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Before the Subcommittee on Readiness and Management Support, Committee 
on Armed Services, U.S. Senate: 

United States Government Accountability Office: 


For Release on Delivery Expected at 2:30 p.m. EST: 

January 17, 2007: 

Defense Acquisitions: 

DOD Needs to Exert Management and Oversight to Better Control 
Acquisition of Services: 

Statement of Katherine V. Schinasi, Managing Director Acquisition and 
Sourcing Management: 


GAO Highlights: 

Highlights of GAO-07-359T, a testimony before the Subcommittee on 
Readiness and Management Support, Committee on Armed Services, U.S. 

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 been concerned 
about DOD’s ability to prudently manage these funds, and this 
subcommittee in particular has pushed DOD to employ sound business 
practices when using the private sector for services. Nevertheless, DOD 
may not have always obtained good value while spending billions of 
dollars on services at a time when serious budget pressures are facing 
the nation. 

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

The testimony is based on GAO’s work from the past decade as well as 
recent reports issued by the Inspectors General. 

What GAO Found: 

Numerous persistent problems have resulted in reduced efficiencies and 
effectiveness and have exposed DOD to unnecessary risks when acquiring 
services. Knowing the defense acquisition landscape helps put the 
magnitude of these problems in perspective— 

* DOD’s obligations on service contracts have jumped from $82.3 billion 
in fiscal year 1996 to $141.2 billion in fiscal year 2005.
* DOD’s acquisition workforce has been downsized during this time frame 
without sufficient attention to requisite skills and competencies. 

These events have occurred as DOD has become more reliant on 
contractors to provide services for DOD’s operations and as 
longstanding problems with contract management continue to adversely 
impact service acquisition outcomes. The lack of sound business 
practices—poorly defined requirements, inadequate competition, 
inadequate monitoring of contractor performance, and inappropriate uses 
of other agencies’ contracts and contracting services—exposes DOD to 
unnecessary risk and wastes resources. Moreover, DOD’s current 
management structure to oversee service acquisition outcomes has tended 
to be reactive and its processes suffer from the absence of several key 
elements at both a strategic and transactional level. 

To produce desired outcomes, DOD and its contractors need to clearly 
understand acquisition objectives and how they translate into a 
contract’s terms and conditions. GAO has found cases in which the 
absence of well-defined requirements and clearly understood objectives 
complicates efforts to hold DOD and contractors accountable for poor 
service acquisition outcomes. Likewise, obtaining reasonable prices 
depends on the benefits of a competitive environment, but we have 
continually reported on cases in which DOD sacrificed competition for 
the sake of expediency. Monitoring contractor performance to ensure DOD 
receives and pays for required services is another control we have 
found lacking. Many of these problems show up in DOD’s use of other 
agencies’ contracts or contracting services, which adds complexity as 
the number of parties in the contracting process increases. 

DOD has taken some steps to improve its management of services 
acquisition, and it is 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, however, 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 

What GAO Recommends: 

GAO is making no recommendations in this testimony. However, 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 Katherine V. Schinasi 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 2005, DOD 
obligated more than $141 billion on service contracts, a 72-percent 
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. 

This subcommittee has explored new approaches and supported legislation 
to improve DOD's acquisition of services. It has emphasized the use of 
sound business practices and competition to obtain services at 
reasonable prices for DOD and ultimately the taxpayer. In addition, it 
has encouraged DOD to establish a structure to better manage its 
acquisition of services. Despite these efforts, many improvements are 
still needed. The recurring nature of DOD's problems is evidenced by 
the fact that DOD contract management has been on GAO's list of high- 
risk areas since 1992.[Footnote 1] In January 2005, we added the 
management of interagency contracting to the list. In July 2006, we 
reported on DOD's vulnerabilities to contracting fraud, waste, and 
abuse.[Footnote 2] 

Today, I would like to discuss DOD's (1) increasing reliance on 
contractors, (2) failure to consistently follow sound business 
practices when acquiring services, and (3) opportunities for DOD to 
improve its management 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 General Services Administration Inspector 


Negative outcomes should be no surprise given the convergence of DOD's 
growing reliance on contractors to provide services and long-standing 
problems with contract management. These problems--ill-defined 
requirements, inadequate competition, ineffective management and 
surveillance of contractor performance, and inappropriate uses of other 
agencies' contracts--have resulted in outcomes that have cost the 
department valuable resources. These problems are not new and, if they 
remain unresolved, will only continue to waste DOD's resources. 
However, the department is not in a good position to address these long-
standing problems. DOD does not know where it wants service 
acquisitions to be in the next few years or how to get there. DOD is 
taking some steps to address these problems but much remains to be 

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 rose from $82.3 billion in 
fiscal year 1996 to $141.2 billion in fiscal year 2005 (see table 1). 
DOD committed 20 percent of its obligations on services in fiscal year 
2005 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. To a large degree, this 
growth simply happened and was not a managed outcome. 

Table 1: Changes in DOD's Use of Service Contracts, Fiscal Years 1996 
to 2005 (fiscal year 2005 dollars in billions): 

Service category: Professional, administrative, and management support; 
Service obligations Fiscal year: 1996: $10.8; 
Service obligations Fiscal year: 2005: $28.3; 
Percentage of service obligations, fiscal year 2005: 20.0; 
Percentage change, fiscal years 1996 to 2005: 161. 

Service category: Construction of facilities; 
Service obligations Fiscal year: 1996: 7.3; 
Service obligations Fiscal year: 2005: 11.7; 
Percentage of service obligations, fiscal year 2005: 8.3; 
Percentage change, fiscal years 1996 to 2005: 62. 

Service category: Maintenance and repair of equipment; 
Service obligations Fiscal year: 1996: 6.6; 
Service obligations Fiscal year: 2005: 11.4; 
Percentage of service obligations, fiscal year 2005: 8.1; 
Percentage change, fiscal years 1996 to 2005: 74. 

Service category: Information technology; 
Service obligations Fiscal year: 1996: 4.9; 
Service obligations Fiscal year: 2005: 10.3; 
Percentage of service obligations, fiscal year 2005: 7.3; 
Percentage change, fiscal years 1996 to 2005: 110. 

Service category: Medical services; 
Service obligations Fiscal year: 1996: 1.6; 
Service obligations Fiscal year: 2005: 8.0; 
Percentage of service obligations, fiscal year 2005: 5.6; 
Percentage change, fiscal years 1996 to 2005: 412. 

Service category: Transportation, travel, and relocation; 
Service obligations Fiscal year: 1996: 2.4; 
Service obligations Fiscal year: 2005: 6.2; 
Percentage of service obligations, fiscal year 2005: 4.4; 
Percentage change, fiscal years 1996 to 2005: 154. 

Service category: Housekeeping services; 
Service obligations Fiscal year: 1996: 2.4; 
Service obligations Fiscal year: 2005: 4.8; 
Percentage of service obligations, fiscal year 2005: 3.4; 
Percentage change, fiscal years 1996 to 2005: 98. 

Service category: All other services, excluding research and 
Service obligations Fiscal year: 1996: 22.7; 
Service obligations Fiscal year: 2005: 23.6; 
Percentage of service obligations, fiscal year 2005: 16.7; 
Percentage change, fiscal years 1996 to 2005: 4. 

Service category: Research and development; 
Service obligations Fiscal year: 1996: 23.7; 
Service obligations Fiscal year: 2005: 37.0; 
Percentage of service obligations, fiscal year 2005: 26.2; 
Percentage change, fiscal years 1996 to 2005: 56. 

Service category: Total, all service contracts; 
Service obligations Fiscal year: 1996: $82.3; 
Service obligations Fiscal year: 2005: $141.2; 
Percentage of service obligations, fiscal year 2005: 100.0; 
Percentage change, fiscal years 1996 to 2005: 72. 

Source: DOD's DD350 database for all actions exceeding $25,000 (data); 
GAO (analysis). 

[A] Other services include photographic, mapping, and printing; 
education and training; and social services, among others. 

[End of table] 

As service acquisition spending has grown, the size of the civilian 
workforce has decreased. More significantly, DOD carried out this 
downsizing without ensuring that it had the specific skills and 
competencies needed to accomplish DOD's mission. For example, the 
amount, nature, and complexity of contracting for services have 
increased, which has challenged DOD's ability to maintain a workforce 
with the requisite knowledge of market conditions and industry trends, 
the ability to prepare clear statements of work, the technical details 
about the services they procure, and the capacity to manage and oversee 
contractors. In addition, new skills have been required to use 
alternative contracting approaches introduced by acquisition reform 

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. Many personnel, however, are involved in 
acquiring services. In the broadest sense, these personnel include not 
only the contracting officers who award contracts, but also those 
personnel who define the requirements, receive or benefit from the 
services obtained, monitor contractor performance, and pay for the 

A report we issued in November 2006 on DOD space acquisition provides 
an example of downsizing in a critical area--cost estimating.[Footnote 
3] 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. 

DOD also relies extensively on contractors to undertake major 
reconstruction projects and provide logistical 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, 
and 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 contract. Additionally, 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. 

Other factors have contributed to the growth in service contracts. 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 4] 

DOD Does Not Consistently Use Sound Business Practices: 

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. Similarly, it does not always 
oversee and manage contractor performance once a contract is in place. 
All of these problems show up in the department's use of other 
agencies' contracts. Collectively, these problems expose DOD to 
unnecessary risk and poor outcomes. 

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. For example, 

* In June 2004, we found that during Iraqi reconstruction efforts, when 
requirements were not clear, DOD often entered into contract 
arrangements that introduced risks.[Footnote 5] We reported that DOD 
often authorized contractors to begin work before key terms and 
conditions and 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. 

* The DOD Inspector General found similar problems with DOD's use of 
letter contracts. While this type of contract may be necessary to 
initiate work quickly to meet urgent operational needs, costs on letter 
contracts are more difficult to control because the requirements and 
costs are undefined. In August 2004, the Inspector General reported 
that contracting officials did not adequately definitize the 
acquisition requirements within the required time frames. Further, the 
Inspector General noted officials did not document the reasonableness 
of the profit rates charged by the contractors.[Footnote 7] We are 
continuing to do work in this area. 

* In July 2004, we noted that personnel using the Army's Logistics 
Civil Augmentation Program (LOGCAP) contract in Iraq, including those 
that 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 8] 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 meet the customer's needs. 

* In July 2005, we reported that other agencies that DOD relied on to 
provide contracting services did not define desired outcomes or 
requirements.[Footnote 9] We found that required outcomes were not well-
defined in the cases we reviewed at franchise funds at the Departments 
of the Interior and the Treasury--GovWorks and FedSource-- that 
acquired a range of services for DOD. The GovWorks and FedSource files 
we reviewed lacked clear descriptions of requirements the contractor 
was supposed to meet. Orders generally described work in broad terms 
and documentation sometimes specifically indicated that work would be 
defined more fully after an order was placed. 

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 10] 
The sole-source contracts were awarded by DOD despite recognizing it 
was paying about 25 percent more than previously paid for contracts 
awarded competitively. 

DOD has also misused the contracts available on the General Services 
Administration's multiple-award schedules. Although DOD is required to 
foster competition and provide all contractors a fair opportunity to be 
considered for each order placed on the schedules, unless certain 
exceptions apply,[Footnote 11] DOD officials have on numerous occasions 
avoided the time and effort necessary to compete individual orders and 
instead awarded all the work to be performed to a single contractor. 
GAO work shows that this practice resulted in the noncompetitive award 
of many orders that have not always been adequately justified. 

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 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 12] 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 13] 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 the contract's requirements. 

Our review of GovWorks and FedSource also found that both DOD and 
franchise fund officials were not monitoring contracts. Further, these 
organizations lacked criteria against which contractor performance 
could be measured to ensure that contractors provided quality services 
in a timely manner.[Footnote 14] Similarly, in 2004, the General 
Services Administration Inspector General reported on problems with 
surveillance when DOD used the General Services Administration's 
Federal Technology Service (FTS). For example, in reviewing task orders 
DOD placed through FTS, the Inspector General found that payments were 
made for substandard work or for work that was incomplete or never 
delivered, for bills that contained incorrect labor rates or did not 
adhere to contract pricing terms, and for bills that included 
unsubstantiated costs. 

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. The problems 
in clearly defining requirements, inadequate competition, and 
monitoring contractor performance to ensure that the government is 
getting good value are also evident in interagency contracting, as I 
have previously discussed. However, under an interagency arrangement, 
the number of parties in the contracting process increases and so too 
does the need to ensure accountability. 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. Additionally, DOD pays a fee to other 
agencies when using their contracts or contracting services, which 
could potentially increase DOD costs. 

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 15] 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 

Similarly, our work on DOD's use of franchise funds managed by the 
Departments of the Treasury and the Interior found that sound 
management practices for ensuring competition, analyzing contracting 
alternatives, and defining outcomes were not in place. For example, 
GovWorks did not receive competing proposals for work. GovWorks also 
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 established in 
contracts with no justification in the contract files. DOD also did not 
analyze contracting alternatives and lacked information about purchases 
made through these arrangements. 

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 requirements. 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. 

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, with responsibility for acquiring services spread among 
individual military commands, weapon system program offices, or 
functional units on military bases, 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 to 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 16] Last year, 
Congress amended requirements pertaining to DOD's service contracting 
management structure, workforce, and oversight processes, among 
others.[Footnote 17] 

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 18] 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 19] 

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 20] 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 services acquisition has tended to 
be reactive and has not fully addressed the key factors for success at 
either the strategic or the transactional level. At the strategic 
level, DOD has not developed a normative position for gauging whether 
ongoing and planned efforts can best achieve intended results. Further, 
good information on the volume and composition of services is still 
wanting, perpetuating the circumstance in which the acquisition of 
services tends to happen to DOD, rather than being proactively managed. 
For example, despite implementing a review structure aimed at 
increasing insight into service transactions, DOD is not able to 
determine which or how many transactions have been reviewed.[Footnote 
21] The military departments have 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, they 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 is 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. For example, 

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

* 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. DOD expects its assessment will be 
completed in early 2007. 

That assessment, however, will have little meaning unless DOD's 
leadership can translate its vision into changes in front line 
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 in balance 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. 

Scope and Methodology: 

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

Contact and Staff Acknowledgments: 

For further information regarding this testimony, please contact 
Katherine V. Schinasi 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 Lily Chin, David E. Cooper, Timothy DiNapoli, James 
E. Fuquay, Matthew Lea, Sara Margraf, Kenneth Patton, Sylvia Schatz, 
and Amelia Shachoy. 


[1] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005). 

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

[3] 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). 

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

[5] GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures 
and Management Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004). 

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

[7] Department of Defense, Office of the Inspector General, Audit 
Report: Undefinitized Contractual Actions. Report Number D-2004-112 
(Arlington, VA.: Aug. 30, 2004). 

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

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

[10] 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). 

[11] 10 U.S.C. 2304c. 

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

[13] 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, 

[14] GAO-05-456. 

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

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

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

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

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

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

[21] 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 

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