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Report to Congressional Committees:

United States Government Accountability Office:

GAO:

December 2004:

Homeland Security:

Further Action Needed to Promote Successful Use of Special DHS 
Acquisition Authority:

GAO-05-136:

GAO Highlights:

Highlights of GAO-05-136, a report to the Senate Committee on 
Governmental Affairs and the House Committee on Government Reform: 

Why GAO Did This Study:

The Homeland Security Act of 2002 authorized the Department of Homeland 
Security (DHS) to establish a pilot program for the use of acquisition 
agreements known as “other transactions.” Because they are exempt from 
many of the requirements that apply to government contracts, other 
transactions can be useful in acquiring cutting-edge technologies from 
entities that traditionally have declined to do business with the 
government.

The act requires GAO to report to Congress on the use of other 
transactions by DHS. To fulfill this obligation, GAO (1) determined if 
DHS has developed policies and established a workforce to manage other 
transactions effectively and (2) evaluated how effectively DHS has used 
its other transactions authority to attract nontraditional government 
contractors.

What GAO Found:

The Department of Homeland Security has issued policy and is developing 
a workforce to implement its other transactions authority, but the 
department’s policies need further development and its contracting 
workforce needs strengthening to promote the successful use of the 
authority in the future. Soon after it was established, DHS issued 
other transactions solicitations using some commonly accepted 
acquisition practices and knowledge-based acquisition principles. 
Subsequently, the department issued a management directive and drafted 
guidance for using other transactions, loosely modeled on the practices 
of the Department of Defense (DOD), one of several other agencies with 
other transactions authority and the one with the most experience with 
using these agreements. Unlike DOD, however, DHS has not specified in 
its policies or guidance when its contracting staff should consider the 
use of independent audits to help ensure, for example, that payments to 
contractors are accurate. Similarly, DHS has not established training 
requirements to aid staff in understanding and leveraging the benefits 
of other transactions. The DHS contracting workforce is limited in size 
and capacity, which could impede the department’s ability to manage a 
potential increase in its other transactions workload. DHS is taking 
steps to enhance the capacity of its contracting workforce.

The DHS Science and Technology Directorate included nontraditional 
government contractors in its first two other transactions projects. 
The Directorate engaged in extensive outreach efforts, such as 
conducting briefings on its mission and research needs to industry and 
academic institutions and using a number of Web-based tools to 
publicize its solicitations. But DHS has not yet developed mechanisms 
to capture and assess the knowledge gained about the use of other 
transactions. As a result, DHS may not be able to leverage information 
from current projects for use in future solicitations that use other 
transactions. 

Profile of Early DHS Other Transactions Awards: 

Countermeasures for Man Portable Air Defense System: 

* Prototype project to protect commercial aircraft.
* Estimated total budget: $96 million. 
* Three phase I awards and two phase II awards as of October 25, 2004.

Detection Systems for Chemical and Biological Countermeasures: 

* Prototype project to protect against chemical and biological attacks.
* Estimated budget for phase I: $6.6 million.
* 17 phase I awards as of August 2, 2004

Source: DHS.
Note: All awards included a nontraditional government contractor at 
either the prime or subaward level.

[End of table]

What GAO Recommends:

To promote the efficient and effective use of its other transactions 
authority GAO recommends that DHS (1) provide guidance on including 
audit provisions in other transactions agreements, (2) develop a 
training program in the use of other transactions, and (3) capture 
knowledge obtained during the acquisition process for use in planning 
and implementing future other transactions projects.

DHS generally concurred with our recommendations. 

www.gao.gov/cgi-bin/getrpt?GAO-05-136.

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:

Scope and Methodology:

Background:

DHS Placed Initial Priority on Project Implementation while Developing 
Other Transactions Policy and Acquisition Workforce:

DHS Included Nontraditional Government Contractors in Initial Projects, 
but Practices May Not Fully Leverage Market Capabilities:

Conclusions:

Recommendations:

Agency Comments and Our Evaluation:

Appendix I: Comments from the Department of Homeland Security:

Tables:

Table 1: DHS's List of Laws Generally Inapplicable to Its Other 
Transactions Agreements:

Table 2: DHS's Purposes and Criteria for Using Other Transactions for 
Research and Prototype Projects:

Table 3: Composition of Counter-MANPADS Project Phase 1 Contractor 
Teams:

Figures:

Figure 1: S&T Directorate's Fiscal Year 2004 Acquisition Activity:

Figure 2: The S&T Directorate's Offices and Overview of 
Their Functions:

Figure 3: Mobile Laboratory--Exterior and Interior Views:

Figure 4: Illustration of Commercial Airplane Using Laser Technology to 
Deflect MANPADS Missile:

Figure 5: Overview of the S&T Directorate's Acquisition Process for 
Other Transactions:

Figure 6: Counter-MANPADS Project Phase 1 and Phase 2 Payable 
Milestones:

Figure 7: Timeline of DHS's Development of Policies and Guidance for 
Using Other Transactions and Its Ongoing Other Transactions Projects:

Figure 8: Illustration of S&T Directorate's Increasing Other 
Transactions Workload and Available In-house Contract Administration 
Support, Fiscal Year 2004 to Fiscal Year 2005:

Figure 9: Illustration of S&T Directorate's Current Acquisition 
Processes with Possible Knowledge Management Function:

Abbreviations:

BAA: broad agency announcements:

CAS: Cost Accounting Standards:

Chem-Bio: Chemical and Biological Countermeasures:

Counter-MANPADS: Countermeasures for Man Portable Air Defense System:

CPO: Chief Procurement Officer:

DARPA: Defense Advanced Research Projects Agency:

DCAA: Defense Contract Audit Agency:

DHS: Department of Homeland Security:

DOD: Department of Defense:

FAR: Federal Acquisition Regulation:

FTE: full-time equivalent:

HSARPA: Homeland Security Advanced Research Projects Agency:

IP: intellectual property:

IPT: Integrated Product Team:

R&D: research and development:

S&T: Science and Technology:

SED: Systems Engineering and Development:

United States Government Accountability Office:

Washington, DC 20548:

December 15, 2004:

The Honorable Susan M. Collins: 
Chairman: 
The Honorable Joseph I. Lieberman:
Ranking Minority Member:
Committee on Governmental Affairs: 
United States Senate:

The Honorable Tom Davis: 
Chairman: 
The Honorable Henry A. Waxman:
Ranking Minority Member: 
Committee on Government Reform: 
House of Representatives:

Protecting the nation against terrorism by researching, developing, 
testing, and deploying cutting-edge technologies is a key mission of 
the new Department of Homeland Security (DHS). The Homeland Security 
Act of 2002[Footnote 1] gave the Secretary of Homeland Security the 
authority to establish a 5-year pilot program using special acquisition 
authority, known as "other transactions," to carry out research and 
development (R&D) and prototype projects.[Footnote 2] Other 
transactions are agreements other than government contracts, grants, 
and cooperative agreements. Other transactions are exempt from the 
Federal Acquisition Regulation (FAR), the government's Cost Accounting 
Standards,[Footnote 3] and various federal statutes, and therefore can 
be customized to meet an agency's project requirements. Because fewer 
government-unique requirements apply, other transactions can be useful 
in attracting private-sector entities that traditionally have not done 
business with the government.

Section 831(b) of the Homeland Security Act requires that we report to 
the House Committee on Government Reform and the Senate Committee on 
Governmental Affairs on the use of other transactions by DHS. Based on 
discussions with your staff, we (1) determined whether DHS has 
developed policies and established a workforce to effectively manage 
the use of other transactions, and (2) evaluated how effectively DHS 
has used its other transactions authority to attract nontraditional 
government contractors.

Results in Brief:

The Department of Homeland Security has issued policy and is developing 
a workforce to implement its other transactions authority, but further 
development of the department's policies and strengthening of its 
workforce are needed to promote successful use of the authority. Soon 
after it was established, the department issued solicitations based on 
its other transactions authority, using some commonly accepted 
acquisition practices and knowledge-based acquisition principles. The 
department subsequently issued a management directive and drafted 
guidance that together provide a framework for how other transactions 
authority should be implemented. These documents, which address such 
issues as acquisition planning and determining when other transactions 
might best be used, are loosely modeled after the other transactions 
policies of the Department of Defense (DOD), one of several other 
agencies with other transactions authority and the one with the most 
experience using these agreements. Unlike DOD, however, DHS has not 
specified in its policies or guidance when its contracting staff should 
consider the use of independent audits to help ensure, for example, 
that payments to contractors are accurate. The guidance also does not 
address training requirements for DHS contracting and program staff to 
ensure that they fully understand and leverage the benefits of using 
other transactions. Recognizing that the limited size and capacity of 
the contracting workforce at DHS could impede the department's ability 
to achieve its goal of managing the potential increase in its other 
transactions workload with in-house resources, DHS is taking steps to 
enhance the capacity of its workforce.

The Science and Technology (S&T) Directorate within DHS included 
nontraditional government contractors in its two other transactions 
projects thus far. The S&T Directorate penetrated the nontraditional 
contractor market by engaging in a variety of outreach efforts, such as 
conducting briefings on its mission and research needs to industry and 
academic institutions and using a number of Web-based tools to 
publicize its solicitations. While the S&T Directorate moved quickly to 
establish its organization and initiate several acquisitions involving 
other transactions, it has not been effective in capturing and 
assessing the knowledge gained about the process of using other 
transactions. Without capturing such knowledge, DHS may not be able to 
leverage lessons learned from current projects for use in future 
solicitations.

To help DHS realize the full benefits of other transactions authority, 
we are making several recommendations to improve the department's 
policies and procedures. We are recommending that DHS (1) establish 
guidance on when it is appropriate to include audit provisions in other 
transactions agreements, (2) develop a training program for DHS staff 
in the use of other transactions to help ensure the appropriate use of 
this authority, and (3) capture knowledge obtained during the 
acquisition process for use in planning and implementing future other 
transactions projects.

We provided a draft of this report to DHS for review and comment. DHS 
agreed with our first two recommendations and noted that it is working 
to address them. Regarding our recommendation that DHS capture 
knowledge obtained during the acquisition process for use in planning 
and implementing future projects that could use other transactions, DHS 
agreed with the utility of retaining historical information about its 
procurement activities. However, DHS sought clarification about the 
types of information we recommend it retain and to what end it is to be 
used. We have added information on how DHS could capture and use 
information on practices used successfully in the past to attract 
nontraditional contractors. DHS also provided technical revisions to 
our draft report, which we incorporated as appropriate.

Scope and Methodology:

To determine whether DHS has developed policies and established a 
workforce to use other transactions, we analyzed DHS's organization, 
and policy and draft guidance for using these authorities. We 
interviewed DHS contracting officials and representatives from the DOD 
agencies that DHS has used for contracting support, officials in its 
S&T Directorate, and contractors to whom it made initial other 
transactions awards. We collected and reviewed other transactions 
agreement documents for DHS's Countermeasures for Man-Portable Air 
Defense System (Counter-MANPADS) and Chemical and Biological 
Countermeasures (Chem-Bio) projects, the only two projects with other 
transactions awards as of the time of our review. We also reviewed 
other S&T Directorate solicitations that could result in other 
transactions agreements, but which had not yet resulted in awards as of 
the completion of our audit work. We analyzed information obtained from 
our interviews and file reviews using criteria that we found are 
generally important to federal acquisitions, namely, planning, reviews 
and approvals, market knowledge, and monitoring of contractor 
performance. We derived these criteria from our prior reports on other 
transactions and knowledge-based acquisition principles, DOD's 
policies for other transactions, and selected parts of the FAR.

To determine how effectively DHS used its other transactions authority 
to attract nontraditional government contractors, we analyzed DHS's 
reported results from using these authorities in the Counter-MANPADS 
and Chem-Bio programs. We also reviewed other DHS acquisitions that 
could result in other transactions awards but for which DHS had not yet 
made awards. DHS relies on contractors to self-certify their status as 
a nontraditional government contractors during agreement negotiation. 
In analyzing the reported results from DHS's other transactions awards, 
we did not independently verify a contractor's reported status as a 
nontraditional contractor. We also compared DHS's practices to attract 
nontraditional government contractors against policies and practices 
used by DOD. In addition, we interviewed DHS contracting and project 
management officials, contractors that DHS made other transactions 
awards to, and representatives from the commercial research and 
development and technology communities to gain their perspectives on 
DHS's use of other transactions to attract nontraditional government 
contractors.

We performed our review from February through October 2004 in 
accordance with generally accepted government auditing standards.

Background:

The acquisition function plays a critical role in helping federal 
agencies fulfill their missions. DHS is expected to spend billions of 
dollars annually to acquire a broad range of products, technologies, 
and services from private-sector entities. Other transactions authority 
is one of the acquisition tools--in addition to standard FAR contracts, 
grants, and cooperative agreements--available to DHS to help support 
its mission. Other transactions were created to enhance the federal 
government's ability to acquire cutting-edge science and technology. 
They help agencies accomplish this, in part, through attracting 
nontraditional contractors from the private sector and other areas that 
typically have stayed away from pursuing government contracts. There 
are two types of other transactions authorities--(1) research and (2) 
prototype. Other transactions for research are used to perform basic, 
applied, or advanced research. Other transactions for prototypes are 
used to carry out projects to develop prototypes used to evaluate the 
technical or manufacturing feasibility of a particular technology, 
process, or system. A single S&T program could result in multiple 
awards using other transactions.

Because they are exempt from certain statutes, other transactions 
permit considerable latitude by agencies and contractors in negotiating 
agreement terms. For example, other transactions allow the federal 
government flexibility in negotiating intellectual property and data 
rights, which stipulate whether the government or the contractor will 
own the rights to technology developed under the other transactions 
agreement. Table 1 shows the statutes that DHS has determined are 
generally inapplicable to its other transactions agreements.

Table 1: DHS's List of Laws Generally Inapplicable to Its Other 
Transactions Agreements:

Law: Sections 202-204 of the Bayh-Dole Act (35 U.S.C. sections 
200-212); 
Description: Prescribes the government's rights in patentable 
inventions made with government funds.

Law: Competition in Contracting Act (Pub. L. No. 98-369 [1984]), as 
amended; 
Description: Promotes the use of competitive procurement procedures and 
prescribes uniform, governmentwide policies and procedures regarding 
contract formation, award, publication, and cost or pricing data.

Law: Contract Disputes Act, Pub. L. No. 95-563 (1978), as amended, 41 
U.S.C. 601 et seq; 
Description: Provides for the resolution of claims and disputes 
relating to government contracts.

Law: Procurement Protest System, Subtitle D of Competition in 
Contracting Act, Pub. L. No. 98-369 (1984), 31 U.S.C. 3551 et seq; 
Description: Provides statutory basis for procurement protests by 
interested parties to the Comptroller General.

Law: 31 U.S.C. 1352, Limitation on the use of appropriated funds to 
influence certain federal contracting and financial transactions; 
Description: Prohibits the use of funds to influence or attempt to 
influence government officials or Members of Congress in connection 
with the award of contracts, grants, loans, or cooperative agreements.

Law: Anti-Kickback Act of 1986, 41 U.S.C. 51-58; 
Description: Prohibits kickbacks in connection with government 
contracts and provides civil and criminal penalties.

Law: Procurement Integrity Provisions, Section 27 of the Office of 
Federal Procurement Policy Act, 41 U.S.C. 423; 
Description: Imposes civil, criminal, and administrative sanctions 
against individuals who inappropriately disclose or obtain source 
selection information or contractor bid and proposal information.

Law: Service Contract Act, 41 U.S.C. 351 et seq, Walsh Healey Act, 41 
U.S.C. 35-45; 
Fair Labor Standards Act of 1938, 29 U.S.C. 201-219; 
Description: Provide protections for contractor employees.

Law: Drug-Free Workplace Act of 1988, 41 U.S.C. 701-707; 
Description: Eliminates any connection between drug use or distribution 
and federal contracts, cooperative agreements, or grants.

Law: Buy American Act, 41 U.S.C. 10a-d; 
Description: Provides preferences for domestic end products. 

Source: DHS.

Note: According to DHS, this list of key statutes that apply to 
procurement contracts that are not necessarily applicable to other 
transactions is not intended to be definitive. DHS's other transaction 
policy states that contracting officers should review each statute with 
regard any particular arrangement using other transactions and consult 
their General Counsel to determine its applicability. To the extent a 
particular statute is funding-or program-related, or is not tied to the 
instrument used, it generally will apply to an other transaction. This 
table should not be construed as representing GAO's views concerning 
the applicability of statutes to other transactions agreements.

[End of table]

Because other transactions agreements do not have a standard structure 
based on regulatory guidelines, they can be challenging to create and 
administer. Experts on other transactions and industry officials who 
have used these procurement arrangements told us that other 
transactions agreement terms are significantly different from FAR 
contracts and more closely resemble procurement agreements between 
private-sector firms. According to DHS, the unique nature of other 
transactions agreements means that federal government acquisition staff 
who work with other transactions agreements should have experience in 
planning and conducting research and development acquisitions, strong 
business acumen, and sound judgment to enable them to operate in a 
relatively unstructured business environment.

DHS views the use of other transactions as key to attracting 
nontraditional government contractors--typically high-technology firms 
that do not work with the government--that can offer solutions to meet 
agency needs. As defined by the Homeland Security Act,[Footnote 4] a 
nontraditional government contractor is a business unit that has not, 
for at least a period of 1 year prior to the date of entering into or 
performing an other transactions agreement, entered into or performed:

* any contract subject to full coverage under the cost accounting 
standards or:

* any contract in excess of $500,000 to carry out prototype projects or 
to perform basic, applied, or advanced research projects for a federal 
agency that is subject to compliance with the FAR.

The S&T Directorate of DHS supports the agency's mission by serving as 
its primary research and development arm. According to a senior DHS 
Chief Procurement Office official, the S&T Directorate currently is the 
only DHS organization using the other transactions authority provided 
in the Homeland Security Act. As of September 2004, other transactions 
agreements accounted for about $125 million (18 percent) of the S&T 
Directorate's fiscal year 2004 total acquisition activity of $715.5 
million.[Footnote 5] The S&T Directorate's fiscal year 2004 total 
acquisition activity is depicted in figure 1.

Figure 1: S&T Directorate's Fiscal Year 2004 Acquisition Activity:

[See PDF for image]

Note: Inter-Agency Agreements are the means by which the S&T 
Directorate transfers funds to national or university laboratories to 
conduct R&D activities.

[End of figure]

DHS Placed Initial Priority on Project Implementation while Developing 
Other Transactions Policy and Acquisition Workforce:

After DHS was established in 2003, the department rapidly established 
the S&T Directorate, which issued several solicitations using other 
transactions authority. These solicitations used some commonly accepted 
acquisition practices and knowledge-based acquisition principles. DHS 
issued a management directive, drafted guidance, and recruited 
additional program and contracting staff, which now provide a 
foundation for using other transactions authority; however, refinements 
in these policies and attention to workforce issues are needed to 
promote success in the department's future use of other transactions. 
DHS's policy guidance does not specify when audit requirements should 
be included in its other transactions agreements to help ensure, for 
example, that payments to contractors are accurate. Also, the 
department's guidance does not address training requirements for its 
contracting and program staff to ensure that staff understand and 
leverage the use of other transactions. In addition, the limited size 
and capacity of DHS's internal contracting workforce to conduct other 
transactions may hamper DHS's goal to internally manage its increasing 
number of mission programs that could use its other transactions 
authority.

DHS Simultaneously Established Its Science and Technology Organization 
and Implemented Projects:

DHS was directed by Congress and the executive branch to quickly 
initiate and execute R&D projects to help strengthen homeland security. 
The S&T Directorate at DHS was largely established to centralize the 
federal government's homeland security R&D efforts, a function that was 
not the responsibility of any of DHS's legacy agencies. Figure 2 
depicts the Directorate's four offices and their functions. The S&T 
Directorate initiated various projects to address homeland security 
concerns, including two prototype projects using other transactions 
authority. Initiating and executing these first projects took priority 
over establishing the Directorate's operating procedures. The S&T 
Directorate's need to rapidly initiate and execute projects forced a 
reliance on other federal agencies' acquisition offices to award and 
administer its project agreements.

Figure 2: The S&T Directorate's Offices and Overview of 
Their Functions:

[See PDF for image]

[A] HSARPA is managing the Chem-Bio program.

[B] SED is managing the Counter-MANPADS program.

[End of figure]

The S&T Directorate hired program managers and staff with R&D expertise 
from other government agencies and the private sector to manage its 
other transactions authority and other acquisitions. These initial 
hires included several former Defense Advanced Research Projects Agency 
(DARPA) officials experienced in R&D and other transactions authority 
acquisitions. In the absence of DHS policies and procedures for other 
transactions, the S&T Directorate relied on these key officials and 
other staff with R&D expertise in their former organizations to 
implement its early projects. These experienced staff helped train DHS 
program and contracting staff in other transactions and supervised and 
managed the acquisition process. For example, one official drafted a 
model other transactions agreement and guided program managers and 
contracting officers through the other transactions process. In 
addition to these officials, the S&T Directorate obtained portfolio and 
program managers from other government agencies and federal 
laboratories to act in key programmatic positions in their areas of 
expertise. Some of these portfolio and program managers serve on detail 
from their home agency. The S&T Directorate's workforce strategy is to 
have its program and technical staff serve term appointments, most of 
which will not be longer than 4 years, in order to promote the influx 
of leading-edge science and technology skills to DHS.

DHS's planning and budget documents identified the need to develop 
countermeasures and detection systems against chemical-biological 
(Chem-Bio) and radiological-nuclear attacks. Under one area of the 
Chem-Bio project, being implemented by the S&T Directorate using other 
transactions, DHS is developing mobile laboratories to be rapidly 
deployed in the field to detect and analyze chemical warfare agents and 
toxic industrial chemicals in the environment. Figure 3 depicts a 
mobile laboratory being developed for DHS.

Figure 3: Mobile Laboratory--Exterior and Interior Views:

[See PDF for image]

[End of figure]

The S&T Directorate also initiated projects to address homeland 
security needs identified by Congress and the executive branch. One 
such project is aimed at protecting commercial aircraft against 
possible terrorist use of shoulder-fired missiles, sometimes referred 
to as man-portable air defense systems (MANPADS). The Counter-MANPADS 
other transaction project is a multiyear development and demonstration 
program that will produce prototype systems to be used on commercial 
aircraft to defend against shoulder-fired missiles. An illustration of 
a proposed Counter-MANPADs technology being considered by DHS is 
depicted in figure 4.

Figure 4: Illustration of Commercial Airplane Using Laser Technology to 
Deflect MANPADS Missile:

[See PDF for image]

[End of figure]

Other Transactions Projects Used a Variety of Acquisition Techniques:

The S&T Directorate and Office of the Chief Procurement Officer (CPO) 
used Federal Acquisition Regulation principles as a framework for other 
transactions solicitations. The Directorate also utilized additional 
acquisition tools commonly used by DARPA and other agencies, such as:

* broad agency announcements (BAA) to serve as general announcements of 
the Directorate's research interest, including general principles for 
selecting proposals, and soliciting the participation of all offerors 
capable of satisfying the S&T Directorate's needs;

* a white paper process under which firms submit to S&T brief synopses 
of the main concepts of a proposal introducing technology innovations 
or solutions; and:

* payable milestone evaluations under which the S&T Directorate's 
managers measure the progress of its projects at key points before 
making payments to contractors.

The S&T Directorate modeled its acquisition process after DARPA's to 
solicit proposals from as many industry sources as possible to meet its 
research needs and hosted technical workshops and bidders conferences 
for its early solicitations to help convey its technical needs to 
industry. An overview of the S&T Directorate's generally used 
acquisition process for other transactions is in figure 5.

Figure 5: Overview of the S&T Directorate's Acquisition Process for 
Other Transactions:

[See PDF for image]

Note: According to DHS, not all steps apply for all of its 
acquisitions.

[A] For the Counter-MANPADS and Chem-Bio solicitations, other 
transactions for prototypes were the only acquisition vehicle 
solicited. After the Counter-MANPADS and Chem-Bio projects, HSARPA 
modified its solicitation strategy and began issuing BAA solicitations 
offering the choice of different acquisition vehicles (contract, grant, 
cooperative agreement, or other transaction) for its projects. HSARPA 
indicated that the BAA process will be used the most for its future 
projects.

[End of figure]

The Homeland Security Advanced Research Projects Agency (HSARPA) and 
Office of Systems Engineering and Development (SED) hosted technical 
workshops prior to publishing some of their early solicitations to 
obtain information from the industry on what technical requirements 
were feasible to include in the solicitation. Following the issuance of 
the solicitations, HSARPA and SED held bidder's conferences to answer 
industry questions about the solicitations.

The S&T Directorate used a white paper review stage in its early 
solicitations, including solicitations for the Counter-MANPADS and 
Chem-Bio programs. According to DHS's Chem-Bio solicitation, the use of 
the white paper approach allows DHS to provide firms with feedback on 
their proposed technologies without the firms having to incur the 
expense and time of writing complete proposals. For the Chem-Bio 
project, HSARPA received over 500 white papers from industry. S&T 
officials told us they provided each contractor that submitted a white 
paper for this project with feedback, giving the agency's views on the 
merits of the proposed technology. HSARPA officials told us that the 
white paper process helps ensure that the office gets the best 
proposals and represents an inexpensive way for nontraditional firms to 
pursue business with DHS.

To rapidly execute its projects, including other transactions 
agreements, the S&T Directorate used other federal agencies to award 
and administer its contracts to fill DHS's contracting workforce gaps. 
DHS has interagency agreements with these agencies for their 
contracting services. For example, HSARPA is using the U.S. Army 
Medical Research Acquisition Activity, based in Ft. Detrick, Maryland, 
which performs acquisition services for the Army, to award other 
transactions instruments in support of its Chem-Bio project.[Footnote 
6] In addition, DHS is using a contractor who is an expert in other 
transactions and R&D procurement to help draft its other transactions 
policy guidance and also provide assistance to administer several of 
its other transactions projects.

Process for Other Transactions Uses Some Knowledge-Based Approaches:

The S&T Directorate incorporated some knowledge-based acquisition 
approaches throughout its acquisition process for using its other 
transaction authorities. We previously reported that an agency's use of 
a knowledge-based acquisition model is key to delivering products on 
time and within budget. By using a knowledge-based approach, an agency 
can be reasonably certain about the progress of its project at critical 
junctures during development, which helps to ensure that a project does 
not go forward before the agency is sure that the project is meeting 
its needs.[Footnote 7] For example, some of the knowledge-based 
approaches being used by the S&T Directorate and CPO to manage their 
Counter-MANPADS and Chem-Bio other transaction projects are as follows:

* Integrated Product Teams (IPTs). Using IPTs to bring together in a 
single organization the different functions needed to ensure a 
project's success is a knowledge-based acquisition best 
practice.[Footnote 8] The S&T Directorate formed IPTs that combine the 
expertise of representatives from each of its four offices to analyze 
customer requirements and make planning and budget decisions for the 
portfolio.

* Contractor Payable Milestone Evaluations. The S&T Directorate's 
program managers measure the progress of its projects at key points 
before making payments to contractors. These milestones are usually 
associated with contractors satisfying certain performance criteria--
commonly referred to as "exit criteria."[Footnote 9] Examples of SED's 
four payable milestones for Phase I and six payable milestones for 
Phase II of the Counter-MANPADS project are shown in figure 6.

* Design Reviews. HSARPA and SED program managers also use design 
review decision points to ensure the contractor's product development 
is meeting program expectations and to determine if the product is 
ready to proceed to the next stage of development. (See figure 6 for 
the design review points in Phase I of the Counter-MANPADS project.)

Figure 6: Counter-MANPADS Project Phase 1 and Phase 2 Payable 
Milestones:

[See PDF for image]

Note: Payment milestones depicted above are for illustration only as 
provided in DHS's solicitation. According to DHS, proposers were 
encouraged to alter the schedule to accommodate their individual 
program solutions and this figure does not reflect the individual 
milestones that were ultimately negotiated with each of the successful 
teams. DHS has negotiated its phase II milestones, which may deviate 
from representation above.

[End of figure]

Changes in Policies and Enhancement of Acquisition Workforce Could Help 
Sustain Long-Term Use of Other Transactions:

In 2002 we identified key success factors for DHS to effectively create 
its organization, including creating strong systems and controls for 
acquisition and related business processes.[Footnote 10] The 
development of formal policies and procedures for DHS's authority to 
use other transactions is guided by statute and DOD's experiences and 
practices in using the other transactions authority. DOD's extensive 
experiences with and policies for using other transactions provide a 
useful framework for the effective management of projects using other 
transactions. For example, DOD uses a guidebook for other transactions 
prototype projects, which provides detailed policies and procedures in 
areas such as criteria for using other transactions, acquisition 
planning, agreement execution, and reporting requirements.[Footnote 
11]

DHS Is Developing Its Other Transactions Authority Policies:

In 2004 DHS prepared several policy and draft guidance documents, which 
should help provide DHS with a structure for using its other 
transactions authority. In October 2004, DHS issued an other 
transactions management directive, which provides DHS's policy for the 
use of other transactions for research and for prototype projects. The 
policy is generally consistent with DOD's policy. The management 
directive prescribes the responsibilities of key officials in using 
other transactions, such as the DHS Under Secretary of Management and 
its Chief Procurement Officer. Specifically, under the management 
directive, the CPO is responsible for setting policy, conducting 
oversight, and approving the use of other transactions authority for 
each project. The management directive also provides general policies 
and requirements for the documentation of a strategy for using other 
transactions and provides the purposes and criteria for using research 
and prototype other transactions. DHS's explanation of the types of 
other transactions and criteria for their use, if effectively 
implemented, should help promote its compliance with the Homeland 
Security Act[Footnote 12] by helping to ensure that agency officials 
adequately assess the utility of other acquisition vehicles--such as 
FAR contracts, grants, or cooperative agreements, prior to using an 
other transaction for research. The purposes and criteria for other 
transactions use as stated by DHS are shown in table 2.

Table 2: DHS's Purposes and Criteria for Using Other Transactions for 
Research and Prototype Projects:

Type of other transaction: Research; 
Purposes for use of other transaction: Carry out basic, applied, or 
advanced research programs where the main purpose is to stimulate or 
support homeland security technologies. Support nonfederal participants 
seeking to broaden the homeland security technology knowledge base; 
Criteria for use of other transaction: 
* To develop innovative approaches when a standard procurement 
contract, grant, or cooperative agreement is not appropriate or 
feasible; 
* Use the flexibility provided in the Homeland Security Act to reduce 
government-specific administrative requirements for acquisition or 
assistance instruments; 
* Require, to the maximum extent practicable, a 50 percent resource 
sharing of program costs between DHS and the contractor.

Type of other transaction: Prototype; 
Purposes for use of other transaction: Implement prototype projects in 
support of systems proposed to be developed or acquired by DHS. Help 
DHS achieve the commercial technology integration to reduce the cost of 
homeland security items and systems; 
Criteria for use of other transaction: 
* At least one nontraditional government contractor participates to a 
significant extent in the project; 
* If not, one of the following circumstances exists: 
- At least 1/3 of the total project cost is to be paid by parties to 
the transaction other than the federal government; 
- DHS's CPO determines, in writing, that exceptional circumstances 
justify the use of a transaction that provides for innovative business 
arrangements or structures that would not be feasible or appropriate 
under a procurement contract. 

Source: DHS.

[End of table]

DHS is using a contractor experienced with other transactions to assist 
in the preparation of a guidebook for using other transactions for 
prototype projects. The draft guidebook, which is loosely based on the 
DOD guide on other transactions for prototype projects, provides a 
broad framework for DHS to plan and use other transactions. It covers 
topics such as acquisition planning, market research, acquisition 
strategy, and agreements analyses requirements.[Footnote 13] According 
to a DHS official, its draft guidebook, when completed, is not to be 
part of the DHS official management directive system.

In addition, the contractor drafted a lessons learned report on other 
transactions to help DHS fully leverage the benefits and minimize any 
problems associated with using other transactions. DHS's draft lessons 
learned report on other transactions summarizes lessons from various 
sources, such as federal agencies and think tanks with other 
transactions experience, on topics related to those discussed in the 
draft guidebook. Figure 7 shows the development of DHS's other 
transactions policy.

Figure 7: Timeline of DHS's Development of Policies and Guidance for 
Using Other Transactions and Its Ongoing Other Transactions Projects:

[See PDF for image]

Note: In addition to the two programs noted in this figure, the S&T 
Directorate issued approximately five additional solicitations from 
November 2003 through October 2004 that could result in multiple other 
transaction awards.

[End of figure]

Other Transactions Policy Does Not Address Audit and Training 
Requirements:

DHS's management directive and draft guidebook for other transactions 
does not yet specify roles, responsibilities, and requirements for 
agency program and contracting officials in two key areas: audit and 
training. Addressing these areas is important since, according to DHS 
officials, DHS plans to issue solicitations that could result in other 
transactions use at an increasing rate. S&T Directorate and CPO 
officials acknowledged the importance of these areas and told us they 
intend to address them in the future.

* Audit requirements. While DHS's management directive covers 
Comptroller General access to contractor records under certain 
conditions, the directive does not address audits by other entities or 
specify other circumstances when audits of other transactions 
agreements may be needed to protect the government's interest. For 
example, audits may be needed in certain other transactions agreements 
to help ensure that payments to contractors are accurate. DOD's policy 
for auditing prototype other transactions projects,[Footnote 14] by 
contrast, provides more complete guidance on audits of other 
transactions agreements. For example, the DOD policy states that 
contracting officers should include information on the frequency of 
audits, scope of audits, and the means by which audits are to be 
performed. DOD's policy also recognizes the flexibility in negotiating 
other transactions agreements by allowing the contracting officer, in 
certain circumstances, to waive the inclusion of audit provisions if it 
would adversely affect the execution of the agreement. DHS's management 
directive, in contrast, does not address these conditions. A DHS 
official told us that its contracting officers negotiate specific 
auditing provisions in other transactions agreements with contractors 
on a case-by-case basis.[Footnote 15]

Also, the DOD other transactions prototype projects policy has 
provisions for its contracting officers to use the Defense Contract 
Audit Agency (DCAA)[Footnote 16] or another independent auditor to 
audit other transactions agreements. Although DHS has a Memorandum of 
Understanding with DCAA to provide contract audit services, neither 
DHS's other transactions management directive nor its draft guidance 
contain information on the specific conditions when contracting 
officers should use DCAA's or another independent auditor's services.

* Training requirements. DHS's management directive requires other 
transactions contracting officers to be senior warranted contracting 
officers with a Level III acquisition certification[Footnote 17] and 
who possess a level of experience, responsibility, business acumen, and 
judgment that enables them to operate in this relatively unstructured 
business environment. This staffing requirement for other transactions 
closely mirrors the contracting workforce staffing qualification used 
by DOD. DHS's management directive also requires its contracting staff 
to possess a special contracting officer certification, which can be 
achieved only after the staff have received appropriate training in 
other transactions. However, DHS has not yet developed a training 
program on other transactions for its contracting officers or its 
program managers expected to work on other transactions projects.

By not establishing other transactions training requirements and 
schedules for its contracting and program staff to complete them, DHS 
may not be equipping its staff to fully understand and leverage the 
benefits of other transactions. We have previously reported on the 
importance of training and reported that leading organizations usually 
prioritize key processes, identify staff needing training, and 
establish requirements to ensure that the appropriate staff are 
trained. Furthermore, because S&T's technical program personnel serve 
on details from other government agencies and have varying levels of 
experience with other transactions, appropriate training is key to help 
ensure that such staff uniformly and effectively use other 
transactions. DHS's draft lessons learned report on other transactions 
states that it is critical to train contracting officers on aspects 
such as (1) the flexibilities associated with other transactions to 
help ensure the proper and optimal use of the authority, and (2) 
negotiating intellectual property (IP) rights, which can vary from 
project to project.

Acquisition Workforce Capacity May Limit DHS's Ability To Manage A 
Growing Future Other Transactions Workload:

The S&T Directorate plans an increasing number of mission programs that 
could use its other transactions authority, but DHS's current 
contracting workforce may not be sufficient to manage this workload. 
DHS has relied on a small number of key S&T program personnel, who are 
experienced other transactions practitioners, to develop or approve 
solicitations. In fiscal year 2004, two of the S&T Directorate's 
programs resulted in other transactions awards--Counter-MANPADS and 
Chem-Bio. In fiscal year 2005, the S&T Directorate could award other 
transaction agreements for at least eight additional programs, which 
could significantly increase its contracting workload because some 
programs could include multiple other transactions awards. (One S&T 
program could result in multiple awards using other transactions, 
contracts, grants, or cooperative agreements as the acquisition 
vehicle.) For example, S&T's ongoing Chem-Bio project has resulted in 
17 other transactions awards as of August 2, 2004. Figure 8 depicts the 
S&T Directorate's project workload that could involve other 
transactions and the corresponding CPO in-house contracting support.

Figure 8: Illustration of S&T Directorate's Increasing Other 
Transactions Workload and Available In-house Contract Administration 
Support, Fiscal Year 2004 to Fiscal Year 2005:

[See PDF for image]

Note: This figure depicts the scenario where DHS uses only its in-house 
contracting staff for its other transactions projects. However, DHS is 
currently supplementing these staff by using other federal agencies for 
contract award and administration support. At the end of fiscal year 
2004 CPO dedicated six contracting staff--some of which are warranted 
contracting officers qualified in other transactions agreements--to 
support the S&T Directorate's acquisitions; at the start of fiscal year 
2004, it had 1 full-time (staffing) equivalent (FTE) supporting S&T's 
acquisitions. According to CPO, these staff will help conduct S&T's 
acquisitions, which include other transactions. According to CPO and 
S&T Directorate officials, they intend to increase this staff support 
to 15 staff by the end of fiscal year 2005.

[End of figure]

DHS is currently developing a plan to address contracting workforce 
issues. Senior DHS officials told us that their strategy is to 
generally have in-house contracting staff award and administer all of 
the S&T Directorate's other transactions and R&D projects by fiscal 
year 2006. Currently, CPO has dedicated six contracting staff--some of 
whom are warranted contracting officers dedicated to conducting other 
transactions--to support S&T acquisitions on a temporary basis. CPO and 
S&T Directorate officials told us that they intend to increase this 
staff support to 15 staff by the end of fiscal year 2005.

As cited in DOD policy and DHS's guidance, acquisition staff that award 
and administer other transactions need special skills and experience in 
business, market acumen, and knowledge of intellectual property issues. 
CPO and S&T Directorate officials told us that contracting officers 
with these skills and experience are difficult to find in the current 
acquisition workforce. In addition, they noted lengthy delays in DHS's 
ability to process needed security clearances for these staff, which 
caused some contracting officer candidates to accept positions 
elsewhere. DHS's challenges in developing its acquisition workforce are 
similar to other federal agencies' experiences in managing attrition 
and retirements affecting their acquisition workforces.[Footnote 18]

As a result, DHS will continue to rely on other agencies for 
contracting support until the end of fiscal year 2006. For example, for 
its Chem-Bio other transactions project, the S&T Directorate is using 
DOD's U.S. Army Medical Research Acquisition Activity for contracting 
support. According to DHS's S&T Directorate and CPO officials, the 
offices are in the process of drafting a Memorandum of Understanding 
regarding the contracting personnel that CPO will dedicate to support 
the S&T Directorate's projects.

DHS Included Nontraditional Government Contractors in Initial Projects, 
but Practices May Not Fully Leverage Market Capabilities:

DHS included nontraditional government contractors in its two initial 
other transactions projects. But DHS is not capturing knowledge learned 
from these acquisitions that could be used to plan and execute future 
projects. The S&T Directorate has conducted outreach to engage 
nontraditional government contractors in its early projects, including 
briefing industry associations, setting up a Web site to facilitate 
contractor teaming, and conducting project-specific workshops. 
However, the S&T Directorate does not systematically capture and use 
knowledge learned from its acquisition activities for use by program 
staff.

Other Transactions Authority Facilitated Inclusion of Nontraditional 
Government Contractors in Early Awards:

The S&T Directorate's Counter-MANPADS and Chem-Bio projects included 
nontraditional government contractors in all of the initial awards at 
the prime and subcontractor levels. For example, in February 2004 DHS 
made three Phase I awards for the Counter-MANPADS project to contractor 
teams led by BAE Systems, Northrop Grumman, and United Airlines (a 
nontraditional contractor). BAE Systems and Northrop-Grumman, which are 
traditional contractors, included nontraditional contactors on their 
teams. Nontraditional government contractors serve significant roles in 
the Counter-MANPADS and Chem-Bio projects, such as leading the aircraft 
integration team incorporating the counter measure technology with 
commercial aircraft in the Counter-MANPADS project. Table 3 shows the 
composition of the Counter-MANPADS project contractor teams.

Table 3: Composition of Counter-MANPADS Project Phase 1 Contractor 
Teams:

Prime contractor: Northrop Grumman Systems Corporation; 
Other principal team members: 
* FedEx Corporation[A]; 
* Northwest Airlines [A].

Prime contractor: BAE Systems; 
Other principal team members: 
* Honeywell International's Air Transport Systems[A]; 
* Delta Airlines Technical Operations[A].

Prime contractor: United Airlines, Inc.[A]; 
Other principal team members: 
* Avisys, Inc.[B]; 
* ARINC Engineering Services.

Source: DHS.

[A] Nontraditional government contractor.

[B] According to DHS, L3 Communications acquired Avisys, Inc. in June 
2004.

[End of table]

An intent of Congress in granting other transactions authority to DHS 
was to attract firms that traditionally have not worked with the 
federal government. The use of other transactions may help attract 
high-tech commercial firms that have shied away from doing business 
with the government because of the requirements mandated by the laws 
and regulations that apply to traditional procurement contracts. 
According to DHS officials, early DHS other transactions award 
recipients, and industry association officials, two primary barriers to 
nontraditional contractors pursuing government contracts are:

* Intellectual Property (IP) Rights. IP rights refer to access to 
information or data used in the performance of work under a contract. 
We previously reported on contractors' reluctance to pursue government 
R&D funding because the FAR's IP provisions could give the government 
rights to certain information and data, which could decrease their 
businesses' competitive advantage.[Footnote 19] For example, a 
nontraditional contractor without prior federal R&D contracting 
experience under the FAR who won one of DHS's early other transactions 
awards told us that the flexibility to negotiate IP rights was critical 
to its participation because it allowed the contractor to negotiate IP 
rights favorable to its company.

* Cost Accounting Standards (CAS). CAS are the federal government's 
accounting requirements for the measurement, assignment, and allocation 
of costs to contracts. According to contractors and procurement experts 
outside the government that we interviewed, nontraditional firms 
generally do not operate accounting systems in compliance with the 
federal government's CAS, and developing such systems can be cost 
prohibitive. For example, a nontraditional contractor who won an 
initial DHS other transactions award told us developing a CAS-compliant 
accounting system would have required the establishment of a subsidiary 
firm to perform its accounting functions.

Extensive Outreach Used to Attract Nontraditional Contractors:

DHS's Science and Technology Directorate used extensive outreach to 
attract nontraditional contractors to participate in its projects. It 
briefed industry groups, conducted project-specific workshops, and used 
Web sites to publicize the agency's needs. In the fall of 2003, shortly 
after the S&T Directorate was established, its HSARPA sponsored 
separate 1-day briefings to business and academia to help engage the 
private sector in R&D to satisfy DHS's needs. These sessions were 
designed to gather input on best practices to optimize the 
solicitation, procurement, and program execution aspects of its 
projects. For example, at these sessions DHS officials presented 
information on its:

* organization and approach to program management, such as the roles 
and responsibilities of agency officials and managers;

* investment and research priorities;

* available solicitation methods, such as requests for proposals, broad 
agency announcements, and research announcements; and:

* possible procurement vehicles, including FAR contracts, grants, 
cooperative agreements, and other transactions.

The S&T Directorate supplemented these sessions by conducting project-
specific industry workshops and other outreach events. For example, in 
October 2003, the S&T Directorate held an industry day session for its 
Counter-MANPADS project. The session provided participants with 
background on the project, the structure of the DHS organization that 
would manage it, the program's goals and schedule, and an overview of 
other transactions for prototypes. DHS presented detailed information 
on the nature and requirements of other transactions agreements, firms 
that may qualify as a nontraditional contractor, and laws that would 
not apply to other transactions. In addition, the S&T Directorate gave 
an overview of the other transactions solicitation process to be used 
for the project, which covered topics such as the white paper process, 
oral presentations, and the proposed other transactions agreement. DHS 
attracted almost 200 participants to this event--approximately 85 
percent of whom were from industry.

Also, in September 2003, DHS held a bidders conference for its Chem-Bio 
project where it described its technical requirements and the 
solicitation process for this project. According to an agency official, 
the conference gave DHS the opportunity to obtain input from the 
private sector on the technical aspects of its solicitation and to 
answer participants' questions about the solicitation. Similarly, DHS 
held technical workshops for projects that may result in other 
transactions awards, such as those intended to counter threats from 
truck, suicide, and public transportation bombs and to design cyber 
security systems.

DHS also created and used Web sites to publicize its activities and 
procurement needs. For example, DHS created the "DHS--Open for 
Business" site, which centralizes information on its contracts, grants, 
small business opportunities, and R&D efforts. According to DHS, this 
site is intended to complement governmentwide portals such as Federal 
Business Opportunities, known as FedBizOpps. In addition, HSARPA 
created a solicitation and teaming portal Web site to help attract 
firms (www.hsarpabaa.com). On this site, HSARPA announces its current 
project solicitations and offers a teaming portal where contractors can 
learn about possible partners to bid on DHS work. This site also 
contains links to other DHS programs to facilitate industry 
participation in its projects, such as its Small Business Innovation 
Research program, which DHS established in December 2003 to increase 
the participation of innovative and creative small businesses in its 
R&D programs. Also, the site has a mailing list function where 
contractors can register to receive electronic e-mail notices of 
upcoming HSARPA solicitations.

We found that industry's views vary on the effectiveness of DHS's 
outreach efforts. Some contractors and industry associations we 
interviewed said these outreach efforts are having a positive impact on 
the procurement process. For example, an industry association head in 
the technology field told us that DHS's use of Broad Agency 
Announcements and other flexible solicitation methods to publicize its 
technology and research needs may help to attract nontraditional 
contractors. Officials from two technology associations told us 
commercial firms that traditionally do not work with the federal 
government believe that government officials have preconceived ideas of 
exactly what technology they need and which contractors they want to 
work with. However, one of the officials stated that DHS's use of the 
BAA process demonstrates to industry that the agency desires to hear 
all the possible technology solutions that may meet its needs.

Other industry officials believed that DHS's outreach actions could be 
improved, for example, if DHS took additional actions to inform 
industry that it has other transactions authority and developed a more 
user-friendly process to attract broader interest in its projects. 
Representatives of a large industry association we interviewed were not 
aware that DHS possesses other transactions authority and said if this 
fact were more widely known, it could increase industry's interest in 
working with DHS. In addition, representatives of some small companies 
told us that the fee DHS charges to attend its outreach events[Footnote 
20] could pose a barrier to attending them. Also, several contractors 
we interviewed told us that DHS's teaming portal site is a good idea in 
concept but found it cumbersome to maneuver in the automated system. 
However, two of the nontraditional contractors we interviewed that 
received a DHS other transactions award used this site to help identify 
industry partners for their team.

Lack of Systematic Assessment of Acquisition Activities Involving Other 
Transactions Impairs Ability to Capture and Use Knowledge:

The S&T Directorate's capacity to build and sustain knowledge for use 
in its future acquisitions involving other transactions is in the early 
stages of development but the Directorate has not yet developed 
policies or procedures to ensure that program and portfolio managers 
are capturing and assessing critical information and knowledge gained 
from its acquisition activities, including the use of other 
transactions, for use in future projects.

Knowledge gained from prior other transactions acquisitions on issues 
ranging from seeking nontraditional government contractors to assessing 
project outcomes is key to planning future projects. A knowledge base 
of important lessons learned from outreach to private-sector firms, the 
acquisition process, and the design and execution of projects can 
facilitate the work of program and acquisition staff in planning future 
acquisitions using other transactions authority. DHS's draft guidebook 
on other transactions for prototypes acknowledges the importance of 
documenting knowledge gained during the acquisition process for 
planning future other transactions acquisitions. We have also reported 
on the benefits of agencies using systematic methods to collect, 
verify, store, and disseminate information for use by their current and 
future employees.[Footnote 21] Our previous work has identified the 
importance of setting goals and identifying performance indicators that 
will inform federal agencies of whether they have achieved the 
performance they expected.[Footnote 22] S&T Directorate officials 
acknowledge the need to create a "corporate memory" function to provide 
future staff with access to information and knowledge obtained from its 
current projects and to incorporate such knowledge into its training 
efforts.

The S&T Directorate's workforce-staffing strategy necessitates that it 
have a policy and procedure in place to capture employees' knowledge. 
Under its current workforce strategy, the S&T Directorate's technical 
staff serves regularly rotating term appointments that typically do not 
exceed 4 years. This approach, according to S&T Directorate officials, 
is designed to promote the influx of leading-edge science and 
technology skills to DHS. S&T Directorate officials recognize that 
these rotations can place a burden on its contracting staff that plan, 
conduct, and manage highly specialized other transactions programs by 
having to continually guide new technical staff on the workings of the 
process. However, these officials have told us that there is no policy 
or process yet in place to ensure that the capturing and sharing of 
such knowledge occur.

The S&T Directorate's current practices for capturing knowledge gained 
from its acquisition efforts vary. In establishing its structure the 
S&T Directorate drew its technical staff from a variety of 
organizations, each of which used different acquisition approaches. 
Consequently, portfolio managers and program managers we spoke with did 
not consistently capture knowledge acquired. In addition, the S&T 
Directorate's efforts to assess the effectiveness of its industry 
outreach activities involving the use of other transactions authority 
are not rigorous enough to capture information needed in planning 
future outreach. By not assessing its activities, S&T cannot be assured 
that it is reaching the broadest base of firms to provide technological 
solutions for the S&T Directorate's needs.

Without policies and a supporting process to capture the experiences 
and knowledge gained from its acquisition efforts, DHS may not 
capitalize on lessons learned from its early use other transactions. 
Given the S&T Directorate's planned rotations of its key technical 
staff, building and maintaining institutional knowledge are critical to 
ensuring that new S&T Directorate staff have the ability to quickly 
learn about previous other transactions acquisitions when designing 
future projects. For example, the S&T Directorate invests funding and 
staff resources to advertise its organization and projects to help 
attract firms but does not fully assess the effectiveness of these 
activities for use in planning future projects. Figure 9 depicts the 
S&T Directorate's acquisition process and a possible knowledge 
management function for collecting, storing, and sharing information.

Figure 9: Illustration of S&T Directorate's Current Acquisition 
Processes with Possible Knowledge Management Function:

[See PDF for image]

Note: Center of figure depicts the knowledge management function needed 
to improve DHS's current practices.

[End of figure]

Conclusions:

Recognizing the flexibility offered by other transactions authority to 
tap nontraditional sources to meet its needs for new homeland security 
technologies, DHS moved quickly to use this authority to build its 
science and technology capabilities. In doing so it signaled its 
seriousness about using other transactions authority to advance its 
strategic objectives. However, to sustain its progress made to date DHS 
needs to take additional actions, such as completing the necessary 
foundation of policies and procedures, including guidance on audit 
provisions, and ensuring that it has an adequately trained and staffed 
acquisition function. Furthermore, given its strategy of using 
regularly rotating term appointments in staffing its S&T programs, 
long-term success will depend on the department's ability to harness 
its institutional knowledge on other transactions. DHS's ability to 
identify, prioritize, and access the most promising research and 
technologies in the future will depend, in part, on its ability to 
capture and make accessible critical knowledge on the agency's use of 
other transactions authority to ensure that it is accessing the 
broadest and most appropriate technologies in the marketplace. By 
completing its foundation for using other transactions and creating a 
means for capturing key knowledge and measuring performance, DHS will 
be better prepared to capitalize on the full potential of the private 
sector to provide the innovative technology it needs to secure the 
homeland.

Recommendations:

To promote the efficient and effective use by DHS of its other 
transactions authority to meet its mission needs, we have three 
recommendations for the Secretary of Homeland Security. The Secretary 
should direct the Under Secretary for Management and the Under 
Secretary for Science and Technology to:

* establish guidance on when it is appropriate to include audit 
provisions in other transactions agreements,

* develop a training program for DHS staff in the use of other 
transactions to help ensure the appropriate use of this authority, and:

* capture knowledge obtained during the acquisition process for use in 
planning and implementing future other transactions projects.

Agency Comments and Our Evaluation:

We provided a draft of this report to DHS for its review and comment. 
DHS provided written comments generally agreeing with the facts and 
conclusions expressed in the draft report. DHS agreed with our first 
two recommendations and noted that it is already working to address 
them. Regarding our recommendation that DHS capture knowledge obtained 
during the acquisition process for use in planning and implementing 
future projects that could use other transactions, DHS agreed with the 
utility of retaining such historical information and "lessons learned" 
about its procurement activities, acquisition planning, execution, and 
program management activities. DHS stated that while no formal system 
for assembling such information is in place within the organization, 
this information is being monitored. However, DHS sought further 
clarity about the types of information we recommend it retain and to 
what end it is to be used.

Based on our review of DHS's early use of its other transactions 
authority, we believe that systematically capturing, analyzing, and 
making readily available knowledge about using this authority is 
needed. We recognize that the S&T Directorate's work and focus cuts 
across various technology areas, which are continuously evolving, 
making each solicitation's requirements unique. We also recognize and 
appreciate DHS's concern over the administrative aspects of collecting, 
maintaining, and monitoring this information over time. We believe, 
however, that DHS can build upon its current informal system of 
monitoring acquisition information. Specifically, we think DHS could 
collect and disseminate information on what has worked and not worked 
in areas such as outreach efforts. This information could be useful for 
future other transactions projects. For example, if DHS wants to ensure 
that its outreach attracts firms who have a recognized core competency 
desired by S&T, including nontraditional government contractors, it may 
want to use forms of outreach that have been used successfully in the 
past. We believe this information could be particularly important given 
the S&T Directorate's workforce-staffing strategies, under which its 
technical staff serves regularly rotating term appointments.

DHS also provided technical revisions to our draft report, which we 
incorporated as appropriate. The department's comments are reprinted in 
appendix I.

We are sending copies of this report to other interested congressional 
committees; the Secretaries of Homeland Security and Defense; and the 
Director, Office of Management and Budget. We also will make copies 
available to others on request. This report will be available at no 
charge on GAO's Web site at http://www.gao.gov.

If you have any questions about this report, please contact me at (202) 
512-4841, or John K. Needham, Assistant Director, at (202) 512-5274. 
Other major contributors to this report were Rachel Augustine, Eric 
Fisher, Alison Heafitz, John Krump, Robert Swierczek, and Anthony J. 
Wysocki.

Signed by: 

William T. Woods: 
Director, Acquisition and Sourcing Management:

[End of section]

Appendix I: Comments from the Department of Homeland Security:

U.S. Department of Homeland Security: 
Washington, DC 20528:

December 8, 2004:

Mr. William T. Woods:
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
Washington, DC 20548:

Re: Draft Report GAO-05-136, Homeland Security: Further Action Needed 
to Promote Successful Use of Special DHS Acquisition Authority (GAO Job 
Code 120324):

Dear Mr. Woods:

Thank you for the opportunity to review and comment on the subject 
draft report. The Department of Homeland Security (DHS) appreciates the 
work done in this draft report to recognize DHS's use of its other 
transactions authority to acquire cutting-edge technologies in support 
of its mission. The Department generally agrees with the facts and 
conclusions expressed in the report and reads the conclusions as fair 
and balanced. However, we do have some technical comments for your 
consideration which are enclosed with this letter.

With respect to the draft report's three recommendations, while DHS 
recognizes the validity of the first two recommendations and is, in 
fact, already working to address those recommendations, there is a 
general concern with the final recommendation. This recommendation 
states DHS should "capture knowledge obtained during the acquisition 
process for use in planning, and implementing future projects that 
could use other transactions."

DHS agrees that it is useful to retain historical information regarding 
solicitations and awards and does keep a great deal of information 
regarding response to industry day announcements, solicitations, and 
awardees and their status. It is unclear, however, exactly what types 
of information GAO is recommending that the agency retain and in what 
manner and to what end that information is to be used. The value of 
"lessons learned" in acquisition planning, execution and program 
management is definitely appreciated within DHS and, while no formal 
system for assembling this information is in place within the 
organization, this information is being monitored. However, much of the 
detailed information including number of proposers, white papers, 
attendees at industry days and so forth is of marginal long-term value 
but the administrative aspects of collecting, maintaining and 
monitoring the information over time could be significant. DHS's 
Science and Technology (S&T) Directorate and Homeland Security Advanced 
Research Projects Agency's (HSARPA's) focus cuts across so many 
technology areas and each solicitation is unique in its requirements 
and interests. What happened with a somewhat similarly focused 
solicitation a year or two ago will likely have little relevance on a 
solicitation issued today. In light of this, DHS requests that GAO 
refine this recommendation to be more specific regarding the type of 
information it would envision being retained by the agency and consider 
carefully the agency's concern regarding the relevance of the 
information to its future actions and the high cost of maintaining the 
information.

We thank you again for the opportunity to provide comments on this 
draft report and look forward to working with you on future homeland 
security issues.

Sincerely,

Signed by: 

Anna F. Dixon:

Director, 
Departmental GAO/OIG Liaison Office of the Chief Financial Officer:

[End of section]

FOOTNOTES

[1] Homeland Security Act of 2002, Pub. L. No. 107-296, Nov. 25, 2002.

[2] Congress authorized the Department of Defense's (DOD) Defense 
Advanced Research Projects Agency to use other transactions for 
research projects in 1989, and in 1993, authorized DOD to use other 
transactions for prototype projects. In fiscal year 2003, the most 
recent year for which complete data are available, DOD awarded 
approximately 60 other transactions agreements for prototypes, and 
several more for research projects. Two other agencies also have other 
transactions authority: National Aeronautics and Space Administration 
and the Department of Transportation. Recently, the Services 
Acquisition Reform Act authorized all federal agencies to use other 
transactions to acquire antiterrorism technology. 

[3] The Cost Accounting Standards are accounting requirements for the 
measurement, assignment, and allocation of costs to contracts.

[4] Section 831(d) of the Homeland Security Act of 2002, Pub. L. No. 
107-296, Nov. 25, 2002, referring to section 845 of the National 
Defense Authorization Act for Fiscal Year 1994.

[5] DHS estimated that it spent approximately $6.6 billion on 
acquisitions in fiscal year 2004.

[6] According to DHS, much of the contract award work done by the U.S. 
Army Medical Research Acquisition Activity for its Chem-Bio project is 
now being performed by DHS's Office of Procurement Operations, which is 
part of its Chief Procurement Office.

[7] GAO, Best Practices: Highlights of the Knowledge-Based Approach 
Used to Improve Weapon Acquisition, GAO-04-392SP (Washington, D.C.: 
January 2004).

[8] GAO-04-392SP.

[9] Our report on DHS's Counter-MANPADS development program found that 
DHS needed to make its Counter-MANPADS exit criteria more knowledge-
based, which would require the contractor to demonstrate that key 
product knowledge was obtained at a certain stage. See The Department 
of Homeland Security Needs to Fully Adopt a Knowledge-Based Approach to 
Its Counter-MANPADS Development Program, GAO-04-341R (Washington, 
D.C.: Jan. 30, 2004).

[10] GAO, Homeland Security: Critical Design and Implementation Issues, 
GAO-02-957T (Washington, D.C.: July 17, 2002).

[11] DOD, Under Secretary of Defense for Acquisition, Technology and 
Logistics, "Other Transaction" (OT) Guide for Prototype Projects, 
(August 2002).

[12] The Homeland Security Act requires DHS, as it carries out basic, 
applied, and advanced research and development projects, to first 
determine that the use of a contract, grant, or cooperative agreement 
is not feasible or appropriate prior to using an other transaction for 
research. Pub. L. No. 107-296, section 831(a)(1), Nov. 25, 2002.

[13] According to a DHS CPO official, DHS intends to draft a separate 
guidebook for other transactions for research in the future.

[14] DOD, Transactions Other Than Contracts, Grants, or Cooperative 
Agreements for Prototype Projects, 68 Fed. Reg. 27452, final rule (May 
20, 2003). 

[15] In our prior work on DOD's use of prototype other transactions we 
found that DOD contracting staff included such audit provisions in 
almost all of the prototype other transactions agreements it awarded 
between fiscal years 1994 and 1998. See GAO, Acquisition Reform: DOD's 
Guidance on Using Section 845 Agreements Could Be Improved, GAO/
NSIAD-00-33 (Washington, D.C.: Apr. 7, 2000). 

[16] DCAA is a component of DOD that performs contract audits for DOD 
and provides accounting and financial advisory services regarding 
contracts and subcontracts to all DOD components responsible for 
procurement and contract administration. DCAA also provides other 
government agencies with contract audit services. 

[17] According to DHS policy, there are three levels of contracting 
officers: Level 1 (entry-level), Level II (intermediate level), and 
Level III (senior level staff capable of performing the most 
sophisticated and complex contracting activities). 

[18] We previously reported on such acquisition workforce challenges in 
Acquisition Workforce: Status of Agency Efforts to Address Future 
Needs, GAO-03-55 (Washington, D.C.: Dec. 18, 2002). 

[19] GAO, Acquisition Reform: DOD's Guidance on Using Section 845 
Agreements Could Be Improved, GAO/NSIAD-00-33 (Washington, D.C.: April 
2000).

[20] For the projects we reviewed, we found that DHS's fee for 
attending these events was usually between $100 and $150. 

[21] GAO, Best Practices: Highlights of the Knowledge-Based Approach 
Used to Improve Weapon Acquisition, GAO-04-392SP (Washington, D.C.: 
January 2004) and GAO, NASA: Better Mechanisms Needed for Sharing 
Lessons Learned, GAO-02-195 (Washington, D.C.: Jan. 30, 2002).

[22] GAO, Results-Oriented Government: GPRA Has Established a Solid 
Foundation for Achieving Greater Results, GAO-04-38 (Washington, D.C; 
Mar. 10, 2004).

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