[Senate Hearing 110-165]
[From the U.S. Government Publishing Office]
S. Hrg. 110-165
ABUSIVE PRACTICES IN DEPARTMENT OF DEFENSE CONTRACTING FOR SERVICES AND
INTERAGENCY CONTRACTING
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON READINESS AND MANAGEMENT SUPPORT
of the
COMMITTEE ON ARMED SERVICES
UNITED STATES SENATE
ONE HUNDRED TENTH CONGRESS
FIRST SESSION
__________
JANUARY 17 AND 31, 2007
__________
Printed for the use of the Committee on Armed Services
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COMMITTEE ON ARMED SERVICES
CARL LEVIN, Michigan, Chairman
EDWARD M. KENNEDY, Massachusetts JOHN McCAIN, Arizona
ROBERT C. BYRD, West Virginia JOHN WARNER, Virginia,
JOSEPH I. LIEBERMAN, Connecticut JAMES M. INHOFE, Oklahoma
JACK REED, Rhode Island JEFF SESSIONS, Alabama
DANIEL K. AKAKA, Hawaii SUSAN M. COLLINS, Maine
BILL NELSON, Florida JOHN ENSIGN, Nevada
E. BENJAMIN NELSON, Nebraska SAXBY CHAMBLISS, Georgia
EVAN BAYH, Indiana LINDSEY O. GRAHAM, South Carolina
HILLARY RODHAM CLINTON, New York ELIZABETH DOLE, North Carolina
MARK L. PRYOR, Arkansas JOHN CORNYN, Texas
JIM WEBB, Virginia JOHN THUNE, South Dakota
CLAIRE McCASKILL, Missouri MEL MARTINEZ, Florida
Richard D. DeBobes, Staff Director
Michael V. Kostiw, Replublican Staff Director
______
Subcommittee on Readiness and Management Support
DANIEL K. AKAKA, Hawaii, Chairman
ROBERT C. BYRD, West Virginia JOHN ENSIGN, Nevada
EVAN BAYH, Indiana JAMES M. INHOFE, Oklahoma
HILLARY RODHAM CLINTON, New York JEFF SESSIONS, Alabama
MARK L. PRYOR, Arkansas SAXBY CHAMBLISS, Georgia
CLAIRE McCASKILL, Missouri ELIZABETH DOLE, North Carolina
(ii)
C O N T E N T S
__________
CHRONOLOGICAL LIST OF WITNESSES
Abusive Practices in Department of Defense Contracting for Services and
Interagency Contracting
JANUARY 17, 2007
Page
Gimble, Thomas F., Acting Inspector General, Department of
Defense........................................................ 5
Schinasi, Katherine V., Managing Director, Acquisition and
Sourcing Management, Government Accountability Office.......... 11
Continue to Receive Testimony on Abusive Practices in Department of
Defense Contracting for Services and Interagency Contracting
JANUARY 31, 2007
Madsen, Marcia G., Chair, Acquisition Advisory Panel; Accompanied
by Jonathan L. Etherton and James A. Hughes, Members,
Acquisition Advisory Panel..................................... 58
Denett, Hon. Paul A., Administrator, Office of Federal
Procurement Policy, Office of Management and Budget............ 78
Assad, Shay, Director, Defense Procurement and Acquisition
Policy, Department of Defense.................................. 83
(iii)
ABUSIVE PRACTICES IN DEPARTMENT OF DEFENSE CONTRACTING FOR SERVICES AND
INTERAGENCY CONTRACTING
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WEDNESDAY, JANUARY 17, 2007
U.S. Senate,
Subcommittee on Readiness
and Management Support,
Committee on Armed Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:30 p.m. in
room SR-232A, Russell Senate Office Building, Senator Daniel K.
Akaka (chairman of the subcommittee) presiding.
Committee members present: Senators Akaka, McCaskill,
Ensign, and Martinez.
Majority staff member present: Peter K. Levine, general
counsel.
Minority staff members present: Gregory T. Kiley,
professional staff member; Derek J. Maurer, minority counsel;
David M. Morriss, minority counsel; Lucian L. Niemeyer,
professional staff member; and Bryan D. Parker, minority
investigative counsel.
Staff assistants present: David G. Collins and Benjamin L.
Rubin.
Committee members' assistants present: Darcie Tokioka,
assistant to Senator Akaka; Nichole M. Distefano, assistant to
Senator McCaskill; D'Arcy Grisier, assistant to Senator Ensign;
and Stuart C. Mallory, assistant to Senator Thune.
OPENING STATEMENT OF SENATOR DANIEL K. AKAKA, CHAIRMAN
Senator Akaka. The Readiness and Management Support
Subcommittee meets today to hear testimony about abusive
practices in Department of Defense (DOD) contracting for
services and interagency contracting.
Before we begin, I would like to say how pleased I am to
continue to work with Senator Ensign. For the last 4 years,
Senator Ensign has served as chairman of this subcommittee, and
I have served as ranking member. It has truly been a pleasure
to work with him.
Under Senator Ensign's leadership, the Comptroller General
of the United States, David Walker, noted at our last hearing
that this subcommittee has been: ``one of the shining stars in
conducting oversight.'' That has been under Senator Ensign's
leadership. I look forward to continuing in that oversight
tradition as I take over the chairmanship of the subcommittee.
I also hope that I can be as accommodating of Senator Ensign's
interests and concerns as he has always been to mine when he
served as chairman.
This subcommittee has long been concerned about
shortcomings in DOD's contracting for services and interagency
contracting. Three years ago, the Inspector General (IG) for
the General Services Administration (GSA) reported a pervasive
problem with improper task order and contract awards by GSA's
client support centers. Because orders from DOD customers
provided 85 percent of the centers' $5.8 billion of revenues,
these problems put DOD dollars at risk.
Senator Ensign and I responded with a legislative provision
in 2004 requiring a joint review of DOD purchases through the
GSA centers by the DOD IG and the GSA IG. In 2005 and 2006,
recognizing that other interagency contracts might suffer from
similar problems, we required similar joint reviews of DOD
purchases through other Federal agencies.
As we will hear today, the results of these reviews reflect
a deeply troubled procurement system. In four separate reports,
the DOD IG found case after case of waste and abuse in DOD
purchases through the GSA, the National Aeronautics and Space
Administration (NASA), the Department of the Treasury
(DOTREAS), and the Department of Interior (DOI). Dozens of DOD
orders were awarded without competition, without required
reviews for price reasonableness, or for both. Many were
improperly funded, in possible violation of the Antideficiency
Act (ADA).
More importantly, it appears that required contract
planning and oversight were lacking in almost every case.
According to the IG, DOD officials failed to perform required
acquisition planning for 55 of 56 task orders awarded through
GSA, and 61 of 61 task orders awarded through the DOTREAS.
Similarly, DOD officials failed to provide for required
surveillance of contract performance for 54 of 56 task orders
awarded through GSA, 23 of 24 task orders awarded through the
DOI, and 58 of 61 task orders awarded through the DOTREAS.
These problems are not limited to interagency contracts. On
December 27, 2006, the DOD IG reported on a review of $7.6
billion in service contracts to support our major range and
test facilities base. The IG found that 9 of 10 contracts did
not include proper cost estimates, and 6 of 10 lacked adequate
plans to monitor contractor performance. With these contracts,
as with the interagency contracts previously reviewed by the
IG, the DOD continued to use high-risk contracts without
following regulations to control costs or monitor performance.
These deficiencies are symptomatic of a defense acquisition
workforce that is simply stretched too thin to do this job.
Over the last 5 years, DOD contracts for services have grown at
an extraordinary rate. In fiscal year 2000, the DOD spent
roughly $83 billion on service contracts, in fiscal year 2005
dollars, and these were performed by an estimated 730,000
contractor employees. By fiscal year 2005, the DOD was spending
more than $140 billion--and this is also in fiscal year 2005
dollars--on an estimated 1,282,000 contractor employees. The
550,000 increase in our service contractor workforce over this
5-year period exceeds the size of the entire DOD Federal
employee workforce.
At the same time, the number of Federal officials available
to oversee the activities of these contractors has continued to
decline. The number of DOD employees in acquisition-related
organizations dropped from 230,000 in fiscal year 1999 to
206,000 in fiscal year 2004, a decline of more than 10 percent.
These reductions were made to an acquisition workforce that had
already been cut in half over the previous 10 years.
The problem is even worse with regard to the management of
contracts for services. Because most of the acquisition
workforce is focused on the development and purchase of major
weapons systems, the number of DOD procurement personnel
responsible for the negotiation and award of contracts,
including services contracts, is much smaller and has declined
much faster. In fiscal year 1999, DOD had 31,131 procurement
personnel. By fiscal year 2004, that number had declined to
25,918, a decline of almost 27 percent in a 5-year period, when
the dollars that we spend on service contracts almost doubled.
In short, we have fewer and fewer procurement officials
responsible for managing more and more contract dollars. In the
view of many, these trends long ago passed the point where our
acquisition workforce lost the capacity needed to perform its
essential functions. As the Acquisition Advisory Panel
chartered, pursuant to section 1423 of the National Defense
Authorization Act (NDAA) for Fiscal Year 2004, recently
reported, our failure to fund an adequate number of acquisition
professionals is ``penny wise and pound foolish,'' as that
seriously undermines the pursuit of good value for the
expenditure of public resources.
I believe it is vital for Congress to address this
structural problem. Senator Ensign and I have been seriously
thinking and working on this, and we want to make a difference
here.
Senator Ensign, do you have an opening statement?
STATEMENT OF SENATOR JOHN ENSIGN
Senator Ensign. Thank you, Mr. Chairman.
We have had an excellent working relationship in the past 4
years and I share in your enthusiasm in looking towards the
future. This relationship also extends to our staffs,
especially Peter Levine and Greg Kiley. I know that we share a
lot of the same concerns. Mainly, that we provide a lot of the
money for the military, and we need to hold them accountable
for how they're using that money. That's what the witnesses are
here for; to find out whether they are using that money
properly.
So, I want to thank the DOD IG's office and the Government
Accountability Office (GAO) for their tireless efforts in
helping us with our oversight responsibilities. Yours is not an
easy job, and it is sometimes a thankless job, but it is
definitely a very important job. I look forward to discussing
with you today the results of your most recent efforts in the
areas of interagency contracting and service acquisition.
Over the years, I've been encouraged by the steady, though
sometimes slow, pace of improvements made by the DOD in its
acquisition policies and processes. Yet, according to the GAO's
report, ``Tailored Approach Needed to Improve Service
Acquisition Outcomes,'' the DOD has still, until recently,
either failed to establish or implement best practices in
management--in managing service acquisition. This failure is
especially troubling since the DOD obligated over $141 billion
on service contracts alone in 2005. As the DOD increases its
reliance on the private sector in such areas as information
technology, services, weapons systems, and base operations
support, it is imperative that we ensure we are buying the
right service at the right price in the right manner.
I understand the DOD has already begun to address the
problem with an October 2006 policy memorandum implementing
section 812 of the 2006 NDAA. I further understand that DOD is
attempting to develop a comprehensive plan for the acquisition
of services. The DOD's efforts are encouraging, and I look
forward today to discussing ideas on how the DOD can be
proactive and not just reactive in this area.
In preparing for today's hearing, I was disturbed by the IG
and GAO's findings on interagency contracting. It appears that
good government initiatives, such as GovWorks and others, which
were designed to increase efficiency and lower cost, have been
turned on their head. Some have used the programs to circumvent
fundamental contracting and financial rules, to bank funds that
are set to expire, or to obtain leases without going through
normal channels, to cite just a couple of examples.
The IG has suggested that in some instances these abuses
may have been deliberate. These are abuses we can ill afford
these days. As we continue to prosecute the war against Islamic
jihadists, each defense dollar becomes even more precious.
It is incumbent upon all of us--contracting officers,
program officers, Members of Congress--to maximize the buying
power of each defense dollar. To do otherwise is to do grave
disservice to our young men and women in military.
Mr. Chairman, I want to thank you for calling this hearing
today.
Welcome, Senator McCaskill, attending the subcommittee
hearing this morning. As you will see, Senator, the
subcommittee is probably one of the least partisan committees
that you will find in Congress, and we are all about doing the
same thing, and that is, making sure our military works in the
most efficient manner. We have very capable leadership at the
helm, in our chairman, Senator Akaka.
Thank you.
Senator Akaka. Thank you very much, Senator Ensign.
Senator McCaskill, if you have an opening statement, this
is your time.
Senator McCaskill. I do not have an opening statement,
except to say that it's strange that GAO reports are fun for
me. I've come from 8 years as the State Auditor of Missouri, so
when I start reading recommendations and I start looking at
responses from agencies, I assume they mean it, I'm old-
fashioned about that. I look forward to a working relationship
with the members of this committee and with the IG and with GAO
to see if we can't figure out why this is so hard for DOD to
get right.
Thank you, Mr. Chairman.
Senator Akaka. Thank you very much.
I want to welcome the witnesses: Inspector General Tom
Gimble, and Managing Director, Acquisition and Sourcing
Management, Katherine Schinasi, and ask you for your
statements.
Mr. Inspector General?
STATEMENT OF THOMAS F. GIMBLE, ACTING INSPECTOR GENERAL,
DEPARTMENT OF DEFENSE
Mr. Gimble. Mr. Chairman, members of the Subcommittee on
Readiness and Management Support, thank you for the opportunity
to appear before the committee today to address our ongoing
oversight work regarding interagency contracting.
We have issued six final reports on our audits at four
agencies: GSA, DOI, DOTREAS, and NASA. Collectively, those
activities awarded 54,022 contract actions, valued at about
$5.4 billion, for DOD during fiscal year 2005. We reviewed 352
contract actions valued at about $1 billion.
Today, I will talk specifically about contracting and
funding problems relating to DOD use of contracting services at
GSA and the DOI, the two largest agencies audited.
We found that DOD continues to use other government
agencies to make poorly planned purchases with annual
appropriations about to expire. Also, a large number of the
purchases were simply ``pass-through'' purchases made using
either credit cards or from GSA Federal supply schedules, and
they incurred an additional 2- to 5-percent fee charged by the
non-DOD agency. For example, DOD used DOI to purchase $592
million in goods and services that were ordered from Federal
Supply Schedules, costing DOD $23 million in surcharges for
that service.
At this time, I'd like to direct your attention to my
chart.
[The information referred to follows:]
[Copy of chart retained in committee files.]
The details are too small to read, but the colors are
important. This chart displays 25 funding documents that were
sent to DOI by DOD activities. I would like you to focus on the
yellow and orange colors that are in the same column. These
represent Federal Supply Schedules and credit card purchases
made by DOI on DOD's behalf.
These ``pass-through'' purchases were made for basic items,
such as furniture, computers, printers, and administration
services that could have easily been purchased by DOD
contracting activities. We also found some severe contracting
problems. For example, DOI awarded a contract valued at $100
million without competition or the required DOD and
congressional approvals to lease office space for the
counterintelligence field activity. Another example was: a DOI
contracting officer awarded a contract valued at $205,000 to a
computer software and construction firm to procure armor for
seven Army Humvees. We also found purchases that didn't make
much sense. This one, DOD contracting officials used non-DOD
agencies for purchases, and the non-DOD agencies acquired the
items off existing DOD contracts.
GSA and DOI contracting officers did not always take the
fundamental contracting steps to ensure that they made the best
value purchases for DOD. We found that the purchases made
through interagency contracting often skipped the basic
contracting fundamentals, such as performing market surveys,
competing acquisitions, determining price reasonableness,
conducting surveillance on the services received, and obtaining
the required approvals for construction and leasing contracts.
Severe problems exist in the proper use of funds through
interagency orders. We found that DOD used GSA and DOI
revolving funds as places to park or bank funds that were
expiring. About $1.5 billion in expired funds remained at GSA
at the end of our first audit. At DOI, we identified about $400
million that we believe should have been returned to the
Treasury as expired funds. We reported 72 potential ADA
violations at GSA and DOI. We've already identified another 250
potential violations at the DOI during our ongoing follow-up
audit.
Again referring to the chart of the DOI purchases, those
purchases marked in blue and red are potential ADA violations.
Those purchases marked in red are purchases made using expired
funds after March of last year, when we had warned DOI that
using those funds is in violation of DOD policy. However, to
our knowledge, DOD organizations have not completed the formal
investigations of any of the 72 potential ADA violations that
we reported, and, consequently, no individuals have yet been
held accountable for the violations.
We recognize that assigning responsibility is difficult,
because DOD and the non-DOD agencies each claim the other is at
fault. However, until DOD begins to enforce the policies in
existence, the funding problems described in our audits will
continue.
The DOI's practice of using ``advance payments'' for
interagency orders with DOD poses another significant problem
for the DOD. Using the advance-payments method, DOI collects
the full amount of the order funding document within 48 hours
after the acceptance of the document. Consequently, DOD fully
pays for the goods and services before DOI has awarded the
contract. This process makes it very difficult for DOD to
oversee and reconcile its funds at DOI, because DOD considers
the funds to be expended when DOI collects the full payment.
Further confusion continues to exist regarding incremental
funding. DOD activities routinely incrementally fund portions
of severable services contracts that are performed in the
fiscal year following the year the funds have expired.
The contracting and funding problems were primarily caused
by the desire to secure a particular contractor, to obligate
expiring funds, or the perceived inability of the DOD
contracting workforce to timely respond to its customers.
DOD and non-DOD officials have taken corrective actions to
address some of the problems. The Director of Defense
Procurement and Acquisitions recently signed a memorandum of
agreement with the Chief Acquisition Officer of GSA to work
together on 22 basic contracting management controls. They
include ensuring that sole-source justifications were adequate,
statements of work are complete, and interagency agreements
describe the work to be performed. Further, GSA has worked with
DOD to identify unused and expired DOD funds in the GSA
accounts and to date has turned back over $600 million to DOD.
DOI has withdrawn all of the contracting officer warrants
at its Southwest Acquisition Branch and has retrained those
contracting officers. It continues to revise its interagency
contracting procedures to include establishing a legal review
procedure.
The Under Secretary of Defense Comptroller has issued
guidance that will reduce the funding problems. On October 16,
2006, DOD issued financial policy stating that all non-Economy
Act orders greater than $500,000 are to be reviewed by a DOD
contracting officer prior to the funds being certified. Also,
the policy clarified funding for severable service contracts.
The problems that have been illustrated today are not new
and have plagued DOD for years. DOD must continue to make it a
priority to correct these problems by enforcement of policy,
clarification of policy, and additional oversight requirements.
Otherwise, the problems I've discussed today will continue.
That concludes my oral statement. I ask that my written
statement be inserted in the record, and I'd be happy to answer
any questions.
[The prepared statement of Mr. Gimble follows:]
Prepared Statement by Thomas F. Gimble
Mr. Chairman and members of the Subcommittee on Readiness and
Management Support: Thank you for the opportunity to appear before the
committee today to address our ongoing oversight work regarding
interagency contracting.
Our recent efforts in interagency contracting began in fiscal year
2004 with a compliance audit of the Department of Defense (DOD)
purchases made through the General Services Administration (GSA) in
response to section 802 of the National Defense Authorization Act for
Fiscal Year 2005. Section 811 of the National Defense Authorization Act
for Fiscal Year 2006 expanded the scope of the compliance audits to
include the DOD use of interagency contracting at the Department of the
Interior, the Department of the Treasury, and the National Aeronautics
and Space Administration. Section 817 of the National Defense
Authorization Act for Fiscal Year 2007 further expanded our scope to
include the National Institutes of Health and the Department of
Veterans Affairs. Each of these audits has been an effort performed by
the Inspectors General of DOD and the non-DOD agency being reviewed.
We have issued final reports of our joint audits at four agencies:
GSA, the Department of the Interior, the Department of the Treasury,
and the National Aeronautics and Space Administration. Collectively,
these agencies awarded 54,022 contract actions valued at about $5.4
billion for DOD during fiscal year 2005. To conduct the audits, we
reviewed 352 contract actions valued at about $1.0 billion.
AUDITS OF INTERAGENCY CONTRACTING AT GSA AND THE DEPARTMENT OF THE
INTERIOR
Today, I will talk specifically about contracting and funding
problems found during the audits of interagency contracting at GSA and
the Department of the Interior, the two largest agencies audited. We
have completed two audits at GSA as required by the National Defense
Authorization Act for Fiscal Year 2005. We have also completed our
first audit at the Department of the Interior and are working on the
second year follow-up audit.
Overall, we found significant contracting and funding problems. We
found a lack of market research by both DOD and non-DOD agencies. When
a DOD organization initiated its requirement, it did not determine
whether it was in DOD's best interest to make the purchase through a
DOD contracting office or pay a 2- to 5-percent fee for assistance from
a non-DOD agency. On the other hand, GSA and Interior did not always
make sure the contracting vehicle or contractor used was the best for
the purchase. Other contracting problems involved a lack of
competition, determining fair and reasonable pricing, providing
adequate contract surveillance, and establishing leases and
construction projects without proper approvals. Regarding funding
problems, we found that DOD activities used GSA and the Department of
the Interior revolving funds as places to ``park'' or ``bank'' funds
that were expiring. Subsequently, both GSA and Interior placed
contracts for DOD customers using the expired funds, thereby
circumventing DOD appropriations law. We determined that at GSA, about
$1 billion to $2 billion in expired funds remained in the ``bank'' at
the end of our fiscal year 2005 audit. At the Department of the
Interior, we identified about $400 million that we believed should have
been returned to the Treasury as expired funds. Most of the contracting
and funding problems were driven by three factors: the desire to hire a
particular contractor, the desire to obligate expiring funds, and the
inability of the DOD contracting workforce to timely respond to its
customers.
CONTRACTING PROBLEMS
The contracting problems stem from hurried buys with little or no
planning, mostly due to DOD program managers attempting to quickly
obligate funds about to expire. We found that DOD and non-DOD officials
skipped basic planning and contracting fundamentals such as performing
market surveys, competing acquisitions, determining price
reasonableness, conducting surveillance on services received, and
obtaining required approvals for construction and leasing contracts. We
found some severe contracting problems. For example, the Department of
the Interior awarded a contract worth $100 million without proper
approvals or competition to lease office space for the
Counterintelligence Field Activity. Interior officials also awarded a
contract to a computer software and construction firm to procure armor
for Army vehicles going to Kuwait. We also found illogical purchases
such as DOD program officials using non-DOD agencies who in turn made
purchases using credit cards, Federal Supply Schedules, and even
existing DOD contracts.
Of the 131 GSA purchases and 49 Department of the Interior
purchases reviewed, we found only one instance where a DOD organization
documented that using a non-DOD agency to award the contract was in the
best interest of the Government. Program and contract officials
conducted almost no market research on the other interagency purchases
we reviewed. DOD used the Department of the Interior to purchase
approximately $592 million of goods and services from the Federal
Supply Schedules. For that service, DOD paid the Department of the
Interior more than $23 million in surcharges for purchases that could
have been routinely handled by junior DOD contracting personnel. DOD
often paid surcharges for GSA and the Department of the Interior to
purchase low-cost military equipment or commercial items that could
have been obtained from existing DOD contracts. The Federal Acquisition
Regulation specifies that it is the responsibility of the requiring
activity to perform market research. We asked DOD personnel why they
used a non-DOD agency instead of a DOD contracting office. DOD
personnel stated that the non-DOD agency processed the purchases faster
than DOD and they could generally get the contractor they wanted.
During our review of GSA fiscal year 2005 purchases, we examined 14
contract actions to evaluate the adequacy of contracts awarded on a
sole-source basis. We determined that 6 of the 14 actions did not
comply with the Federal Acquisition Regulation because GSA did not
adequately justify the use of sole-source contracts. Similarly, at the
Department of the Interior, there was no competition for 27 of the 49
purchases reviewed. However, most of the Department of the Interior
purchases were exempt from Federal Acquisition Regulation competition
requirements. The contracts were given to either small business 8(a)
contractors that were owned by Native Americans or to contractors where
only one bid was received. When competition was obtained, it was
generally satisfied by obtaining a minimum of three bids by posting the
solicitation on e-Buy.
During our joint effort, GSA auditors identified that 64 percent of
the GSA orders and modifications reviewed lacked required documentation
showing that the Government received fair and reasonable prices. At the
Department of the Interior, we determined that contracts for services
tended to have more problems with price reasonableness than contracts
for products. Of the 49 purchases reviewed, 24 were for services and 25
were for products. For 20 of the 24 services purchases reviewed,
contracting officers did not adequately document and support that
prices paid were fair and reasonable. Of the 25 product purchases
reviewed, contracting officers did not adequately document price
reasonableness for 5 purchases.
Of the 131 GSA purchases reviewed, 117 did not have adequate
surveillance plans that met Federal Acquisition Regulation
requirements. Government surveillance was also not adequate for 23 of
the 24 Department of the Interior services contracts reviewed. On
almost all interagency purchases, it was unclear who had responsibility
for surveillance. Furthermore, when DOD was responsible for
surveillance, DOD officials were unable to demonstrate how they
effectively monitored contractor performance. In some cases, we found
non-DOD contracting officers without security clearances awarding
contracts with classified statements of work. We found a lack of
quality assurance surveillance plans, designation letters establishing
contracting officer representatives, and a general lack of contract
oversight.
One of the potentially most serious problems was when DOD and
Department of the Interior officials leased office space for the
Counterintelligence Field Activity by using a service contract instead
of following required procedures through GSA. When leasing costs
surpass a cost threshold, DOD officials must contact GSA before leasing
space to accommodate computer and telecommunications operations and
secure or sensitive activities related to the national defense or
security. The Administrator of General Services must determine whether
leasing the space is necessary to meet requirements that cannot be met
in public buildings. GSA then submits that determination to the Senate
Committee on Environment and Public Works and the House Committee on
Transportation and Infrastructure. Public Law also requires the
Secretary of the applicable Military Department to notify the Senate
Committee on Armed Services and the House Committee on Armed Services
when certain cost thresholds are met on leases of real property. The
10-year, $100 million lease for the Counterintelligence Field Activity
was disguised as a service contract and exceeded all thresholds that
require congressional notification and approval. If DOD and Interior
managers are allowed to purchase lease space via service contracts,
congressional and senior DOD oversight will be lost, and other DOD
activities will be making ``end runs'' around GSA and congressional
approvals. We are currently aware of two other major leases that
similarly circumvented the process.
FUNDING PROBLEMS
Funding problems revolved around year end spending and attempts by
DOD managers to obligate funds that are about to expire. We found
numerous instances of DOD officials using interagency revolving funds
to ``park'' or ``bank'' funds. We also found instances of officials
using the wrong appropriation to fund contracts. Overall, we identified
107 potential Antideficiency Act violations at the four agencies
reviewed. Of the 107 potential violations, 72 were identified in GSA
and the Department of the Interior. The follow-on audit at the
Department of the Interior has already identified at least an
additional 250 potential violations, 189 of which occurred after
officials were notified that continued use of expired funds was
contrary to DOD business practices. Exacerbating these funding problems
are accounting processes at non-DOD agencies. For example, non-DOD
agencies sometimes accept expired funds for incremental portions of
services contracts, or bill for advance payments. These processes make
it difficult or impossible to maintain oversight and make corrective
accounting entries.
Of the 72 potential Antideficiency Act violations at GSA and the
Department of the Interior, 63 involved the bona fide needs rule, and
17 involved using the wrong appropriation. There were instances where
both problems occurred on the same purchase.
On 41 purchases reviewed at GSA and 22 purchases at the Department
of the Interior, DOD funding authorities potentially violated the bona
fide needs rule. That is, they used an annual appropriation to purchase
goods or services that they needed in the following year rather than in
the year of the appropriation. In many cases, the DOD funding
authorities used annual operations and maintenance appropriations to
fund the purchase of severable services to be received in the year
following the year of the appropriation. For example, the U.S. Central
Command Air Force sent $18.5 million of funds that expired on September
30, 2005, to fund the support of a Network Operations Security Center
from October 1, 2005, through September 30, 2006.
At the Department of the Interior, we found goods described as
``commercial'' in contract documentation that were ordered or delivered
many months past the expiration date of the appropriation. For example,
Department of the Interior contracting officials used fiscal year 2002
operations and maintenance funds to pay for fiscal year 2006 purchase
orders. Those funds had been expired for 3 years.
On 16 GSA purchases and 1 Department of the Interior purchase, we
found that the wrong appropriation was used; in some cases, fiscal
policy was severely abused. For example, the first GSA audit found that
the Program Manager, Defense Communications and Army Transmissions
Systems sent $44 million of operations and maintenance funds to GSA for
the Army Materiel Command Headquarters Relocation purchase. GSA used
the funds to contract for the construction of two modular two-story
office buildings totaling about 230,000 square feet at Fort Belvoir.
The buildings serve as the headquarters of the Army Materiel Command
and provide office space for about 1,400 civilian and military
personnel. Although the Army contended that construction did not occur,
no buildings existed at the site prior to the contract. Army officials
stated that using operations and maintenance funds was correct because
the contractor was providing a service: the use of the buildings.
However, the procurement of these buildings was clearly a construction
project. The Army should have used Army Military Construction funds,
even though the approval of construction projects is a far lengthier
process in DOD than in GSA.
Adding to the DOD funding control problems is the Department of the
Interior use of ``advance payments'' for DOD purchases. Advance
payments result in a series of internal control problems at DOD because
this process generally removes the ability of DOD to account for funds
transferred to the Department of the Interior. When DOD sends a funding
document to another agency for a purchase of goods or services, DOD
expects that agency to bill DOD as costs are invoiced and paid.
However, using the ``advance payments'' method, the Department of the
Interior collects the full amount of the funding document within 48
hours after receipt and acceptance of the document. Accordingly, DOD
has paid for goods and services before they are even contracted for.
This process makes it extremely hard for DOD to oversee and reconcile
its funds at the Department of the Interior. DOD generally relies on
the Department of the Interior to furnish the amounts of unused
balances of DOD funds.
Also adding to the funding problems, non-DOD agencies incrementally
fund portions of severable services contracts. Public Law allows the
funding of severable services contracts to cross fiscal years as long
as the funds are obligated and work is started in the year of the
appropriation and is for a period not to exceed 12 months. However, the
law is not clear about the 12-month rule when incremental funds are
used. For instance it is unclear whether it is proper to obligate
fiscal year 2006 funds in September 2006 for work to be performed in
June 2007 on a severable services contract that began in April 2006.
As mentioned earlier, we have reported 72 potential Antideficiency
Act violations at GSA and the Department of the Interior. We expect to
report at least another 250 potential violations at the Department of
the Interior due to the use of expired funds. In July 2005, we also
reported 38 potential Antideficiency Act violations. DOD conducted
preliminary reviews in a timely manner in accordance with DOD
regulations for only 8 of those 38 potential violations. However, the
preliminary reviews are now complete on the 38 GSA potential
Antideficiency Act violations reported in July 2005. The reviews
determined that 11 still require a formal investigation to determine
whether an Antideficiency Act violation occurred. Ten have had
corrective actions taken that removes the Antideficiency Act violation
that had occurred (for example, replacing the initial appropriation
used with another year's appropriation or another type of
appropriation). In 17 cases, the preliminary review concluded that an
Antideficiency Act violation did not occur. However, in our January 2,
2007, compendium report on potential Antideficiency Act violations, we
recommended that the Under Secretary of Defense (Comptroller)/Chief
Financial Officer reassess 12 of those 17 cases because the potential
Antideficiency Act violations appeared egregious. Further, to our
knowledge, none of the investigations held individuals responsible for
the violations. Unless responsible individuals are held accountable,
the problems will remain.
CAUSES
In fiscal year 2004, when our interagency contracting audits began,
DOD guidance on the use and funding of interagency contracting vehicles
was unclear. We had previously cited the simultaneous growth of
contracting for services by DOD and the reduction of acquisition
personnel as a cause of contracting problems within DOD. That factor
combined with DOD lack of market research and non-DOD agencies
emphasizing that their funds could be used to legally extend an
appropriation's period of availability (``banking of funds'') created
serious financial problems. Additionally, the marketing of procurement
services by non-DOD agencies put pressure on their own contracting
offices to offer streamlined acquisition methods that do not include
such time-consuming requirements as competing acquisitions or
certifying price reasonableness. This generally resulted in the
contractor desired by the requiring DOD activity receiving the contract
award. In short, we believe most of the problems will be resolved if
the option to ``bank'' funds and the ability to award to a preferred
vendor are eliminated. Furthermore, if DOD organizations perform
adequate market research, many of the purchase requests sent to non-DOD
agencies will remain within DOD.
CORRECTIVE ACTIONS
DOD officials have taken many corrective actions as a result of our
interagency contracting audits.
On December 4, 2006, the Director of Defense
Procurement and Acquisition signed a memorandum of agreement
with the Chief Acquisition Officer of GSA. The memorandum
states DOD and GSA share a single objective of providing the
best value goods and services, in a timely manner, to support
the warfighter. DOD and GSA agreed to work together on 22 basic
contracting management controls. These include such controls as
ensuring that sole-source justifications are adequate, that
statements of work are complete, and that interagency
agreements describe the work to be performed.
GSA has worked with DOD to identify unused and expired
DOD funds in GSA accounts. So far, GSA has returned over $600
million to DOD, and it continues to review its accounts.
The Department of the Interior has withdrawn numerous
contracting officer warrants due to findings of the joint DOD
and Department of the Interior audits. It continues to revise
interagency contracting procedures to include establishing a
legal review procedure.
On October 16, 2006, the DOD Acting Deputy Chief
Financial Officer revised financial policy by issuing a
memorandum, ``Non-Economy Act Orders.'' The memorandum
implements many internal controls. For example, for Non-Economy
Act orders in excess of the simplified acquisition threshold,
the requesting official must provide evidence of market
research and acquisition planning, and a statement of work that
is specific, definite, and certain. The memorandum states that
all Non-Economy Act orders greater than $500,000 must be
reviewed by a DOD-warranted contracting officer prior to
sending the order to the funds certifier or issuing a funding
document to a non-DOD organization. The memorandum also
includes much-needed funding guidance. Specifically, it
clarifies the DOD position on obligating funds for goods and
severable services. However, it does not address incremental
funds and how to provide adequate oversight over funds
processed by Advance Payment.
ACTIONS NEEDED
The problems reported are not new to the Government. We have
reported on similar problems for many years, and material internal
control weaknesses over DOD contracting and funding processes continue
to exist. We believe DOD must continue to make it a priority to correct
these problems. Clarification of funding guidance is required. DOD
should not provide ``advance payments'' when transacting interagency
financial agreements. Incremental funding of services contracts with
funds that are expiring needs to be clearly addressed. Further, formal
investigations of all the potential Antideficiency Act violations we
have reported need to be completed, accountable individuals need to be
identified, and appropriate administrative actions need to be taken.
The deliberate circumvention of Appropriation Law cannot be condoned.
Senator Akaka. Thank you very much, Mr. Gimble.
Ms. Schinasi, your statement, please?
STATEMENT OF KATHERINE V. SCHINASI, MANAGING DIRECTOR,
ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT ACCOUNTABILITY
OFFICE
Ms. Schinasi. Thank you, Senator Akaka and Senator Ensign.
I am very pleased to be here today to have the opportunity to
discuss GAO's evaluations of how well DOD is acquiring
services.
This subcommittee has been in the forefront of tracking
DOD's increasing reliance on contractors to perform mission-
related functions, and, through many years of authorizing
legislation, has put in place requirements, guidance, and other
incentives to improve DOD's management of service contractors
and contracts. Notwithstanding congressional actions, GAO
recommendations, and subsequent plans and policies, we continue
to find problems.
With your permission, I would like to insert my full
statement for the record and summarize that statement now.
Senator Akaka. Without objection, it will be.
Ms. Schinasi. My statement today will include many examples
of poor contracting practices that we and others have reported
on over the years. You've just heard Mr. Gimble; you will hear
a lot of similar things from me, as well.
DOD's contract management has been on GAO's high-risk list
since 1992, and in 2005 we also put interagency contracting on
as a separate area. We have identified problems in the DOD's
ability to establish valid needs and requirements, get adequate
competition, effectively manage and assess contractor
performance, and appropriately use other agencies' contracts,
and the vulnerabilities that these create for fraud, waste, and
abuse that amount to hundreds of millions of dollars a year. I
will just give you a few examples of reports that we've issued
recently.
With respect to poorly defined requirements, in July 2005
we reported that the files at the DOI's GovWorks and DOTREAS's
FedSource franchise funds lacked clear descriptions of work the
contractor was supposed to perform, and sometimes specified
that the work would be defined after an order was placed.
In September 2006, we reported on a number of Iraqi-related
contracts in which contractors were authorized to begin work
before key terms and conditions and projected costs were
established.
In instances where agreements were not reached until the
work was complete or almost complete, DOD contracting officers
were less likely to remove millions of dollars of contractors
costs that had been questioned by auditors as unreasonable, and
the DOD IG has reported on similar problems.
With respect to inadequate competition, we have long
reported on the lack of competition in DOD's acquisition of
services and continue to find numerous sole-source procurements
that are not adequately justified. The professed need for speed
too often wins out over holding competitions with outcomes that
are not in the best interest of the Government.
Recently, we reported on the Army's award of a sole-source
contract for security guard services at domestic bases, despite
knowing that it was paying 25 percent more than the price it
had gotten when it had competed that contract earlier.
In terms of inadequate monitoring of contractor
performance, in our most recent report on this specific issue
we reported that approximately one-third of the 90 contracts we
reviewed did not have appropriate surveillance. If surveillance
is not conducted, not sufficient, or not well-documented, DOD
is at risk of being unable to identify and correct deficiencies
in a timely manner and potentially pays more for the services
that it receives.
The ability to conduct appropriate surveillance also ties
back to well-defined requirements and well-written statements
of work. If you cannot describe what you want, it is hard to
assess whether what you are getting is sufficient.
With respect to the inappropriate use of interagency
contracts, many of the shortfalls in good contracting practices
that we have seen in DOD's own contracting processes are also
found in DOD's use of interagency contract vehicles. GAO's
recent reports on DOD's acquisition of interrogator services
and use of interagency franchise funds point to numerous
problems. In the interagency context, assigning responsibility
for managing and overseeing the process has been harder. As the
number of parties in the acquisition process increases, so,
too, does the need to ensure responsibility and accountability
for the outcomes.
It is commonly recognized, as you pointed out in your
opening statement, Mr. Chairman, that DOD's workforce does not
have the business acumen needed in today's environment, but it
is not widely accepted just who makes up the responsible
workforce. Managing contractors is not just a task for
contracting officers. Program officers and military officers
play a large role and also need to be held accountable for the
results of service acquisition spending.
As the reliance on contractors expands, historical
weaknesses in contract management can have a greater impact.
The reliance also exposes a more basic issue. What services
should the Government be contracting for, and what expertise
needs to be maintained in-house? Contractors now provide
services for which DOD has historically had in-house capacity.
For example, we have recently reported on the declining status
of cost estimators in the space acquisition community and have
heard concerns about losing capability in other key functions,
such as pricing and systems and software engineering.
DOD has also turned to service contractors when new
missions are established, such as the need for security guards
at U.S. military installations, or when the competition for
procurement funds closes off the option of buying equipment,
such as simulators for pilot training, which is now being
delivered through a service contract using operations and
maintenance funding.
The debate on which parts of DOD's mission can best be met
through buying contractor services has not yet taken place and
will need to balance the short- and longer-term values and
objectives.
In closing, let me be clear that not all service
acquisitions are problematic and not all need the same level of
management and oversight attention, but we are in the midst of
a strategic expansion in service contracting, without strategic
directions or decisions. In our July 2006 report on
vulnerabilities, we made the point that DOD's senior leaders
are a critical factor in translating well-meaning plans into
results. But the DOD's leadership is rarely in place long
enough to carry through on plans, and has not yet figured out a
way to ensure change in front-line practices which is where
most of the service acquisitions occur, that are in line with
the Office of the Secretary of Defense-set or congressionally-
directed objectives. Without attention, it appears that a set
of relationships is developing which inherently work against
the Government's best interests.
The relationships that concern us are the ones in which we
have a set of buyers who don't know what they want or how to
express it, but have seemingly limitless funds, and a group of
sellers who want to maximize profits by maximizing revenue and
minimizing costs. The set of rules in place to manage and even
mitigate the inherent risks in these relationships is not
working well enough. Whether that is because the rules are not
being followed or because they are not sufficient themselves is
cause for further discussion, but one thing that is clear is
that the consequences from the seller's actions are
significant. Businesses cease to exist if they cannot achieve a
return on their investments, while there are seemingly no
consequences for the buyer who wastes taxpayers' funds by
making bad decisions or by just not paying attention. We must
find ways to allow or force the customer to use his money to
insist on a good deal or else walk away. That's what I think
you and I would do.
Mr. Chairman, that concludes my statement, and I'd be happy
to take your questions.
[The prepared statement of Ms. Schinasi follows:]
Prepared Statement by Katherine V. Schinasi
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 longstanding, 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.
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 the Government
Accountability Office's (GAO) list of high-risk areas since 1992.\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.\2\
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\1\ GAO, High-Risk Series: An Update, GAO-05-207 (Washington, DC:
January 2005).
\2\ GAO, Contract Management: DOD Vulnerabilities to Contracting
Fraud, Waste, and Abuse, GAO-06-838R (Washington, DC: July 7, 2006).
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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
General.
SUMMARY
Negative outcomes should be no surprise given the convergence of
DOD's growing reliance on contractors to provide services and
longstanding 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, DOD is not in a good position to address these longstanding
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 done.
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
obligations Percentage of Percentage
Service category Fiscal year service change, fiscal
-------------------- obligations, years 1996 to
1996 2005 fiscal year 2005 2005
----------------------------------------------------------------------------------------------------------------
Professional, administrative, and management support.. $10.8 $28.3 20.0 161
Construction of facilities............................ 7.3 11.7 8.3 62
Maintenance and repair of equipment................... 6.6 11.4 8.1 74
Information technology................................ 4.9 10.3 7.3 110
Medical services...................................... 1.6 8.0 5.6 412
Transportation, travel, and relocation................ 2.4 6.2 4.4 154
Housekeeping services................................. 2.4 4.8 3.4 98
All other services, excluding research and development 22.7 23.6 16.7 4
a....................................................
Research and development.............................. 23.7 37.0 26.2 56
---------------------------------------------------------
Total, all service contracts........................ $82.3 $141.2 100.0 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.
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
initiatives.
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 services.
A report we issued in November 2006 on DOD space acquisition
provides an example of downsizing in a critical area--cost
estimating.\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.
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\3\ GAO, Space Acquisitions: DOD Needs to Take More Action to
Address Unrealistic Initial Cost Estimates of Space Systems, GAO-07-96
(Washington, DC: Nov. 17, 2006).
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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.\4\
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\4\ Various funds can be used to acquire services, depending on the
nature of service.
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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.\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.\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.
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\5\ GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award
Procedures and Management Challenges, GAO-04-605 (Washington, DC: June
1, 2004).
\6\ GAO, Rebuilding Iraq: Continued Progress Requires Overcoming
Contract Management Challenges, GAO-06-1130T (Washington, DC: Sept. 28,
2006); see also Iraq Contract Costs: DOD Consideration of Defense
Contract Audit Agency's Findings, GAO-06-1132 (Washington, DC: Sept.
25, 2006).
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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.\7\ We are continuing to do work in this area.
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\7\ Department of Defense, Office of the Inspector General, Audit
Report: Undefinitized Contractual Actions. Report Number D-2004-112
(Arlington, VA.: Aug. 30, 2004).
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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.\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.
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\8\ GAO, Military Operations: DOD's Extensive Use of Logistics
Support Contracts Requires Strengthened Oversight, GAO-04-854
(Washington, DC: July 19, 2004).
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In July 2005, we reported that other agencies that DOD
relied on to provide contracting services did not define
desired outcomes or requirements.\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.
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\9\ GAO, Interagency Contracting: Franchise Funds Provide
Convenience, but Value to DOD Is Not Demonstrated, GAO-05-456
(Washington, DC: July 29, 2005).
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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.\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.
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\10\ GAO, Contract Security Guards: Army's Guard Program Requires
Greater Oversight and Reassessment of Acquisition Approach, GAO-06-284
(Washington, DC: Apr. 3, 2006).
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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,\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.
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\11\ 10 U.S.C. 2304c.
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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.\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.
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\12\ GAO, Contract Management: Opportunities to Improve
Surveillance on Department of Defense Service Contracts, GAO-05-274
(Washington, DC: Mar. 17, 2005).
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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.\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.
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\13\ GAO, Military Operations: High-Level DOD Action Needed to
Address Longstanding Problems with Management and Oversight of
Contractors Supporting Deployed Forces, GAO-07-145 (Washington, DC:
Dec. 18, 2006).
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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.\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.
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\14\ GAO-05-456.
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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.\15\ These breakdowns
included:
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\15\ GAO, Interagency Contracting: Problems with DOD's and
Interior's Orders to Support Military Operations, GAO-05-201
(Washington, DC: Apr. 29, 2005).
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 responsibilities.
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.\16\ Last year, Congress
amended requirements pertaining to DOD's service contracting management
structure, workforce, and oversight processes, among others.\17\
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\16\ Pub. L. No. 107-107, Sec. Sec. 801, 802 (2001) (section 801
added new sections 2330 and 2330a to title 10, U.S. Code).
\17\ Pub. L. No. 109-163, Sec. 812 (2006) (section 812 amended 10
U.S.C. Sec. 2330).
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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.\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.\19\
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\18\ GAO, Best Practices: Taking A Strategic Approach Could Improve
DOD's Acquisition of Services, GAO-02-230 (Washington, DC: Jan. 18,
2002).
\19\ GAO, Contract Management: High-Level Attention Needed to
Transform DOD Services Acquisition, GAO-03-935 (Washington, DC: Sept.
10, 2003).
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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.\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.
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\20\ GAO, Defense Acquisitions: Tailored Approach Needed to Improve
Service Acquisition Outcomes, GAO-07-20 (Washington, DC: Nov. 9, 2006).
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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.\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.
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\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
requirements.
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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
standards.
CONTACT AND STAFF ACKNOWLEDGMENTS
For further information regarding this testimony, please contact
Katherine V. Schinasi at (202) 512-4841 or [email protected]. 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.
Senator Akaka. Thank you very much, Mr. Gimble and Ms.
Schinasi, for your statements. Your full statements will be
included in the record.
Ms. Schinasi, section 802 of the NDAA for Fiscal Year 2002
required the DOD to improve the management of its services
contracts through program reviews and spending analysis.
Section 801 of the same act required the DOD to collect and
analyze contract data for the same purpose. Unfortunately, it
is my understanding that DOD still cannot even determine how
much it is spending on contract services until several months
after the money has been spent. GAO's November 2006 report on
DOD service acquisition states that if DOD is going to obtain
the right services at the right prices in the right manner, it
must understand the volumes, sources, and trends related to
what it's buying.
Ms. Schinasi, has the DOD developed the data, about the
types of and quantities of services it purchases, that it needs
to successfully manage its purchases of services at the
strategic level?
Ms. Schinasi. Mr. Chairman, they have not been able to do
that yet. They have made some attempts, and there is some
bottom-up reporting going on, but even the services themselves
do not know what they're spending, and so, it's a massive
effort to try and bring all of that information together, and
they haven't been able to do it yet.
Senator Akaka. They have not been able to do that. Is there
any sight as to when this can be done?
Ms. Schinasi. I guess my position on that would be that I
hope we don't wait for all of the data to get in before we
start making improvements, because it could be a while.
Senator Akaka. Okay.
Mr. Gimble and Ms. Schinasi, the GAO report also states
that sound contract management requires defining a clear scope
of expected contractor performance, developing an objective
means to assess the contractor's performance, ensuring
effective contractor selection based on competition and sound
pricing, and selecting an appropriate contracting vehicle.
However, GAO reports that DOD service acquisition management
activities focus primarily on awarding the contract rather than
defining requirements. The DOD IG reports that DOD officials
failed to perform adequate acquisition planning for 55 of 56
task orders awarded through GSA, and 61 of 61 task orders
awarded through the DOTREAS.
Mr. Gimble and Ms. Schinasi, has the DOD taken the steps
that it needs to take to ensure appropriate planning for the
acquisition of contract services?
Mr. Gimble. The DOD is still working that issue. There's a
series of policy letters that started back in 2004 and continue
into 2006--clarifying policy, reinforcing policy. I think the
answer, though, is that we're not there yet. As late as the
last round of audits that we produced, we found those problems
still exist. Hopefully, in the next round of audits that we'll
do as a part of the section 800 series, it'll show some marked
improvement, but we still have serious problems in that area.
Ms. Schinasi. Mr. Chairman, I think your question also goes
to the importance of who is it that we're targeting with
training? When you talk about establishing requirements, those
requirements come from outside of the contracting world. Those
requirements are set by program managers. So, we need to make
sure, in getting to a place where we have sound requirements
that are valid and have been justified, that we make sure that
the program community, as well as the contracting community who
has responsibility for translating those requirements into a
statement of work, is captured in our targeting.
Senator Akaka. As I said in my opening statement, I believe
that these shortcomings are the result of an acquisition
workforce that is stretched too thin to do the job.
Mr. Gimble and Ms. Schinasi, is there any simple and cheap
way for DOD to improve the performance of its services
contracts, or is DOD going to have to invest the resources
needed to provide adequate acquisition planning and oversight?
Mr. Gimble. In terms of the workforce, Mr. Chairman, I
believe that the answer is that we went on record as early as
2000. In February 2000, we issued a report talking about the 50
percent reduction in the contracting workforce--or the
acquisition workforce. There has not been significant increase
in that workforce. As you pointed out in your opening
statement, there's been significant increase in the volume of
business that these folks are required to oversee. I think
there's a huge investment there, because not only do you have
to attract the people--if we determine that this is inherently
governmental, meaning this has to be an investment in a
contract workforce, there's a huge training tail that goes with
that. So, it'll be a very significant investment, but I think
that you see the risks that we've continually reported on, and
maybe it's time that there's a business case made to see what
the proper level of the acquisition workforce should be.
Senator Akaka. Ms. Schinasi?
Ms. Schinasi. I would add to that it's important that we
start thinking about acquisition differently, that agencies
realize that being able to accomplish their mission is very
much hindered or helped by how well they acquire the goods and
services they need for that mission. Until we can get the
acquisition function up to a level where we see it as something
worth investing in, we're not going to make the investments
that we believe are needed. When you go out and ask private
successful companies--and we do this quite a bit--``how do you
approach your sourcing function?''--that is a huge strategic
area for them, and they invest in the best and brightest
people, because that's the basis upon which they make profit.
The Government doesn't see it like that. The Government has
never seen the acquisition function as requiring and deserving
commensurate investments as other parts of agency missions.
Senator Akaka. Senator Ensign.
Senator Ensign. Thank you.
Mr. Gimble, is the red area the area where they banked? Am
I recalling correctly?
Mr. Gimble. Yes, sir. Actually, the red area is that the
money was there, it was expired, and they went ahead and put it
on contract. The banking could be a little bigger than that,
though.
Senator Ensign. First of all, is this a question of ``use
it or lose it''? In other words, ``Well, I have to spend it.
It's there, I have to make sure I spend it.'' Or is there
something else involved here? If so, what type of
administrative action should be taken? Is it criminal? What
needs to proceed from here to stop this type of situation from
going on?
Mr. Gimble. Senator, that's a really good question, and
it's a very hard question to answer. I think there's a
multitude of answers that go to that. I think the first thing
is, the banking--when they push that money across, if you get 1
year on your money, that's going to expire, you send it over
into a revolving fund, where it loses its identity. I'm not
sure that that's criminal; it could be. It would have to be
examined on a case-by-case basis. But it's a very poor
practice.
There's some degree of uncertainty as to where the lines
are, and we think there needs to be some more clear definition,
particularly in what you can do. For example, if you buy goods
and services, those have to be delivered within the year. If we
buy products, they have to be delivered within this year. What
that does is, at the end of the year on September 15, which is
still within the year, the assumption is if you put an order
in, it'll be delivered before October 1. Maybe that's a little
unrealistic, maybe there will be things that happen there. On
the other hand, for severable services contracts, the rule is
that if you get them on a contract, you have a year to execute.
In other words, if you issue a contract in September of last
year, you have until September of this year to execute the
contract. There is a problem that goes on with that, in our
view. Once you have the contract there, we wouldn't argue that
you could carry that on for 12 months; it's when you start
doing the incremental funding, where you add on to that or take
from it; then, we think that's outside the scope. So, we think
there's some definitional clarity that needs to be applied to
this.
The other thing, though, is, how do you stop it? Once you
get the rules down, there has to be some way of stopping it. I
think that what's happening is, through the legislation, where
you've had us declare buying activities as red, and you start
the threat of DOD being their primary customer, not doing
business with them, that that gets people's attention. We've
gotten a lot of attention over the past 3 or 4 months. So, some
of us that have been watching this evolve down over the number
of years--and it goes back to more than just the Non-Economy
Act orders that we have today. I'm not saying it should have to
happen that way, I'm just saying that that is a real deterrent,
and it makes people look and say, ``If we want your business,
we're going to spend the money the way you have to have it
spent.''
Senator Ensign. I want to get to some of the other contract
issues and have both of you feel free to take a shot at this.
DOD has testified many times that the way budgeting is done
right now is very difficult for DOD annual budgets. By the time
they actually get their money, it was proposed maybe 4 years
before that by the time the actual money gets around, and it's
a very difficult situation for them. In the middle of a war,
especially, it can be a frustrating situation. You have
supplementals coming up here, you have all the various things
going on.
How much of this is as a result of the situation we find
ourselves in? Have you put numbers to how much of the money is
actually being wasted? In other words, they're paying too much
because of the bad systems that are in place, or is this a
question, in some cases, of an entrepreneurial bureaucrat
saying, ``Hey, the system isn't working over there, I have to
do it a different way, because these people really need these
services or these materials that I'm going to get them, and I'm
going to make sure that it happens''? Obviously, you don't want
to punish people for thinking outside the box, but, at the same
time, if they're wasting money, if they're doing things not by
the book that actually cause harm and waste our tax dollars,
then that is something we need to hold accountable. Have you
put dollars and your comments on that line of questioning,
either one of you?
Mr. Gimble. We haven't put a total dollar figure. I'm not
sure that anybody knows. If you ask how much money is being
wasted through poor contracting, I think we'd all say that it's
significant, but I don't think there's anybody that really has
a good number for that.
Insofar as the ``thinking out of the box,'' yes,
absolutely. I think some of this is from an entrepreneurial
point of view, but, on the other hand, what you can't do is
allow that to become the crutch for poor contracting and where
you give up the basic internal controls that would allow you to
know that you're getting best value. I think that's where some
of these things have stepped across the line, that it's an
expedient way to put money on things; and the truth of it is,
one would not argue that we might need more Humvees next year,
but there's a process in place to buy those, I'm talking about
the armor and the Humvees that we use as an example. The
expenditure of taxpayers' dollars should be well-planned and
executed to get the best value. I think what we have here is a
situation that is not conducive to that.
Senator Ensign. Ms. Schinasi?
Ms. Schinasi. I would agree. I think an entrepreneurial
spirit is fine as long as it's accompanied by good business
practices. So, there are those lines, and they get crossed for
different reasons. You raised the issue of funding, and funding
is difficult. We find that one of the reasons that requirements
are not established upfront is because they're really budget-
driven. ``We'll buy as many labor hours as we have money for,
and we don't know how much money we're going to have, because
we only get our money on a quarterly basis.'' So, there's a lot
of internal instability in DOD's funding processes that might
exacerbate some of the things that we're seeing.
Senator Ensign. I alluded to it a little bit, but it may be
in other parts of these programs, we hear about this throughout
Government is: ``You're coming at the end of the fiscal year, I
have unexpended funds. If I don't spend those funds--and maybe
sometimes they're on things that we really don't need, but if I
don't spend those funds''--and I don't know if you've looked at
any part of that, but if folks aren't spending those funds,
they know, in next year's budget, ``Oh, they didn't spend it
last year, so we don't need to give them the same budget level
for next year,'' even though next year they may need those
funds, plus.
Senator Akaka. Thank you, Senator Ensign.
Senator McCaskill.
Senator McCaskill. Thank you, Mr. Chairman.
Mr. Gimble, is there a reason why you're still the Acting
Inspector General? You've been Acting Inspector General since
September 10, 2005.
Mr. Gimble. I'm a senior career guy, and if they put a
political appointee in there, then I work for the political
appointee. Short of that, my mission and role is to run the
organization. I have little or nothing to do with it.
Senator McCaskill. Okay. When I read all of this, I didn't
know whether to laugh or to cry. It is startling to see the
enormity of the problem. I mean that in every sense of the word
``enormity,'' because there are several definitions that go
with ``enormity,'' and I think several of them apply to this.
I was struck by the interagency contracting. Particularly,
I was struck at the use of GSA and DOI as a roundabout,
startling that they would actually use other agencies and pay a
surcharge to circle back and use their contracting list. So, we
spent millions and millions of dollars paying another agency to
buy, when all they had to do was go to their own list and
purchase. Did I misread that?
Mr. Gimble. The example that you're talking about is of the
``pass-throughs,'' where DOD could go to the Federal Supply
Schedules and go directly to that; instead, we went to DOI, as
an example, and they simply turn and go to the schedule and do
the same thing we could have done, going straight to that. We
also have a couple of examples of where we went out to DOI, and
they've come back around and actually bought off the existing
DOD contracts, and we've paid a surcharge to have that happen.
I think that goes back to what Ms. Schinasi was saying. How you
execute some of these things needs to be well-defined. That's
just a breakdown in processes.
Ms. Schinasi. In the report that we issued in July 2005 on
franchise funds, one of the findings there was, the DOD is
supposed to analyze alternatives to decide which way to go. It
is supposed to say, ``Should we do it ourselves? Should we put
it on this interagency vehicle? That interagency vehicle?''
That was not happening. When we looked at whether or not it
could happen, what we found was that the funds themselves were
not keeping performance measures to allow anyone to determine
which is the best way to go. So, the way they measure their
performance is on the increase in fees and customer
satisfaction. So, they were interested in reporting that our
``customers were satisfied,'' not that we have a better deal or
a better price.
Senator McCaskill. I noticed, in one of----
Senator Ensign. Senator, if you would yield, maybe they
could clarify--it's on your point--just because we've had some
history on this very issue; this had to do with the number of
acquisition personnel. Could you just maybe clarify for the
Senator. The lack of acquisition personnel--in other words,
we've had our acquisition workforce cut quite a bit at DOD, and
that's the reason they've gone out and done some of this,
because they couldn't get the material, they couldn't get some
of these contracts as quickly as possible using their own
folks, because of the lack of service personnel. Isn't that
correct?
Ms. Schinasi. That is part of it.
Senator Ensign. Doesn't justify the other things they did,
but, as far as why they did it.
Ms. Schinasi. Right. Working properly, that's what you
would expect to happen. You can get your job done more quickly.
Senator McCaskill. Would the people not say to their
superiors, ``We don't have enough people to do this work;
therefore, we're spending millions and millions of dollars to
send these contracts circularly through DOI or GSA, and it
would be a lot less money for the taxpayers if we just hired a
few more people''?
Mr. Gimble. Senator, I think that that's a known fact that
it is, but typically when these come to light, these examples,
they're coming to light through audit reports. I don't know
that they're sitting around and that anyone has this visibility
over it. The point I was making a while ago about the DOD
contract--the people going out to DOI, coming back to DOD--we
actually identified 49 contracts, valued about $5 million,
where we sent the contract over to DOI, and then they came back
and bought off an existing contract. That's probably not
visible to the program manager. We're not sure, as--I think the
other part of this is, if you're the program manager, once you
put it out to contract, you probably don't worry too much about
what----
Senator McCaskill. Out of sight, out of mind.
Mr. Gimble. ``Out of sight, out of mind,'' ``All I want is
the product.'' So, that's kind of what builds. A lot of it is
just the fact that they've cut the workforce so small, that was
the whole idea, to leverage on some of the buying activities of
these other operations.
Now, the other thing that concerns us--and I just need to
say this--is that one could understand going to certain places
because they have expertise in buying certain things. For
example, furniture--you would think GSA has the expertise in
buying furniture. The example came up that we're all familiar
with, when they needed to have interrogators or interpreters
over in Iraq, they went and bought it off an information
technology contract down at Fort Huachuca. What was the
expertise being used when an Information Technology (IT)
Indefinite Delivery Indefinite Quantity (IDIQ) contract that
buys computers to be going out and buying interpreter services?
If you're going to direct this out somewhere, you need to go
somewhere that they have the expertise to make the kind of buys
that we're dealing with.
Senator McCaskill. It's hard to imagine, utilizing common
sense, how you go to an IT supplier to buy interpreters. It's
really hard for me to understand how--and maybe the longer I'm
here, the more sense it'll make. But right now, it doesn't make
much sense.
I think one of the things that struck me was the example of
using operational money through GSA to build a building--that
was in your report, Mr. Gimble. We actually used operational
money to build a two-story office building, 230,000 square
feet, and the Army said that they were leasing the use of the
buildings, but the buildings weren't there before the contract
was issued.
Does somebody get fired when that happens, when you
actually use money that's operational to construct a building,
and then try to say that you were just leasing a building, and
you actually built a building? Does somebody lose their job
when that happens?
Mr. Gimble. I'm not sure that anyone lost their job over
that, but it's hard for us to understand, too, because--the
issue there was 1 year of operations and maintenance money for
operations versus military construction, which is much more
constrained. We have an issue and it's still being reviewed in
the DOD. Our position is that it was military construction,
because there was not a building there. They did go out and
pour foundation. We understand that they're--if you will, the
temporary-type building, or the mobile-home-type building--
that's probably not a good term, but the temporary building.
But the fact is, they laid all the infrastructure and the
foundation, and there's a huge building. If you go out and look
at it, it's a fairly impressive building. It wasn't there the
year before. It was, the year after. We have a hard time, in
our organization, understanding how that is not military
construction, and that was the position we've taken. I think
the attorneys are still trying to sort that one out.
Senator McCaskill. I would really be interested in the
follow-up on that, what happens. If you would--and I'll send a
letter, specifically.
Mr. Gimble. Okay.
[The information referred to follows:]
Senator McCaskill. This is a really good example, but if
there's not accountability when something like that happens, I
think we might as well throw in the towel.
Thank you for your service to our country, too.
Senator Akaka. Thank you.
I'm happy to welcome Senator Martinez to the committee and
ask for any statement or questions that you may have.
Senator Martinez. Thank you, Senator. I appreciate it very
much, Mr. Chairman. I'm going to insert my statement for the
record, and go straight to questions.
[The prepared statement of Senator Martinez follows:]
Prepared Statement by Senator Mel Martinez
Mr. Chairman, thank you for calling this important hearing. Many of
my constituents have contacted me regarding the waste, fraud, and abuse
that have resulted from some service contracts in Iraq; from a pure
fiscal responsibility point of view, I think it is important that we
hold this hearing.
The shortcomings that have been reported represent a serious drain
on the ability of U.S. and coalition forces to complete the transition
to Iraqi control of the country.
Not only do these contracting problems translate into a tremendous
loss of money, but because of what is not being done, the success of
the mission there is being put at risk--and unnecessarily so.
Recent reports indicated that corruption and waste is widespread
among the Iraqi Government. Our men and women on the ground need to set
the example, and work with the elected government and the Iraqi Army to
stamp out this corruption and help them establish good government.
In this sense, the widespread problems documented to date threaten
our most important long-term goals in Iraq. We should be presenting
ourselves and our operations as a model of good government.
Through our own example, we are supposed to be showing the Iraqis
(and the rest of the coalition) how the greatest nation in the world
conducts business.
It is important that we take these first steps by being
introspective and noting deficiencies where they exist. Then we need to
move forward, and find ways to correct these often overlooked, but very
serious shortcomings. I look forward to working with my colleagues on
this committee on this issue that is certain to require our attention
for the foreseeable future. Thank you again, Mr. Chairman.
Senator Martinez. I must say that you come in with a spirit
of criticism, and, as I've sat here, I have been transformed
back to my days as a Cabinet officer. I'll begin to feel sorry
for those who attempt to run a Federal bureaucracy.
The Senator from Missouri will learn that there's no such
thing as firing a Federal employee. It just doesn't happen.
[Laughter.]
I also know that the GAO plays a very useful role, not only
in identifying problems, but also providing hopeful solutions.
I wonder in part of what we have been discussing here is an
issue that I also relate to, because, when I was at the
Department of Housing and Urban Development, we had the very
same problem--is that you go on this binge of contracting
services, which is good, and sounds good, and makes sense, but
then, at the same time, the corresponding opposite of that is
you reduce the workforce, because you're not contracting out
the services. What happens then is that the bureaucracy is left
shorthanded to oversee and supervise the letting and oversight
of contracts. So, then these problems arise.
Are part of your recommendations that you are making as a
result of your findings, Ms. Schinasi, are they also to
increase the contracting oversight workforce within the DOD?
Ms. Schinasi. We haven't gone to the quantity of people. We
haven't made recommendations on the quantity of people needed.
But, clearly, getting all of the players who are responsible
for the decisions involved in the targeted training that we
need to do is something that we have recommended.
Senator Martinez. Yes, training is the other part, which is
not only having the workforce, but having the workforce be
trained in the oversight of contracts, which is, to them, a new
thing. They haven't done this before; now, all of a sudden,
what they used to do in-house, they're doing outside, and
someone needs to oversee it, and it's a different skill set
that the workforce needs to have from what it used to be,
prior.
Ms. Schinasi. For example, surveillance of contractors is a
responsibility that is assigned by the contracting officer, but
it's usually an individual who comes out of the program office,
presumably because they understand what the contractor is
supposed to be doing and can assess how well they're doing
that. But those individuals often are not trained, and they
just don't pay much attention. So, you need to make sure you
have all of the pieces in there when you're writing policy or
developing training.
Senator Martinez. One of the things, Ms. Schinasi, that
came to mind was that you may have an infantry colonel
operating in Iraq, and may be a little uncomfortable with the
process, but what I was wondering is how much of this
contracting is done on the ground in theater and how much is
done in at a strategic level, here in the country?
Ms. Schinasi. There's very little done at the strategic
level, and I think that's part of the message that we've been
trying to get across in our most recent report on how do you
need to manage service contracting? There is a tactical level,
and you need to ensure that competition rules are followed and
surveillance takes place, but there is also a strategic level,
where you have to decide what is it that you want to achieve
through hiring contractors to help you carry out your mission?
That hasn't been done.
Senator Martinez. At that level, also, additional training
would be helpful.
Ms. Schinasi. Yes, and knowledge about what you are doing.
Do you really know what you're spending it on, who you're
spending it with? The answer is no.
Senator Martinez. I saw that in 2005, DOD awarded more than
52,000 contract actions, with a value of over $5 billion. I
presume that's all done under a fairly high-stress environment.
I guess that would also be part of what we're dealing with, and
I don't know how we do that better under war circumstances. Do
you have a suggestion there on how to improve?
Ms. Schinasi. I think what we're trying to get to is a
strategic and a transactional level, should you be hiring that
much through service contracting is number one. Then, number
two, the imbalance we've talked about between the job of each
individual and how many individuals you have doing that job, is
another way that you would have to attack that.
Senator Martinez. That's all part of the same issue and
part of the same problem?
Ms. Schinasi. Yes.
Senator Martinez. Any good news you can share? [Laughter.]
Ms. Schinasi. Mr. Gimble? [Laughter.]
Senator Martinez. Mr. Gimble, maybe you'd like to tackle
that one. I didn't ask you any questions.
Ms. Schinasi. I will say that I'm encouraged, in our
discussions with the leadership in the DOD. They are well-
meaning people, they recognize what these problems are, and the
magnitude that they have to deal with that. The point I made in
my oral statement, though, is that these are number whatever--
103 in the series of leaders that we have had over there trying
to correct the problem, and it's very difficult to get
traction, particularly service contracting, where, as you point
out, most of the action is at the front-line level, trying to
get that vision translated down and actually something changed,
as a result.
Senator Martinez. I think something that Mr. Gimble also
alluded to, is the fact that sometimes what becomes so apparent
at the time of looking at these issues is not apparent on a
day-to-day basis to those people who have a responsibility for
oversight. I guess that's part of where I'd identify and feel
fortunate to no longer be responsible for a government
department in the Federal bureaucracy.
But thank you very much, both of you.
Thank you.
Senator Akaka. Thank you very much, Senator Martinez.
I'd like to ask a question about the Acquisition Advisory
Panel in the second round. The question from which we'll hear
from the Acquisition Panel later this month. They looked at the
state of the acquisition workforce and concluded that
``curtailed investments in human capital have produced an
acquisition workforce that often lacks the training and
resources to function effectively.'' I think you mention that,
too, Ms. Schinasi.
Ms. Schinasi. Yes.
Senator Akaka. As a result, the panel concluded, ``The
Federal Government does not have the capacity in its current
acquisition workforce necessary to meet the demands that have
been placed on it.''
Mr. Gimble and Ms. Schinasi, do you agree with the
conclusions of the Acquisition Advisory Panel on the state of
the defense acquisition workforce?
Mr. Gimble?
Mr. Gimble. Yes, Mr. Chairman, we do agree with that. Also,
I think there's something else that hasn't been mentioned. You
have the baby-boom retirement age that's coming up. There's
another challenge for the acquisition workforce--and it's not
just the acquisition workforce, it's the whole Federal
workforce, as we have a number of folks that are approaching--
and, in some cases, such as myself, past retirement. But that's
going to be another challenge. Some of the trained people that
we have, experienced people, are going to be retiring in the
near-term, so there's a huge issue laying out there for not
only the hiring of acquisition people, but also the training of
the people.
Senator Akaka. Ms. Schinasi?
Ms. Schinasi. We have ongoing work right now examining all
of the recommendations of the 1423 panel, so we're still
working our way through that. But I think one of the things
that they did raise in that report is this business of thinking
about your acquisition workforce more strategically, being
willing to invest in a group of people who help you determine
how successful or not you are with your mission. Highly
sophisticated, credentialed, and trained business managers is
the way that that panel talked about the private sector
approach to a kind of workforce, and I would agree that that's
the way we need to start thinking about the capability that the
Government has to have.
Senator Akaka. To both of you, would you agree with the
conclusion of the Acquisition Advisory Panel that our failure
to fund an adequate number of acquisition professionals is
penny wise and pound foolish, as it seriously undermines the
pursuit of good value for the expenditure of public resources?
Mr. Gimble?
Mr. Gimble. Mr. Chairman, I would agree with that.
Ms. Schinasi. We need to make greater investments.
Senator Akaka. On criminal violations of fiscal statutes,
Mr. Gimble, I understand that in the course of your reviews of
interagency contracts awarded through GSA, DOI, DOTREAS, and
NASA, you have identified several hundred potential violations
of the ADA, more than 100 of which occurred even after
officials were warned that continued expenditures would violate
funding requirements. The ADA is a critical statute which
ensures that money is spent in accordance with congressional
appropriations. It is also a criminal statute.
My question is, what has happened to these ADA cases? Have
any Federal officials been--instead of saying ``fired''--
disciplined for these violations?
Mr. Gimble. Mr. Chairman, let me put a little perspective
on that. We initially identified 72 potential ADA violations in
our initial round of audits. The way that works is, when we
have a potential violation, where there hasn't been a
conclusive determination that there is, in fact, a violation,
that becomes a comptroller/general counsel issue which--we're
on record saying that we think they should have moved those
along quicker than what they've done. They haven't finished any
of the 72 that we initially reported. We believe that those
have to be done. That would be the baseline from which, if it's
determined that there are, in fact, violations, you'd make a
determination that, at that point, as to whether they're
criminal or not.
The other part of that is the 100 that occurred after--I
think we're talking about my red chart up here--we have
identified those as ``potential.'' We will be referring those
back into the normal ADA violation process for a determination
of whether, in fact, they were a violation, and also, that same
determination as to whether, if there was a violation, in fact,
was it criminal or administrative? So, I think the jury's out
on that.
The answer to the question, nobody's been held accountable
on the potential violations that we've identified and reported.
So, our position is that the DOD needs to take action to speed
those reviews up. We're on record with them, internally in the
DOD, telling them that they need to move those forward. We
think this is a huge part of the enforcement issue. If we're
going to correct these problems and solve them in the future,
if they need to be held accountable, they should be held
accountable. That process is still working.
Senator Akaka. Is it true, Mr. Gimble, that one of the
major DOI contracting officers advertised on its Web site that
DOD officials could avoid congressional limitations on the
availability of funds by sending money to them?
Mr. Gimble. That is correct. There was an advertisement on
the Web site that says that--put your money here--basically,
park your money, and it will still be useful in years to come.
Senator Akaka. Mr. Gimble and Ms. Schinasi, do statements
of this kind give you confidence that we are on our way to
fixing the systematic problems that you have identified with
interagency contracting? What I'm referring to is, the
administrator of GSA recently complained about the joint
reviews that you have conducted with the GSA IG. The
administrator is quoted as saying that there are two kinds of
terrorism in the United States: the external kind, and,
internally, the IGs have terrorized the GSA regional
administrations. Again, I'll come back to the question. Do
statements of this kind give you confidence that we are on our
way toward fixing the systemic problems that you have
identified with interagency contracting? [Laughter.]
Mr. Gimble. Mr. Chairman, let me take that, because--
actually, it's our joint review. It's not GAO--it was DOD IG
and GSA IG. I read that in the paper. Frankly, if that's true
that the administrator said that, I think that's a very
unfortunate label to be applied to a very respected member of
the Federal IG community. You only have to go back and read in
the Inspector General Act of 1978, as amended. We have a very
clear role in the forefront of the war against fraud, waste,
and abuse. Running these joint reviews that we're doing is--we
view that as doing value-added work for the taxpayer, in
overseeing the expenditure and stewardship of the taxpayers'
dollars.
Senator Akaka. This is my last question, Mr. Gimble. Under
these interagency contracts, DOD pays a fee to the contracting
agency to conduct contracting actions on its behalf. For
example, DOD paid fees to the DOI in the range of 3 to 4
percent of the value of each transaction. Mr. Gimble, do you
have a view as to whether the DOD was getting its money's worth
for these fees?
Mr. Gimble. Mr. Chairman, I think we have some examples
where we thought they weren't getting their money's worth. I
also would tell you, though, the fee-for-service, in itself, if
properly managed, I think you do get value that way. The theory
being, if I have a true contracting requirement that I cannot
fulfill--I can downsize my acquisition workforce and rely
reliably on some other Government activity to do that, then
they can't do it for free, so, I think it's not a bad concept.
I think what we have here are examples of just poor planning
and poor use of what would otherwise be a very valuable
resource to the DOD.
Ms. Schinasi. I would just add to that. The way they manage
their own performance set--puts in place a set of incentives
that works against, perhaps, the best interests of the
Government at large, because they're measuring on the fees that
they get and customer satisfaction. So, if that's all you're
looking at doing, then you want to make customers happy by
bringing more business, and you're willing to do a lot of
things that otherwise, in other circumstances, would not
constitute good business practice.
Senator Akaka. Thank you for your responses.
Senator McCaskill.
Senator McCaskill. I certainly think if the head of GSA
made those comments, especially in light of your record in the
military, I would think, Mr. Gimble, that you are owed an
apology. I think the IGs and GAO are incredibly important to
the expenditure of public money, and I hope that you all feel
as valued as you are, especially by those of us who have spent
time wading through audit reports; and, second, that if ever
your independence is compromised, that the way this wonderful,
elegant democracy was designed, the congressional branch is
here to try to make sure that your independence is maintained.
I wanted to focus, during this round, just on a couple of
practices that are ongoing and are mentioned in both of your
reports. One is ``costs incurred before scope in work'' has, in
fact, been laid out. In fact, I believe you cite in your work,
Ms. Schinasi, that there's actually an instance where all of
the costs had been incurred and paid for before the scope in
work had been decided upon.
Ms. Schinasi. That's correct. There were several instances,
but one, the contract was finally agreed to a year after the
work had been completed.
Senator McCaskill. Can you explain how that phenomena has
become something that is accepted and that isn't immediately
something that is, with an internal control, basic rudimentary
best business practices? It would seem that that would get
caught pretty quickly. If money is going out before there is
any contractual agreement, how does that happen?
Ms. Schinasi. ``Urgent and compelling need'' is the
technical term for it, and there is a provision to give a
contractor permission to start work as long as you get the
terms and conditions set within 180 days. So, the regulations
allow for urgent and compelling needs--and these cases were in
Iraq--that you can let the contractor proceed without agreeing.
But that 180 days is in there for a reason, and that is, the
longer it takes, the less chance the Government has of having
any influence over the contractor or influence over the
contractor's costs. That was what we found in the review that
we did, that contracting officers did not feel they had the
ability to go back and recover costs that had been incurred,
even though the Defense Contract Audit Agency had questioned
those as unreasonable.
Senator McCaskill. Did they try and were somehow rebuffed
in the legal process? Or they just said, ``If we've already
given them the money, no harm, no foul, they get to keep it''?
Ms. Schinasi. It would be too hard.
Senator McCaskill. What about cost-plus? What is going on
with this incredible commonplace practice? At least reading
about it from the outside, it appears that cost-plus--where I
come from in government contracting, that is something that
makes the foundation shake, because it's an absolute ticket to
spending as much money as you possibly want to spend, because
there is absolutely no bottom-line pressure. How common are
these cost-plus contracts? Is this just something that's being
taken out of context and it's unusual, or is this truly
something that we need to be concerned about, in terms of
watching taxpayer money?
Ms. Schinasi. I'll take a shot at that first. It is a
problem that we're seeing so many cost-plus contracts. I think
what that is is a reflection of the point that Mr. Gimble and I
have both made: that the Government doesn't really know what it
wants. It cannot articulate a set of requirements against which
a contractor can propose and get the risk under control so that
we know what we're going to get when we enter into a contract.
Cost-plus is meant to be used in an environment where a
contractor is not willing to take on risk. That usually happens
when the Government can't say what it is that it wants.
So, it's a very risky place for the Government to be, and
also indicative of this growing trend that we see, ``We know we
need something''--maybe tied back to the capacity we have in
our own workforce--``We know we need something, but we don't
really know what it is, so can you help us develop the
solution?''
Senator McCaskill. Is this something that--if we did a
graph, would we see that this is something that's growing, the
cost-plus phenomena in DOD?
Mr. Gimble. We've not done any detail work lately on the
volume of cost-plus. Let me get back to you with an answer, if
we could do that.
[The information referred to follows:]
Senator McCaskill. Sure, that would be great. I'd like to
know.
On the costs incurred before scope in work, have you done
any work following up in terms of if, in fact, it was urgent
and compelling? Have you done that audit work to check to see
what, in fact, the underlying rationale was for cost incurred
before scope in work agreed to?
Ms. Schinasi. We have a job underway right now to look at a
portion of those contracts to get more in-depth insight into
what really did happen.
Senator McCaskill. I'm worried that urgent and compelling
is a phrase that people realize they can use, and just go ahead
and start. Certainly, I think, all of us understand that if
it's men and women's lives that are at risk, our soldiers,
then, certainly I would be the first to say there might be some
instances. But what I worry about is, if this is a practice
that has started occurring, it may be like going through the
agencies for parking or banking money, once it becomes
accepted, then they quit looking, and that just becomes a
phrase they use instead of something that's actually urgent and
compelling.
Mr. Gimble. Senator, I think that urgent and compelling
probably has a history of valid uses, and it also probably has
a history in the DOD of being abused from time to time. There's
a process that you go through to justify urgent and compelling
need, and it needs to be documented and defended. We've all
looked at--from the audit side of the house, we've all looked
and seen instances where the documentation really wasn't
sufficient and it would be questionable whether urgent and
compelling was really a valid requirement. On the other hand,
it is a valid technique if you do have on urgent and compelling
need. Sometimes you have to justify it and move forward.
Senator McCaskill. Okay.
Thank you all.
Senator Akaka. Thank you very much, Senator McCaskill.
This has been a meeting to discuss the abusive practices of
the DOD in contracting for services and interagency
contracting. Some of the responses we've heard today are very
troubling. We'll have a second hearing later this month on this
subject.
But, at this time, I'd like to thank you, Mr. Gimble and
Ms. Schinasi, for your responses and your statements.
If there's no further business, this hearing is adjourned.
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator John Ensign
USE OF SERVICE CONTRACTS TO ENTER INTO PROPERTY LEASES
1. Senator Ensign. Mr. Gimble, a significant finding in your report
that has been covered by the press concerns the award of a service
contract by the Department of the Interior (DOI) on behalf of the
Department of Defense's (DOD) Counterintelligence Field Activity to
provide leased office space and the installation of communication and
other equipment. You state in your written testimony that ``the 10
year, $100 million lease was disguised as a service contract and
exceeded all thresholds that require congressional notification and
approval.'' From your research and in your opinion, is it standard DOD
practice to use service contracts to procure property leases and
equipment?
Mr. Gimble. We are not aware of widespread use of service contracts
to obtain real property leases. The Counterintelligcnce Field Activity
lease described in our report and testimony is not standard practice in
DOD and it should not be permitted to become the rule rather than the
exception. Our concern is that, if the practice of leasing space for
use by Government employees via service contracts is not stopped
quickly, other DOD activities will circumvent required GSA and
congressional approvals to obtain office space.
It is not uncommon to see equipment being purchased in conjunction
with services on a service contract. However, the equipment should be
needed in order to perform the required service.
2. Senator Ensign. Mr. Gimble, in your opinion, in this case, what
differentiated a service contract from a property lease?
Mr. Gimble. A real property lease would be any agreement which
gives rise to a landlord tenant relationship or a contract by which one
owning real property grants the right to use and enjoy that property
for a specified period of time in exchange for periodic payment of a
stipulated price. A service contract would normally be a contract for
the performance of intangible services by individuals for a specified
period of time in exchange for periodic payment of a stipulated price.
A Federal real property lease to provide office space for Government
employees and a service contract are controlled by separate regulations
applicable to each. Service contracts are made subject to the Federal
Acquisition Regulations while real property leases are subject to the
guidance in the Federal Management Regulation. The cost of the
Counterintelligence Field Activity contract was primarily for the right
to use real property to provide office space for Government employees--
$80.5 million (80 percent of contract value) and tenant improvement
costs--$14.7 million (about 15 percent of contract value) plus
associated interest charges on the tenant improvement costs. Although
the contractor was responsible for providing services such as
facilities management, this made up only a small portion of the
contract cost.
3. Senator Ensign. Mr. Gimble, you further state in your testimony
that ``We are aware of two other major leases that similarly
circumvented the process.'' Can you elaborate on these two leases?
Mr. Gimble. The Acting Director of the Counterintelligence Agency,
in his management response to our draft audit report, identified
another lease for the Counterintelligence Field Activity through the
Defense Information Technology Contracting Organization. A similar
contract was also awarded by the Missile Defense Agency for the lease
of office space.
ASSESSMENT OF DEPARTMENT OF DEFENSE'S REMEDIAL EFFORTS ON INTERAGENCY
CONTRACTING
4. Senator Ensign. Mr. Gimble, you mention in your testimony that
there are two corrective actions DOD has recently taken to improve
oversight of interagency contracting--a December 2006 memorandum from
the Director of Defense Procurement and an October 2006 memorandum from
the Defense Comptroller's office. Do you think these memoranda go far
enough in effecting positive change within DOD?
Mr. Gimble. The December 2006 Memorandum of Agreement between
General Services Administration (GSA) and DOD goes a long way in
effecting positive change in the working relationship between GSA and
DOD. However, similar agreements are also needed with the other
activities contracting on behalf of DOD (e.g. the DOI and Department of
Treasury (DOTREAS)). The Agreement laid the framework for what is
expected from each agency. Specifically, it lets GSA know how DOD wants
to do business and what GSA can expect from DOD. The October 16, 2006,
memorandum from the Comptroller clarified funding rules for severable
services contracts and established a $500,000 threshold for contracting
officer review of interagency purchases, among other requirements.
However, it stopped short of providing clear guidance regarding advance
payments and the handling of incremental funding of services contracts.
5. Senator Ensign. Mr. Gimble, should Congress additionally
consider statutory language this coming year?
Mr. Gimble. I do not believe additional statutory language is
necessary. The DOD Comptroller understands the problems and can fix
them by providing additional guidance to DOD organizations. I also
believe that the guidance already published needs to be enforced and
actions taken against those who ignore the guidance. Following the
interagency audits now being conducted, I recommend that my office and
the Inspectors General of GSA and DOI conduct joint audits in about 3
years to ensure that interagency contracting procedures are working as
intended.
6. Senator Ensign. Ms. Schinasi, what are your thoughts on the
potential effectiveness of these efforts?
Ms. Schinasi. The October 2006 memorandum from the Comptroller,
which was sent to DOD components, established policies and procedures
for ordering goods and services that are not subject to the Economy Act
that are purchased from non-DOD agencies. For example, it requires
officials to provide evidence of market research and acquisition
planning, and a statement of work that is specific, definite, and
certain for non-Economy Act orders above the simplified acquisition
threshold. The memorandum also included a checklist and
responsibilities for DOD officials to use as guidance when placing
orders through interagency contracts. These actions should help to
address prior Government Accountability Office (GAO) recommendations
for better defining contract requirements and outcomes, and the need
for guidance on the use of interagency contracts.
The December 2006 Memorandum of Agreement between DOD and the GSA
serves to establish expectations for the parties involved in an
interagency contracting transaction. For example, the memorandum
proscribes that statements of work are complete, interagency agreements
describe the work to be performed, and surveillance and oversight
requirements are defined and implemented. The planned quarterly
meetings for DOD and GSA to evaluate the effectiveness of the
Memorandum of Agreement are a positive step.
However, as the acting Inspector General, DOD, pointed out during
the January 2007 hearing, the risks associated with interagency
contracting are not new and require sustained attention. The use of
these types of contracts continues to increase government-wide, and our
work and the work of the Inspector General have found that users and
administrators lack expertise about how to use these contracts. In
addition, adequate oversight is lacking. For example, DOD issued
guidance that was signed in October 2004 (effective January 1, 2005)
that outlines procedures to be developed and general factors to
consider in making the decision to use another agency's contract.
However, recent Inspector General audits have found that the guidance
is not always followed. In March 2006, the DOD Comptroller issued a
memorandum to the military departments, defense agencies, and other
components stating that DOD purchases made through non-DOD entities
continue to violate policies, existing regulations, and practices
regarding the use and control of DOD funds under interagency
agreements; the memorandum also stated that this situation needed
improvement. Therefore, although recent DOD actions are welcome, DOD
will need to continue to monitor its use of interagency contracts and
do more to define who is responsible for what in the contracting
process.
ASSESSMENT OF DEPARTMENT OF DEFENSE'S REMEDIAL EFFORTS ON THE
ACQUISITION OF SERVICES
7. Senator Ensign. Ms. Schinasi, how do recent steps taken by DOD,
such as the Under Secretary of Defense's October 2006 memorandum
concerning the reform of services acquisition, compare to your
recommendations regarding strategic and tactical level management?
Ms. Schinasi. DOD has taken a number of steps to improve its
acquisition of services, but these steps do not fully address our
recommendations regarding strategic and tactical management, For
example, DOD's October 2006 memorandum identified a number of
improvements in its current management structure, including providing
lower dollar thresholds for reviewing proposed services acquisitions
and requiring senior DOD officials to annually review whether service
contracts were meeting established cost, schedule, and performance
objectives. Further, in its comments to our November 2006 report \1\ on
DOD services acquisitions, DOD noted that it had made organizational
changes to improve its strategic sourcing efforts; it was assessing the
skills and competencies needed by its workforce to acquire services;
and the military departments and defense agencies were conducting self-
assessments intended to address contract management issues we
identified in our high-risk report. Each of these efforts are steps in
the right direction, but in our view, appeared to be primarily
incremental improvements to DOD's current approach to acquiring
services.
---------------------------------------------------------------------------
\1\ GAO, Defense Acquisitions: Tailored Approach Needed to Improve
Service Acquisition Outcomes, GAO-07-20 (Washington, DC: Nov. 9, 2006).
8. Senator Ensign. Mr. Gimble and Ms. Schinasi, what more do you
think the DOD needs to do to further address the problems in the
acquisition of services?
Mr. Gimble. DOD needs to assess its acquisition workforce and
identify its capabilities to award and administer service contracts.
For example, is DOD using contractors to perform routine duties that
should be done by Government workers? DOD needs to establish centers of
excellence and leverage its buying power. DOD also needs to look at
Performance Based Acquisitions and determine if DOD has the contracting
talent to implement it on a department-wide basis. Other areas needing
attention are the oversight of service contracts, preparing Quality
Assurance Surveillance Plans, and evaluating performance against the
plans.
Ms. Schinasi. At a fundamental level, we believe DOD needs to begin
to proactively manage services acquisitions outcomes, an action that
will involve making changes at both the strategic and transactional
levels. In contrast, DOD's approach to managing the acquisition of
services has tended to be reactive, and, as noted above, DOD's reform
efforts appear to be primarily incremental improvements to existing
processes. In our view, such incremental improvements will not place
DOD in a position to proactively manage services.
As we noted in our November 2006 report, DOD stated that it was
examining the types and kinds of services it acquired and developing an
integrated assessment of how best to acquire such services. DOD
expected that this assessment would result in a comprehensive,
department wide architecture for acquiring services that would, among
other improvements, help refine the processes to develop requirements,
ensure that individual transactions are consistent with DOD's strategic
goals and initiatives, and provide a capability to assess whether
services acquisitions were meeting their cost, schedule, and
performance objectives. DOD expected this assessment would be completed
in early 2007. Our discussions with DOD officials indicated that this
architecture may hold potential for making the more fundamental change
at the strategic and transactions levels that we have recommended. We
cautioned, however, that the extent to which DOD successfully
integrated the elements we identified would be key to fostering the
appropriate attention and action needed to make services acquisitions a
managed outcome.
9. Senator Ensign. Mr. Gimble and Ms. Schinasi, do you have any
recommendations that Congress should consider to ensure that the
progress made endures?
Mr. Gimble. Although I do not see the need for specific action by
Congress, I recommend that in about 3 years, audits of interagency
purchases made through GSA and the DOI be jointly conducted by my
office and the Inspectors General of the applicable agencies. Other
areas of concern include provisions of the Federal Acquisition
Regulations pertaining to the definition of a ``commercial item,'' use
of service contracts for personal services, and exemptions for certain
section 8(a) contractors from the competition requirements.
Ms. Schinasi. Congressional oversight, including hearings such as
this, plays a significant and important role in helping to assess
progress, identify challenges, focus senior management attention, and
hold DOD accountable for its actions.
BROADER ACQUISITION REFORM
10. Senator Ensign. Ms. Schinasi, over the years, this committee
has enacted a number of measures aimed at reforming the DOD's
acquisition processes and practices. How do, or should, reforms in the
acquisition of services fit within this committee's broader acquisition
reform efforts?
Ms. Schinasi. We believe that three elements transcend the type of
goods or services DOD buys: recognizing that mission success depends
heavily on a successful acquisition function and elevating senior
leadership attention and accountability accordingly; ensuring that the
government negotiates the best deal possible, a precursor of which is
the market-based discipline of competition; and monitoring the outcome
of acquisition decisions to ensure that the government gets what it
pays for. Although improvements should be targeted according to facts
and circumstances, the line between acquiring goods and acquiring
services is blurring as DOD contracts out the management of its major
systems acquisitions. The subcommittee's efforts to promote good
practices are relevant for both the acquisition of goods and the
acquisition of services.
11. Senator Ensign. Mr. Gimble and Ms. Schinasi, are there common
lessons learned or processes to be applied between major weapon systems
acquisition--which has been on the government's high risk list for
quite some time--and service acquisition reform?
Mr. Gimble. All Government officials have a responsibility to
ensure funds are used efficiently and effectively to meet the
requirements of DOD and the Federal Government. The common lesson that
can be applied is that program office officials need to be just as
aware of funding and contracting controls as financial management and
contracting office officials. A second lesson learned is that
activities must provide clear and concise statements of work to
contracting organizations. The contracts most often abused are those
with vague requirements. Services contracts contain a much higher level
of cost and performance risk when the quality of a contractor's
performance cannot be objectively quantified using objective metrics.
Ms. Schinasi. Services acquisitions parallel major weapon system
acquisitions in that both should start with well-defined requirements,
conduct sufficient market research, maximize competition, use qualified
contractors, appropriately incentivize contractor performance, provide
oversight or surveillance of the contractor's performance, and accept
and pay for only quality outcomes. Our work has repeatedly found
weaknesses in these processes. As we noted in our January 2007
testimony before the subcommittee, DOD does not know how well its
services acquisition processes are working and whether it is obtaining
the services it needs while protecting DOD's and the taxpayers'
interests. Key to achieving better outcomes will be DOD's ability to
translate well-meaning guidance and policy into actual practice. In
trying to improve the acquisition of both goods and services, the
underlying incentives that drive behavior--particularly funding--are
most often ignored.
ACQUISITION WORKFORCE
12. Senator Ensign. Mr. Gimble and Ms. Schinasi, there are a number
of concerns regarding the acquisition workforce. It is an aging
workforce and is losing much talent through retirement. The talent that
does remain may not match up well with the skills needed to buy
software-intensive, net-centric weapons. What are your views on the
health and composition of the acquisition workforce?
Mr. Gimble. The simultaneous growth of contracting for services by
DOD and the reduction of acquisition personnel is a principal cause of
contracting problems within DOD. I agree with the Director of Defense
Procurement and Policy, who on January 31, 2007, testified to your
subcommittee that because of the downsizing of the acquisition
workforce in the 1990s, the DOD acquisition workforce now requires
improvement.
Ms. Schinasi. Although defining the acquisition workforce as the
focus of attention is appropriate in some respects, the problems facing
DOD today are broader as the increased demands on the acquisition
workforce also stem, in part, from declines in the capacity of the
overall DOD workforce and, in part, from the demands emanating from the
requirements process. That said, we have raised concerns about the
health and composition of DOD's acquisition workforce for several
years. DOD's acquisition workforce must have the right skills and
capabilities if it is to effectively implement best practices and
properly manage the goods and services it buys. We noted in reports
issued in 2003 and July 2006, however, that procurement reforms,
changes in staffing levels, workload, and the need for new skill sets
have placed unprecedented demands on the acquisition workforce.
Further, DOD's current civilian acquisition workforce level
reflects the considerable downsizing that occurred in the 1990s. DOD
carried out this downsizing without ensuring that it had the specific
skills and competencies needed to accomplish DOD's mission. As a
result, these factors have 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, an
understanding of the technical details about the services they buy, and
the capacity to manage and oversee contractors. In the case of the
$160-billion Future Combat Systems (FCS) program, for example, the Army
chose to use a lead systems integrator because it did not believe it
had the in-house resources or flexibility to field such a complex
system in the time required.\2\
---------------------------------------------------------------------------
\2\ The FCSs program is a family of weapons, including 14 manned
and unmanned ground vehicles, air vehicles, sensors, and munitions that
will be linked by an information network.
---------------------------------------------------------------------------
DOD has acknowledged that it faces significant workforce challenges
that if not effectively addressed could impair the responsiveness and
quality of acquisition outcomes. In June 2006, DOD issued a human
capital strategy that identified a number of steps planned over the
next 2 years to more fully develop a long-term approach to managing its
acquisition workforce, including developing a comprehensive competency
model for each functional career field including the technical tasks,
knowledge, skills, abilities, and personal characteristics required of
the acquisition workforce.
13. Senator Ensign. Mr. Gimble and Ms. Schinasi, what are the
immediate priorities that must be addressed to ensure that the
workforce can meet the demands of today's acquisitions?
Mr. Gimble. The Director of Defense Procurement and Policy, Mr.
Shay Assad, testified that his office, in concert with the Defense
Acquisition University, the military departments, and the defense
agencies, has been developing a model that will address the skills and
competencies required. Mr. Assad testified that the contracting
competency model will be complete in March 2007, and that after the
results are tested, his office will implement actions to address
overall acquisition workforce deficiencies. Although my office has not
done a thorough review of the acquisition workforce since 2000, we do
see shortages of personnel and skills in the contract offices we are
visiting.
Ms. Schinasi. First, we have reported that senior DOD leaders need
to set the appropriate tone at the top and ensure that its personnel
adhere to sound contracting practices.\3\ Senior leadership is a
critical factor in providing direction and vision as well as in
maintaining the culture of the organization. As such, senior leaders
have the responsibility to communicate and demonstrate a commitment to
sound practices deemed acceptable for the acquisition function. Without
sustained and prominent senior leadership, DOD increases its
vulnerability to contracting fraud, waste, and abuse if it does not
ensure that its decisionmakers, personnel, and contractors act in the
best interests of DOD and taxpayers. DOD has emphasized making contract
awards quickly; sometimes, however, the focus on speed has come at the
expense of sound contracting techniques.
---------------------------------------------------------------------------
\3\ GAO, Contract Management: DOD Vulnerabilities to Contracting
Fraud, Waste, and Abuse, GAO-06-838R (Washington, DC: July 7, 2006).
---------------------------------------------------------------------------
Second, DOD needs to determine what skill sets its current
workforce has, and what skill sets the workforce needs, to carry out
DOD's mission. As I previously noted, DOD's June 2006 strategic human
capital plan identified a number of steps planned over the next 2 years
to more fully develop a long-term approach to managing its acquisition
workforce, including developing a comprehensive competency model for
each functional career field. The model should identify the technical
tasks, knowledge, skills, abilities, and personal characteristics
required of the acquisition workforce. As part of this effort, DOD also
needs to assess whether it has sufficient numbers of adequately trained
personnel to plan, negotiate, and award contracts, and to manage and
assess contractor performance.
14. Senator Ensign. Mr. Gimble and Ms. Schinasi, are you concerned
that we are relying too much on service contractors to augment DOD
program offices?
Mr. Gimble. My office has not done an analysis or study of this
subject, however, clarification of the term ``inherently governmental''
would help DOD program offices to draw the line on what types of
services should be contracted. This is particularly true in contracting
offices when you have contractors performing much of the work where
many of the duties performed appear to be inherently governmental and
may involve potential conflicts of interest.
Ms. Schinasi. We have expressed concern about DOD's growing
reliance on contractors. This reliance is a government-wide phenomenon
and is occurring across a wide variety of activities and functions,
including support for program offices. In recent years, for example,
DOD has been using a lead systems integrator approach that allows one
or more contractors to define weapon system's architecture and then
manage both the acquisition and integration of subsystems into the
architecture. This approach relies on contractors to fill roles and
handle responsibilities that differ from the more traditional prime
contractor relationship the contractors had with the program offices
and can blur the oversight responsibilities between the lead systems
integrator and DOD program management representatives. To illustrate
this point, the Army's FCSs program is managed by a lead systems
integrator that assumes the responsibilities of developing
requirements, selecting major system and subsystem contractors, and
making trade-off decisions among costs, schedules, and capabilities.
While this management approach has some advantages for DOD, we found
that the extent of contractor responsibility in many aspects of program
management is a potential risk. Given the growing role of contractors,
we believe it is important for DOD to identify the functions and tasks
contractors are performing, the reasons or justifications for choosing
a contractor instead of using a government employee, and the costs and
risks inherent in such choices. In addition, we believe it is important
for DOD to identify and mitigate the risks that can accompany increased
reliance on contractors--risks such as organizational or personal
conflicts of interest and insufficient in-house capacity to ensure that
contractors meet cost, schedule, and performance requirements. We are
conducting work to explore these issues.
15. Senator Ensign. Mr. Gimble and Ms. Schinasi, Congress has
provided many different tools to DOD to improve the hiring and training
of acquisition personnel. Have the tools for rapid hiring authority
been given to the acquisition workforce?
Mr. Gimble. The Director of Defense Procurement and Policy, Mr.
Assad, has testified that his model will allow DOD to assess the
acquisition workforce in terms of size, capability, and skill mix and
to develop a comprehensive recruiting, training, and deployment plan to
meet the identified capability gaps. Once the model is completed his
office will be better equipped lo answer this question.
Ms. Schinasi. We have not evaluated the use of the tools that have
been provided to DOD for rapid hiring authority.
16. Senator Ensign. Mr. Gimble, your testimony includes an
observation that resonates with all of us: ``Unless responsible
individuals are held accountable, the problems will remain (page 12).''
What can be done to increase accountability for individuals in DOD who
execute contracts without regard to the requirements of law, as you
have described in your testimony?
Mr. Gimble. The DOD Financial Management Regulation procedures used
to determine whether an Antideficiency Act violation has occurred
stipulate that if a violation has occurred, a culpable individual will
be identified. Right now, the completion of the formal investigations
and resultant identification of responsible individuals will be the
most efficient method of increasing the perceived accountability of
other individuals currently executing contracts. Current law states
that an officer or employee of the U.S. Government that knowingly
violates Antideficiency laws can be fined up to $5,000, imprisoned for
up to 2 years, or both. Enforcement of current law is the key to fixing
this problem.
17. Senator Ensign. Mr. Gimble and Ms. Schinasi, in your opinion,
do the new authorities under the National Security Personnel System
(NSPS) for performance management offer an opportunity for improved
accountability? If so, have you made such a recommendation to the DOD
leadership?
Mr. Gimble. I do not believe the NSPS changes DOD opportunity for
accountability.
Ms. Schinasi. Our past testimonies and work indicate that
evaluating the effect of NSPS will be an ongoing challenge. However, we
believe NSPS does offer an opportunity for improved accountability. In
our July 2005 report on DOD's efforts to design NSPS, we recommended
that DOD develop procedures for evaluating NSPS that contain results-
oriented performance measures and reporting requirements.\4\ Our prior
work also indicates that involving employees and other stakeholders
helps to improve overall confidence and belief in the fairness of the
system, enhance their understanding of how the system works, and
increases their understanding and ownership of organizational goals and
objectives. Organizations have found that the inclusion of employees
and their representatives needs to be meaningful, not just pro forma.
Results-oriented performance measures and reporting requirements along
with employee involvement can improve accountability.
---------------------------------------------------------------------------
\4\ GAO, Human Capital: DOD's National Security Personnel System
Faces Implementation Challenges, GAO-05-730 (Washington, DC: July 14,
2005).
CONTINUED GENERAL SERVICES ADMINISTRATION INTERACTION
18. Senator Ensign. Mr. Gimble, this past year, the Senate Armed
Services Committee, working with the House Armed Services Committee,
reviewed and rejected an unprecedented proposal by the DOD to use the
GSA to obtain a long-term lease that would lead to the construction of
a headquarters facility for United States Southern Command in Miami,
Florida. During the review, we asked why the DOD was willing to pay GSA
a 3 percent service fee for the transaction as opposed to carrying out
the lease with their own existing statutory authorities. DOD
representatives responded that GSA would have ``a more favorable and
flexible'' contracting climate to enter in a long-term lease with
specific terms and conditions meeting the requirements of DOD, as well
as satisfying an offer by the State of Florida. In your opinion, is DOD
still to this date actively seeking opportunities to contract through
other Federal entities with the deliberate intent of seeking more lax
rules and processes for the procurement of goods and services?
Mr. Gimble. Some program offices in seeking to address the needs of
the program will always see the faster procurement of goods and
services that result from lax rules and processes as a benefit to the
program. Program offices must be educated to understand proper
contracting and funding controls ensure good prices and performance.
Most of the problems we have identified do not involve corrupt
officials but rather officials who do not understand the
responsibilities inherent in Government service and are individuals
that only want to satisfy their customers' desires. I believe the
interagency audits completed by my office over the last 3 years will
greatly lessen the amount of DOD offices contracting through other
agencies with the intent of seeking more lax rules and processes.
______
Questions Submitted by Senator Saxby Chambliss
RECRUITMENT AND RETENTION
19. Senator Chambliss. Mr. Gimble and Ms. Schinasi, the vast number
of retirement eligible Federal employees presents a manpower challenge
across the Federal Government, and specifically in adequately replacing
members of the acquisition workforce. What innovative recruitment,
retention, hiring, and/or training methods have been employed to
address this inevitable force reduction?
Mr. Gimble. We have not conducted any reviews in this area. We have
seen contracting activities employ hiring methods that may not be in
the best interest of DOD or the Government. Specifically, some
activities have started contracting for contract specialist services.
For example, the Naval Sea Systems Command used a contractor which it
had obtained through a GSA information technology contract to solicit
bids and evaluate quotes for impending contracts. Although a warranted
Government official signed the final contract, all analysis and
preparation of the contract was handled by contracted employees. We do
not feel this is an appropriate response to the shortfall in the
acquisition workforce.
Ms. Schinasi. Our prior work has shown that DOD needs to conduct
comprehensive acquisition workforce planning to address recruitment,
hiring, retention, and training issues. We reported in April 2002 that
DOD recognized the need as well as the substantial challenges involved
in implementing a strategic approach to shaping the acquisition
workforce.\5\ In June 2004, we reported that DOD had taken steps to
develop and implement civilian strategic workforce plans to address
future civilian workforce needs, but these plans generally lacked some
key elements essential to successful workforce planning.\6\ None of the
plans included analyses of the gaps between critical skills and
competencies currently needed by the workforce and those that will be
needed in the future. Without including analyses of gaps in critical
skills and competencies, DOD and its components may not be able to
design and fund the best strategies to fill its talent needs through
recruiting and hiring or to make appropriate investments to develop and
retain the best possible workforce. Such gap analyses need to be
completed to address acquisition workforce shortcomings and to identify
methods that might prove successful for recruiting and retention. While
we made several recommendations to improve DOD's strategic workforce
planning efforts, the work we have completed has not identified the
need for legislative changes or authorities to enhance DOD's efforts in
the areas of recruitment and retention. However, we continue to be
concerned about strategic human capital issues at DOD, as well as
across the Federal Government, as we point out in our recently issued
high-risk report.\7\
---------------------------------------------------------------------------
\5\ GAO, Acquisition Workforce: Department of Defense's Plans to
Address Workforce Size and Structure Challenges, GAO-02-630
(Washington, DC: April 30, 2002).
\6\ GAO, DOD Civilian Personnel: Comprehensive Strategic Workforce
Plans Needed, GAO-04-753 (Washington, DC: June 30, 2004).
\7\ GAO, High Risk Series: An Update, GAO-07-310 (Washington, DC:
January 2007).
20. Senator Chambliss. Mr. Gimble and Ms. Schinasi, what methods
have proven successful thus far?
Mr. Gimble. DOD has successfully implemented the Defense Career
Intern Program, which works well for recruiting college students into
professional government positions such as DOD auditors and contracting
officers.
Ms. Schinasi. See response to question for the record number 19.
21. Senator Chambliss. Mr. Gimble and Ms. Schinasi, what
limitations stymie more robust recruiting and retention results, and
are there legislative changes or authorities that would enhance DOD's
efforts in this area?
Mr. Gimble. Lengthy security clearance processes and low starting
pay are the main limitations that stymie the DOD OIG's recruiting
practices. All Government activities are recruiting new personnel to
reduce the effect of the coming force reduction due to retirements. DOD
acquisition personnel are often targeted by other agencies and
commercial contractors due to the extensive training and experience
with large contracts that they have. However, I believe these are local
management issues and do not require legislative changes beyond those
already planned for the DOD workforce.
Ms. Schinasi. See response to question for the record number 19.
ACQUISITION PRACTICES
22. Senator Chambliss. Mr. Gimble and Ms. Schinasi, the
administration has made clear the priority of success in the global war
on terrorism, and the DOD has an enormous role in this fight. Given
your finding that DOD needs significant improvement in both contract
oversight and interagency contracting practices, DOD clearly faces
multiple challenges on the contracting front as part of its role in
global war on terrorism support. What are your recommendations for how
DOD might simultaneously develop and implement strategic acquisition
processes and improve contract management practices in its Iraq
reconstruction mission?
Mr. Gimble. We have not addressed these types of issues in our
audits. However, the lack of security in Iraq is obviously the foremost
problem for contractors attempting to perform on construction type
contracts. From a contracting perspective, contingency contracting
practices that streamline contracting procedures in theater should only
be used to support forward deployed combat forces and should not be
used for contracting civil construction or service contracts under
other conditions as the streamlined techniques used will often not
result in best value contracting. In March 2004, we reported numerous
contracting problems that were primarily attributed to the need to
react quickly to the rapidly changing situation in Iraq and that
acquisition support was an afterthought to the Office of Reconstruction
and Humanitarian Assistance. At that time, we recommended that the
Deputy Secretary of Defense designate an office to study existing
strategy and establish responsibilities, policies, and procedures for
the acquisition of goods and services in support of future post-war
occupation and relief operations. The Deputy Secretary of Defense
concurred with the recommendation and designated the Under Secretary of
Defense for Acquisition, Technology, and Logistics to conduct the
study. Since then, the office of Defense Procurement and Acquisition
Policy established a Joint Contingency Contracting Working Group that
will develop a Joint Contingency Contracting Guide. This guide will be
in the Defense Federal Acquisition Regulations Supplement Part 18 and
incorporated into specific Procedures, Guidance, and Information. A
committee including representatives from the military Services, the
Defense Contract Management Agency, and Defense Logistics Agency is
currently reviewing and identifying differences between service
contingency contracting supplements and will recommend standardized
procedures.
Ms. Schinasi. As the Comptroller General noted during testimony in
February 2007, the challenges faced by DOD on its reconstruction and
support contracts in Iraq often reflected systemic and longstanding
shortcomings in DOD's capacity to manage contractor efforts.\8\ Such
shortcomings result from various factors, including poorly defined or
changing requirements; the use of poor business arrangements; the
absence of senior leadership and guidance; and an insufficient number
of trained contracting, acquisition, and other personnel to manage,
assess, and oversee contractor performance. In turn, these shortcomings
manifest themselves in higher costs to taxpayers, schedule delays,
unmet objectives, and other undesirable outcomes.
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\8\ GAO, Rebuilding Iraq: Reconstruction Progress Hindered by
Contracting, Security, and Capacity Challenges, GAO-07-426T
(Washington, DC: Feb. 15, 2007).
---------------------------------------------------------------------------
Through the years, we have made recommendations to help DOD address
these shortcomings, including recommendations intended to assure that
adequate acquisition staff and other resources are available to support
future operations, to emphasize the need to clearly define contract
requirements in a timely manner, to improve the management of
interagency contracting, and to resolve longstanding issues with regard
to the management and use of support contractors. DOD has generally
agreed with our recommendations and has some actions underway to
address them. However, senior DOD leadership is needed to address these
issues on a systemic level and ensure that subsequent changes in DOD's
policies and practices are implemented, as appropriate, in Iraq.
[Whereupon, at 3:51 p.m., the subcommittee adjourned.]
CONTINUE TO RECEIVE TESTIMONY ON ABUSIVE PRACTICES IN DEPARTMENT OF
DEFENSE CONTRACTING FOR SERVICES AND INTERAGENCY CONTRACTING
----------
WEDNESDAY, JANUARY 31, 2007
U.S. Senate,
Subcommittee on Readiness
and Management Support,
Committee on Armed Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:40 p.m. in
room SR-222, Russell Senate Office Building, Senator Daniel K.
Akaka (chairman) presiding.
Committee members present: Senators Akaka, McCaskill, and
Ensign.
Majority staff member present: Peter K. Levine, general
counsel.
Minority staff members present: Gregory T. Kiley,
professional staff member; Derek J. Maurer, minority counsel;
Lucian L. Niemeyer, professional staff member; Bryan D. Parker,
minority investigative counsel; and Diana G. Tabler,
professional staff member.
Staff assistants present: David G. Collins and Benjamin L.
Rubin.
Committee members' assistants present: Darcie Tokioka,
assistant to Senator Akaka; Lauren Henry, assistant to Senator
Pryor; Nichole M. Distefano, assistant to Senator McCaskill;
Arch Galloway II, assistant to Senator Sessions; and D'Arcy
Grisier, assistant to Senator Ensign.
OPENING STATEMENT OF SENATOR DANIEL K. AKAKA, CHAIRMAN
Senator Akaka. The Readiness and Management Support
Subcommittee meets today to continue its review of abusive
practices in the Department of Defense (DOD) contracting for
services and interagency contracting. At our first hearing the
DOD Inspector General (IG) and the Government Accountability
Office (GAO) told us that poor DOD business practices, such as
poorly defined requirements, inadequate competition, inadequate
monitoring of contractor performance, and inappropriate uses of
other agencies' contracts, expose the DOD to fraud, waste, and
abuse.
The Readiness and Management Support Subcommittee has long
been concerned about these problems. More than 5 years ago, in
our committee report on the National Defense Authorization Act
(NDAA) for Fiscal Year 2002 we stated, ``Last year the DOD IG
reviewed the Department's $10 billion of annual expenditures
for professional, administrative, and management support
services and found an almost complete failure to comply with
basic contracting requirements. Other reviews by the IG and the
General Accounting Office have revealed the Department has
failed to complete requirements for the delivery of services as
required by law and regulation and has barely begun to
implement requirements for performance-based contracting. The
GAO and the DOD IG have found that DOD managers failed to
compete services work in up to three-quarters of the cases they
examined.
``At a more fundamental level, DOD has no centralized
management structure for services contracts. Rather, the award
of these contracts is dispersed throughout the Department, with
little management oversight. As a result, the Department has
never conducted a comprehensive spending analysis of its
services contracts and has made little effort to leverage its
buying power, improve the performance of its services
contractors, rationalize its supplier base, or otherwise ensure
that its dollars are well spent.
Moreover, the Department has failed to provide its
acquisition professionals with the training and guidance needed
to manage the Department's service contracts in a cost
effective manner.''
The persistence of these problems leads me to believe that
there is a real need for strong action by this committee. Today
we will hear from the Acquisition Advisory Panel chartered
pursuant to section 1423 of the NDAA for Fiscal Year 2004,
followed by a panel of witnesses from the administration. I
hope that these witnesses will be able to propose some
constructive solutions to the problems we have identified.
In my view, the key is the acquisition workforce. According
to the Acquisition Advisory Panel, ``Curtailed investments in
human capital have produced an acquisition workforce that often
lacks the training and resources to function effectively.'' The
report states: ``The drought in hiring, the inadequacy of
training in some agencies, and the increased demand for
contracting have together created a situation in which there is
not in the pipeline a sufficient cadre of mature acquisition
professionals who have the skills and the training to assume
responsibility for procurement in today's demanding
environment. As a result, the Federal Government does not have
the capacity in its current acquisition workforce necessary to
meet the demands that have been placed on it.''
As I pointed out at our last hearing, the DOD has almost
doubled its spending on service contracts over the last 5 years
while the number of procurement personnel available to oversee
these contracts has dropped by more than 25 percent. As a
result, we have fewer and fewer procurement officials
responsible for managing more and more contract dollars. I
believe it is vital for Congress to address this structural
problem at this time.
[The prepared statement of Senator Akaka follows:]
Prepared Statement by Senator Daniel K. Akaka
The Readiness and Management Support Subcommittee meets today to
continue its review of abusive practices in Department of Defense
contracting for services and interagency contracting. At our first
hearing, the DOD Inspector General and the Government Accountability
Office told us that poor DOD business practices, such as poorly defined
requirements, inadequate competition, inadequate monitoring of
contractor performance, and inappropriate uses of other agencies'
contracts--expose the Department to fraud, waste and abuse.
The Readiness and Management Support Subcommittee has long been
concerned about these problems. More than 5 years ago, in our committee
report on the National Defense Authorization Act for Fiscal Year 2002,
we stated:
``Last year, the DOD Inspector General reviewed the
Department's $10 billion of annual expenditures for
professional, administrative, and management support services,
and found an almost complete failure to comply with basic
contracting requirements. Other reviews by the Inspector
General and the General Accounting Office (GAO) have revealed
that the Department has failed to compete requirements for the
delivery of services, as required by law and regulation, and
has barely begun to implement requirements for performance-
based services contracting. The GAO and the DOD Inspector
General have found that DOD managers failed to compete services
work in up to three-quarters of the cases they examined.
``At a more fundamental level, DOD has no centralized
management structure for services contracts. Rather, the award
of these contracts is dispersed throughout the Department with
little management oversight. As a result, the Department has
never conducted a comprehensive spending analysis of its
services contracts and has made little effort to leverage its
buying power, improve the performance of its services
contractors, rationalize its supplier base, or otherwise ensure
that its dollars are well spent. Moreover, the Department has
failed to provide its acquisition professionals with the
training and guidance needed to manage the Department's service
contracts in a cost-effective manner.''
The persistence of these problems leads me to believe that there is
a real need for strong action by this committee.
Today, we will hear from the Acquisition Advisory Panel chartered
pursuant to section 1423 of the National Defense Authorization Act for
Fiscal Year 2004, followed by a panel of administration witnesses. I
hope that these witnesses will be able to propose some constructive
solutions to the problems we have identified.
In my view, the key is the acquisition workforce. According to the
Acquisition Advisory Panel, ``curtailed investments in human capital
have produced an acquisition workforce that often lacks the training
and resources to function effectively.'' The report states: ``The
drought in hiring, the inadequacy of training in some agencies, and the
increased demand for contracting have together created a situation in
which there is not, in the pipeline, a sufficient cadres of mature
acquisition professionals who have the skills and the training to
assume responsibility for procurement in today's demanding
environment.'' As a result, ``The Federal Government does not have the
capacity in its current acquisition workforce necessary to meet the
demands that have been placed on it.''
As I pointed out at our last hearing, the Department of Defense has
almost doubled its spending on service contracts over the last 5 years,
while the number of procurement personnel available to oversee these
contracts has dropped by more than 25 percent. As a result, we have
fewer and fewer procurement officials responsible for managing more and
more contract dollars. I believe it is vital for Congress to address
this structural problem.
Senator Akaka. Senator Ensign, you may present your opening
statement.
STATEMENT OF SENATOR JOHN ENSIGN
Senator Ensign. Thank you, Senator Akaka.
I want to welcome our panelists and before we begin today I
want to thank all of you and the 13 members of the Acquisition
Advisory Panel. We gave you very little staff and very little
money, but you completed your mission in the last 18 months and
we are very grateful.
Today we begin to reap the benefits of your labor. I look
forward to this hearing and its findings, more importantly
recommendations on improving DOD's acquisition practices. I
also look forward to a robust discussion with Mr. Denett from
the Office of Federal Procurement Policy and Mr. Assad from the
DOD. I hope they bear messages of good news on how they are
improving their stewardship of the taxpayers' dollars.
Let me provide some historical context for today's
discussion. In the early 1990s, Congress passed laws aimed at
fundamentally changing the way the DOD and other Federal
agencies acquire goods and services. We intended to make it
easier for Federal agencies to purchase commercial items, to
streamline the purchase of small orders, and to open the door
to more flexible contracting vehicles.
In the 1990s, we also saw a downturn, what some call a
halt, in defense procurement activity. Faced with less work and
more efficient contracting methods, the DOD began to reduce its
acquisition workforce and in just 10 years they cut their
acquisition workforce by almost half. Unfortunately, we are now
seeing the unintended consequences of that grant of flexibility
and we are grappling with the problems caused by the large
reductions in acquisition personnel.
This committee has noted on more than one occasion that DOD
made such cuts haphazardly, without any strategic vision on
maintaining a well-trained, professional acquisition workforce.
Of course, the tragic events of September 11 forced us to
increase our defense procurement activity exponentially in the
past 5 years, stretching an already thin workforce even
thinner.
Two weeks ago, we received testimony from the DOD IG and
the GAO on problems and interagency contracting and the
acquisition of services at the DOD. In the area of interagency
contracting, the problems ranged from failures to use best
practices to knowingly disregarding the rules. In the
acquisition of services, we see the stark impact of deep cuts
to the acquisition workforce. Many of the recommendations we
have heard and which we will hear focus on such things as
contracting personnel performing better market research and
better contract surveillance. Yet, when the workforce is
already strained and not adequately trained, best practices
give way and the order of the day becomes getting the job done
in the shortest time possible. That does not excuse some of the
bad practices described to us, but it does put them in proper
context.
With that stage set, I hope we can focus today less on the
problems and more on the solutions and preventative measures. I
am especially interested in what best commercial practices from
the private sector DOD can effectively adopt.
In closing, I know that these issues may at times seem
esoteric or arcane. In some ways they are. But their nature
does not undermine their importance. Every dollar we save
through improved acquisition practices and policies is another
dollar for Humvee armor, another dollar for body armor, another
dollar for ammunition, or another dollar for medical supplies.
Let us not forget that.
Thank you, Mr. Chairman.
[The prepared statement of Senator Ensign follows:]
Prepared Statement by Senator John Ensign
Thank you, Senator Akaka. Welcome to our panelists. Before we
begin, I want to thank the members of the Acquisition Advisory Panel
for their hard work and dedication. I know all 13 members are employed
full-time, and had little staff or money to complete the mission
Congress set before them. Nevertheless, they labored for 18 months to
fulfill their congressional mandate. Today, we begin to reap the
benefits of their labor. I look forward to hearing their findings and,
more importantly, their recommendations on improving the Department of
Defense's acquisition practices.
I also look forward to a robust discussion with Mr. Denett from the
Office of Federal Procurement Policy and Mr. Assad from the Department
of Defense. I hope they bear messages of good news on how they are
improving their stewardship of the taxpayer's dollar.
Let me provide some historical context for today's discussion. In
the early 1990s, Congress passed laws aimed at fundamentally changing
the way the Department of Defense and other Federal agencies acquired
goods and services. We intended to make it easier for Federal agencies
to purchase commercials items, to streamline the purchase of small
orders, and to open the door to more flexible contracting vehicles. In
the 1990s, we also saw a downturn--what some call a ``holiday''--in
defense procurement activity. Faced with less work and more efficient
contracting methods, the Department of Defense began to reduce its
acquisition workforce. In just 10 years, the Department cut its
acquisition workforce by almost half.
Unfortunately, we are now seeing the unintended consequences of
that grant of flexibility, and we are grappling with the problems
caused by the large reductions in acquisition personnel. This committee
has noted on more than one occasion that the Department made such cuts
haphazardly, without any strategic vision on maintaining a well-
trained, professional acquisition workforce. Of course, the tragic
events of September 11 forced us to increase our defense procurement
activity exponentially in the past 5 years, stretching an already thin
workforce even thinner.
Two weeks ago, we received testimony from the Department of Defense
Inspector General and the Government Accountability Office on problems
in interagency contracting and the acquisition of services at the
Department of Defense. In the area of interagency contracting, the
problems ranged from failures to use best practices to knowingly
disregarding the rules. In the acquisition of services, we see the
stark impact of the deep cuts to the acquisition workforce.
Many of the recommendations we have heard, and which we will hear,
focus on such things as contracting personnel performing better market
research and better contract surveillance. Yet, when the workforce is
already strained and not adequately trained, best practices give way,
and the order of the day becomes getting the job done in the shortest
time possible. That does not excuse some of the bad practices described
to us, but it does put them in proper context.
With that stage set, I hope we can focus today less on the
problems, and more on solutions and preventative measures. I am
especially interested in what best commercial practices from the
private sector the Department of Defense can effectively adopt.
In closing, I know that these issues may, at times, seem esoteric
or arcane. In some ways, they are. But their nature does not undermine
their importance. Every dollar we save through improved acquisition
practices and policies Is another dollar for Humvee armor, another
dollar for body armor, another dollar for ammunition, another dollar
for medical supplies. Let us not forget that.
Senator Akaka. Thank you very much.
At this time I would like to welcome our first panel of
witnesses. The Acquisition Advisory Panel was chartered by
Congress in section 1423 of the NDAA for Fiscal Year 2004 to
review laws and regulations regarding the use of commercial
practices, performance-based contracting, the performance of
acquisition functions across agency lines of responsibility,
and the use of government-wide contracts. The panel's 500-page
report is a product of more than 2 years of hard work by some
of our leading experts on acquisition policy in the public and
private sectors.
I thank our witnesses for their public service. It is
particularly gratifying to see Mr. Etherton here today as Jon
served for more than a decade on the Senate Armed Services
Committee staff, working on some of the same issues that we
will be discussing today.
Ms. Madsen, do you have a statement and would you like to
give the statement on behalf of the panel?
STATEMENT OF MARCIA G. MADSEN, CHAIR, ACQUISITION ADVISORY
PANEL; ACCOMPANIED BY JONATHAN L. ETHERTON AND JAMES A. HUGHES,
MEMBERS, ACQUISITION ADVISORY PANEL
Ms. Madsen. Thank you, Mr. Chairman and Senator Ensign. I
do have a brief oral statement and then I would like to ask
that my more fulsome statement which I submitted be included as
part of the record.
Thank you very much for inviting us here today. As members
of the Section 1423 Acquisition Advisory Panel we are very
pleased to be here to talk about our work and our findings and
our recommendations. Accompanying me are: to my left, Ty
Hughes, who is Deputy General Counsel for Acquisition of the
Air Force; and as you have already noted, Jonathan Etherton,
who today is self-employed as Etherton and Associates. Both of
these gentlemen chaired working groups for the panel, Mr.
Etherton on interagency contracts and Mr. Hughes on commercial
practices.
Also with us is Laura Auletta, who has been the panel's
Executive Director. Senator Ensign, you were nice enough to
note our staffing shortages. Laura has really been the backbone
of the panel's efforts and we could not have completed our work
without her.
I would also like to recognize two other people who are in
the room who supported the panel's efforts: Denise Benjamin
from the Small Business Administration and Diane Newburg from
ATT, who worked for one of the panel members. Both of these
individuals helped tremendously with preparation of the panel's
report and we are very grateful to them.
We on the panel have recognized the work of the
subcommittee over many years in monitoring and providing
guidance regarding the use of service contracts. We have been
looking at it very carefully.
Mr. Chairman, as you mentioned, section 1423 identified the
key topics for the panel as commercial practices, performance-
based contracting, and the use of government-wide contracts or,
as we have been calling them, interagency contracts. The panel
was sworn in in February 2005 and consisted of 13 members,
balanced between government and the private sector. All of us--
I hate to say volunteers because people might wonder, why would
you volunteer for something like this. But we did.
We heard testimony from more than 100 witnesses
representing industry, government, and public interest
organizations in more than 30 public meetings. We adopted over
100 findings and 80 recommendations. The volume of those can
only be touched on here. Our process has been very public and
transparent and our in-process efforts posted on our web page
so that everyone could look at them, including our draft final
report.
I am pleased to say today that our final report is at the
Government Printing Office (GPO). I might also say that I am
relieved to say that it is at GPO.
The panel was well aware that with Federal procurement
spending approaching $400 billion annually and with serious and
competing demands that have already been identified on taxpayer
dollars, that an accountable and transparent acquisition system
that delivers innovative high-quality goods and services is
critical to our national interest.
Let me talk for a moment about commercial practices.
Because of the emphasis in the legislation regarding
appropriate use of commercial practices and because
performance-based acquisition is a commercial practice, the
panel reached out to large commercial buyers of services, who
testified about current commercial services acquisition. We
also took testimony from government buyers and from users of
services, both at DOD and the civilian agencies.
As detailed at length in our report, there is a large and
robust private sector market for services, particularly
information technology (IT) and IT-related services. Commercial
companies are acquiring billions of dollars in services and
they have well-developed acquisition and contracting
procedures. The large commercial buyers who testified before
the panel identified requirements development and competition
as the keys to successful service contracting. These companies
make large upfront investments in defining requirements,
typically on an outcome basis. This investment makes vigorous
competition possible and it facilitates the use of performance-
based contracts as well as fixed-price contracts. As one
witness told us, if you do not know what you are going to buy
perhaps it would be better to buy nothing until you do.
Government practice, on the other hand, is clearly driven
by the need to get to award quickly, to meet mission needs, and
to obligate funds. We recognize that inadequate requirements
definition is not a new problem. Every group that has looked at
acquisition issues for the last 30-plus years has identified it
as an issue. However, the problem in the services context is
that poor requirements definition results in reduced
competition, the inability to effectively use performance-based
contracts, the inability to make use of fixed-price contracts,
and ultimately it results in increased costs to the Government.
The panel's commercial practices recommendations for this
reason focus on improving competition. The panel's
recommendations recognize that competition fuels innovation,
drives fair prices, disciplines the responsible use of
streamlined acquisition vehicles, and improves opportunities
for small business.
The panel worked very hard to develop data on the extent to
which government acquisition is competitive. First we noted
that spending on services as, Mr. Chairman, you noted has
increased dramatically and accounted for 60 percent of
procurement dollars in 2004 and 2005, including at the DOD. The
details are in our report, but in fiscal year 2004 one-third of
the government's procurement dollars were awarded
noncompetitively. Even when competed, the percent of dollars
awarded when only one offer was received has more than doubled
from about 9 percent in 2000 to about 20 percent in 2005.
We fear that the amount of noncompetitive awards actually
may be understated. Although we tried for months, we could not
obtain reliable data on competition for orders under multiple
award contracts available for interagency use. We do know that
in 2004 $142 billion, or 40 percent of procurement spending,
went through these interagency contracts. But again, we could
not develop reliable data on the extent of competition.
Our commercial practices recommendations include: improving
requirements development and doing that through the use of
centers of excellence and by mandating that the program manager
and the contracting officer be responsible for the
requirements, regardless of the acquisition vehicle they have
selected.
With respect to competition under interagency contracts,
our recommendations try to achieve a balance between
recognizing that these vehicles are necessary to allow for
streamlined acquisition of bite-sized requirements for
repetitive needs on the one hand with the fact that a
significant proportion of large orders--and by that I mean
significant transactions in excess of $5 million, single
transactions in excess of $5 million--is flowing through these
vehicles.
For interagency contracts, we recommended making the
requirements of section 803 be applicable government-wide for
orders over $100,000 placed against multiple award contracts or
against General Services Administration (GSA) schedules, and
applicable to supplies as well as services. We also recommended
requiring a synopsis post-award for sole source orders to
increase transparency, and for orders over $5 million we
recommended three things: first, a more formalized competitive
procedure that requires agencies to clearly state their
requirements, allow adequate time for response, disclose their
evaluation factors, and document their award decisions.
We recommended post-award debriefings as currently set
forth in the Federal Acquisition Regulation (FAR) for
circumstances where statements of work are used. We also
recommended allowing protests for orders over $5 million.
Separately, we recommended a new competitive IT schedule at
the GSA that will require all orders to be competed.
With regard to interagency contracting, in addition to the
competition requirements we also recommended a number of steps
that should lead to better management and accountability for
interagency contracts. The panel's findings recognize very
clearly the importance of interagency contracts in helping
agencies meet their missions and in allowing the government to
take advantage of its purchasing power. But there are
significant issues that we addressed in our report regarding
the proliferation of these contracts and with the exercise of
proper management responsibilities between the agency holding
the contract and the agencies ordering from them. These issues
include just simply identifying how many of these contracts
there are and where they are, which was our very first
recommendation.
With regard to the workforce, an issue that both of you
mentioned, the panel determined that there is a significant
mismatch between the demands placed on the acquisition
workforce and the personnel and skills available within that
workforce to meet those demands. The problem the panel
encountered was that there was not reliable information about
the size, composition, and competencies of the acquisition
workforce.
To assist in our analysis, the panel commissioned a
significant study, which we can provide to the subcommittee,
analyzing available data regarding the acquisition workforce.
We actually went back and looked at workforce studies and
reports from the 1960s all the way forward to today. Because of
the volume of the data involved, this report is contained in
nine large volumes. I brought the executive summary with me. It
is not insubstantial.
We also noted that the Commission on Government Procurement
actually experienced similar frustrations 30 years ago plus in
1972 and had to commission its own study on the workforce. So
it is not a new problem.
With respect to workforce recommendations, we start with
the basic proposition that prompt and aggressive action is
necessary to improve the workforce. In our view, this must
begin with the establishment of a consistent definition and
method for measuring the workforce and that effort must be
completed by the Office of Federal Procurement Policy (OFPP)
within a year. I know Mr. Denett will be attuned to this.
Second, agencies in our view should undertake human capital
planning for acquisition workforce needs immediately if they
have not already done so.
The panel did not recommend that agencies rush out and hire
scores of new acquisition professionals. This is because we do
not have current evidence that allows definition of the issues
to tell the relationship between the numbers of acquisition
professionals, the competencies of those people, gaps in the
competencies, and where the use of contractors figures into the
workforce. But instead we stated that a flexible planning
process should be used and it should begin immediately so that
changes can be made quickly as information becomes available.
The panel also looked at the challenges of the blended
workforce and in that regard we were very focused on the
question of determining when the government's reliance on
contractor support actually affects the government's
decisionmaking process to the point that the integrity of that
process may be questioned. We recognize that our findings and
recommendations in this particular area of blended workforce
are a beginning point, but we believe that we have identified
the issues and the relationships between the issues correctly.
Among other things, we recommended: one, that OFPP update the
principles for agencies to apply in determining which functions
must be performed by Federal employees, so that agencies
understand that these principles apply even outside the A-76
context.
Second, we recommended removing the prohibition on personal
services contracts. We heard a lot of testimony in our panel
hearings about how this prohibition is ignored or results in
inefficient work-arounds. Because contractors are a reality in
the government workplace today, we believe the policies in this
area need to be updated to reflect that reality.
Third, with respect to conflicts of interest, the panel did
not see a need for new statutes. Rather, it recognized that
these issues likely are contract-specific. We recommended that
the FAR Council develop government-wide policy and new clauses
if necessary to address these issues, but especially update the
rules regarding organizational conflicts of interest to deal
with cases of impaired objectivity.
Finally, although time does not permit me to discuss all of
these here, I would be remiss not to note that the panel
devoted significant time and attention and made findings and
recommendations in the areas of performance-based acquisition,
small business, and procurement data.
That concludes my statement. Mr. Hughes, Mr. Etherton, and
I would be happy to answer your questions.
[The prepared statement of Ms. Madsen follows:]
Prepared Statement by Marcia G. Madsen
Mr. Chairman, Senator Ensign, and members of the subcommittee,
thank you for the opportunity to appear before you to address the
Acquisition Advisory Panel's findings and recommendations. Two of the
panel members have joined me today, Jonathan Etherton of Etherton and
Associates, and James ``Ty'' Hughes, Deputy General Counsel
(Acquisition), Department of the Air Force. In addition to chairing
this panel, I am a partner in the law firm of Mayer, Brown, Rowe & Maw
LLP and I have 20 years of experience in government procurement law.
You have asked specifically for the panel's views with respect to:
enhancing competition and adopting more commercial practices;
implementing performance-based acquisition; the management and use of
interagency contracting; acquisition workforce deficiencies; and the
appropriate role of contractors supporting the government.
The panel was established pursuant to section 1423 of the National
Defense Authorization Act For Fiscal Year 2004. Since the appointment
of its members in February 2005, the panel has held 31 public meetings
and heard the testimony of 108 witnesses representing 86 entities or
groups from industry, government, and public interest organizations.
The panel's public deliberations produced approximately 7,500 pages of
transcript. In addition, we received written public statements from
over 50 sources, including associations, individual companies, and
members of the public.
My comments here do not cover the panel's 100 findings and 80
recommendations in their entirety, but provide a good overview. I would
like to personally thank the 13 panel members for their dedication over
the course of our deliberations. Each of them has a full-time and
highly responsible ``day job.'' With very little panel staff or money,
the level of participation by the members was substantial.
The panel is grateful to the many witnesses and members of the
public who helped shape the panel's report through their active
participation and interaction with the panel. The insight gained from
this exchange has been invaluable. In many instances, approaches under
consideration by the panel were revised or adjusted based on input from
the witnesses who helped the panel see many different perspectives. I
would like to especially thank those commercial companies that
addressed the panel. We invited large commercial buyers of services to
address the panel in an effort to determine their current best
practices for services acquisition. These companies generously shared
their expertise with the panel even though many of them do little or no
business with the government. We are grateful for this rare opportunity
to learn how they buy services and where they invest in the services
acquisition process.
My testimony covers the following topics:
Enhance Competition by Investing in Planning
Commercial buyers invest heavily in planning and requirements
analysis to obtain meaningful competition
Government practice focuses on rapid awards at the expense of
planning
Recommendations to enhance the government's ability to
develop/maintain market expertise and define requirements
Encourage Competition to Produce Fair and Reasonable Prices
Commercial practice relies on competition for innovation and
pricing
Government practice
Interagency Contracting
Incentives to compete lacking
Recommendations to insert incentives
Removing Other Obstacles to Achieving Fair and Reasonable Prices
Current regulatory definition of ``commercial services'' does
not require an efficient market as statutorily intended
Regulatory guidance unclear about obtaining contractor
information to support government determination of fair and
reasonable prices
Recommendations to restore statutory definition of commercial
services and clarify regulations on obtaining price information
and ``other than cost or pricing data''
Accountability and Transparency Inadequate for Interagency
Contracting
No consistent, government-wide policy for agencies who manage
or use interagency contracts
Accountability and transparency lacking in interagency
contracting
Recommendations to require formal business cases to support
interagency contracts, greater accountability in their
management, and more transparent use
The Acquisition Workforce Requires Immediate Attention
Demands on the acquisition workforce have outstripped its
capacity, but assessment not possible
Recommendations to move toward an expedited assessment of the
workforce in order to improve capacity
Appropriate Role of Contractors Supporting the Workforce
Management challenges of a ``blended'' workforce
Blurring the distinctions between
Inherently governmental and commercial
functions
Personal and Non-Personal Services
Rising concerns about
Organizational and personal conflicts of
interest
Protection of contractor proprietary/
confidential data
Recommendations to promote ethical/efficient use of
``blended'' workforce
ENHANCE COMPETITION BY INVESTING IN PLANNING
Commercial Practice
The commercial buyers described a vigorous requirements definition
and acquisition planning process. They consider requirements definition
of equal importance to the selection of the right contractor. These
companies invest the time and resources necessary to clearly define
requirements upfront in order to achieve the benefits of competition.
They perform ongoing rigorous market research and are thus able to
provide well-defined, performance-based requirements conducive to
innovative fixed-price solutions. They obtain buy-in on their
requirements from all appropriate levels in the corporation.
Government Practice
The panel's work shows that the government fails to invest in this
phase of procurement, focusing instead on rapid awards. While there
appears to be a conceptual understanding of the importance of
requirements definition to successful, cost-effective contracts,
culture and the metrics focus on ``getting to award'' rather than
contract results. Public sector officials and representatives of
government contractors testified that the government is frequently
unable to define its requirements sufficiently to allow for fixed-price
solutions, head-to-head competition, or performance-based contracts.
Ill-defined requirements fail to produce meaningful competition for
services solutions. Instead, agencies often rely on time-and-materials
contracts with fixed hourly rates that lack incentives for innovative
solutions. The testimony was consistent that the major contributors to
this problem are the cultural and budgetary pressures to quickly award
contracts or orders, combined with a lack of market expertise in an
already-strained acquisition workforce. The government's lack of
investment in acquisition planning is well-documented beyond the
testimony heard by the panel. For instance, two recent audits from the
Department of Defense Inspector General (DOD IG) found that of the $217
million spent under 117 awards reviewed, 116 lacked acquisition
planning or market research.\1\
---------------------------------------------------------------------------
\1\ DOD IG Report No. D-2007-007, ``Fiscal Year 2005 Purchases Made
Through the General Services Administration,'' Oct. 30, 2006, at 1-4
(general discussion of the issue); DOD IG Report No. D-2007-032,
``Report on Fiscal Year 2005 DOD Purchases Made Through the Department
of Treasury,'' Dec. 8, 2006, at 32 (specific statistics cited).
---------------------------------------------------------------------------
Recommendations
The panel recommendations are based on current commercial sector
practices. For instance, to develop and maintain market expertise, the
panel recommended that agencies establish ``centers of expertise'' to
protect their high-dollar investments in recurring or strategic
requirements. The panel also saw a need for a central source of market
research information comparable to that maintained by private
companies. We recommended that the General Services Administration
(GSA) establish such a capability to monitor services acquisitions by
government and commercial buyers, collect information on private sector
transactions that is publicly available, as well obtain information on
government transactions, and make this information available
government-wide. Under our recommendations for improving Performance-
Based Acquisition (PBA), the panel recommended that the Office of
Federal Procurement Policy (OFPP) be more guidance to agencies
regarding how to define requirements in terms of desired outcomes, how
to measure those outcomes, and how to develop appropriate incentives
for contractors to achieve those outcomes. Because defining needs/
requirements upfront is one of the most critical aspects of a PBA, the
panel recommended that the FAR require the government to develop and
provide to contractors a ``baseline performance case.'' The panel's
report contains details about what this baseline performance case would
entail, but it is essentially a framework to provide discipline in the
government's requirements definition process. We also recommended an
educational certification program for contracting officer
representatives to help them become effective planners and monitors of
PBAs. With respect to the concerns expressed by the GAO and Inspectors
General (IGs) regarding ill-defined requirements for orders under
interagency contracts, the panel recommended criteria for requirements
planning by ordering agencies before access to an interagency contract
is granted.
ENCOURAGE COMPETITION TO PRODUCE FAIR AND REASONABLE PRICES
Commercial Practice
In addition to learning that basic commercial practice involves
substantial investment in requirements analysis, the panel also was
advised that commercial buyers rely extensively on competition to
produce innovation and fair and reasonable prices. In fact, competition
is their ``gold standard'' for driving innovation and for determining
fair and reasonable prices. Because there is no substitute for
competition, commercial companies rarely buy on a sole-source basis. In
those rare cases where they do not seek or cannot achieve competition,
commercial buyers rely on their own market research, benchmarking, and
often seek data on similar commercial sales to establish fair and
reasonable pricing. In some cases, they may even obtain certain cost-
related data, such as wages or subcontract costs, from the seller to
determine a price range. But they generally find these methods far
inferior to competition for arriving at the best price. As a result,
they monitor non-competitive contracts closely, and eliminate such
arrangements as soon as the requirement can be moved to a competitive
solution.
Government Practice
It is instructive to compare the strong commercial preference for
competition to the government's competition statistics. In fiscal year
2004, the government awarded $107 billion, or over one-third of its
total procurement dollars, non-competitively. Over one-fourth, or $100
billion, was awarded non-competitively in 2005.\2\ The number of
competitions that result in the government only receiving one offer
doubled between 2000 and 2005. Spending on services in both 2004 and
2005 accounted for 60 percent of procurement dollars with 20 percent
and 24 percent awarded without competition, respectively.\3\
---------------------------------------------------------------------------
\2\ Standard Competition Report from FPDS-NG, available on-line at
https://www.fpds.gov under Standard Reports (last visited Jan. 29,
2007). The competitive/non-competitive base (against which the
percentage is derived) is $338 billion for fiscal year 2004 and $371.7
billion for fiscal year 2005.
\3\ FPDS-NG special reports for the panel.
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Interagency Contracting
The panel believes the amount of non-competitive awards may, in
fact, be underreported for orders under multiple award contracts
available for interagency use, generally known as ``interagency
contracts.'' The panel's repeated attempts over several months to
obtain information about the extent of competition for orders under
these types of contracts were frustrated. The government's database on
Federal procurement spending, the Federal Procurement Data System-Next
Generation (FPDS-NG) only began to collect data on interagency
contracts in 2004. Due to a number of factors, including poor reporting
instructions, faulty validations, and even DOD policy, the ``extent
competed'' field in FPDS-NG for these orders overwhelmingly reflects
the competitive nature of the master contract, rather than the actual
level of competition for orders. This reporting problem skews the data
such that it is unreliable. The lack of transparency into the nature of
these orders is a significant weakness. FPDS-NG reports spending under
contracts available for multi-agency use at as much as $142 billion, or
40 percent of procurement spending, in fiscal year 2004.\4\
---------------------------------------------------------------------------
\4\ Id.
---------------------------------------------------------------------------
Despite the panel's overarching concern with data reliability and
transparency, there certainly appears to be sufficient cause for
concern in addition to these statistics. You already have heard from
both the DOD IG and the GAO regarding orders placed against interagency
contracts. The panel was well aware that GAO put management of
interagency contracting on its High Risk Series in 2005. Since the GAO
high risk designation in 2005, more data regarding orders under these
contracts has become available. In fact, in a recent audit, the DOD IG
found that 62 percent of reviewed orders, totaling nearly $50 million,
failed to provide a fair opportunity to compete as required by law. In
addition, 98 of 111 orders valued at $85.9 million were either
improperly executed, improperly funded, or both.\5\
---------------------------------------------------------------------------
\5\ DOD IG Report No. D-2007-023, ``fiscal year 2005 Purchases Made
Through the National Aeronautics and Space Administration,'' Nov. 13,
2006, at ii.
---------------------------------------------------------------------------
The panel's report sets forth the history and efforts by Congress
to improve competition. The intent of interagency contracts, most of
which are assumed to be multiple award contracts, was to lower
administrative costs, leverage buying power and provide a streamlined
acquisition process--all well-meaning goals. Such contract vehicles
were never intended to be used to avoid competition.
Interagency contracts generally are indefinite-delivery/indefinite-
quantity type contracts with very broad scopes of work, most of which
provide for multiple awardees that will compete with one another for
specific orders at a later point when an agency identifies a
requirement. Therefore, where services are concerned, the initial
competition is based on loosely defined statements of the functional
requirements resulting in proposals for hourly rates for various labor
categories. The expectation is that once an agency identifies a
specific need, a more clearly defined requirement will be provided at
the order level allowing the multiple awardees to submit task-specific
solutions and pricing. Because this process narrows the number of
eligible contractors at the order level, Congress has insisted that
these multiple awardees be given a ``fair opportunity'' to compete for
the task orders.
So why do interagency contracts seem to be drawing so much non-
competitive activity? There appear to be a number of checks and
balances missing that would otherwise contribute to healthier
incentives for competition.
Incentives to Compete Lacking
There is no government-wide requirement that all interagency
contracts provide notification that a task order is available for
competition. There is no visibility into sole-source orders, as there
is no requirement for a synopsis or public notification for orders
under multiple award contracts, regardless of the size of the order.
Even where a best value selection is made at the order level, there is
no requirement for a detailed debriefing, regardless of the amount of
the order or the amount of bid and proposal costs expended by the
eligible contractor, thus denying the contractor information that might
enable it to be more competitive on future orders/contracts. Further,
without regard to size of the order, there is no option for contractors
to protest the selection process under multiple award contracts,
reducing the pressure on the government to clearly define requirements,
specify its evaluation criteria, and make reasonable trade-off
decisions among those criteria. For example, even issues that affect
the integrity of the competitive process such as organizational or
personal conflicts of interest cannot be protested.
However, the panel also took testimony from agency officials who
told us they could not meet their missions without the use of
interagency contracts. Therefore, the panel has sought to achieve a
balance in its recommendations that will introduce incentives to
encourage more competition while not unduly burdening these tools for
streamlined buying. For instance, some of our recommendations only
apply to orders over $5 million. Why this threshold? We found that of
the $142 billion spent on orders under these interagency contracts in
fiscal year 2004, $66.7 billion, nearly half, was awarded in single
transactions (at the order level) exceeding $5 million. The fiscal year
2005 statistics show total spending on these contracts at $132 billion
with $63.7 billion in single transactions over $5 million.\6\
---------------------------------------------------------------------------
\6\ FPDS-NG special reports for the panel.
---------------------------------------------------------------------------
Nearly half of the dollars are spent on single transactions over
this threshold, but the majority of transactions are actually below it.
By using this threshold, we were able to impact a significant dollar
volume, but not the majority of transactions. ``Bite-sized'' orders for
repetitive needs can be placed using the current methods under this
threshold, while large transactions involving the need for requirements
in a Statement of Work, evaluation criteria, and best value selection
procedures would be subject to a higher level of competitive rigor.
Recommendations
The panel recommended expanding government-wide the current DOD
Section 803 requirements that include notifying all eligible
contractors under multiple award contracts of order opportunities. We
also recommended that the 803 procedures apply to supplies and
services. While we agreed that a pre-award notification of sole-source
orders might unduly burden the ordering process, the panel recommended
post-award public notification of sole-source orders finding that it
would improve transparency. For single orders exceeding $5 million, the
panel recommended that agencies adhere to a higher competitive standard
by: (1) providing a clear statement of requirements; (2) disclosing the
significant evaluation factors and subfactors and their relative
importance; (3) providing a reasonable response time for proposal
submissions; and (4) documenting the award decision and the trade-off
of price/cost to quality in best value awards. We also recommended
post-award debriefings for disappointed offerors for orders over $5
million when statements of work and evaluation criteria are used.
Concerned that the government is buying complex, high-dollar services
without a commensurate level of competitive rigor, transparency, or
review, we recommended limiting the statutory restriction on protests
of orders under multiple award contracts to orders valued at $5 million
or less.
Specific to the GSA Federal Supply Schedules program, the panel
recommended a new services schedule for information technology that
would require competition at the task order level and reduce the burden
on contractors to negotiate upfront hourly labor rates with GSA. The
panel sees the exercise of negotiating (and auditing) labor rates as
producing little in the way of meaningful competition given that
solutions are project-specific and the price depends on the actual
labor mix applied. In such cases, analyzing labor rates contributes
little to understanding the price that the government will pay for the
project.
REMOVING OTHER OBSTACLES TO ACHIEVING FAIR AND REASONABLE PRICES
Definition of Commercial Services
The Federal Acquisition Streamlining Act (FASA) defined commercial
services as those offered and sold competitively in substantial
quantities in the commercial marketplace. When commercial services are
sold competitively in substantial quantities, commercial market forces
determine both the price and the nature of the services offered. The
statutory definition was designed to allow such services to be
purchased using the more streamlined commercial buying procedures of
FAR Part 12. Unfortunately, the regulatory implementation of the
statutory definition allowed services not offered and sold in
substantial quantities in the commercial marketplace, or those ``of a
type,'' to nonetheless be classified as commercial and, therefore,
eligible for the streamlined procedures of FAR Part 12. These
streamlined buying procedures, while effective in an efficient market,
become problematic in circumstances where the services are not offered
and sold in substantial quantities. In that situation, the government
is placed at a significant disadvantage with respect to pricing when
there is limited or no competition, leaving it with too few tools to
determine fair and reasonable prices.
Recommendations
The panel recommended revising the FAR to be consistent with the
statutory definition of commercial services. This recommendation has
been inaccurately portrayed by some who claim it will prevent the
purchase of cutting-edge technology. However, restoring the statutory
definition in the FAR would not preclude the government from purchasing
services that are not offered and sold in substantial quantities in the
commercial marketplace. Rather, it would require that such services be
purchased using FAR Part 15 procedures, giving the government tools for
determining fair and reasonable prices absent an efficient market.
The panel also recommended specific regulatory revisions that would
clarify and provide a more commercial-like approach to determining
price reasonableness for commercial items in cases where a competitive
acquisition is not used. These revisions, which apply to commercial
items generally, clarify the contracting officer's right to ask for
information ``other than cost or pricing data,'' and provide an order
of precedence for the type of information a contracting officer should
seek. This recommendation is based on testimony received by the panel
from government and contractor representatives. Both groups complained
that the current regulatory treatment of ``other than cost or pricing
data'' was confusing. On the one hand, government representatives
complained that they cannot obtain necessary information because
contractors argue that it is not required. On the other hand,
contractor representatives complained that the government presses for
inappropriate information. The panel's proposed regulatory change is
consistent with the testimony we received from commercial buyers
regarding the types of pricing information that they receive and the
circumstances under which they ask for limited types of cost data such
as wages and subcontractor costs.
ACCOUNTABILITY AND TRANSPARENCY INADEQUATE FOR INTERAGENCY CONTRACTING
While I have already discussed interagency contracting with respect
to requirements analysis and competition, the panel also separately
addressed the issues of management of, accountability for, and
transparency of interagency contracts. We included in our review the
practice of using assisting entities that buy from interagency
contracts. The panel found that while some competition among
interagency contracts is desirable, there is no coordination regarding
the creation or continuation of these contract vehicles to determine
whether their use is effective in leveraging the government's buying
power or whether they have proliferated to the point of burdening the
acquisition system. The panel also was concerned that recent focus on
the problems of interagency contracting would result in an increase of
so-called ``enterprise-wide contracts.'' Such contracts are
operationally the same as interagency contracts, except they are
restricted for use by one agency. The panel found the trend toward such
contracts to result in costly duplication if the existing problems with
interagency contracts can be addressed through better management
discipline and a more transparent competitive process.
Recommendations
Specifically, the panel found that the lack of government-wide
policy regarding the management of interagency contracts is a key
weakness that can be addressed by OFPP. In fact, you will soon hear
from Administrator Paul Denett of OFPP's initiative to develop just
such a policy. (As the panel was developing its findings and
recommendations in this area, panel members met with OFPP to provide
input regarding the panel's work). The panel also recommended that
agencies, under policy guidance issued by OFPP, formally approve the
creation, continuation, or expansion of interagency contracts using a
formal business case. Agencies managing these contracts would, among
other things, be required to identify and apply the appropriate
resources to manage the contract, clearly identify the roles and
responsibilities of the participants, and measure sound contracting
procedures. As discussed above, there is little visibility into the
numbers and use of interagency contracts. The data must be derived from
FPDS-NG and is not, as discussed earlier, completely reliable.
Therefore, the panel made a number of recommendations to improve the
transparency and reliability of data on interagency contracts.
THE ACQUISITION WORKFORCE REQUIRES IMMEDIATE ATTENTION
The panel determined that a quantitatively and qualitatively
adequate workforce is essential to the successful operation of the
acquisition system. But the demands on the acquisition workforce have
outstripped its capacity. Just since September 11, the dollar volume of
procurement has increased by 63 percent. While the current workforce
has remained stable since 2000, there were substantial reductions in
the 1990s accompanied by relatively little new hiring. Compounding the
problem, while a variety of simplified acquisition techniques were
introduced by the 1990's acquisition reforms for low dollar value
procurements, higher dollar procurements require greater sophistication
by the government buyer due to the growth in best value procurement,
the emphasis on past performance, and the use of commercial
contracting. Accompanying these trends is the structural change in what
the government is purchasing, with an emphasis on high-dollar, complex
technology related solutions. However, due to the lack of a consistent
definition of the workforce and lack of ability to measure the
workforce, as well as the lack of competency assessments and systematic
human capital strategic planning, determining the needs of this
workforce is difficult. The panel was struck by the difference from
commercial practice. Private sector buyers of services use extremely
well-qualified employees and consultants in designing and carrying out
their acquisition of services. Larger acquisitions--$10 million and
up--are subject to a tightly controlled and carefully structured
process overseen by highly credentialed and experienced buyers. The
committee need only look at the presentations to the panel by the
private sector buyers and the consulting firms that support them for
comparison.
Recommendations
An accurate understanding of the key trends about the size and
composition of the Federal acquisition workforce cannot be obtained
without using a consistent benchmark, and none is currently available
for such an assessment. The panel recommended that OFPP prescribe a
consistent definition and methodology for measuring the workforce. The
urgency of this task is reflected in another recommendation that OFPP
collect data using this definition and measuring methodology within 1
year of the panel's final report. Consistent with this, OFPP should be
responsible for creating and maintaining a mandatory government-wide
database for members of this workforce. The panel noted that the
Commission on Government Procurement recommended just such a system
over 30 years ago--in 1972. While there are a great many
recommendations for workforce improvement in the panel's report, one of
the key recommendations is that each agency must engage in systematic
assessment and human capital strategic planning for its acquisition
workforce. Without such plans, it is impossible to know how and to what
extent a given agency's workforce is deficient. It is also difficult to
know to what extent and how efficiently agencies are using contractors
to support the acquisition function. In support of this recommendation,
the panel has also suggested that these plans be reviewed by OFPP for
trends, best practices, and shortcomings as part of an agency's overall
human capital planning requirements. Finally, the panel recommended a
government-wide intern program, as well as the reauthorization of the
Services Acquisition Reform Act training fund.
APPROPRIATE ROLE OF CONTRACTORS SUPPORTING THE WORKFORCE
Management challenges of a ``blended'' workforce
The panel heard testimony regarding the use of and management of
the ``blended'' workforce, where contractors work side-by-side with
government employees, often performing the same or similar functions.
Blurring the Distinctions
In the mid-1990s, the Federal acquisition workforce was reduced by
50 percent and hiring virtually ceased during that time. The structural
changes in what and how much the government is buying since September
11 have left agencies with no alternative to using contractors to deal
with the pressures of meeting mission needs and staying within hiring
ceilings. Agencies have contracted for this capability and contractors
are increasingly performing the functions previously performed by
Federal employees. To a significant degree, this has occurred outside
of the discipline of OMB Circular A-76, with the result that there is
no clear and consistent government-wide information about the number of
people and the functions performed by this growing cadre of service
providers.
While the A-76 outsourcing process provides a certain discipline in
distinguishing between ``inherently governmental'' and commercial
functions, it is less clear if and how agencies apply these concepts to
the blended or multi-sector workforce that has arisen outside of the A-
76 process. The challenge is determining when the government's reliance
on contractor support impacts the decisionmaking process such that the
integrity of that process may be questionable. A second challenge that
arises is how the government effectively manages a blended workforce
given the prohibition on personal services.
Rising Concerns
The panel identified the increased potential for conflicts of
interest, both organizational and personal, as a significant challenge
that arises from the blended workforce and from the consolidation in
many sectors of the contractor community. Alongside this issue is the
need to protect contractor proprietary and confidential data in such an
environment when a contractor supporting one agency in a procurement
function may be competing against other contractors for work that is in
the subject area of its support contract at another agency.
Recommendations
The panel recommended that OFPP update the principles for agencies
to apply in determining which functions must be performed by Federal
employees, so that agencies understand that such principles apply even
outside the A-76 process.
The panel also recommended lifting the prohibition on personal
services contracts. The panel heard a great deal of testimony about how
this prohibition is either effectively ignored or how agencies use
awkward and inefficient work-arounds to ensure they do not direct the
work of contractor employees. The GAO has acknowledged the need to rely
on contractors to meet government missions. Panel witnesses have
confirmed the necessity of contractors in the workplace. Therefore, the
panel finds the prohibition to be akin to a ``myth.'' OFPP should
develop new policy guidance on the appropriate and ethical use of
service contractors that would allow appropriate government employees
to direct the substance of their work, but not perform supervisory
functions such as hiring, firing, disciplinary actions, etc.
With respect to the growing potential for conflicts of interest,
the panel did not see a need for new statutes. Instead, it viewed the
issues as contract-specific and suggested that the better approach
would be policy guidance and new solicitation and contract clauses.
Therefore, the panel recommended that in its unique role as developer
of government-wide acquisition regulations, the FAR Council review
existing conflict of interest rules and regulations, and to the extent
necessary, create new, uniform, government-wide policy and clauses
regarding conflicts of interest, as well as clauses protecting
contractor proprietary and confidential data. In particular, the rules
regarding organizational conflicts of interest need to be updated to
address situations involving impaired objectivity. The panel also
recommended that the FAR Council work with the Defense Acquisition
University and the Federal Acquisition Institute to devise improved
training for contracting officers to assist in identifying and
addressing potential conflicts and to develop better tools for the
protection of contractor proprietary and confidential data.
Finally, a general comment about the panel's recommendations: while
most of them can be implemented through policy or regulation, a few
require legislation.
CONCLUSION
Mr. Chairman and members of the subcommittee, thank you for your
interest in the panel's efforts. We are available to provide any
additional information or assistance that the committee may need.
This concludes my prepared remarks. My colleagues and I are happy
to answer any questions you might have.
Senator Akaka. Thank you very much for your statement. Your
full statement will be included in the record.
Before I begin with my questions, I would like to ask
Senator McCaskill if she has an opening statement?
Senator McCaskill. Believe it or not, I am anxious to have
a look at the executive summary. I was particularly startled by
how long this effort was and how voluminous the testimony was.
So I am anxious to be as knowledgeable as possible, because if
I am going to really focus on trying to do something about
this. I want the benefit of everything that you learned.
So if I could get a copy of the full executive summary I
would appreciate it. Then I would just reserve anything further
until questioning.
Thank you, Mr. Chairman.
Senator Akaka. Thank you.
Ms. Madsen, the Acquisition Advisory Panel recommended
enhanced competition for task orders in excess of $5 million.
This process would make large task orders more like
contracts by requiring that the agency provide a clear
statement of requirements, disclose significant evaluation
factors and subfactors, provide a reasonable response time for
proposal submissions, document the selection decision, and
provide post-award debriefings for disappointed offerors.
Ms. Madsen, can you explain why you think this
recommendation is important?
Ms. Madsen. Certainly, Mr. Chairman. I think, as detailed
in our report, as we looked at the data on orders under
multiple award interagency contracts, we realized that there
was a very substantial quantity of those orders being placed
that exceeded $5 million in value. Some of them exceeded $5
million in value by a very substantial amount, orders in the
neighborhood of $100 million or more in value.
Our review of the legislative history in this area
indicates that the purpose for these ordering vehicles was to
allow repetitive needs to be satisfied in a streamlined manner,
not to allow very large orders to be placed that really looked
more like contracts. Because of the fact that the process is
set up so orders are placed under multiple award contracts, of
course there is limited visibility into the ordering process
that would not exist if those orders were placed as contracts
under FAR Part 15.
We just could not get good data on the extent of
competition for orders. But we have data indicating that in
2004 $66.7 billion was expended in single transactions over $5
million, with services accounting for 64 percent or about $42.6
billion of that amount. So there are a number of large
transactions passing through that system without oversight.
I think the other observation that we made was that once
you get above about $5 million, these look like other kinds of
procurements that people would recognize. They have a statement
of work, they have a solicitation, they have evaluation
criteria. Agencies are using best value techniques for larger
orders. It looked like to us if an agency is going to go to all
that work anyway it might as well do it in a more formal form
and give the contractors a better opportunity to have a more
reasonable competitive process.
I do not know if Mr. Hughes has anything he wants to add to
that.
Mr. Hughes. I think that covers it. The thought here was
that the government benefits because this approach enhances
competition. It creates an opportunity for competitive bidding
on these large task orders. At the same time, the panel was
careful not to make this a full Part 15 process, so they were
preserving some--a more informal but structured process.
Looking at the contractor's side, I think a contractor that
invests in putting together a complex proposal is entitled to
know the basis on which the government is going to evaluate the
proposal and document the decision, and if the contractor wants
a debriefing we felt on these large task orders they are
entitled to that.
So the objective here was really to help sharpen the
government's requirements and promote competition, which
ultimately benefits the government.
Senator Akaka. One of the advantages that Federal agencies
see in task order contracts is that they can award task orders
with minimal effort. Would not the process that you recommend
require more personnel and attention to manage? If so, do you
believe that it would be worth the investment?
Ms. Madsen. I am happy to respond to that and then if Mr.
Hughes wants to say something. I think that our conclusion was
definitely yes. Again, as we looked at this, once you get above
about $5 million the process is more formal anyway, but it does
not meet in many instances the kinds of requirements for due
process and fairness that we thought were important.
So it is not that there is not more work being done for
those larger orders. It is just that it is not as perhaps fair
and transparent as it should be.
So will it have an impact on staffing? It may, but we think
it is probably well worth it because the government is going to
get a much better competitive process. As I think I said in my
statement, we traded this off. We recognized that the majority
of transactions are under $5 million. But, the majority of
dollars is over $5 million. So we do not think that we are
unduly burdening the transactions that are really, as we refer
to them, bite-size as they are for repetitive needs. Those
transactions would go forward just as they do today.
Mr. Hughes. There was also a recommendation on the section
803, the fair opportunity. What that is essentially is a
requirement that is imposed on DOD to give all of the people in
the contract, who are on the contract, an opportunity to
compete for the items that are being ordered. It has worked
well within DOD. We thought it would be an appropriate model to
extend across the Federal Government.
You are correct in your question. It is some additional
work to evaluate the additional offers, but with respect to the
benefits we thought that would be significant. The notion of
having competition at the task order level and being a little
more rigorous about that would avoid, we thought, a large
number of the sole source task orders that we see. So clearly
there is a cost, a small cost, because the contract vehicles
are already in place. The large ordering vehicle is already
awarded. This is simply a communication to the people who might
be able to propose against particular task orders the
opportunity to make that proposal.
So correct, a little more work, but the panel thought very
strongly that the government would benefit with reduced pricing
and greater competition.
Senator Akaka. The Acquisition Panel, Ms. Madsen, found
that commercial organizations invest the time and resources
necessary to understand and define their requirements,
facilitate competition by defining their requirements in a
manner that allows services to be acquired on a fixed-price
basis in most instances, and ensure continuous evaluation and
ongoing monitoring of supplier performance.
Is it your view, Ms. Madsen, that the Federal Government
needs to adopt these best commercial practices if it is going
to achieve better results in its contracting for services?
Ms. Madsen. Mr. Chairman, we certainly tried to take a
lesson from the commercial buyers that we heard. Somebody who
recently commented on the panel's work said that our
recommendations in that regard sounded like Procurement 101.
That is really what our commercial buyers told us, if you do
these things you get better competition, you get contracts that
because they are well scoped can be in many cases fixed price,
so they are easier to administer, and you get better prices.
We thought all of those were things that actually the
Federal Government not only could and should do, but in many
cases these are already required by law and regulation.
Mr. Hughes. Just one other point I think is important to
make. The current commercial buying of items and services is
working fairly well. We are talking at the margins here where
we have seen noncompetitive procurements. So the
recommendations are not to suggest that the commercial buying
practices are somehow inadequate themselves. They are not. They
are good and they work well. At the margin, we propose these
changes to where we found that, for a number of different
reasons, some categories of procurements wind up being sole
source or limited competition or not enough definition of
requirements.
So the criticisms are to improve the process, but I did not
want to suggest that the panel thought that the system was just
fundamentally flawed. It is not. This is more in the line of an
incremental or an evolutionary improvement of what Congress
started with FASA a number of years ago.
Senator Akaka. Let me defer to questions from Senator
Ensign.
Senator Ensign. Thank you, Mr. Chairman.
I want to explore this idea of the whole idea of
competitive contracts. You are comparing some of these things
to contracts because of the size of them. When we get into
competitive contracting sometimes in the government purchasing,
we have seen where folks underbid knowing that they are
underbidding and then later come back and say, well, we are
halfway through this and we do not have the money to be able to
finish this, and then the government ends up spending a lot
more money in the long run because of that.
Is there any danger in that happening with the
recommendations that you are talking about? Did you see any
evidence that people were trying to avoid that? If anybody on
the panel wants to take a shot at that, that is fine.
Ms. Madsen. Well, I guess I will take the first shot. I
think, with respect to the practice of probably what you are
calling buying in, I think that is not something we looked at
specifically, but good requirements definition definitely
helps, because when people know what it is that they are
proposing on it is easier to price it properly, it is easier to
price it accurately.
Something else that we also recommended, it is kind of a
common sense recommendation, is that the government be given
better tools to just do market research so that the government
can make better judgments about those kinds of issues. For
instance, we learned from the commercial companies that they
maintain very extensive collections of data on transactions.
There is a lot of information that is available in the public
sector about services transactions. Commercial companies
collect it, they pay attention to it, they analyze it. We did
not see any reason that the government could not do that also.
So we actually made a recommendation that a market research
operation be set up. We suggested GSA. It made sense to us.
Senator Ensign. When you are looking at the acquisition
personnel issue, do you have just two or three specific
recommendations for us on improving the type of people?
Obviously we have a lot of senior people that are getting ready
to leave. We all see that coming. What were the panel's
recommendations on making sure that we, one, replace some of
the people, but also in making sure that we are hiring really
good, talented people? Does outsourcing play a role in that? I
know there has been some problems, but there has been successes
in outsourcing, some of these issues of advising how to do
acquisition.
So do you have any thoughts on any of that?
Ms. Madsen. Well, a couple of thoughts. With respect to
workforce, we were very struck by the commercial organizations
that talked to us about the credentials and the experience of
the people that are handling particularly their larger
transactions, transactions $10 million and above. Very highly
credentialed, very experienced people who view acquisition of
services very much in a strategic mode.
You will see this in our findings and our recommendations,
that one of our questions really is how does the government
sort of stack up and how does the government get access to
those kinds of people and those kinds of resources. Our very
first question was do we know what we have?
One of the reasons we did this study is to try and
ascertain how do you define the acquisition workforce? Where
are the people who build requirements? Where are the people who
are doing analysis of the government needs? Do we have the
right people in the right places?
Those are very difficult questions to get the answers to,
which is why our recommendations really begin with, let us find
out what we have and make some decisions there. Then we made a
series of recommendations about attracting, since obviously the
government cannot pay at the private sector scale, about
attracting people, starting with intern programs, easier
hiring, better opportunities to identify talent, bring people
into the government.
Now, I will tell you one thing that we did not tackle, we
did not have the time, was the whole personnel system. So we
really looked at it from an acquisition standpoint.
Mr. Etherton. Senator Ensign, I think if you look at
chapter 5 of the report and follow the recommendations, what
you will see is a very logical sequence of how to address some
of the issues that have been raised both in our report--I know
that they were discussed at the hearing 2 weeks ago, addressing
some of the shortfalls in the acquisition workforce. I think
that the recommendations follow a pattern that basically talks
about data collection and trying to really get a clear
understanding of what the current makeup of the acquisition
workforce is and who would be included and try to identify
where the shortfalls might be occurring; then to shift from
that mode into a more aggressive human capital planning effort
specifically focused on the acquisition workforce throughout
the Federal Government; and then going from there to look at
some of the tools that you have for both recruiting people and
also to try to do some things on the retention side; and then
finally, as you are doing all that and I guess more or less
concurrently with it, trying to get a clearer sense of what
your resources and needs are with respect to training and
education. There are a number of very specific recommendations
along those lines in chapter 5 of the report.
I guess I would say from my perspective, having worked up
here for a time, this is a very complex area that will require
a lot of sustained long-term focus and long-term oversight if
you are likely to have any success in playing a role in
bringing about those improvements.
Senator Ensign. Jon, most of the issues this subcommittee
deals with fit into how you just described this issue: long
term, a lot of oversight, staying the course with it. We have
noticed that over the last few years.
According to the report the panel believes that a best
practice measures guide is critical to providing instruction
and illustration in the use of measures as part of performance-
based service acquisition. Have you seen any such guides either
in the private sector or the public sector that would serve as
a good model for the guide that you suggested?
Ms. Madsen. Senator, we did not look at guides
specifically. We looked at practices, however. We had a lot of,
a lot of testimony, both from the public sector and the private
sector, about how to do performance-based acquisition. We have
collected that information. Some of our private sector
witnesses actually provided us with proprietary information and
explanations as to how they go about this process.
So we have that information and we have tried to reflect
the conclusions we drew from it in our report, but we do not
really have in our hand a tidy best practices guide that we
could hand out. We do recommend that one be created.
Senator Ensign. Thank you, Mr. Chairman.
Senator Akaka. Thank you, Senator Ensign.
Senator McCaskill.
Senator McCaskill. Thank you, Mr. Chairman.
At the risk of sounding sarcastic, and I do not mean to be
sarcastic, but as somebody who is new and who comes from an
auditing background this is incredibly complex when you realize
what we are trying to do is get stuff as cheaply as possible
that we need.
That is really what this all boils down to, is for the
government to be able to buy things for the best bargain that
they need. I have some questions that I have asked--let me ask
you all first, have you read the IG's report that we talked
about in this hearing? [Witnesses nod affirmatively.]
If I can just stay on that report for the entire time of
this term and fix some of those things, I will consider my term
to be incredibly successful, because it was eye-opening for me.
Understand if that report had been issued by my State auditing
agency it would have been front page news for weeks. Building a
building with operational funds that is 230,000 square feet?
Paying for services before there has been scope of a contract?
Having the contract signed years after they finished paying for
the work that had been done?
This is really, a lot of this is over the top for somebody
who is taking a fresh look at it. I want the first ask you
about what seems to me to be really kind of down the rabbit
hole, and that is the part of your testimony and the part of
your work on the committee where you talked about the reduced
workforce. I am assuming the workforce was reduced because
people were trying to save money, correct?
Ms. Madsen. Senator, certainly in the mid-1990s,
particularly with I think what was probably then viewed as the
benefit of the end of the Cold War, there was a perception that
we did not need as many Federal employees. There were
certainly--and our study that we did on the workforce, the
nine-volume study, certainly documents the reductions in the
workforce. But the Federal acquisition workforce was reduced
about 50 percent between like 1993 and 2000. It is a
significant number.
Senator McCaskill. Well, the interesting thing to me is in
reading all this material last night, is that we reduced the
workforce to save money and as a result we are now contracting
out with this huge workforce to do this work, and because we
are contracting out we have no idea what is going on. Is that
fair?
Mr. Hughes. I think one of the chapters in our report,
chapter 6, deals with appropriate role of contractors. I think
it is an interesting issue because you have this question of
how you buy services. We testified about that and talked about
that, requirements development and how we do it. The other part
of the question is what is the appropriate role for contractors
in this process, decisionmaking. One of our recommendations is
that agencies review, make sure they are maintaining core
capabilities in house, in other words sufficient core
capabilities to do things that are an inherent part of the
government decisionmaking process. There is a lot of related
issues that go with this too: What is an inherently
governmental function? Who should be performing it?
But you raise a question, but your question raises an issue
that the panel looked at and the numbers are there. Sixty
percent of the procurement spend is on services and those
services move closer to the decisionmaking side, the inner
circle of the government. One of the things we did worry about
as a panel is what is the appropriate role as you move closer
to the circle.
The complexity of this can be overwhelming. If you just
take DOD's spend, it is about $250 billion. If you were to
convert that to Fortune 500 and convert that spend to revenue,
DOD would be right up there maybe after two or three of the oil
companies in terms of complexity. There are a lot of different
issues here. We focused on services in a number of areas, but
it is a very complex process.
Senator McCaskill. Honestly, Mr. Hughes, I think that the
more complex it is the harder it is for us to figure out how to
get a handle on it. I have a feeling that if somebody does not
try to do something bold and dramatic--I mean, talk about the
cow being out of the barn. Anybody coming with a fresh look on
this can do one of two things. I think people have thrown up
their hands and said, this is to complicated. There is this
policy and that policy.
I tried to get through your testimony and there are so many
acronyms and so many numbers, but it can be boiled down. I
mean, if you look at the issue of competitiveness, how in the
world do we get to the point that one-third of the procurement
is noncompetitive in government?
Mr. Hughes. We had a lot of internal debate about this
issue and I think one of the things that we discovered, and it
is written in the report, is--by and large, let me just say we
heard a lot of great testimony. There is a lot of folks out
there in the government trying really hard to do the right
thing. In every case, they look at their agency's mission and
they have a mission, and then they have a very narrow period of
time in which to obligate money. We have a fiscal rule system,
and if you have an auditing background from the State you
understand that. In other words, there is a rule set by which
we obligate government money.
So what we have seen in the testimony is I think people
trying very hard to do their agency's mission, whatever their
mission was. We talked to civilian agencies, defense agencies.
Then we have this rule set by which we have to run procurements
because we have to be transparent, we have to be accountable,
we have to obey the fiscal rules. Then you have heard evidence
that the workforce has been relatively flat or maybe decreasing
and the number of procurements have gone up.
So there are lots of stories like the ones that you are
citing to in the IG report. I am not refuting that. I think we
have to fix those things when we find them. But I also think
that the sense of the panel was that the system is not
fundamentally broken, that there is a lot of professionals
working hard to do the right thing, and what our view was was
to look at the areas that we did look at and recommend specific
improvements.
So it is complex, it is tough. We have tried to lay it out
sequentially in the different chapters. But I did want to say
that there were some good news stories out there too that we
heard in the course of taking the testimony, and it is a
tribute sometimes that things get done, given the constraints
that we put in front of the acquisition workforce.
Senator McCaskill. At this point I am trying to get a
handle on how much we are buying without competition. That is
what I am trying to focus on right now. Reading what I have
read, a third in 2004, which was $107 billion, and $100 billion
in 2005. Then you look at how much is interagency and then you
say further that we cannot really tell with the interagency
purchases whether they are even competitive or not.
So what we know is at least a third are noncompetitive, but
40 percent of 2004 was all interagency and what you have said
is you cannot tell me how much of that interagency was
competitive.
Ms. Madsen. That is correct, Senator. We actually invested
a lot of--I am going to speak specifically to Ms. Auletta
because she had more of those midnight hours than I did,
looking at the data from the Federal Procurement Data System-
Next Generation. In 2004 really was the first time that that
system started to capture data on the interagency contracts.
So we just did not have a good view of the ordering
process. We could tell how much was going through it, but we
just could not tell how competitive it was. Really, our source
of information about competitiveness on those contracts are the
IG and GAO reports going back to 1997, 1998 and coming forward,
which consistently indicate with orders under those multiple
award contracts that somewhere around 40 to 50 percent of the
orders that they sample--and they always do relatively small
samples--you will see 17 contracts, 20 contracts. The samples
show about 40 to 50 percent are not competitive.
But that is information that was not available to us. Now,
if you get to sort of the back of our report you will see we
have made a number of recommendations with respect to
collecting data and particularly data on competition so that
folks, especially you, can get a better handle on the questions
you are asking.
Senator McCaskill. Well, it seems to me that it is pretty
basic that we should at least know whether something is
competitive or not. I mean, that to me is fundamental to
government acquisition, and if we cannot tell whether or not
what we are buying is being done competitively I do not know
how we think we are ever going to get our hands around the fact
that we have government waste. I think it is impossible.
Correct? Am I wrong in that?
Mr. Etherton. No, Senator McCaskill, you are correct. I
think that one of the major themes that you see going
throughout the recommendations is the sense that we need to get
a better understanding of what is actually happening. There are
a number of--for example, in the interagency contracts section
we endorse the current effort underway at the Office of
Management and Budget to figure out how many of these vehicles
we have out there, what the activity that we have going through
them, as a baseline then to make further improvements on the
system and better manage that entire contracting universe.
Ms. Madsen also pointed out that there is a section in the
back of the report which talks about improvements to the
database so we have a better understanding about that. On the
other side of that, we made some recommendations with respect
to competition, one in particular being the extension and
expansion of the section 803 requirements on a much greater
basis, so that everyone----
Senator McCaskill. You have to tell me what section 803 is.
Mr. Etherton. I am sorry. Section 803 basically says that
when you have a multiple award task or delivery order contract,
in most circumstances you are supposed to let all the people
who are under that contract or are eligible to get a task or
delivery order, to give them information about any pending
awards that they may be eligible to try to compete for, in
other words to get the information out there so that everybody
can see it. There are a number of other recommendations along
those lines. So as we are gathering the information and trying
to get a better understanding of what the current state of play
is, we also have the ability to disseminate these opportunities
to a much broader universe of folks in a more formal way so
that people are aware of the opportunities and we can increase
competition in that fashion.
Senator McCaskill. Thank you, Mr. Chairman.
Senator Akaka. Thank you very much, Senator McCaskill.
I want the thank the panel. We do have questions which we
will include for the record for you to respond to and I want to
thank you for your responses today.
I would like to now call the second panel to the dais.
Ms. Madsen. You are very welcome, Senator, and if there is
any other information we can provide we would be happy to do
so.
Senator McCaskill. Thank you all.
Senator Akaka. Our second panel includes: Paul Denett, the
Administrator for Federal Procurement Policy; and also Shay
Assad, the Director of Defense Procurement and Acquisition
Policy. Mr. Denett and Mr. Assad are the two senior officials
responsible for developing and implementing Federal policy on
contracting for services and interagency contracting.
I want to welcome both of you to the committee. I want to
emphasize that Mr. Denett and Mr. Assad are not personally
responsible for the extensive problems that we have experienced
with contracting for services and interagency contracting. Both
took office fairly recently and have been working to address
the problems that we have identified. The record of these
hearings makes it clear that much more remains to be done.
Mr. Denett and Mr. Assad, we look forward to your
statements. Mr. Denett, you may begin.
STATEMENT OF HON. PAUL A. DENETT, ADMINISTRATOR, OFFICE OF
FEDERAL PROCUREMENT POLICY, OFFICE OF MANAGEMENT AND BUDGET
Mr. Denett. Thank you. Chairman Akaka, Senator Ensign, and
members of the subcommittee: I appreciate the opportunity to
appear before you this afternoon to discuss contracting for
services, interagency contracting, and related issues. My
remarks will focus on acquisition from a government-wide
perspective. I prepared a full statement for the record and
with your permission would like to insert it into the record
and highlight a few key points.
Senator Akaka. Your full statements will be included in the
record.
Mr. Denett. First, we must do a better job ensuring that
our acquisition workforce has the proper skills and
competencies to deliver the best results possible for the
American taxpayer. Assessment of acquisition skills is an
essential step in agencies determining the necessary
acquisition staffing levels.
We acquired over $400 billion in goods and services in
fiscal year 2006. Many of the shortcomings that have been
identified by the GAO, the agency IGs, and the Services
Acquisition Reform Act (SARA) panel lie not in the acquisition
tools themselves, but rather in the management, practice, and
training surrounding their use. Adequate, proper, and timely
acquisition and project management training is essential.
As Administrator of OFPP, I am focusing policy development,
management attention, and training on the tools that our
workforce is relying on most to meet the unprecedented
challenges of the 21st century. For example, OFPP is developing
guidance to strengthen the interagency contracting with the
assistance of an interagency team that includes DOD and other
large customer and servicing agencies. The guidance will be
designed to ensure requesting and servicing agencies understand
and carry out their respective responsibilities for each step
in the acquisition process.
In addition to guidance, we will work with the Federal
Acquisition Institute and the Defense Acquisition University
and private training companies to increase training offered in
this area.
OFPP and the interagency team will also be exploring ways
we might improve strategic use of interagency contracts.
Second, I share the SARA panel's overarching conclusion
that competition, transparency, and accountability for results
are the underpinnings of a solid Federal acquisition system. As
a general matter, the current statutory acquisition authorities
will produce good results for taxpayers when they are followed
and coupled with sound planning, competition, and effective
management and oversight.
I work closely with the Chief Acquisition Officers Council
and the Federal Acquisition Regulatory Council, industry
associations, and scholars to carefully analyze the panel's
many recommendations. We will implement those that make sense.
We will track and have agencies review to ensure compliance and
results.
I intend to pay particular attention to panel proposals
that strengthen the management and transparency of task and
delivery orders, especially for complex services. Services now
account for over 60 percent of all our acquisition dollars. I
will also focus on the panel proposal that can improve the
quality of acquisition planning, such as through the
establishment of agency centers of expertise to assist with the
analysis related to common recurring needs. I am glad that many
of the panel's proposals can be addressed through regulatory or
policy action.
Third and last, I am a strong supporter of giving credit
and recognition. Too often we fail to recognize when
acquisitions are conducted well and miss opportunities for
employees to learn through the success of their peers. I have
launched the SHINE initiative to increase the visibility of
acquisition excellence within our workforce.
For example, the following individuals from the DOD have
received well-deserved recognition for achieving great results
through their hard work: Nancy Gunderson as the acquisition and
contracting team leader of the Pentagon renovation program, for
being instrumental in renovating and repairing the Pentagon on
time and in an efficient manner following the September 11
attack;
Lieutenant Commander Jeffrey Davies of the Naval Supply
Systems Command, for his outstanding leadership in combining
contracting and logistics for superior regional patrol boat
maintenance and crew swaps at significantly lower cost and
reduced times in support of the warfighter;
Lieutenant Commander Kristen Aquavella of the Naval Sea
Systems Command, for her contracting accomplishments on the
repair and overhaul of submarines, which played an integral
role in saving the Navy $75 million. She also volunteered and
served as the chief of a Baghdad contracting office where she
led direct acquisition support of Operation Iraqi Freedom.
The last person I would like to recognize: Mark Strawn of
the Department of the Air Force, for increasing the efficiency
of the acquisition process undertaken by the Landing Gear
Commodity Council. He reduced the processing time of
acquisitions for landing gear from 75 days to an average of 3
days with advanced contracting.
I will use this SHINE initiative to help ensure that the
best practices are shared and that the value of our Federal
acquisition employees is appropriately recognized.
Today our agencies are more reliant on contracting to
support their missions than ever before. I am proud to work
with the acquisition contracting personnel to produce good
results for our taxpayers. The OFPP is committed to addressing
shortcomings and reinforcing successful practices.
I welcome the opportunity to work with the subcommittee and
other Members of Congress in a bipartisan effort to ensure a
contracting system that is competitive, transparent, and
accountable.
This concludes my prepared remarks. I would be happy to
answer any questions that you might have.
[The prepared statement of Mr. Denett follows:]
Prepared Statement by Hon. Paul A. Denett
Chairman Akaka, Senator Ensign, and members of the subcommittee, I
appreciate the opportunity to appear before you today to discuss
contracting for services, interagency contracting, and related issues.
You have asked for my views on the report of the Acquisition Advisory
Panel established under the Services Acquisition Reform Act (the ``SARA
Panel'') as well as my thoughts on recent assessments by the Inspectors
General (IGs) for the Department of Defense (DOD) and other Federal
agencies.
My remarks will focus on acquisition from a government-wide
perspective, consistent with my responsibilities as Administrator for
the Office of Federal Procurement Policy (OFPP). Mr. Shay Assad will
provide a departmental perspective on issues before us today.
The beginning of the 21st century has presented our acquisition
workforce with unprecedented challenges. We are more reliant on
contracting to support the numerous agency missions. While I have great
confidence in the dedication of our workforce, I am concerned that we
have not adequately trained them and strengthened their competencies so
that they can deliver the best results possible. Over the past decade,
spending on services has outpaced spending on products, as agencies
shift from buying items to buying solutions. Today, service contracting
represents just over 60 percent of the almost $400 billion in total
acquisition dollars. Similarly, interagency contracting has also grown
significantly as agencies look to reduce administrative expenses and
leverage resources. While neither of these trends should, by
themselves, be cause for alarm, the level of management attention given
to service contracting and interagency contracting must be increased
accordingly to ensure these tools are used properly and effectively.
The SARA Panel's report on Federal acquisition practices is
especially timely. I welcome the anticipated arrival of the final
report. Through a highly transparent process and input from members and
witnesses representing diverse perspectives and backgrounds, the Panel
has produced a comprehensive report with a number of findings and
recommendations that are deserving of our careful consideration to
improve contracting for the American taxpayer.
I share the Panel's overarching conclusion that competition,
transparency, and accountability for results are the underpinnings of a
solid Federal acquisition system. Many of the shortcomings identified
by the Panel, the IGs, and the Government Accountability Office (GAO)
lie not in the acquisition tools themselves, but rather in the
management, practices, and training surrounding their use. As a general
matter, the current statutory acquisition authorities will produce good
results for the taxpayer when they are coupled with sound planning,
competition, and effective management and oversight. Oversight should
contribute to improvement and results. Hold the contracting personnel,
including myself, accountable.
IMPROVING INTERAGENCY CONTRACTING
With respect to interagency contracting, in particular, OFPP is
taking a number of steps to address weaknesses identified by the GAO,
agency IGs, the SARA Panel, and others. Our goal is to ensure these
contracts are used properly and in a strategic manner.
Clarifying roles and responsibilities
The GAO, IGs, and others have found that breakdowns in interagency
contracting are often associated with unclear lines of responsibilities
and a failure to carry out key responsibilities. OFPP is leading an
interagency working group to establish guidance clarifying
responsibilities between the requesting (customer) agency and the
servicing agency for each key step in the acquisition process--from the
determination of needs and development of the statement of work, to the
determination of price reasonableness, and the performance of contract
surveillance. Participants include DOD and other major requesting and
servicing agencies, including the General Services Administration
(GSA), the Department of the Interior, the National Aeronautics and
Space Administration, the Department of Energy, and the Department of
the Treasury, among others. We anticipate completing the guidance in
the spring.
This exercise is especially important in an assisted acquisition,
where a contract action is placed by the servicing agency on the
requesting agency's behalf. Absent a clear understanding between the
parties, there is increased risk that responsibilities will not be
accomplished. We are working to develop a model interagency agreement
to facilitate greater consistency and clarity in the identification and
documentation of roles by the respective parties.
I commend DOD for taking actions to improve its interagency
contracting. As the DOD IG noted before this subcommittee, the recent
memorandum of understanding between DOD and GSA includes a number of
basic contracting management controls, such as ensuring that sole-
source justifications are adequate and interagency agreements describe
the work to be performed.
Strategic use
We wish to ensure strategic use of interagency contracting
vehicles. Many in the contracting community, including the SARA Panel,
have raised concerns that there may be unnecessary duplication of
interagency vehicles. We are exploring whether we may need a governance
structure for multiagency contracts (MACs). MACs operate separate and
apart from the Federal Supply Schedules, which are governed by rules
established by GSA, and government-wide acquisition contracts (GWACs),
which are subject to review by OMB. As a first step, OFPP conducted a
data collection to gain a better understanding of the number of MACs.
According to the latest count, agencies have identified at least 55
MACs. These contracts are predominantly for professional and technical
services and information technology, which appear to overlap the scope
of GWACs and some schedule contracts. We are currently working to
identify the dollars obligated through these MACs. We are also
reviewing acquisition activity on franchise funds. The SARA Panel
recognized and endorsed these efforts, concluding that increased
visibility is a prerequisite to improving the strategic use of
interagency contract vehicles.
OTHER OFPP PRIORITIES
In addition to our work on interagency contracting, other
priorities that I have laid out for OFPP also address the types of
concerns identified by the SARA Panel, the IGs and the GAO. They
include: (1) increasing attention on acquisition planning and contract
management, (2) strengthening the acquisition workforce, and (3)
improving the Federal Procurement Data System (FPDS).
(1) Increasing attention on acquisition planning and contract
management. We must ensure that agencies do a better job of planning
and articulating contract requirements. We must also pay greater
attention to overseeing our contractors to ensure they meet their
contractual obligations efficiently and effectively.
This past June, OMB revised its Capital Programming Guide, which
discusses the policy for planning, budgeting, acquisition, and
management of Federal capital assets. The development of business cases
remains a central feature of the process. Agencies must conduct
comprehensive planning to support the business case, including a needs
assessment and an alternatives analysis. The Guide emphasizes the
importance of cross-functional participation in the planning process to
ensure the ultimate success of the acquisition.
In addition, OFPP plans to:
Enhance the quality and consistency of agency internal
control reviews by issuing guidance to agencies on assessing
their acquisition function, taking into consideration the GAO's
2005 framework for assessing risk in acquisition activities.
Issue guidance to ensure the proper use of contract
incentives.
(2) Strengthening the acquisition workforce. Getting good results
from our acquisitions ultimately depends on the capabilities of the
workforce. Our workforce must be equipped with the skills and
competencies required to meet the needs of our end-users. Adequate
training is a must. To achieve these results, OFPP plans to:
Place greater emphasis on the recruitment and retention of
top talent through improved acquisition intern programs, cross-
agency rotational assignments, and special training for interns
and new members of the workforce.
The Federal Acquisition Institute (FAI) has developed the
blueprints for a Federal Acquisition Intern and Career
Development Coalition that will promote acquisition intern and
career development programs for entry and mid-level
professionals.
Seek legislation to make the acquisition workforce training
fund (AWTF) permanent.
By using the AWTF, FAI was able to leverage its demand for
course work, save an average of 45 percent per student over the
commercial price for these classes, and increase the amount of
training available to the acquisition community.
Ask agencies to conduct a competency assessment on the
acquisition workforce to help agencies identify skills gaps.
Support efforts by the Chief Acquisition Officers (CAOs) to
identify hiring, training, and developmental needs for their
respective agencies for incorporation into the agency's human
capital strategic plan.
Establish program/project manager and contracting officer's
representative certification programs to support common
competencies and training standards for this important
acquisition function.
FAI and the Defense Acquisition University (DAU) now offer
classroom and online training on performance-based service
contracting to contracting officers, program managers, and
other members of the acquisition team who play a critical role
in service contracting. These courses will better enable all
members of the acquisition team to contribute to the creation
of performance work statements and support management of the
resulting contracts.
Work with DOD to study the feasibility of a Federal
Acquisition University.
Over the last 2 years, FAI and DAU have developed a close
partnership to leverage resources for training and other
professional development efforts. In fiscal year 2006, FAI
delivered classroom training to over 2,800 contracting
professionals and provided on-line training to over 20,000
students--a substantial increase over any previous year.
Work with DAU and FAI to develop additional emergency
contracting training and expand reference materials available
through the DAU/FAI online community of practice Web site to
meet the needs of the Department of Homeland Security and other
agencies with emergency responsibilities.
In addition, I launched the ``Shine'' initiative to increase the
visibility of acquisition excellence within our workforce. Too often,
we fail to recognize when acquisitions are conducted well and miss
opportunities for employees to learn through the successes of their
peers. The Shine initiative will help ensure best practices are shared
and the value of our Federal employees are appropriately recognized.
(3) Improving FPDS. FPDS must be an authoritative source for
acquisition information that allows the government and industry to make
decisions and measure results with accurate data. We will implement a
data verification process to achieve this outcome.
REVIEWING THE SARA PANEL'S RECOMMENDATIONS
I will work closely with the Chief Acquisition Officers Council
(CAOC) and the Federal Acquisition Regulatory Council (FAR Council) to
analyze the Panel's recommendations, identify those that deserve
priority attention, and take timely action. In this regard, I am glad
that many of the Panel's proposals can be addressed through regulatory
or policy actions.
I intend to pay particular attention to proposals that would
strengthen the management and transparency of task and delivery orders,
especially for complex services. The Panel, IGs, and GAO each have
raised concerns about high-dollar value orders for services being
placed with inadequate planning, competition, and post-award
surveillance.
I also intend to pay close attention to proposals that can improve
the quality of acquisition planning. The Panel offers several common-
sense ideas to help agencies better define their requirements. For
instance, they recommend the establishment of agency centers of
expertise to assist with analysis related to common recurring needs,
and the centralization of market research information at GSA to
organize and make this information available for government-wide use.
I am pleased to tell you that OFPP, through its ongoing initiative
to improve interagency contracting, has already taken actions to
address some of the recommendations made by the Panel in this area. The
Panel acknowledged our data collection as an important first step to
ensuring these vehicles are being used strategically.
While not specifically addressed in the Panel's report, other
ongoing OFPP initiatives are also serving to help agencies improve
their operations through the synergies of marketplace competition,
including:
Greater use of strategic sourcing, where agencies collaborate
to leverage the government's buying power and reduce costs for
commonly used products.
GSA recently awarded a blanket purchase agreement (BPA) with
a nationwide domestic delivery service company to leverage the
government's volume, reduce prices, and improve commodity
management. By February, agencies will have placed over $55
million in orders against this BPA to take advantage of
significant price reductions--which could be as high as 40
percent, depending on the services ordered.
The reasoned and responsible use of competitive sourcing to
reduce costs and improve the performance of commercial support
activities.
Improvements set in motion by competitions completed in
fiscal year 2006 are expected to generate net savings or cost
avoidances totaling about $750 million over the next 5-10
years. Expected annualized savings from competitions completed
between fiscal years 2003-2006 is approximately $1 billion.
CONCLUSION
Mr. Chairman and members of the subcommittee, OFPP is committed to
addressing shortcomings and reinforcing successful practices. I look
forward to working with DOD and the other agencies, the members of this
subcommittee, and other members of Congress in a bipartisan effort to
ensure our acquisition system produces the good results our taxpayers
deserve.
This concludes my prepared remarks. I am happy to answer any
questions you might have.
Senator Akaka. Thank you.
Mr. Assad.
STATEMENT OF SHAY ASSAD, DIRECTOR, DEFENSE PROCUREMENT AND
ACQUISITION POLICY, DEPARTMENT OF DEFENSE
Mr. Assad. Chairman Akaka, Senator Ensign, members of the
subcommittee, my name is Shay Assad. I serve as the Director of
Defense Procurement and Acquisition Policy. Before assuming
this position in April 2006, I served as the Senior Contracting
Official within the Marine Corps. Prior to entering government
service in 2004, I spent 25 years in industry serving as a
member--serving in a number of operational and contract
management capacities, primarily with Raytheon Company. My
experience includes serving as a Senior Vice President of
Contracts, and President and Chief Operating Officer of one of
Raytheon's major subsidiaries, and lastly as an Executive Vice
President and Chairman and Chief Executive Officer of one of
Raytheon's major subsidiaries.
Thank you for the opportunity to participate in today's
discussion on contracting for services and interagency
contracting practices. I would like to take a moment to thank
the committee for its support of our troops and all you have
done to help with their mission.
In your invitation to appear before this subcommittee, you
stated that you were interested in hearing my views on several
matters related to DOD contracting. With regard to the findings
and recommendations of the advisory panel, I have read the
draft advisory report. It is comprehensive and covers matters
ranging from the workforce, small business participation,
ethics, contracting for services, interagency contracting, and
commercial practices, to name a few. The report certainly
provides a framework for improvement in a number of areas and
we will be busy addressing them. In general, I agree with most
of the panel's recommendations.
With regard to the joint interagency contracting reviews of
the Inspectors General, as was noted in our written response to
the DOD IG's reports, we have concurred with their findings and
we are taking several steps to respond to those findings. I
recently met with both the DOD IG and the Department of
Interior (DOI) IG in order to review each and every finding
that were the result of their initial second year audit of the
DOI contracting activities.
We will continue to work diligently with our sister
agencies to further improve business practices and to more
effectively conduct business in a manner that is compliant with
fiscal law requirements. We believe the progress being made is
responsive to the findings of the DOD IG and will help ensure
that in an overall sense DOD funds are spent wisely and in
accordance with all Federal law and fiscal policy.
I would also like to comment on the GAO and DOD IG
oversight functions. In my view both of these organizations
play key and important roles. My experience with both
organizations is that they are extremely competent, they are
independent, and they are necessary. They either reaffirm that
we are doing the job right or they highlight areas that require
improvement. In either case, in general, I find their views to
be constructive and meaningful.
Concerning the implementation of legislative provisions
regarding the management of services contracts, most recently
the DOD issued a policy memorandum implementing the legislation
provisions of section 812 by requiring all DOD components to
establish and implement a management structure for the
acquisition of services based on dollar values and review
thresholds.
With regard to the adequacy of the DOD acquisition
workforce to carry out its responsibilities, in my role I serve
as the functional leader of the contracting professionals of
the DOD, both military and civilian. Over the past 10 years our
workload has increased significantly. The number of actions in
excess of $100,000 has increased by well over 60 percent. The
total value of our procurement actions has increased by well
over 130 percent. I believe that our workload will continue to
increase.
During that timeframe, our acquisition workforce has
decreased by approximately 5 to 10 percent. We have useful
information regarding the numbers of our contracting
professionals and we have a very good sense of how they have
been trained. We also believe that because of the downsizing of
the workforce that took place in the late 1990s the overall
capability of our workforce requires improvement. However,
while we can surmise, we cannot determine with specificity
where those shortfalls in capabilities exist.
For the past 5 months my office, in concert with the
Defense Acquisition University, the military departments, and
the defense agencies, has been developing a workforce
assessment model that will address the skills and competencies
necessary for our contracting workforce. We will complete the
development of that contracting model in March 2007. Beginning
in the second quarter of this year, we will begin deployment of
the competency model across the entire DOD contracting
workforce. This is a major undertaking and will be the first
time the DOD has attempted to assess its contracting capability
across the entire enterprise.
The assessment will allow the DOD to evaluate the workforce
in terms of its size, its capability, its skill mix, and to
develop a comprehensive recruiting, training, and deployment
plan to meet the identified contracting capability gaps.
Concerning DOD contracting for services and interagency
contracting, the DOD is taking action to improve the way it
acquires and manages services. This integrated action involves
changes and improvements in our organization, our strategic
approach, and the tactical methods we will use to acquire and
manage services.
We have made organizational changes and are taking steps to
improve workforce skills to more efficiently and effectively
acquire services. In addition to my duties as the Director of
the Defense Procurement and Acquisition Policy Organization, I
am now charged with the responsibility for oversight of
strategic sourcing activities across the DOD. In this new role,
I am responsible for working with the military departments and
the defense agencies to craft a coordinated and integrated
strategic approach to the acquisition and management of
services.
We concurred with the GAO when they said that a more
coordinated and integrated strategic approach to acquiring
services was necessary. DOD is developing that approach. The
basic tenets of our architecture are straightforward and
simple: maximum use of competition, use of acknowledged best
practices, appropriate application of performance-based
approaches, enhanced contract surveillance by early on
identification of appropriate contract performance metrics,
quality assurance surveillance plans included in our contracts,
appointment of properly trained contracting officer
representatives, enhanced application of past performance
information, and finally, maximum small business participation
in socioeconomic goal achievement.
In conclusion, I believe that there is not another
organization that rivals the procurement and contracting
expertise residing within the DOD. The range and depth of the
approximately $300 billion of items and services that we buy on
an annual basis are unparalleled in any other procurement
organization in the world. Our training programs are the envy
of industry. The contracting functions that we perform are not
trivial. Whether contracting for base operating support,
contingency contracting, or the procurement of an aircraft
carrier, our contracting professionals require unique and
significant skill and expertise.
We recognize that there is much improvement needed in order
to ensure that we provide the most effective and efficient
means of contracting for the goods and services necessary to
support our warfighters. We must always remember, however, that
while we strive to provide our warfighters the very best, we
must also ensure that we do so while being good stewards of
taxpayer funds. Our warfighters deserve nothing less and our
taxpayers rightfully should insist on nothing less.
Mr. Chairman, I thank you and the members of the committee
for your interest in our efforts and would be happy to address
any questions that you may have for me. Thank you very much,
sir.
[The prepared statement of Mr. Assad follows:]
Prepared Statement by Shay Assad
Chairman Akaka, Senator Ensign, and members of the subcommittee: I
am Shay Assad and I serve as the Director, Defense Procurement and
Acquisition Policy in the Office of the Under Secretary of Defense for
Acquisition, Technology, and Logistics. Before assuming this position
in April 2006, I was the Assistant Deputy Commandant, Installations and
Logistics (Contracts) for the Marine Corps and, as such, served as the
senior civilian contracting official within the Marine Corps.
Prior to Government service, I spent 25 years in industry serving
in a number of operational and contract management capacities,
primarily with Raytheon Company. My experience includes serving as a
Senior Vice President of Contracts, a President and Chief Operating
Officer of one of Raytheon's major subsidiaries and lastly, as an
Executive Vice President of the company and the Chairman and Chief
Executive Officer of one of its major subsidiaries. I am a graduate of
the United States Naval Academy and I started my career as an officer
in the United States Navy serving two tours on U.S. Navy destroyers and
lastly as a Navy Procurement Officer at the Naval Sea Systems Command.
Thank you for the opportunity to appear before you today to
participate in today's discussion on contracting for services and
interagency contracting practices. I would like to take a moment to
thank the committee for its support of our troops and all you have done
to help with their mission. I would also like to thank the men and
women who serve our great country. When I say men and women, I mean our
military service men and women, our Government civilian employees and
those in industry who support our mission. None of us could get the job
done without the other.
The Department of Defense (DOD) acquisition team strives to provide
our warfighters the support they need, consistent with responsible
management and stewardship to our taxpayers. We strive to effect timely
acquisition planning, contract execution and responsible contract
management oversight in order to provide our warfighters the contractor
support they need to accomplish the mission. We are doing everything it
takes to make sure our soldiers, marines, airmen, and sailors are
provided with the safest, most dependable, and highest performing
equipment available within fiscal constraints, together with the
logistics and material support necessary to ensure performance
whenever, and wherever they are needed. We will continue to work
everyday to improve the service that we provide our men and women in
the Armed Forces.
In your invitation to appear before this subcommittee you stated
that you were interested in hearing my views on several matters related
to DOD contracting. Among them were: (1) the findings and
recommendations of the Acquisition Advisory Panel; (2) the results of
the joint reviews conducted by the Department of Defense Inspector
General (DOD IG) and the Inspectors General of the other Federal
agencies; (3) the implementation of legislative provisions regarding
the management of services contracts; (4) the adequacy of the DOD
acquisition workforce to carry out its responsibilities; and (5) DOD
contracting for services and interagency contracting. For the record, I
will provide a brief summary of my views.
ACQUISITION ADVISORY PANEL FINDINGS AND RECOMMENDATIONS
With regard to the findings and recommendations of the Acquisition
Advisory Panel, I have read the draft Acquisition Advisory Panel
Report. It is comprehensive and includes a number of recommendations
and findings on matters ranging from the workforce, small business
participation, ethics, contracting for services, interagency
contracting and commercial practices, to name a few. The report
certainly provides a framework for improvement in a number of areas and
we will be busy addressing them. While I agree with most of the panel's
recommendations, I would like to note that with regard to the
recommendations concerning the assessment of the acquisition workforce,
the Department has already done a significant amount of work in this
area. We already have an AT&L Human Capital Strategic Plan and we are
moving forward with our workforce assessment initiatives.
INSPECTOR GENERAL REVIEWS
With regard to the joint interagency contracting reviews of the
Inspectors General, as was noted in our written response to the DOD
IG's reports, we have concurred with their findings and we are taking
several steps to respond to those findings. I recently met with both
the DOD IG and the Department of the Interior (DOI) IG in order to
review each of the recent findings that were the result of their
initial second year audit of DOI contracting activities.
The Department takes seriously its fiduciary responsibilities and
we are working closely to effect both programmatic and financial
corrective actions that will ensure mission accomplishment and protect
the integrity of our fiscal requirements. Our efforts to effect sound
financial management of our complex business area are an object of
continuous improvement. We believe that actions being taken are
resolving the issues identified in the audit reports. As we make
progress to resolve the issues surrounding Interagency Agreements, we
are working concurrently with our providers of goods and services as
well as the DOD IG to seek optimum solutions.
At the very heart of the issue is an understanding that
departmental funds have a common and consistent statutory basis,
regardless of the agency that we charge with executing those funds. It
is both our philosophy and practice that ``the (fiscal) rules follow
the funds.'' Much improvement has been made over time and some of the
significant financial actions taken include the following:
Established and reinforced standard fiscal policy and
correction of common misinterpretations that exist both within
and outside the Department. Our new policy provides a standard
business model for conducting business with other Federal
agencies, regardless of their statutory authority. In essence,
the policy establishes the requirements for initiating an
agreement, the timing of the obligation, and the period of
performance.
Ensure that the use of an Interagency agreement is consistent
with its statutory authority.
Tightened internal controls to more effectively manage
agreements with other Federal agencies. For example, DOD
Components are now required to conduct tri-annual reviews to
validate open obligations on Interagency Agreements.
Reviewed all Interagency Agreements and the financial records
from the providers to determine the status, reconcile
transactions, return outstanding balances, and take corrective
actions to ensure compliance with fiscal policy requirements.
As a result, approximately $550 million has been deobligated.
In addition to these measures, we are clarifying our advance
payment policy. The Department will also evaluate internal fund
certification policy and related training requirements to improve
accountability, understanding of fiscal requirements, and further
strengthen internal controls.
We will continue to work diligently with our Interagency partners
to further improve business practices and to more effectively conduct
business in a manner that is compliant with fiscal law requirements.
The Department's new financial policy has taken the proper approach to
business being conducted with our interagency providers.
We believe the progress being made is responsive to the findings of
our DOD IG and will help ensure that, in an overall sense, DOD funds
are spent wisely and in accordance with all Federal law and fiscal
policy.
I would also like to comment on the Government Accountability
Office (GAO) and the DOD IG oversight functions. In my view, both of
these organizations play key and important roles. My experience with
both organizations is that they are extremely competent, independent,
and necessary. They either reaffirm that we are doing our jobs or they
highlight areas that require improvement. In either case, in general, I
find their views to be constructive and meaningful.
IMPLEMENTATION OF MANAGEMENT OF SERVICES CONTRACTS LEGISLATIVE
PROVISIONS
Concerning the implementation of legislative provisions regarding
the management of Services' contracts, over the past years there have
been numerous legislative provisions that have addressed the
Department's management of services contracts. We have responded with
incremental policy and regulation revisions. While we are in process of
developing policy associated with the National Defense Authorization
Act (NDAA) for Fiscal Year 2007, most recently, the Under Secretary of
Acquisition, Technology, and Logistics (USD(AT&L)) issued policy on
October 2, 2006 implementing the legislative provisions of section 812
of the NDAA for Fiscal Year 2006 by requiring all DOD components to
establish and implement a management structure for the acquisition of
services, based on dollar values and review thresholds. The DOD
components have largely completed their implementations. However, in
addition, the Department is now taking a strategic approach to the
acquisition of services, and is developing a comprehensive DOD-wide
architecture for the acquisition of services. Basic tenets of this
architecture will include:
Maximum use of competition to ensure pricing based on
competition.
Use of acknowledged best practices.
Appropriate application of performance-based approaches.
Enhanced contract performance management supported by:
Early-on identification of appropriate contract
performance metrics.
Quality Assurance Surveillance Plans included in the
contract.
Appointment of properly trained contracting officer
representatives.
Enhanced application of past performance information.
Maximum small business participation and socio-economic goal
achievement.
ACQUISITION WORKFORCE
With regard to the adequacy of the DOD acquisition workforce to
carry out its responsibilities, in my role I serve as the functional
leader of the contracting professionals of the DOD, both civilian and
military. I am also a member of the Acquisition, Technology, and
Logistics Steering Group established by the USD(AT&L) to address the
implementation of our AT&L Human Capital Strategic Plan.
Frequently, I am asked two questions regarding our workforce: (1)
whether or not we have enough people in the Department to perform our
mission effectively, efficiently, and in a manner that assures the
lawful operation of the Federal acquisition system; and (2) whether or
not our contracting workforce is sufficiently qualified to do the same.
Over the past 10 years our workload has increased significantly.
The number of actions in excess of $100,000 has increased by over 60
percent, the total value of our procurement actions has increased by
well over 100 percent and I believe that our workload will continue to
increase. During that timeframe, our acquisition workforce has
decreased by approximately 5-10 percent.
We have useful information regarding the numbers of our
professional contracting employees and we have a very good sense of how
they have been trained. We also believe that because of the downsizing
of the workforce that took place in the late 1990s the overall
capability of our workforce requires improvement. However, while we can
surmise, we can not determine with specificity, where those shortfalls
in capability exist.
Earlier in my comments, I mentioned that we have done a significant
amount of work associated with the assessment of our workforce. For the
past 5 months, my office, in concert with the Defense Acquisition
University, the military departments and the defense agencies, has been
developing a model that will address the skills and competencies
necessary for our contracting workforce. We will complete development
of the contracting competency model in March 2007. Beginning in the
second quarter of calendar year 2007, we will begin deployment of that
competency modeling across the entire DOD contracting workforce. This
is a major undertaking and it will be the first time the Department has
attempted to assess its contracting capability across the entire
enterprise. The modeling will enable us to assess workload demands for
and the degree to which members of the workforce possess these
competencies. The competency assessment will also allow the Department
to assess the workforce in terms of size, capability, and skill mix and
to develop a comprehensive recruiting, training, and deployment plan to
meet the identified capability gaps.
DOD CONTRACTING FOR SERVICES AND INTERAGENCY CONTRACTING
Concerning DOD contracting for services and interagency
contracting, the Department is taking action to improve the way it
manages and acquires services. This integrated action involves changes
and improvements in: (1) our organization, (2) our strategic approach,
and (3) the tactical methods we will use to manage and acquire
services. We have made organizational changes and are taking steps to
improve workforce skills to more efficiently and effectively acquire
services. In a recent organizational realignment within the Department,
responsibility for Strategic Sourcing has been moved to the Acquisition
and Technology organization. In addition to my duties as the Director
of Defense Procurement and Acquisition Policy, I am now charged with
the responsibility for oversight of the strategic sourcing activities
across the Department. In this new role, I am responsible for working
with the military departments and the defense agencies to craft a
coordinated and integrated strategic approach to the management and
acquisition of services.
We believe the consolidation of the development of acquisition and
procurement policy with the oversight of strategic sourcing of services
will result in a more cohesive and integrated approach. It will ensure
that the tactical approaches utilized within the Department are
consistent and aligned with the strategic objectives for the
acquisition of services.
In addition, the Department has set a course to completely reassess
its strategic approach to services. This involves the examination of
the types and kinds of services that we acquire and an integrated
assessment of how to meet the needs of our warfighters while ensuring
that the expenditure of taxpayer funds is wise and effective. We
concurred with the GAO when they said that a more coordinated and
integrated strategic approach to acquiring services is necessary. The
ongoing reassessment also includes examination of how those services
are acquired by the Department or how they are acquired on its behalf
by other Federal agencies, such as General Services Administration
(GSA) and the DOI. We expect to have the reassessment completed in the
second quarter of calendar year 2007.
Upon completion of that reassessment, we will develop an effective
strategic sourcing deployment plan. We expect the plan to be completed
in calendar year 2007. The fundamental tenets of our strategy will be
straightforward: Ensure that we effectively and efficiently, in terms
of both timeliness and cost effectiveness, acquire the services
necessary to meet the needs of our warfighters. Underpinning our
strategy will be the utilization of contracting tools that ensure
competition whenever possible.
While we look for areas where combined buying power will result in
savings, we are ever mindful of our responsibilities to fulfill the
socioeconomic goals of the Department. It is our belief that the use of
competition, at all levels, is the most effective tool we have in the
acquisition of services.
Finally, we must implement our strategy with straightforward and
simple tactical methods: (1) ensure that we clearly identify our
requirement; (2) select the most efficient and effective tool to
acquire particular services; (3) drive consistency and discipline
across the Department; and (4) ensure that we have metrics and
accountable individuals who will oversee performance.
We would like to point out some specific actions we have taken with
regard to interagency contracting and contract surveillance. With
regard to interagency contracting, the Department is proactively and
aggressively working to improve policies, procedures and oversight of
interagency acquisitions. DOD is an active participant in the Office of
Federal Procurement Policy (OFPP) working group to improve the
management and use of interagency contracts. We are working with the
GSA and DOI to reconcile and return unused funds to DOD. For example,
by working together, GSA has already been able to return virtually all
unused DOD funds from prior years. We continue to update policies and
procedures to ensure DOD properly uses ``Assisting Agencies'' (e.g.
GSA, National Aeronautics and Space Administration, Interior, and
Treasury) acquisition services. For example, we have issued revised
guidance specific to interagency acquisition and now require DOD
components to review interagency acquisitions as part of our tri-annual
review process. We are coordinating with the Under Secretary of Defense
(Comptroller) (USD(C)) and the Office of General Counsel on issuing
additional legal guidance governing the proper use of funds under
interagency agreements.
The Department has issued a series of policy memos on Interagency
Acquisition dating back to October 2004. The policies established
standards for using assisting agencies providing acquisition support to
the Department. The policies were issued both jointly by USD(AT&L) and
USD(C) and separately by each organization. In addition, we developed
and revised training materials to address the deficiencies identified
in the Interagency Acquisition process.
Since April 2006, the Department has collaborated with the senior
leadership at GSA, National Aeronautics and Space Administration,
Interior, and Treasury to identify solutions to the issues identified
in the audits. We have hosted a number of meetings with the military
department Senior Procurement Executives to collaboratively strategize
on long-term goals and objectives related to interagency acquisition.
We recently signed a memorandum of agreement with the GSA that
includes an action plan that addresses 24 specific actions the
Department and GSA will undertake to ensure acquisition excellence when
GSA acts on behalf of DOD. The Administrator of General Services has
also issued guidance that brings her agency's fiscal policies into
harmony with DOD's. We expect to have similar agreements with all
executive agencies that support the Department. Additionally, the
Department has been very active in working with the OFPP on their study
of the proliferation of multiple award contracts and the Government's
response to GAO's High Risk Report of January 2005, which added the
``Management of Interagency Contracting'' as an issue area.
In October 2006, the Department issued a policy memorandum that
requires a DOD contracting officer review any action greater than
$500,000 that is going to an assisting agency for contract placement.
This review should assist in alleviating many of the concerns raised in
recent audit reports.
When utilizing interagency acquisitions our goals and objectives
are the same as if we were doing the acquisition ourselves: acquiring
the right product or service, at the right price, at the right time,
consistent with statute, regulation and policy. When done properly
interagency acquisitions can be an efficient and effective means to
meet critical DOD requirements. It maximizes the buying power of the
Department and is a good business decision. When done improperly
interagency acquisitions can be inefficient, ineffective, and result in
poor business decisions.
With regard to contract surveillance for contracts for services, we
have made numerous adjustments to our policies and guidance. We issued
a policy memorandum, ``Interagency Acquisition: A Shared
Responsibility,'' dated September 20, 2005, which addresses proper
contract administration functions. We also updated and clarified the
Defense Federal Acquisition Regulation Supplement (DFARS) and DFARS
Procedures, Guidance, and Instructions with a requirement for
designating a properly trained Contracting Officer's Representative
(COR) before contract performance begins and issued a policy memorandum
in December 2006, reinforcing this requirement. The Defense Acquisition
University deployed an updated, web-based COR training module ``COR
with a Mission Focus'' in December 2005.
In conclusion, I believe that the there is not another organization
that rivals the procurement and contracting expertise residing within
the DOD. The range and depth of the approximately $300 billion of items
and services that we buy on an annual basis are unparalleled in any
other procurement organization in the world. Our training programs are
the envy of industry. The contracting functions that we perform are not
trivial. Whether contracting for base operating support, contingency
contracting or the procurement of an aircraft carrier, our contracting
professionals require unique and significant skill and expertise. We
recognize that there is much improvement needed in order to ensure that
we provide the most effective and efficient means of contracting for
the goods and services necessary to support our warfighters. We must
always remember, however, that while we strive to provide our
warfighters the very best, we must also ensure that we do so while
being good stewards of taxpayer funds. Our warfighters deserve nothing
less and our taxpayers, rightfully, should insist on nothing less.
Mr. Chairman, I thank you and the members of the committee for your
interest in our efforts, and would be happy to address any questions
that you may have for me. Thank you.
Senator Akaka. Thank you very much for your testimony.
I am going to defer to Senator Ensign and ask that we
maintain a 5-minute time limitation for each. I will do the
last questioning.
Senator Ensign. Thank you, Mr. Chairman.
Mr. Assad, Congress required in the NDAA for Fiscal Year
2006 the DOD to study the feasibility of establishing the
position of chief management officer within the DOD. The GAO
has long advocated and the Comptroller General, Mr. Walker, has
often testified on the need of such senior leadership positions
to help oversee and manage defense business transformation
efforts.
The report was due to Congress by December 1, 2006. I
understand that you have been told to expect this question. I
will ask the question and make one quick comment. What is the
status of the report on having a chief management officer
oversee business transformation at the DOD, and to what extent
do you know what is DOD's position?
One caveat to that. I just want you to know that we have
understood that we are not going to receive the report and we
are going to receive the recommendations based on the report,
but not the report itself. I just want you to know that if we
do not receive the report that I will be recommending to
Senator Akaka that the bill that he and I have introduced to
form this position, that we will recommend that it goes into
this year's defense authorization bill.
So what is your response to the question?
Mr. Assad. Senator, I was not aware that the report was not
going to be delivered and that just recommendations were going
to be delivered in March. My understanding is that the report
is complete and it is in coordination and it is being reviewed,
and that our senior leadership will be reviewing that report
shortly with the Secretary. Beyond that, I do not know much
more about the status of the report other than that it is in
coordination and it is expected to be completed in March.
I will take for the record and back to my senior
leadership, I understand very clearly what you are saying, sir.
Senator Ensign. Thank you.
[The information referred to follows:]
The report by a Federally Funded Research and Development Center
required by section 907 of the National Defense Authorization Act for
Fiscal Year 2006 was provided to the chairman and ranking member of the
Senate Armed Services Committee and the House Committee on Armed
Services by Deputy Secretary England by letter on January 31, 2007. As
stated in these letters. Deputy Secretary England intends to reserve
comment on the report by the Institute for Defense Analysis and S.179,
which would establish a Deputy Secretary for Management until he is
able to fully discuss these management issues with Secretary Gates.
These discussions are expected to be completed in March 2007.
Senator Ensign. Go ahead.
Senator Akaka. I just want to tell Senator Ensign--and he
knows this--that I share his views on the issue he just
mentioned. If we do not get the report in a timely manner, we
will certainly have to give strong consideration to including a
chief management officer provision in the committee mark.
Senator Ensign. Thank you, Mr. Chairman.
Mr. Assad. Thank you, Mr. Chairman. I know that we have
both been trying not to force this on the military. Secretary
England had asked us to wait and do this report and we did the
in lieu of that. So we are anxiously awaiting that so that we
can make the decision whether or not to include that this year.
So we look forward to that report.
In both his report and his testimony, the DOD IG labeled
problematic the practice of DOD using advanced payments on
orders made through the DOI. As I understand it, the DOD fully
pays for goods and services before the DOI has even awarded the
contract. For both of you: Do you agree that using advance
payments is a bad practice? Why or why not? Mr. Assad, what
specific steps, if any, has the DOD taken to mitigate the
problem?
Mr. Denett. It should not be done, and I will yield to
them, because I know DOD has worked aggressively with GSA and
DOI and others so that they can get fiscal responsibility on
record. I will let him address what they have done.
Mr. Assad. Yes, sir. In the past it is true that we have in
fact advanced paid DOI for purchases through GOVWORKS and other
organizations, and the Comptroller, DOD Comptroller, right now
is assessing that particular policy and is considering changing
that policy. That should come out very shortly.
I do not concur, I do not agree with making advance
payments. I do not think it is necessary and I think that the
Comptroller is taking that under serious consideration.
Senator Ensign. Thank you.
Mr. Chairman, we have a couple votes coming up, so to make
sure that both of you get to ask your questions I will yield
and submit the rest of my questions in writing.
Senator Akaka. Thank you very much, Senator Ensign.
Senator McCaskill.
Senator McCaskill. Just a couple of things. I noticed in
the testimony of one of the panel members they were talking
about interagency contracting and part of it they were saying
is we cannot figure out to what extent some of the interagency
work is competitive. They said there were many factors that
made it difficult for them to figure out whether or not these
interagency contracts were in fact competitive. She
specifically mentioned DOD policy.
I would appreciate it, Mr. Assad, and you do not need to do
this today, but if in writing you would explain the DOD policy
that makes it more difficult for us to keep a very strong
handle on whether or not the interagency contracting is in fact
competitive.
Mr. Assad. Yes, ma'am, I will be happy to do that. I am not
aware of any policy that we have that would cause that to
happen. But I will absolutely research it and get back to you.
[The information referred to follows:]
In my original response to your question, I indicated that I am
unaware of any policy of the Department of Defense that makes it
difficult to know whether interagency contracting is, in fact,
competitive. Subsequently, I have reviewed the Federal Acquisition
Regulation (FAR) at Subpart 8.4 regarding the ordering procedures for
Federal Supply Schedules, also known as multiple award schedules. The
FAR outlines certain procedures, depending upon the applicable monetary
threshold, for placing orders or establishing blanket purchase
agreements for supplies and services. If these procedures are followed,
the FAR stipulates the order is considered to be issued using full and
open competition. However, the FAR procedures recognize limited
circumstances when consideration of schedule vendors may be restricted
and orders placed on a sole source basis. The Department is working
with the Office of Federal Procurement Policy and GSA to review
practices for reporting orders against Federal Supply Schedules in the
Federal Procurement Data System to ensure consistent practices are used
for reporting such orders and that differentiation is made between
orders that have been competed and those that have not been competed.
Senator McCaskill. I will take the extra step of visiting
with the panel members and making sure that I can specify the
policy they are referencing that is making it more difficult
for us to figure out of it is competitive.
Mr. Assad. Okay.
Senator McCaskill. The other thing I would like from you in
writing is how many times that you are aware of--and I will ask
others in the DOD this when the time is appropriate--how many
times you are aware of the there has ever been a criminal or
administrative action taken under the Anti-Deficiency Act (ADA)
within the DOD?
[The information referred to follows:]
The Department has made measurable progress on Ant-deficiency Act
(ADA) violations. The attachment shows ADA violations status and
progress on actions since 2003.
Mr. Assad. Well, let me just give you a little bit of a
framework for the ADAs. We have had about 150 investigations in
fiscal years 2005, 2006, and 2007. Of that 150, ADA
investigations that we have done, we have determined that about
30 of them, approximately 20 percent, have in fact been ADA
violations. Of those 30, I think about 10 or 11 resulted in
adverse personnel actions.
What the exact action was, I do not have that. But I can
tell you it is about a third of those things that we find are
in fact ADA violations, about a third of them result in adverse
action. Whether it is criminal or not, I could not answer that.
Senator McCaskill. That is something I would like to know,
and I would like to know if anyone has lost their job because
of an Anti-Deficiency violation, the ADA.
Mr. Assad. Yes, ma'am.
Senator McCaskill. It was also interesting to me, in the
letter I got from the IG after a specific inquiry I made in the
last hearing he said that many of them can be corrected with an
accounting entry. They can go back and make an accounting
entry. I am curious if there is any discipline action taken
towards that employee or if everybody can go back and just make
the correcting accounting entry and it is no harm, no foul?
Mr. Assad. Well, I think that if there has been a
deliberate intent to do something that is not proper, then I do
not think there is--I think no harm, no foul is not the case.
But oftentimes what we do is we do discover that there has been
an inadvertent error, whatever it might be, that would have
caused it, and so you can go back and correct the funding in
the fiscal year while it is happening.
Senator McCaskill. My concern is it seemed to be a
wholesale activity in terms of spending expired funds, and if
this was a matter of being able to go back and correct the
fiscal year that it was attributable to, if it has been done
literally hundreds of times that the IG report indicated, it is
hard for me to believe that this is isolated error.
Mr. Assad. We would be happy to brief the committee or to
brief your staff with some further details on the ADA.
Senator McCaskill. That would be great.
Thank you both very much.
Thank you, Mr. Chairman.
Senator Akaka. Thank you.
Mr. Assad, last October DOD issued a new policy setting
forth the following objectives, and I have five here: one,
acquisition of services should be based on clear performance-
based requirements; two, expected cost, schedule, and
performance outcomes should be identifiable and measurable;
three, acquisitions of services should be properly planned and
administered; four, services should be acquired by sound
business arrangements that are in compliance with applicable
statutes, regulations, and policies; and five, services should
be acquired using a strategic enterprise-wide approach which is
applied to both the planning and the execution of the
acquisition.
Unfortunately, DOD remains far short of these objectives.
My question to you, Mr. Assad, is would you agree that some of
the objectives of your new policy, such as the development of
clear performance-based requirements and measurable performance
outcomes, are likely to be resource- intensive?
Mr. Assad. I do agree, Senator, that it will require
additional resources or capability to make sure that the
happens. I am not sure we need more people to do it, but we
certainly need to refocus the capability that we have to ensure
that that gets done. Part of our strategic approach to the
acquisition of services--I provided the committee a slide on
that. Part of that approach is to look at that capability and
to see how we in fact need to realign some capability to get
that done.
There is no doubt about it, there is a great payoff. If we
do this right, defining requirements properly, writing good
statements of work, ensuring that we have proper metrics,
ensuring that we have quality control assurance surveillance
plans, there is no doubt that we can save some money here.
Senator Akaka. Mr. Assad, I understand that you have
proposed the development of a multifunctional support cadre to
assist in the acquisition of services by the DOD. These
functional experts would help DOD apply best practices, state
requirements early, develop acquisition objectives, draft
quality assurance and contractor surveillance plans, identify
appropriate performance measures, and develop incentive fee
structures tied to expected outcomes.
Do you currently have trained acquisition experts in the
DOD who are available to perform these functions, or would new
resources be required?
Mr. Assad. Senator, we do not have overall enterprise- wide
the capability to do this. We have pockets of this capability
that exists now and they do it very well. I will tell you that
my perception is that one of the things that we are doing is we
have asked all four Services--Army, Navy, Marine Corps, Air
Force--to take a look at how they are organized and how they
would respond to that multifunctional support capability.
We expect to get our first inputs from the Services
probably by the end of March. We then intend in the second
quarter to sit down with the service acquisition executives to
examine the resources that are necessary to get this job done,
because there is no doubt about it, if we focus on this
multifunctional support cadre concept we can save money.
Senator Akaka. To both you, Mr. Denett, and Mr. Assad. At
our earlier hearing our GAO witness testified that the Federal
Government has failed to make needed investments in its
acquisition workforce. One of the results, according to GAO, is
that we have become more and more reliant upon contractors,
even when it comes to performing acquisition functions.
According to GAO, ``Contractors now provide services for
which DOD has historically had in-house capacity. For example,
we have recently reported on the declining status of cost
estimators in the space acquisition community and have heard
concerns about losing capability in other key functions, such
as pricing and systems and software engineering.''
To both of you: Do you agree or disagree with GAO's
assessment? Does it concern you that we may have lost the
capability to perform some basic acquisition functions in
house, including cost estimating and system and software
engineering? Also, what steps do you think we need to take to
address this problem?
Mr. Denett. We have had a decrease in the availability of
cost estimators. I think that is a mistake. The procurement
shops that I have run over the last 3 decades, I always had a
cost estimator. They are worth their weight in gold. They
always find things and assist negotiators in identifying things
that you could negotiate and get better deals.
I think we need to make sure that we increase our
capabilities in that area, that we have our contracting people
also get trained in cost-price analysis. They do get some
training. They need more. We are offering courses through the
Defense Acquisition University and Federal Acquisition
Institute. We have to make sure we have adequate funds and
people actually get that training so they can apply it.
I believe this is an extremely important area, and I think
Mr. Assad can tell you about some good initiatives that he is
taking in this area.
Mr. Assad. Senator, I also agree with Mr. Denett with
regard to cost and pricing skills. That capability in general
needs in my opinion significant improvement across the board.
What are we doing about it? Well, the first thing we need to do
is understand where we are at. So that is what this competency
modeling is all about. We have been working for the past 5
months to develop a competency model. It is complete. We have
the preliminary model right now. We are going through a final
review of that model within our own organization. We have had
400 of our best folks look at it, give us their views of what
they think.
Starting in the second quarter of this year, we intend to
apply that model across the entire workforce. It is going to
take us about a year to get that done. It is 26,000 people. At
the end of that, we will have a much better feel for what our
capability shortfalls are.
The situation that we have right now is that if Mr. Krieg
or the Under Secretary was to come to me or Mr. Finley and say,
here is an additional X number of people, we could not tell
them where we want them, what skill sets they should have,
where exactly, which location do we want to place them in. When
we get this work done, we will be in a much better position to
do that.
Senator Akaka. There is a vote on now, so we are going to
have to answer that call. But I want to thank you so much for
your responses. I have additional questions that we will put
into the record for your response. I would like to thank you
very much for your responses here today. Of course, we look
forward to dealing with this problem and to make important
progress to help save our country money that is being really
wasted. We have objectives, but we have not met them, and we
will continue to look at this as a committee and hope that we
can make better progress than we have made already.
So I thank you very much. This concludes the hearing.
[Questions for the record with answers supplied follow:]
Questions Submitted by Senator John Ensign
PERFORMANCE-BASED SERVICE ACQUISITION
1. Senator Ensign. Ms. Madsen, for quite some time, there has been
much talk about using a performance-based service acquisition approach,
an approach that focuses on describing results and measuring contractor
performance, rather than dictating the manner in which the contractor
performs the work. In its draft report, the panel suggests that our
acquisition workforce currently has problems understanding and,
consequently, implementing such an approach. With respect to the
acquisition of services, what are the advantages in using a
performance-based acquisition (PBA) approach?
Ms. Madsen. As discussed in the panel's report and in testimony
before the panel from numerous private sector witnesses, there are many
direct advantages of using PBA. Achieving any of those benefits,
however, is predicated on the acquiring organization determining its
requirements for the acquisition of services. If an organization is
capable of determining and stating its needs and doing so in the form
of performance objectives, PBA can be an extremely valuable tool that
allows entities to transform their business practices and to reduce
their costs. At the heart of PBA, however, is the necessity for the
acquiring organization to make critical decisions about what it wants
to achieve and state those decisions as performance objectives. This
approach allows suppliers to apply their knowledge and experience and
innovate to provide the best solution. Also, both providing incentives
that encourage innovation by the suppliers and monitoring performance
to make sure the incentives are working are critical to PBA.
The panel heard considerable testimony from major commercial buyers
about their use of PBA. All of them emphasized the need for a rigorous
and disciplined requirements definition process that occurs at a high
level in the organization where management is focused on driving the
business forward. It eschews allowing parochial interests to determine
outcomes. The presenters told the panel that these are hard decisions
and some companies actually may exclude parts of the organization that
may be too change resistant. The approach is to stale outcomes and let
the experts, who are the suppliers, create innovative solutions. The
advantages that were presented to the panel included:
(i) a focus on the organization's key mission needs and the
results that are required to meet those needs;
(ii) harnessing supplier expertise and creativity to provide
solutions (rather than performing to a specification), and to
continue to improve the solution;
(iii) improved competition;
(iv) with appropriate incentives, enhanced performance;
(v) less performance risk; and
(vi) lower costs.
2. Senator Ensign. Ms. Madsen, what are the risks inherent in using
this approach?
Ms. Madsen. The panel heard testimony from buyers and sellers
alike, including government buyers and government contractors about how
failure to define requirements, failure to create proper incentives,
and failure to monitor performance all can lead to unsuccessful
contracts, not to mention disputes and investigations. There is also a
risk of misapplying PBA to efforts that should be strictly prescribed,
such as in the case where failure to perform to specific guidelines
risks public health and safety. The Government Accountability Office
(GAO) has recognized that in these circumstances, PBA is not
appropriate. Therefore, the panel recommends developing a PBA
assessment tool.
3. Senator Ensign. Ms. Madsen, how are these risks exacerbated by
an acquisition workforce that has not been properly trained to
understand and implement PBA initiatives?
Ms. Madsen. Certainly training and qualifications are important.
The difficult issues arise in complex, high value and technology-heavy
acquisitions. As we heard from the private sector, the individuals
involved in structuring large transactions are very highly-credentialed
and experienced. Corporations treat these large services deals as
significant to their bottom line. For most companies, we heard that the
key group involved in such transactions is small, experienced, familiar
with the marketplace and likely supplemented by experienced outside
advisors. Part of the message is that not every government acquisition
professional should be handling large and complex services
transactions. Nor is every acquisition suitable for use of performance-
based techniques.
In addition, the panel learned that there are aspects of PBA that
can be applied in many contexts to services procurements, even when the
entire acquisition is not suitable for performance-based techniques.
Significantly, the panel's recommendations emphasize the need for
improved training, including specialized training for individuals
tasked as Contracting Officer Performance Representatives. The panel
also recommended that, under the Office of Management and Budget's
(OMB) guidance, agencies be given better tools to determine when PBA is
appropriate, as well as guidance on structuring incentives.
The key to successful PBA, however, remains requirements definition
and high level management involvement and commitment to the use of a
performance-based approach. There are management issues here that
transcend training of acquisition personnel.
4. Senator Ensign. Ms. Madsen, I think we all agree that there is a
difference between common, routine, or relatively simple service
acquisitions and long-term or complex service acquisitions. A ``one-
size-fits-all'' approach is therefore not appropriate. The panel's
report recognizes as much. What criteria should be used in deciding
whether a service acquisition should be performance-based?
Ms. Madsen. The panel's findings and recommendations recognize that
the government-wide quota of requiring 40 percent of acquisitions be
performance-based is not consistent with analysis of individual agency
missions and procurement portfolios. The panel agrees that goals are
important, but believes the each agency's mission should be taken into
account. The panel believes that OMB guidance would be helpful and it
should allow each agency to assess its own ability to make use of PBA.
In this regard, the panel recommended that the Office of Federal
Procurement Policy (OFPP) should provide much more explicit guidance
about the use of PBA and actually recommended creation of a self-
assessment tool to assist agencies in analyzing when to use PBA. This
tool would guide a user through an analytical process that would,
hopefully, produce better decisions about the use of PBA in particular
circumstances. Some of the analytical points are: (i) identifying if
there is a baseline issue that is performance-related, such as cost or
quality; (ii) examining the level of risk to the agency and its mission
of not having the services provided at the highest levels (i.e., can
the agency tolerate less than optimal performance?); (iii) whether the
agency has an adequate work statement to address the baseline problem,
or whether that work statement requires refinement; (iv) whether the
agency is in a position to shift risk for management of the performance
to the vendor, or for policy reasons the agency must have direct
management responsibility; (vi) whether agency/program management is
ready to accept having the service quality measured on a performance
basis; and (vii) whether the staff (acquisition and program staff) are
trained and prepared to use PBA. This list of issues illustrates what
the panel heard from the private sector--that PBA involves a careful
internal analysis of the organization's objectives and senior
management commitment.
5. Senator Ensign. Ms. Madsen, can you give us specific examples of
successful uses of PBAs at the Department of Defense (DOD)? Other
departments or agencies? Why were they successful?
Ms. Madsen. While the panel did not focus solely on DOD, it did
conduct a random survey of acquisitions that were coded as PBA in the
Federal Procurement Data System-Next Generation (FPDS-NG) for the top
10 contracting agencies, including all the services within DOD. What we
found was that out of the actions reviewed, 36 percent contained all of
the elements of a PBA, while 22 percent required significant
improvement and 42 percent were clearly not PBA. Of those that were
PBA, the use of service level agreements seemed to be effective with
information technology requirements. The panel also heard testimony
from agencies that one of the major impediments to achieving successful
PBAs is insufficient investment of time and resources in developing the
requirements and appropriate outcomes. Frequently, this lack of
investment results in little or no market research and hastily or ill-
defined needs. Some agencies, however, have invested in centers of
expertise that analyze and write performance requirements. The Coast
Guard, for instance, has set up a permanent group, that focuses solely
on writing performance-based requirements for the agency. They are
experienced at asking users the right questions to get to a performance
work statement. They maintain and build on their experience and market
expertise. They are multi-functional with experience in quality
assurance, Six Sigma, etc. This is not unlike what commercial buyers
build within their own organizations to ensure that they maintain
expertise in the marketplace and that their description of their
requirements can form the basis for a meaningful competition and
successful performance. The panel suggests adopting this practice with
its recommendation for agencies to establish centers of expertise in
requirements analysis and a government-wide center for market research.
broader acquisition reform
6. Senator Ensign. Ms. Madsen, over the years, this committee has
enacted a number of measures aimed at reforming the DOD's acquisition
processes and practices. How do, or should, reforms in the acquisition
of services fit within this committee's broader acquisition reform
efforts?
Ms. Madsen. As discussed in my testimony, DOD actually spends more
on services than on major weapons systems. That fact has significant
implications for acquisition. As reflected in the panel's findings and
recommendations, there are aspects in which acquisition of services is
different--or requires different skills and emphasis. Some of these
aspects include the fact that technology related services are sold in
the private sector involving a wide variety of skills. Private sector
buyers focus on bringing the right mix of skills together for a project
and on the price for that project. The government tends to buy services
on an hourly basis without adequate emphasis on the objective. In
addition, because the private sector sees services acquisition as a
major transaction that can improve an organization's performance and
reduce its costs, services acquisition in the private sector is treated
accordingly--such transactions are carefully planned, subject to
competition, and managed tightly. These efforts take a different skill
set and emphasis than arc used in weapons system procurement. The
private sector has realized that the requirements for services
acquisition can be defined to permit use of fixed-price contracts,
performance-based contracts, and healthy competition.
7. Senator Ensign. Ms. Madsen, are there common lessons learned or
processes to be applied between major weapon systems acquisition--which
has been on the government's high risk list for quite some time--and
service acquisition reform?
Ms. Madsen. Key issues in common with services acquisition are:
1. the necessity for requirements development and management
buy-in on requirements prior to undertaking an acquisition;
2. competition; and
3. effective management of contract incentives.
PATH FORWARD
8. Senator Ensign. Ms. Madsen, in the broader context of
acquisition reform, do you have any suggestions for this committee on
areas to focus on?
Ms. Madsen. Congress should seek a ``good government'' balance
between ensuring efficiency and responsible stewardship of taxpayer
money. Maintaining balance is critical. The Federal Government should
monitor commercial buying practices on an ongoing basis, not just each
time a panel is authorized. Commercial buyers told the panel that their
processes and techniques are constantly adapting to ensure continuous
improvement. Continuous monitoring of these practices to determine what
can be applied to the government should be the goal. In this way, we
could ensure that acquisition reform is not seen as some set of
immutable ``reforms'' developed in the mid-1990s, but rather a fluid
and ongoing process that welcomes dialogue and is always ready to adapt
and improve on the ideas of the past.
9. Senator Ensign. Ms. Madsen, do you have suggestions of possible
legislative remedies that this committee should consider?
Ms. Madsen. Of course, it would be no surprise that I would
recommend the panel's legislative recommendations. But in a more
general context, as you see from the panel's recommendations, the panel
addresses areas for improvement from the earliest stages of
acquisition. For instance, the panel found that the first step toward
improving competition is improving the requirements definition process
and making government officials responsible for those requirements. By
doing so, the government can create an environment conducive to
meaningful competition. Then the panel makes recommendations to improve
the evaluation process, ensure reasonable award decisions, and provide
debriefings and redress to contractors who invest in high dollar
procurements. The panel's interagency contracting recommendations focus
on how interagency contracts are created, approved, and managed as the
means to address misuse of them at the ordering level. Therefore, it is
important that proposed legislation not only seek to identify problems
after-the-fact, but to also create an environment with appropriate
internal controls and incentives in which the likelihood of such
problems occurring is reduced. When oversight mechanisms are proposed,
thoughtfully applying these, perhaps based on dollar thresholds or some
other characteristic is preferable to a one-size-fits-all approach. The
panel was careful when it imposed oversight or ``self-policing''
measures favoring applying them, for instance, at higher dollar
thresholds where the majority of dollars are spent rather than lower
thresholds where we found the majority of transactions. Again,
maintaining a ``good government'' balance between efficiency and
responsible stewardship is critical.
DOD'S TRACK RECORD OF WORKFORCE IMPROVEMENTS
10. Senator Ensign. Ms. Madsen, I was struck with the urgent tone
of the panel's findings concerning acquisition workforce improvements,
and the need for ``immediate'' action. While there has been some short-
term progress, in terms of long-term human capital planning, it seems
that the DOD is just scratching the surface in gaining an understanding
of the needed size, qualifications, and mix of the acquisition
workforce of the future. Do you agree with that assessment?
Ms. Madsen. The panel's emphasis on prompt attention begins with
immediate acquisition workforce human capital planning. As can be
readily seen from the panel Report and findings, the data regarding the
workforce and the skills necessary to meet current demands in
acquisition are not available. The panel's recommendations start with
establishing a consistent definition of the workforce and method for
measurement, as well as a government-wide database, But, a key set of
findings and recommendations go to determining the competencies of the
workforce and the gaps, especially given the growth in acquisition of
services. The panel found that resources are inadequate; however, it is
not clear that the needs are in traditional procurement specialties.
Thus, the panel's recommendation was that human capital planning must
take place before additional personnel are hired.
DOD, of course has its own workforce count. Our understanding is
that DOD has underway an assessment of competencies and gaps in the
workforce. DOD advised the panel that it intended to complete this
assessment within 12 months and then to make decisions about areas to
add personnel, including whether people with additional substantive
skills are needed.
11. Senator Ensign. Ms. Madsen, how has the DOD distinguished
itself by moving ahead with many of the workforce recommendations that
the panel has formulated for the government as a whole?
Ms. Madsen. Certainly, DOD has demonstrated a seriousness of
purpose in analyzing its workforce needs. It has set out a disciplined
approach, very similar to the one also outlined by the panel, designed
to answer the questions of whether there are enough people with the
right skills to meet mission needs. Such discipline (i.e., human
capital planning that includes needs and workforce assessments) is
necessary for a responsible approach to improving the workforce and
planning for the future. OFPP just announced that an Internet-based
tool to assess skills will be available for voluntary use in April 2007
through the Federal Acquisition Institute. Clearly, some civilian
agencies are farther along than others in their own efforts and
sustained emphasis by Congress on workforce improvement will be
necessary to ensure results.
12. Senator Ensign. Ms. Madsen, when do you think we can expect to
see results?
Ms. Madsen. The timing of results depends entirely on when OFPP and
Congress implement the recommendations. For instance, some Panel
recommendations, once implemented will demonstrate immediate results
(for example, producing greater transparency by giving public notice of
all sole-source orders over $100,000). Other recommendations, such as
improving acquisition workforce capability are longer term requiring a
disciplined approach and a number of incremental steps in order to
effectively conduct human capital planning and needs and capability
assessments. But while the results are longer term, the sense of
urgency with respect to workforce issues compelled the panel to
recommend a 12-month deadline for the initial incremental steps (i.e.,
defining and measuring the acquisition workforce). Congress can assist
by conveying to the agencies that they must be actively engaged in
human capital planning for the acquisition workforce.
RELIANCE ON CONTRACTORS FOR ACQUISITION SUPPORT
13. Senator Ensign. Ms. Madsen, the panel's draft report
acknowledges that agencies have been compelled to rely on contractors
for acquisition tasks due to several factors: a decrease in government
personnel, increasing complexity of value-based performance contracts,
and an increase in the volume of such contracts. I share your concern
that the so-called ``blended workforce,'' in which contractor and
government personnel work side-by-side, can impact the integrity of
acquisition decisionmaking processes. A contractor working on
performance evaluation criteria today, could become part of an
organizational entity of a potential bidder the next. Proprietary
information--both of a contractor and of the government--can be easily
compromised. Wouldn't the cleanest solution to the problem of
organizational conflict of interest be to identify certain functions
within government acquisition processes that are `reserved' for
government personnel only?
Ms. Madsen. As discussed in the panel's report, an area in which
data was not available was the number of contractors supporting
acquisition functions and the types of tasks that they are performing.
The panel's sense was that increasingly contractors are involved in
supporting the acquisition process in various capacities--in many
instances providing technical expertise that is not available within
the government. A portion of the panel's recommendation regarding data,
also is directed at obtaining a better sense of where contractors are
being used and in what capacities. The panel also recommended that OFPP
update the principles for agencies to apply in determining what core
agency functions must be performed by Federal employees and then ensure
that those functions arc, in fact, staffed by Federal employees. That
said, however, the panel recognized that the government will always
need the ability to obtain technical expertise in certain areas--the
government simply does not have all of the experts it may need at a
given point to meet mission needs. The panel thus recommended that the
Federal Acquisition Regulation (FAR) Council consider regulatory
amendments to take into account current circumstances and the GAO
rulings in several cases over the past 10 years regarding impaired
objectivity and unfair competitive advantage. GAO has set forth
principles to be used by agencies in analyzing organizational conflicts
of interest (OCIs); however, these principles are not reflected in the
regulations. The panel also recommended consideration of additional FAR
clauses that would allow an agency to obtain information sufficient to
analyze possible OCIs. Some of the most sensitive areas, such as
requirements development are areas where it is likely the government
often may need outside technical expertise. Given that fact, better
rules, training, and guidance should be available for agencies to help
avoid or mitigate OCIs.
USE OF ADVANCED PAYMENTS
14. Senator Ensign. Mr. Assad, you indicated that the DOD was
revising its policy on the use of advanced payments to acquire goods
and services through interagency contracting, and that the new policy
was presently in coordination. When will the DOD complete its revised
policy on the use of advanced payments?
Mr. Assad. The Under Secretary of Defense (Comptroller) issued a
policy memorandum titled ``Advance Payments to Non-DOD Federal Agencies
for Interagency Acquisitions,'' on March 1, 2007.
15. Senator Ensign. Mr. Assad, as soon as the new policy on
advanced payments is finalized, will you provide a copy to the
Readiness and Management Support Subcommittee?
Mr. Assad. Yes. The Under Secretary of Defense (Comptroller) issued
a policy memorandum titled ``Advance Payments to Non-DOD Federal
Agencies for Interagency Acquisitions,'' on March 1, 2007. (The
requested policy memorandum is attached.)
strategic approach to purchasing services
16. Senator Ensign. Mr. Denett, at our last hearing, the GAO
testified that ``[t]he debate on which parts of DOD's mission can best
be met through buying contractor services has not yet taken place . . .
we are in the midst of a strategic expansion in service contracting
without strategic direction or decisions.'' Based on your government-
wide perspective, what more can the DOD do to address, on a strategic
level, its policies and practices in acquiring services?
Mr. Denett. The steps Mr. Assad described in his testimony,
including the development of a comprehensive DOD-wide architecture for
the acquisition of services, should help the Department award better
structured contracts and manage risks more effectively. In terms of
additional steps, I have encouraged all agencies, including DOD, to
complete a skills assessment of their contracting professionals.
Through this process, agencies will identify skills gaps and related
training to ensure their workforce can obtain the skills it needs.
There are many options available if an agency's workforce needs
training in services contracting. Through the partnership between the
Defense Acquisition University (DAU) and the Federal Acquisition
Institute, the acquisition workforce has access to classroom courses,
continuous learning modules, and other training opportunities to
develop service contracting skills. Additionally, team-based training
for performance-based services acquisition is offered to all agencies,
and the Acquisition Center of Excellence for Service Contracting
provides an online resource for service contracting information policy,
guidance, samples, and best practices.
ADEQUACY OF DOD ACQUISITION WORKFORCE
17. Senator Ensign. Mr. Assad, do you agree that the Acquisition
Advisory Panel's assertion that there is an ``acute shortage'' of
experienced acquisition professionals applies to the DOD acquisition
workforce today?
Mr. Assad. The DOD acquisition workforce has been impacted by
downsizing and, since September 11, the need for updated skills and new
mission challenges. With the growth in contracting for services, we are
re-assessing all of our acquisition oversight processes to improve
acquisition outcomes. For example, the Under Secretary of Defense for
Acquisition, Technology, and Logistics has established a management
structure, to include defined roles and responsibilities, for the
review and approval of services acquisitions. The Under Secretary took
this action to ensure that the services acquisition is improved in
compliance with statutes, policy and other requirements. In addition to
contract oversight, we continue to expand our training infrastructure
and available training resources to provide the acquisition workforce
with better knowledge sharing tools and web based performance support
resources. Although we are very successful today with hiring and high
retention, we will face significant challenges as the highly
experienced Baby Boomer generation departs the workforce. Approximately
78 percent of our current acquisition workforce is in the Baby Boomer
generation. We are working hard on many fronts to ensure we have the
right acquisition capability now and into the future. In June 2006, we
published both the DOD Civilian Human Capital Strategic Plan (HCSP) and
the Acquisition, Technology, and Logistics (AT&L) HCSP. Meanwhile, the
AT&L Workforce Senior Steering Board has been working aggressively to
position the DOD to be successful in the future. The Board has met
three times since May 2006, and it is now planning to meet quarterly to
develop and implement strategies for identifying capability gaps and
for improving the effectiveness of the acquisition workforce. The Under
Secretary for AT&L deployed a joint competency management initiative in
October 2006 in alignment with the Quadrennial Defense Review, the DOD
Human Capital Strategy, the AT&L Human Capital Strategic Plan, and the
AT&L Implementation Plan. This initiative is expected to update and
assess acquisition competencies for twelve functional communities
within the DOD acquisition workforce. Each update will identify
behaviors and underlying knowledge, skills, and abilities for
successful performance. We have made significant progress in the
development of competency models for program management, life cycle
logistics and contracting. Between now and June 2008, the Department
will begin pilot workforce assessments for program management and life
cycle logistics. In the fourth quarter of fiscal year 2008 it will
commence a DOD-wide assessment of the contracting workforce. These
competency assessments will help our senior leaders to reallocate
resources, target recruitment, improve retention strategies, and expand
education and training resources. The combination of our competency
assessment initiative and other leadership actions to address workforce
quality and capability will allow us to more accurately assess and
address staffing sufficiency. We have the right sense of urgency, and
we are confident that we will shape the acquisition workforce in an
intelligent manner.
18. Senator Ensign. Mr. Assad, in your opinion, will that
characterization apply to the DOD workforce in 2010? 2012?
Mr. Assad. As provided in my written testimony, frequently, I am
asked two questions regarding our workforce: (1) whether or not we have
enough people in the Department to perform our mission effectively,
efficiently, and in a manner that assures the lawful operation of the
Federal acquisition system and (2) whether or not our contracting
workforce is sufficiently qualified to do the same. Over the past 10
years our workload has increased significantly. The number of actions
in excess of $100,000 has increased by over 60 percent, the total value
of our procurement actions has increased by well over 100 percent and I
believe that our workload will continue to increase. During that
timeframe, our acquisition workforce has decreased by approximately 5
to 10 percent. We have useful information regarding the numbers of our
professional contracting employees and we have a very good sense of how
they have been trained. We also believe that because of the downsizing
of the workforce that took place in the late 1990s the overall
capability of our workforce requires improvement. However, while we can
surmise, we can not determine with specificity, where those shortfalls
in capability exist. In response to other questions for the record, I
mentioned that we have done a significant amount of work associated
with the assessment of our workforce. For the past 5 months, my office,
in concert with the DAU, the military departments, and the defense
agencies, has been developing a model that will address the skills and
competencies necessary for our contracting workforce. We will complete
development of the contracting competency model in the second quarter
of 2007. Beginning in the third quarter of calendar year 2007, we will
begin deployment of that competency modeling across the entire DOD
contracting workforce. This is a major undertaking and it will be the
first time the Department has attempted to assess its contracting
capability across the entire enterprise. The modeling will enable us to
assess workload demands for and the degree to which members of the
workforce possess these competencies. The competency assessment will
also allow the Department to assess the workforce in terms of size,
capability and skill mix; and to develop a comprehensive recruiting,
training, and deployment plan to meet the identified capability gaps.
With regard to 2010, 2012 we will have to assure that we are able to
track the improvements and changes made in response to our competency
modeling on a continuing basis. In addition, we will also have to
periodically reassess the workforce competency in order to ensure that
the capability gaps as identified are addressed.
19. Senator Ensign. Mr. Assad, what are the key bottom-line
elements that you would look for to solve the Department's workforce
shortages?
Mr. Assad. In order to ensure we have the right people, doing the
right jobs, at the right place and time, and at the best value to
achieve mission success, we are moving forward aggressively on many
fronts to implement the AT&L Human Capital Strategic Plan and continue
to improve our contracting workforce capability. First and foremost we
will continue to work with the DAU, military departments, and defense
agencies to assess our workforce, identify capability gaps, and address
those gaps. The key bottom line elements we will use to target the
capability gaps are education, training, professional development,
improved contracting tools, and the addition of resources--where
needed, through recruitment and retention. The specificity provided by
our Contracting Competency Model will enable us to identify and focus
our efforts to fill the aforementioned gaps. I will continue to work
closely with DAU and the DOD senior procurement executives to increase
emphasis in areas such as major systems contacting, pricing, contract
incentive and award fees, services acquisition, small business and
contingency contracting. Our available training resources are extensive
and will continue to improve. We have modernized training for the
contracting workforce in all aspects: certification training,
continuous learning, performance support, and knowledge management. We
are expanding the use of knowledge management and web-based performance
support resources so the workforce can always be engaged in learning
and quickly apply best practices as they perform in the workplace. We
also have the ability to support new or updated policy implementation
and to address skill gaps by quickly creating and providing targeted
training to the workforce.
20. Senator Ensign. Mr. Assad, do you believe that there is an
imbalance of government and contractor personnel in the acquisition
workforce? If so, what is needed to correct that imbalance?
Mr. Assad. My answer is limited in scope to the Contracting Career
Field 1102, the civilian career series for government contracting
professionals. I am not able to answer the question as to whether there
is an imbalance at this time as we are presently assessing the make-up
of contracting workforce. While initial indications are that we do not
have an imbalance in terms of the number of contractors working in the
contracting field, I believe that we should focus on exactly what
functions those contractors are performing. It is my view that the
functions performed by 1102s in the areas of contract formation should
be accomplished solely by Government employees, whenever possible.
There are certainly times when contractor personnel may be used in pre-
award functions to provide expert professional support in specific
areas, but it is my view that the day-in, day-out performance of
contract formation should be accomplished by government employees. Once
our contracting workforce assessment is complete I will encourage the
military departments and other defense agencies to reduce and
preferably eliminate, whenever possible, the nongovernment 1102
personnel performing contract formation functions in our contracting
offices. We are conducting a broader review of acquisition structures
and capability in response to section 814 of the National Defense
Authorization Act for Fiscal Year 2006. This review will address
contractor support of the acquisition mission. Results of this study
are scheduled to be provided to Congress this summer.
USE OF SERVICE CONTRACTS TO ENTER INTO PROPERTY LEASES
21. Senator Ensign. Mr. Assad, a significant finding by the DOD
Inspector General (IG), that has been covered by the press, concerns
the award of a service contract by the Department of the Interior on
behalf of the DOD's Counter Intelligence Field Activity to provide
leased office space and the installation of communication and other
equipment. The IG testified that ``the 10 year, $100 million lease was
disguised as a service contract and exceeded all thresholds that
require congressional notification and approval.'' Is it standard DOD
practice to use service contracts to procure property leases and
equipment?
Mr. Assad. No. It is not the policy of the Department to utilize
services contracts to procure property leases. We recently issued a
policy memorandum titled ``Contracts for Services'' reminding the
acquisition workforce of both the Department's policy and the proper
procedures regarding the use of services contracts.
22. Senator Ensign. Mr. Assad, in your opinion, in this case what
differentiated a service contract from a property lease?
Mr. Assad. It was inappropriate to utilize a ``services'' contract
to contract for a lease for office space. The only time it might be
appropriate is in the circumstance in which services are being
performed by a contractor and the lease of office space is for those
contractor employees performing the services work under that particular
contract.
23. Senator Ensign. Mr. Denett, are you aware of any other agencies
that have arranged for leases under a similar mechanism and called them
service contracts? Does this practice give you cause for concern?
Mr. Denett. The OFPP does not track this information, though I
understand the acting DOD IG advised this committee of two other
instances. I agree that lease transactions must be conducted in
accordance with applicable laws and regulations, including
congressional notification when required.
REMEDIAL MEASURES IN RESPONSE TO DOD IG AUDITS
24. Senator Ensign. Mr. Assad, in separate audit reports, the DOD
IG has identified serious problems the Department has encountered when
using interagency contracts with the Department of Interior (DOI), the
Department of Treasury, the General Services Administration (GSA), and
the National Aeronautics and Space Administration (NASA). I know that
the Department has undertaken some remedial measures with the DOI and
the GSA. Is the Department satisfied with the assistance and responses
from those two entities?
Mr. Assad. The actions taken by both the DOI and the GSA have been
satisfactory to date. Only time and demonstrated performance will
affirm whether the improvements made have taken hold. The cooperation
at the senior leadership level and the action officer level has been
excellent. We recently signed a Memorandum of Agreement (MOA) with GSA
(December 2006) and with DOI (February 2007) that outline the roles and
responsibilities of each organization in the Interagency Acquisition
process. We expect to sign an MOA with NASA in April 2007. Ultimately,
we expect to have an MOA with every agency that supports the
Department.
25. Senator Ensign. Mr. Assad, what has the DOD done with respect
to the problems identified with the Department of Treasury and NASA
interagency contracts?
Mr. Assad. We have taken specific action with NASA to collaborate
on the Department's proper use of NASA's Scientific and Engineering
Workstation Procurement Government-Wide Acquisition Contract (SEWP
GWAC). For example, in keeping with one of the DOD IG's
recommendations, we have made it mandatory that any DOD user of NASA's
SEWP GWAC must have training before being allowed to utilize that
contract vehicle. In addition, we plan to sign an MOA with NASA in
April 2007 that will define the roles and responsibilities of each
Agency when utilizing NASA's SEWP GWAC. We will also be signing an MOA
with the Department of Treasury that will address each of the IG's
findings and the collaborative corrective actions that are required to
ensure compliance with statute, regulation, and policy when the
Department utilizes its assisting services.
[Whereupon, at 4:10 p.m., the subcommittee adjourned.]