Defense Management:

DOD Needs to Assess Effectiveness and Determine Future Direction for Its High Performing Organizations Initiative

GAO-10-566R: Published: May 27, 2010. Publicly Released: May 27, 2010.

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The Department of Defense (DOD) has sought improved efficiencies and cost reductions in its delivery of services that could be provided by the private sector, using both competitions with private companies and processes to create high performing organizations (HPO). The Office of Management and Budget's (OMB) Circular A-76 establishes federal policy for the competition of commercial activities. According to the circular, the longstanding policy of the federal government has been to rely on the private sector for needed commercial services. To ensure that the American people receive maximum value for their tax dollars, it is the federal government's policy that commercial activities should be subject to the forces of competition. As the largest federal agency, DOD has conducted more A-76 competitions than any other federal agency. However, the A-76 process has drawn criticism from both the public and private sectors. These criticisms largely center on the costs and length of time required to conduct competitions and the manner in which long-term savings are calculated. In light of these concerns, a panel of public and private sector experts convened in 2001 to identify ways in which the federal government could improve the A-76 process and included an option that focused on improving efficiencies in-house through the creation of HPOs rather than seeking improved efficiencies through public-private competitions. Although the A-76 process has been DOD's preferred method for ensuring the most efficient operation of a function, it is currently subject to a number of recently enacted statutory limitations. Given these relatively new developments and the potential for HPOs to serve as an alternative to the A-76 process, you asked us to examine the extent to which the Office of the Under Secretary of Defense for Acquisition, Technology, and Logistics (OSD) has made progress in implementing and evaluating DOD's HPO initiative.

OSD has made some progress in implementing DOD's HPO initiative by providing guidance to organizations that it selected to participate, but is not always collecting reliable data and has no clear plan to evaluate the effectiveness of the HPO initiative. Pilot initiatives such as this are typically used to evaluate alternative approaches or test new ideas. Gathering reliable data--data that are complete, accurate, and meet intended purposes--and measuring performance are critical to assessing the effectiveness of new ways of doing business. To implement DOD's HPO initiative, OSD selected nine organizations and issued guidance providing procedures for implementing and monitoring the performance of, and costs for, the HPOs. OSD's guidance provides performance measures that somewhat mirror performance measures set out in the National Defense Authorization Act (NDAA) for Fiscal Year 2004. The 2004 NDAA contains a list of performance measures that, according to the law, should be included among performance measures used in the pilot program. Our review of the annual reports submitted to OSD revealed that while all HPOs generally used the broad performance measures set out in the 2004 NDAA to report on performance, several reports did not include information on all of the performance measures. We found a number of instances in which the HPOs failed to include information on workforce expertise and customer satisfaction. Further, for the performance measures for which information was provided, we found instances of incomplete and inaccurate reporting. For example, in our review of annual reports covering the 2008 reporting cycle, one annual report did not clearly capture the costs associated with hiring temporary employees and the overtime required to augment the much smaller organization in response to unexpected workload increases. Moreover, although most HPOs have submitted at least one annual report, OSD has not used the information to evaluate the HPO initiative. Although OSD initially asserted a role in implementing the HPO initiative, according to OSD officials, their interest in overseeing the HPOs has waned because with the ongoing moratorium on new public-private competitions, they believe that organizations will not have any incentive to participate in the HPO process. Moreover, they believe that with the A-76 moratorium in place, existing HPOs might be less willing to continue working toward fulfilling the performance commitments they have made. Therefore, OSD officials stated that while they do encourage organizations to become more efficient, their position is that selecting new organizations for HPO designation is of questionable value due to the current moratorium on public-private competitions. However, unless OSD assesses the reliability of the information provided by the HPOs and uses reliable performance data to make decisions, DOD may miss opportunities to sustain efficiencies gained by existing HPOs, and will be unable to make management decisions and inform policymakers on the effectiveness of the HPO initiative.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The DOD components are accountable for the collection and reporting of data on their own high-performing organizations (HPOs). The components are responsible for managing its own resources and budgeting for its own organization. As part of these broader responsibilities, the components are also responsible for assessing whether the HPOs will receive continued exemption from public/private competition as authorized by the statute. However, according to a DOD official, there is a current moratorium on public/private competition, which may obviate the need for assessment for purposes of exemption.

    Recommendation: To determine the effectiveness of the HPO initiative and provide future direction for the programs, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics to assess the reliability of the data provided by the HPOs and take steps to ensure reporting and collection of reliable data.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: GAO contacted an official from the Office of Acquisition, Technology, and Logistics (AT&L) via email and by phone to ask if the evaluation of HPO performance data as submitted by the components will be performed and, if so, when. However, GAO never received a response from AT&L.

    Recommendation: To determine the effectiveness of the HPO initiative and provide future direction for the programs, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology and Logistics to use the performance data to fully evaluate the effectiveness of the DOD's HPO initiative using all performance measures set out in the National Defense Authorization Act for Fiscal Year 2004.

    Agency Affected: Department of Defense


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