DISA process. Another challenge for DISA is obtaining the 
expertise needed to review complex technically sophisticated solutions 
proposed by vendors. Industry representatives and some vendors believe 
that DISA currently lacks the appropriate level of expertise.

Lastly, the companies we studied found that they needed to have 
sustained commitment from their senior leadership; to clearly 
communicate the rationale, goals, and expected results from 
reengineering efforts; and to measure whether the changes were having 
their intended effects. We believe similar commitment will need to be 
secured not only from DISA leadership, but also from leaders within DOD 
and the user communities.

DOD has recognized many of these challenges and is in the process of 
awarding a contract for a study to determine if it should change its 
approach to identifying, acquiring, and managing commercial satellite 
services. According to a DOD official, DOD has also initiated a study 
that will address ways to arrange for multiyear leasing and bulk 
discounts based on projected customer requirements.

Conclusions:

DOD recognizes it has an increasing need to supplement its own 
satellite bandwidth capacity with capacity from the commercial sector. 
But it does not have a firm idea on how much bandwidth it will require 
in the short or long term or whether the private sector can even 
continue to support its requirements. Moreover, though it has become 
the largest consumer of satellite bandwidth, it still buys its 
bandwidth on an as-needed basis, thereby missing significant 
opportunities to leverage its buying power and to achieve considerable 
savings as a result. Moreover, by allowing users to bypass the DISA 
waiver process, DOD is hampering its ability to ensure that its 
communications networks are interoperable and to minimize redundancies. 
If DISA is to remain as DOD's primary agent to acquire satellite 
bandwidth, then it must implement a more strategic management approach-
-not only one that continues to ensure that acquisitions are processed 
fairly, but also one that ensures services can be acquired in a timely 
and cost-effective way that meets users' needs. Doing so will be a 
considerable challenge, however, given the current environment and 
potential resistance within DISA and from its users. Commitment is 
needed from senior leaders within DISA and DOD to overcome challenges 
associated with implementing a strategic approach.

Recommendations for Executive Action:

To strengthen DOD's ability to obtain commercial bandwidth effectively 
and efficiently, we recommend that the Secretary of Defense direct the 
Assistant Secretary of Defense for Networks and Information Integration 
to develop, in coordination with the Joint Staff and the Director of 
DISA, a strategic management framework for improving the acquisition of 
commercial bandwidth. Specifically, this framework should include 
provisions for:

* inventorying current and potential users of commercial bandwidth 
to determine their existing and long-term requirements;

* identifying and exploiting opportunities to consolidate the bandwidth 
requirements of combatant commanders, the military services, and 
defense agencies;

* adopting, when appropriate, commonly used commercial practices, such 
as conducting spend analyses and negotiating pricing discounts based on 
overall DOD volume, to strengthen DOD's position in acquiring 
bandwidth; and:

* improving the current funding structure by considering new funding 
approaches, such as centralized funding of commercial bandwidth, and 
seeking legislative authority for multiyear procurements.

To ensure the successful implementation of this strategic management 
framework and to better leverage DOD's buying power and increase 
user satisfaction, we recommend that the Secretary of Defense direct 
the Assistant Secretary of Defense for Networks and Information 
Integration to:

* develop performance metrics to assess user satisfaction with the 
timeliness, flexibility, quality, and cost in acquiring commercial 
satellite services;

* strengthen DOD's capacity to provide accurate and complete analyses 
of commercial bandwidth requirements, spending, and the capabilities of 
commercial satellite providers by enhancing core internal technical 
expertise and information systems; and:

* assess, and implement as needed, changes to the key elements of the 
existing acquisition process--including requirements generation, 
solution development and evaluation, and contract vehicles--to 
facilitate a more strategic approach to bandwidth acquisition.

Agency Comments and Our Evaluation:

DOD, in commenting on a draft of this report, generally concurred 
with our findings, conclusions, and recommendations. Specifically, DOD 
concurred with four of our recommendations and partially concurred with 
the remaining three recommendations.

DOD concurred that a strategic management framework for improving 
the acquisition of commercial bandwidth be developed to include 
inventorying current and potential users to determine their current 
and future needs, and adopting, where appropriate, commonly used 
commercial acquisition practices. It also concurred in developing 
performance metrics to assess user satisfaction with its process and in 
assessing and changing its process to facilitate a more strategic 
approach to commercial bandwidth acquisition.

DOD partially concurred with our recommendations addressing 
consolidating user requirements, improving the current funding 
structure, and enhancing core internal technical expertise and 
information systems. In its comments DOD indicated it had initiated a 
review of its current approach to determine if process changes were 
necessary and is waiting to decide whether or how to act on these three 
issues until after the review is complete. While we agree it is 
important to review these issues, we also believe that actions, along 
the lines of our recommendations, will be necessary in order to develop 
a strategic framework to acquire commercial satellite bandwidth more 
efficiently and effectively.

DOD also provided informal technical comments, which we incorporated as 
appropriate.

Scope and Methodology:

To determine whether DOD's process for acquiring fixed satellite 
services is fair and meets the needs of DOD users, we met with 
officials from DOD component organizations involved in procurement of 
these services, including officials from agency contracting offices, 
DISA, Assistant Secretary of Defense for Networks and Information 
Integration, and Joint Staff. We also interviewed the four DOD vendors 
(Lockheed Martin Global Telecommunications; Arrowhead Global 
Solutions, Inc.; Artel, Inc.; and Spacelink International, L.L.C.) that 
procure the needed bandwidth from industry, and officials from three 
commercial service providers, which are major suppliers of commercial 
bandwidth to DOD. We obtained available DISA data on all contractual 
actions awarded since enactment of the Open-market Reorganization for 
the Betterment of International Telecommunications (ORBIT) Act in March 
2000, the beginning date given to us by our congressional requestors. 
We reviewed contract file documentation, as well as applicable sections 
of the FAR, as supplemented, and DOD policies and procedures, to 
determine the extent to which competition was obtained for each 
delivery or task order included in the universe under either the MTC or 
the DSTS-G contracts. For those orders not awarded competitively, we 
reviewed task order files to obtain sole-source or directed 
subcontractor justifications. We obtained details on all GIG waiver 
requests for fixed satellite service commercial bandwidth procurements 
processed since enactment of ORBIT. To determine the elapsed calendar 
days required to award the 48 DSTS-G task orders, we reviewed task 
order files to extract pertinent dates. For 11 of the task orders where 
we were unable to obtain the start date, we imputed the start date 
(request for service) based on 37 task orders for which we had actual 
start dates.

To determine what DOD does to oversee spending on fixed satellite 
services and ensure cost-effective results, we reviewed policies and 
procedures DOD uses and interviewed DOD officials on oversight 
practices. We obtained and analyzed cost data reported by combatant 
commands, military services, and defense agencies. We reviewed task 
and delivery order documentation, including applicable modifications 
and amendments, awarded under the MTC and DSTS-G contracts since 
enactment of the ORBIT Act. We analyzed the current DSTS-G contract 
to identify the terms, conditions, and benefits available to large 
volume customers and compared our results to the reported practices of 
private sector buyers purchasing similar bandwidth capacity. We 
reviewed available contracts for bandwidth from U.S. Army and U.S. Navy 
sources, and we analyzed reported cost data to see if they included 
satellite bandwidth capacity obtained through sources outside of the 
DISA process.

We conducted our review from February to October 2003 in accordance 
with generally accepted government auditing standards.

We are sending copies of this report to other interested congressional 
committees; the Secretary of Defense; the Deputy Secretary of Defense; 
the Secretaries of the Army, Navy, and Air Force; the Under Secretary 
of Defense (Acquisition, Technology, and Logistics); the Under 
Secretary of Defense (Comptroller); and the Director of the Defense 
Information Systems Agency. We will also provide copies to others on 
request. In addition, the report will be available at no charge on the 
GAO Web site at http://www.gao.gov.

If you have any questions regarding this report, please call me at 
(202) 512-4841 or John Needham at (202) 512-5274. Other major 
contributors to this report are Gary L. Delaney, John D. Heere, 
Oscar Mardis, Marie P. Ahearn, and Gary Middleton.

William T. Woods: 
Director Acquisition and Sourcing Management:

Signed by William T. Woods: 

[End of section]

Appendix I: Comments from the Department of Defense:

ASSISTANT SECRETARY OF DEFENSE:

6000 DEFENSE PENTAGON WASHINGTON, DC 20301-6000:

DEC - 4 2003:

NETWORKS AND INFORMATION INTEGRATION:

Mr. William T. Woods:

Director, Acquisition and Sourcing Management U.S. General Accounting 
Office:

441 G Street, N.W. Washington, D.C. 20548:

Dear Mr. Woods:

This is the Department of Defense (DoD) response to the GAO draft 
report, `CONTRACT MANAGEMENT: Strategic Approach Needed for DOD's 
Procurement of Commercial Satellite Bandwidth,' dated November 10, 
2003, (GAO code 120200/GAO-04-206).

The Department generally concurs with the report and its 
recommendations. The DoD recognizes that satellite communications 
requirements are ever expanding and that commercial systems will and 
must play a strategic role in the overall DoD SATCOM architecture in 
the foreseeable future.

In parallel with your review, I have directed the Director, Defense 
Information Systems Agency (DISA) and my staff to review the policies 
and practices associated with planning, acquisition, vulnerabilities, 
and management of commercial SATCOM services to determine if we should 
make a course change in our approach to the use of commercial SATCOM. 
Your findings and recommendations will provide an important 
contribution to our review and determination of the appropriate 
approach for DoD utilization of commercial SATCOM in the future.

The Department appreciates the opportunity to comment on the GAO draft 
report. Detailed comments on the report's recommendations, and 
requested changes to correct factual errors are attached.

Sincerely,

Signed for:

John P. Stenbit:

Enclosures: As stated:

GAO DRAFT REPORT - DATED NOVEMBER 10, 2003 GAO CODE 120200/GAO-04-206:

"CONTRACT MANAGEMENT: STRATEGIC APPROACH NEEDED FOR DOD'S PROCUREMENT 
OF COMMERCIAL SATELLITE BANDWIDTH":

DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:

BACKGROUND:

The DoD leases commercial satellite communications (SATCOM) services to 
augment the services available from DoD-owned "military satellite 
communications" (MILSATCOM) systems. The bulk of these leases are for 
Fixed SATCOM services to augment capacity available from the Defense 
Satellite Communications System (DSCS).

Since 2001 the leasing of commercial SATCOM services has been 
accomplished via a "fee for service" business model wherein military 
services and other DoD organizations and agencies that have identified 
a need for commercial SATCOM capacity place funds into a Defense 
Working Capital Fund (DWCF). Current DoD policy is that the Defense 
Information Systems Agency (DISA) contracts for the commercial SATCOM 
capacity, and uses the funds in the DWCF to pay for the contracts. This 
business model provides the flexibility of leasing the capacity when 
and where it is needed, and only for as long as it is needed.

Recognizing that the assumptions made in developing the current 
business model have changed in recent times, the Department has 
initiated a review of our approach for use of commercial SATCOM to 
determine if process changes are required. ASD(NII) and DISA are 
coordinating the review, which will provide a comprehensive analysis of 
our commercial SATCOM practices including planning and requirements 
analysis, acquisition strategies and contract vehicles, 
vulnerabilities, operations management, and relations/impacts to 
collateral programs.

The following are responses to the specific recommendations made by the 
GAO.

RECOMMENDATION 1: The GAO recommended that the Secretary of Defense 
direct the Assistant Secretary of Defense for Networks and Information 
Integration to develop, in coordination with the Joint Staff and the 
Director of the Defense Information Systems Agency (DISA), a strategic 
management framework for improving the acquisition of commercial 
bandwidth. Specifically, this framework should include provisions for 
inventorying current and potential users of commercial bandwidth to 
determine their existing and long-term requirements. (p. 21/GAO Draft 
Report):

DOD RESPONSE: The Department concurs with this recommendation.

The DoD currently has a process in place whereby user requirements for 
satellite communications services are obtained and maintained in a 
centrally managed Satellite:

Database (SDB). The requirements are segmented in the database 
according to the timeframe when they are needed - current (in the next 
two years) and future (beyond the next two years). One of the areas 
being reviewed by ASD NII and DISA is whether we have adequate and 
accurate information in the SDB regarding current and future 
requirements for commercial SATCOM, and whether we can perform critical 
analysis of this information to determine possible trends in the 
Department's use so we can plan for the future.

RECOMMENDATION 2: The GAO recommended that the Secretary of Defense 
direct the Assistant Secretary of Defense for Networks and Information 
Integration to develop, in coordination with the Joint Staff and the 
Director of the Defense Information Systems Agency (DISA), a strategic 
management framework for improving the acquisition of commercial 
bandwidth. Specifically, this framework should include provisions for 
identifying and exploiting opportunities to consolidate the bandwidth 
requirements of combatant commanders, the armed services, and DOD 
agencies. (p. 21/GAO Draft Report):

DOD RESPONSE: The Department partially concurs with this 
recommendation.

Consolidating bandwidth requirements makes sense if the primary object 
is to lease bulk amounts of commercial satellite capacity. However, the 
current business model for acquiring commercial SATCOM services is 
generally based on the philosophy of "acquire as needed", so bulk 
capacity purchases are not always an option. There are cases where like 
requirements have been identified and bulk capacity buying was 
accomplished from a single satellite service provider. In addition, for 
those requirements specified through the SDB process, DISA makes every 
attempt to engage in multi-year leases when the user organization 
agrees to obligate funding for the expected period of the contract. As 
part of the DoD review of the current processes we will be evaluating 
methods for exploiting opportunities to consolidate the bandwidth 
requirements of combatant commanders, the armed services, and DoD 
agencies..

RECOMMENDATION 3: The GAO recommended that the Secretary of Defense 
direct the Assistant Secretary of Defense for Networks and Information 
Integration to develop, in coordination with the Joint Staff and the 
Director of the Defense Information Systems Agency (DISA), a strategic 
management framework for improving the acquisition of commercial 
bandwidth. Specifically, this framework should include provisions for 
adopting, when appropriate, commonly used commercial practices, such as 
conducting spend analyses and negotiating pricing discounts based on 
overall DOD volume, to strengthen DOD's position in acquiring 
bandwidth. (p. 21/GAO Draft Report):

DOD RESPONSE: The Department concurs with this recommendation.

The ongoing DoD review is investigating improving the methods and 
procedures for acquisition of commercial SATCOM capacity, including the 
types of contracting methods, the terms and conditions included in our 
contractual requirements, and ways to improve and leverage DOD's buying 
power in the commercial SATCOM industry.

RECOMMENDATION 4: The GAO recommended that the Secretary of Defense 
direct the Assistant Secretary of Defense for Networks and Information 
Integration to develop, in coordination with the Joint Staff and the 
Director of the Defense Information Systems Agency (DISA), a strategic 
management framework for improving the acquisition of commercial 
bandwidth. Specifically, this framework should include provisions for 
improving the current funding structure, by considering new funding 
approaches such as centralized funding of commercial bandwidth and 
seeking legislative authority for multi-year procurements. (P. 21/GAO 
Draft Report):

DOD RESPONSE: The Department partially concurs with this 
recommendation.

The Department agrees that steps need to be taken to improve the 
current funding structure in order to realize savings associated with 
bulk leases and multi-year contracts. However, centralized funding for 
acquisition of commercial bandwidth, combined with existing regulations 
regarding multi-year procurements could pose a significant burden on 
the organization tasked to execute and manage the multi-year 
procurements. This is because multi-year procurements require a multi-
year obligation of funds (subject to their availability in the budget) 
to cover contract costs and potential contract termination liability 
charges, and these funds must be protected against non-specific budget 
cuts. This would result in other programs having a disproportionate 
impact from non-specific budget cuts.

The Department will evaluate strategies for improving the current 
funding structure once the current review is completed.

RECOMMENDATION 5: To ensure the successful implementation of the 
recommended strategic management framework, to better leverage DOD's 
buying power and to increase user satisfaction, the GAO recommended 
that the Secretary of Defense direct the Assistant Secretary of Defense 
for Networks and Information Integration to develop performance metrics 
to assess user satisfaction with timeliness, flexibility, quality, and 
cost in acquiring commercial satellite services. (p. 21/GAO Draft 
Report):

DOD RESPONSE: The Department concurs with this recommendation.

Properly developed customer surveys and process performance metrics are 
arguably important aspects of any quality improvement program. DISA has 
recently developed a customer survey and distributed it to its 
commercial SATCOM customers. The ongoing Department study will 
ascertain what metrics are appropriate for future customer surveys 
based on the business model developed.

RECOMMENDATION 6: To ensure the successful implementation of the 
recommended strategic management framework, to better leverage DOD's 
buying power and to increase user satisfaction, the GAO recommended 
that the Secretary of Defense direct the Assistant:

Secretary of Defense for Networks and Information Integration to 
strengthen DOD's capacity to provide accurate and complete analyses of 
commercial bandwidth requirements, spending, and the capabilities of 
commercial satellite providers by enhancing core internal technical 
expertise and information systems. (p. 21/GAO Draft Report):

DOD RESPONSE: The Department partially concurs with this 
recommendation.

The Department agrees with the need for strong core internal technical 
expertise and information systems. We feel that DISA, using both 
government and contract personnel, possesses the requisite technical 
expertise to evaluate existing information, use existing tools, and 
operate under the current business model.

In responding to Recommendation #1 we noted that one of the areas being 
reviewed by ASD NII and DISA is whether we have adequate and accurate 
information regarding current and future requirements for commercial 
SATCOM, and whether we can perform critical analysis to determine 
possible trends in the Department's use so that we can plan for the 
future. In addition, our review is also focusing on providing tools and 
applications that would significantly increase utilization efficiency 
and reduce costs. When these tools and information systems have been 
selected and implemented the Department will ensure that we have 
appropriate technical expertise, at all levels within the Department, 
for their use.

RECOMMENDATION 7: To ensure the successful implementation of the 
recommended strategic management framework, to better leverage DOD's 
buying power and to increase user satisfaction, the GAO recommended 
that the Secretary of Defense direct the Assistant Secretary of Defense 
for Networks and Information Integration to assess, and implement as 
needed, changes to the key elements of the existing acquisition 
process-including requirements generation, solution development and 
evaluation, and contract vehicles-to facilitate a more strategic 
approach to bandwidth acquisition. (p. 21/GAO Draft Report):

DOD RESPONSE: The Department concurs with this recommendation.

In summary, the DoD is engaged in a comprehensive review of our 
commercial SATCOM practices including planning and requirements 
analysis, acquisition strategies and contract vehicles, operations 
management and the relations to collateral programs. The results of 
this review will be used by the Department to restructure, as 
appropriate, our approach and processes for integration of commercial 
SATCOM into the overall DoD SATCOM architecture.

[End of section]

FOOTNOTES

[1] Bandwidth is the range of frequencies that can pass over a given 
transmission channel. In the commercial satellite bandwidth leases DOD 
acquires, it is usually measured in millions of hertz, or megahertz 
(MHz)--such as 36 MHz, 54 MHz, or 72 MHz--which determine the rate at 
which information can be transmitted through the circuit.

[2] Andrew Bridges, "Pentagon Turns to Commercial Satellites to Ease 
Wartime Data Squeeze," the Associated Press, Mar. 27, 2003, quoting 
United States Space Command sources and Rand Corporation experts.

[3] The amounts of data that can be received, processed, and 
transmitted by a satellite are commonly stated in megabits per second 
(one million bits of data per second) or gigabits per second (one 
billion bits per second). By 2010, DOD planners foresee the need for 
approximately 16 gigabits per second (Gbps) of bandwidth to support a 
large joint-service operation. While DOD plans to have capacity of 11 
Gbps, other sources earlier had projected that DOD's capacity might be 
as low as 2 Gbps at that time.

[4] Fixed satellite service refers to a radio communication service 
between fixed earth stations at specific locations by means of one or 
more satellites; mobile satellite service refers to a radio 
communication service between mobile earth stations at varying 
locations by means of one or more satellites. This report addresses 
fixed satellite service only.

[5] Users are required to use the DISA acquisition process by Assistant 
Secretary of Defense for Command, Control, Communications, and 
Intelligence memorandum, Policy for the Use of Commercial Satellite 
Communications (SATCOM), dated Nov. 8, 1993, and by a follow up 
memorandum, Policy Clarification Letter--Long Haul and Regional 
Telecommunications Systems and Services for the Department of Defense, 
dated May 5, 1997.

[6] U.S. General Accounting Office, Best Practices: Taking a Strategic 
Approach Could Improve DOD's Acquisition of Services, GAO-02-230 
(Washington, D.C.: Jan. 2002); Best Practices: Improved Knowledge of 
DOD Service Contracts Could Reveal Significant Savings, GAO-03-661 
(Washington, D.C.: June 2003); Contract Management: Taking a Strategic 
Approach to Improving Service Acquisitions, GAO-02-499T (Washington, 
D.C.: Mar. 2002); and Contract Management: High-Level Attention Needed 
to Transform DOD Services Acquisition, GAO-03-935 (Washington, D.C.: 
Sept. 2003).

[7] The GIG waiver process employs a GIG Waiver Board and a working-
level GIG Waiver Panel, made up of principals or representatives from 
pertinent DOD staff offices. The GIG Waiver Panel reviews initial 
waiver requests and associated business cases, hears arguments for and 
against the waiver request, and develops the recommended decision to be 
presented to the DOD Chief Information Officer (CIO) for approval. If 
there is an appeal of that decision, the GIG Waiver Board may be 
convened to advise the CIO on the appeal.

[8] Effective October 25, 2002, the Defense Federal Acquisition 
Regulation Supplement, section 216.505-70, required fair notice and 
fair opportunity to submit an offer and have it fairly considered for 
each order exceeding $100,000. This provision implemented section 803 
of the National Defense Authorization Act for Fiscal Year 2002 (Pub. L. 
107-107, Dec. 28, 2001). DISA Acquisition Regulation Supplement, 
section 16.102, has imposed a similar requirement on all orders 
exceeding $2,500 since March 1997.

[9] FAR 52.244-5, Competition in Subcontracting, requires that 
contractors shall select subcontractors on a competitive basis to the 
maximum practical extent consistent with the objectives and 
requirements of the contract.

[10] DISA Briefing, "DISA's Response to Navy Concerns," undated, p. 2; 
DISA Network Services Standing Operating Procedure (SOP) 02-02 (Apr. 
15, 2002, encl. 2, p. 1).

[11] U.S. General Accounting Office, Best Practices: Taking a Strategic 
Approach Could Improve DOD's Acquisition of Services, GAO-02-230 
(Washington, D.C.: Jan. 2002).

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