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i 

52–147 2010

[H.A.S.C. No. 111–44] 

MEASURING VALUE AND RISK IN 

SERVICES CONTRACTS 

HEARING 

BEFORE THE

PANEL ON DEFENSE ACQUISITION REFORM 

OF THE

COMMITTEE ON ARMED SERVICES 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED ELEVENTH CONGRESS 

FIRST SESSION 

HEARING HELD 

APRIL 23, 2009 
(II) 

PANEL ON DEFENSE ACQUISITION REFORM 

ROBERT ANDREWS, New Jersey, Chairman 

JIM COOPER, Tennessee 

BRAD ELLSWORTH, Indiana 

JOE SESTAK, Pennsylvania 

K. MICHAEL CONAWAY, Texas 

DUNCAN HUNTER, California 

MIKE COFFMAN, Colorado 

CATHY GARMAN, Professional Staff Member 

JENNESS SIMLER, Professional Staff Member 

ALICIA HALEY, Staff Assistant 
(III) 

C O N T E N T S 

CHRONOLOGICAL LIST OF HEARINGS 

2009 

Page 

HEARING: 

Thursday, April 23, 2009, Measuring Value and Risk in Services Contracts .... 1 

APPENDIX: 

Thursday, April 23, 2009 ........................................................................................ 31 

THURSDAY, APRIL 23, 2009 

MEASURING VALUE AND RISK IN SERVICES CONTRACTS 

STATEMENTS PRESENTED BY MEMBERS OF CONGRESS 

Andrews, Hon. Robert, a Representative from New Jersey, Chairman, Panel 

on Defense Acquisition Reform ........................................................................... 1 

Conaway, Hon. K. Michael, a Representative from Texas, Ranking Member, 

Panel on Defense Acquisition Reform ................................................................ 3 

WITNESSES 

Baldwin, Laura, Director, Resource Management Program, RAND Project 

AIR FORCE .......................................................................................................... 5 

Parsons, Jeffrey P., Executive Director, U.S. Army Contracting Command, 

U.S. Army Materiel Command ............................................................................ 9 

Solis, William M., Director, Defense Capabilities and Management, U.S. Government Accountability Office, and John Hutton, Director, Acquisition and 

Sourcing Management, U.S. Government Accountability Office ...................... 7 

APPENDIX 

PREPARED STATEMENTS: 

Baldwin, Laura ................................................................................................. 35 

Parsons, Jeffrey P. ............................................................................................ 69 

Solis, William M., joint with John Hutton ..................................................... 43 

DOCUMENTS SUBMITTED FOR THE RECORD: 

[There were no Documents submitted.] 

WITNESS RESPONSES TO QUESTIONS ASKED DURING THE HEARING: 

Mr. Andrews ..................................................................................................... 85 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING: 

Mr. Andrews ..................................................................................................... 89 

Mr. Cooper ........................................................................................................ 97 

(1) 

MEASURING VALUE AND RISK IN SERVICES CONTRACTS 

HOUSE OF REPRESENTATIVES, COMMITTEE ON ARMED SERVICES, PANEL ON DEFENSE ACQUISITION REFORM, Washington, DC, Thursday, April 23, 2009. 

The panel met, pursuant to call, at 8:00 a.m., in room 1310, 

Longworth House Office Building, Hon. Rob Andrews (Chairman of 

the panel) presiding. 

OPENING STATEMENT OF HON. ROBERT ANDREWS, A REPRESENTATIVE FROM NEW JERSEY, CHAIRMAN, PANEL ON 

DEFENSE ACQUISITION REFORM 

Mr. ANDREWS. Ladies and gentlemen, good morning. The panel 

will come to order. We appreciate your attendance this morning, ladies and gentlemen of the public, and especially our witnesses. 

The reason we start at an uncommonly early hour in the morning is, as you know, the Congress squeezes a lot of activities into 

a couple of days each week, a lot of hearings and markups and 

floor activity, and we think the work the panel is doing, your work, 

really bears attention. So we schedule these hearings early so that 

members can really listen to what you have to say and then get 

on to the rest of the bedlam of our day. So thank you for accommodating us in that respect. 

The panel began our inquiry by asking how we might discern 

good measurements of the gap between what we pay and what we 

get, what value we get. And we first looked at weapons systems. 

Today we are going to look at the area of services that the Department of Defense (DOD) purchases. And what we do know about 

services is we buy a lot of them, we buy a lot more of them than 

we used to, and measuring what we spend on services is a very different project than measuring what we spend on major weapons 

systems and other pieces of hardware. The data show that we are spending approximately $200 billion 

a year in buying services through the Department of Defense. That 

is about 60 percent of what we buy. So we are spending more on 

services than we are on hardware, so it certainly merits scrutiny. 

It also is a rising portion of the defense budget. It is about twice 

what we spent a decade ago. So we are buying more through services, we are spending a lot of money, and it is certainly an important question to ask whether the taxpayers and the service personnel and their families are getting value. 

I don’t want to prejudge the answer to that question, but there 

are some disturbing trends which we can already discern in large 

part through the terrific work of the people of the Government Accountability Office (GAO). In 2007, the GAO reported that in a phe-
2 

nomenon which only the Defense Department could come up with 

this phrase, ‘‘undefinitized contracts,’’ which in plain language 

means you start paying someone before you have agreed how much 

the contract is going to be. So I pay you to mow my lawn, and 

when it is half mowed, we will decide how much I am going to pay 

you. And that is a rather odd concept, and it is supposed to be 

used, I would take it, in emergency circumstances. The GAO found 

that in one instance the DOD had paid contractors nearly $221 

million in questioned costs in one of those arrangements. So the 

fact that these vehicles are being used in and of itself merits inquiry. 

In fiscal 2005, the DOD obligated nearly $10 billion for professional administrative management support and other services 

under what are referred to as time and materials contracts, which 

are contracts where there is really no effective incentive for the 

vendor to hold down costs. Now, again, these are contracts that are 

supposed to be let only in unique circumstances where there is no 

other vehicle available that would make sense under those circumstances. So there is a question as to whether that vehicle is 

being used too often, unwisely and what have you. 

And then in the 2008 review, the GAO found that there were incomplete contract files at some Army contracting offices which is 

hindering the administration’s ability to discern facts and patterns. 

So we already know there are some disturbing indicia. What we 

are going to focus on this morning, though, is how do we construct 

metrics that help us properly understand whether taxpayers and 

service personnel are getting full value for the money that is spent? 

The other point that I say we can sort of discern that is self-evident is that measuring the answer to that question in the servicecontracting area is quite different than it would be in the weaponsacquisition area. The word ‘‘service contract’’ implies a huge diversity of things, everything from day care centers to catering services 

to legal and health care services. So you are measuring a much 

more diverse body of purchases. Very often these are short-term 

rather than long-term. Very often they are done in very small 

tranches or very small amounts. So it is a very different measurement project than the other one. But as I say, it is very important. 

The taxpayers are paying in excess of $200 billion a year. 

There are some early indicia that there are trouble problems for 

us to look at. And the good news is there is some excellent work 

that has been done. In the area of the Air Force, Ms. Baldwin is 

going to talk about some innovations that have happened there. 

Mr. Parsons is going to talk about progress that has already been 

made in the Army very recently. So we are going to try to come 

away this morning with a better understanding of how we might 

measure the difference, the difference, if any, between value and 

expenditure in these areas. 

So we welcome the witnesses. 

I want to ask my friend and the ranking Republican Mr. Conaway for his comments. 
3 

STATEMENT OF HON. K. MICHAEL CONAWAY, A REPRESENTATIVE FROM TEXAS, RANKING MEMBER, PANEL ON DEFENSE 

ACQUISITION REFORM 

Mr. CONAWAY. Thank you, Mr. Chairman. 

Today’s hearing is an appropriate follow-on to the panel’s first 

hearing, which focused on how DOD and GAO currently assess performance of major weapons systems. Quite often these are the programs that grab the headlines in the media and consume a great 

deal of our time. This is quite reasonable. It is easy to understand 

why a fighter aircraft or a satellite might be so costly. These are 

exquisitely engineered mechanical structures that perform under 

conditions that most of us would never envision even using our 

cars and televisions in. Nevertheless it is actually services, not 

hardware, that consume the majority of defense dollars. 

Today the DOD obligates $200 billion for contractor-supported 

services, a nearly twofold increase in spending in services in last 

several years. This increase in spending is largely, but not entirely, 

the result of ongoing contingency operations in Iraq and Afghanistan. In fact, this increase in spending on services is not unique to 

DOD. On a government-wide basis, over 60 percent of total contracting spending is on services. 

I think we often take for granted the breadth of services required, as the Chairman mentioned earlier, by DOD. The Department issues contracts for commercial services ranging from insurance to construction to dining, child care moving, mortuary and to 

travel. The Department also issues a variety of contracts for noncommercial services such as engineering, research and development, security information technology. 

As challenging as it is to measure performance against the plan 

for the development of a piece of technology, it could be infinitely 

more difficult to measure performance against a fluid requirement 

such as advisory or assistant services. I hope we hear more today 

about how the Department is meeting this challenge and what additional recommendations our witnesses can provide for improving 

our performance measures for service contracts. 

Similarly it is often impossible to precisely define the requirements for services in advance. For example, how does one precisely 

define the number of meals that have to be served at a dining facility in a yet to be established forward-operating base, or the number 

of hours it will require to solve an unanticipated engineering problem? Therefore the type of contract used plays a critical role in determining the value received by our government. 

As we have spent significantly more money on services, what lessons have we learned to optimize the value to the taxpayer? 

Lastly, since many of these services are commercial in nature, 

one may conclude that consolidating contracting for services might 

increase the government’s buying power and improve the dissemination of best practices. On the other hand, increasing the use of 

centers of excellence for services contracting may remove the contracting officers from the place of execution, making it more difficult to share contractor performance data. I would be interested 

to learn more about the benefits and drawbacks to centralizing the 

award of services contracts. 
4 

I also encourage our witnesses to share their views on existing 

laws and regulations that are particularly helpful or not helpful to 

the Department’s efforts to obtain the best value and capability for 

our warfighters from service contracts. 

With that I conclude and again thank my fellow members and 

you, Mr. Chairman. I look forward to our witnesses’ testimony. 

Mr. ANDREWS. Thank you very much. 

I am going to read brief biographies of our witnesses, and we are 

going to get to the testimony. I think you are all veterans of testimony here on the Hill, but I will remind you that your written 

statements, without objection, have been entered into the record of 

the hearing. We would ask you to synopsize those written statements in a five-minute oral statement. We would like you to try to 

stick to that five minutes so the members have ample opportunity 

for give-and-take with you. 

Laura Baldwin is the senior economist at the RAND Corporation. 

She has been with RAND since 1994, after completing a Ph.D. in 

economics from Duke University. In 2007, she was named Director 

of the Resource Management Program within Project AIR FORCE. 

And prior to that she was Associate Director of the program. 

Dr. Baldwin’s research has addressed a variety of Air Force logistics and acquisition challenges associated with staffing, the structure of transfer prices, many of the issues that we are looking at 

here today. In addition to her program management and research 

responsibilities, Dr. Baldwin is a co-organizer of RAND’s defense 

economic sessions at the annual Western Economic Association 

International professional meetings. 

Welcome, Dr. Baldwin. We are glad that you are here. 

Mr. William Solis serves as the Director in the Defense Capabilities and Management Team at the U.S. Government Accountability 

Office, GAO. The Comptroller General of the United States appointed Mr. Solis to this senior executive position in July of 2002. 

Prior to this appointment, he has worked on a variety of engagements that cover topics such as military readiness, training, weapons systems effectiveness, housing and military doctrine. As the director, he is responsible for a wide range of GAO program evaluations in the area of defense logistics and warfighter support involving each of the military services, the Defense Logistics Agency, as 

well as the Joint and Office of Secretary of Defense program offices. 

Over 30 years of service at GAO, Mr. Solis has served in a wide 

variety of positions. Most recently he was selected to receive the 

2008 GAO award for distinguished service. 

Congratulations on that, Mr. Solis. We are glad that you are with 

us. 

John Hutton is a Director also of the U.S. GAO, working for the 

Acquisition and Sourcing Management Team. In this capacity, he 

provides direct support to congressional committees and members 

on a range of acquisition and sourcing issues aimed at improving 

federal agencies’ ability to buy products and services efficiently and 

effectively. 

You are the guy that was invented for this hearing this morning. 

Mr. Hutton is a native of Chicopee, Massachusetts; received a 

B.A. in public administration from American International College, 

a master’s in public administration from Syracuse University’s 
5 

Maxwell School, and a master’s in national security strategy from 

the National War College in 2002. He attended the Senior Executive Fellows Program at Harvard in 2005. And he has also received 

numerous awards at GAO for outstanding performance, including 

the GAO’s Meritorious Service Award. 

Thank you, Mr. Hutton, for your service and being here this 

morning. 

Mr. Jeffrey Parsons is the Executive Director of the U.S. Army’s 

Contracting Command, a new major subordinate command of the 

U.S. Army Materiel Command, AMC. Prior to assuming his current 

position, Mr. Parsons served as the Director of Contracting for the 

Office of Command Contracting, Headquarters, AMC, at Fort 

Belvoir, Virginia. 

Mr. Parsons received his bachelor’s degree in psychology from St. 

Joseph’s University in Philadelphia—the hawk will never die, is 

that right, Mr. Parsons—and holds two masters degrees, one in administration with a concentration in procurement and contracting 

from the George Washington University, and the other in national 

resource strategy from the National Defense University. 

We are very fortunate to have four individuals of such skill and 

commitment to address these issues this morning. 

Ms. Baldwin, we will begin with you, and we enjoy hearing your 

testimony. 

STATEMENT OF LAURA BALDWIN, DIRECTOR, RESOURCE 

MANAGEMENT PROGRAM, RAND PROJECT AIR FORCE 

Ms. BALDWIN. Chairman and distinguished Members, thank you 

for inviting me to testify at this panel on measuring value and risk 

in service contracts. I am a senior economist at the RAND Corporation, and I currently serve as the Director of the Resource Management Program within Project AIR FORCE. 

For more than a decade, RAND has conducted a broad portfolio 

of research on implementing best purchasing and supply management practices within the Department of Defense. My testimony 

today will describe research that I co-led along with my colleague 

John Ausink, who is here today, that examines successful commercial practices for managing service acquisition, and that is focused 

on performance metrics to improve contract outcomes. I have a 

copy of the report with me. This research was sponsored by the Air 

Force Deputy Assistant Secretary for Contracting and was conducted during fiscal year 2003. 

[The information referred to is retained in the committee files 

and can be viewed upon request.] 

I will begin by providing some context from the research, followed by a discussion of what we did, what we found, and how it 

is relevant to the U.S. Air Force. In terms of context, the Department of Defense purchases many services, including commercial 

services for its facilities and installations, such professional services as consulting and engineering support, and such weapons systems-oriented services as research and development and test and 

evaluation. 

In response to emphasis on improving services acquisition within 

the fiscal year 2002 National Defense Authorization Act, RAND’s 

Project AIR FORCE was asked to develop a portfolio of overarching 
6 

measures to allow the Air Force to assess the health of its service 

acquisition activities, to diagnose problems and to target improvement efforts. To develop this portfolio of metrics, we conducted a 

series of interviews with commercial-sector purchasing professionals who are respected by their peers for successfully creating 

and implementing what are widely accepted as best purchasing 

and supply management practices, focusing on their application to 

service acquisitions. The services discussed in our data sources are 

similar to commercial like services purchased by the Air Force, including facilities services, telecommunications services and other 

support activities. 

Our primary finding is that commercial firms are shifting away 

from uncoordinated purchasing at lower levels of their organizations and moving towards a corporate approach to managing their 

service acquisitions in much the same way as they manage their 

acquisition of direct materials. Commercial firms are increasingly 

using commodity councils, which are centralized cross-functional 

teams, to develop organization-wide purchasing and supply management strategies for services. And moreover, such firms are developing and using performance metrics, similar to those used for 

goods, to manage their purchased services and their purchasing organizations that support those strategies. 

Here I will focus on our findings related to performance metrics. 

To inform decisionmaking, our interviewees recommended resultsoriented metrics, both forward-looking and retrospective, that focus 

on how acquisition activities support both short-term and long-term 

corporate objectives. The most frequent results-oriented metrics include cost, quality, supplier satisfaction, implementation of new initiatives such as supplier development, and special interest items 

such as small business participation. 

Cost metrics were typically oriented towards measuring cost savings over time, often adjusting for exogenous market factors. Quality, which is more difficult to quantify for services than for goods, 

was typically measured in terms of user satisfaction or service reliability. Supplier satisfaction was used as a forward-looking indicator of whether the buying firm will be able to continue doing 

business with the best providers. Metrics for implementing new initiatives were a mixture of forward-looking process measures and 

retrospective outcome measures. Commercial firms indicated that 

they also used metrics such as internal customer satisfaction, personnel training and retention, and ethics violations to manage the 

internal purchasing organization. Although the Air Force is not a 

commercial firm, it can learn from commercial firms’ experiences in 

managing its own service acquisitions. 

Our findings recommend a balanced portfolio of performance 

metrics, representing both short- and long-run considerations and 

internal and external activities. These recommendations are based 

on the six major categories of metrics discussed earlier: cost, quality, supplier satisfaction, new initiatives, special interests and internal management. 

The Air Force will find it challenging to populate some of these 

metrics. While some data such as contract costs are found in Air 

Force data systems, others such as supplier and customer satisfac-
7 

tion will require implementation of new data-collection procedures 

for effective implementation. 

More broadly, our analyses suggest that good metrics are necessary, but not sufficient to extract maximum value from purchase 

services, that they are most powerful when implemented in a centralized management framework. 

This concludes my oral remarks. Thank you, and I welcome any 

questions you might have. 

Mr. ANDREWS. Thank you, Dr. Baldwin. As I said your full statement is entered into the record. 

[The prepared statement of Ms. Baldwin can be found in the Appendix on page 35.] 

Mr. ANDREWS. Mr. Solis, Mr. Hutton, welcome. We appreciate 

the great work GAO does on so many issues, and we are glad you 

are with us this morning. 

STATEMENT OF WILLIAM M. SOLIS, DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE, AND JOHN HUTTON, DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, U.S. GOVERNMENT ACCOUNTABILITY OFFICE 

Mr. SOLIS. Thank you very much. Chairman Andrews, Ranking 

Member Conaway, members of the panel, I appreciate the opportunity to be here along with my colleague, John Hutton, to discuss 

the challenges DOD faces in ensuring it gets good value for the taxpayers’ dollars and attains quality contractor services in a cost-efficient and effective manner. Many of these challenges are longstanding, but they have become increasingly important as the Department’s reliance on contractors for services has grown in size 

and scope to the point that DOD officials have acknowledged their 

inability to perform their mission without contractor support. 

My statement today will focus on two areas, first challenges DOD 

faces in consistently following sound contracting and contract management practices, and, second, recent actions DOD has taken to 

improve its management of services contract. 

From the outset, I think it is important to recognize that the 

issue is not whether the Department should contract for services, 

for it must. The issue is to what extent it should, and how best to 

provide oversight when it does. Our previous work shows that it is 

essential that DOD employ sound practices when using contractors 

to support its missions or operations to ensure that the Department receives good value. These practices include clearly defining 

requirements, using an appropriate contract type, and properly 

overseeing contract administration. 

Further, an overarching issue that impacts DOD’s ability to properly manage its growing acquisition of services is having an adequate workforce with the right skills and capabilities. 

I would like to spend a few moments to elaborate what we have 

found with regard to these challenges. First, properly defining requirements are a prerequisite to obtaining value, both at the DODwide level and at the contract level. At the Department of Defense 

level, the Department should have an understanding of what it 

needs to contract for and why. However, the Department does not 

currently have complete and accurate information on the number 
8 

of services contracts in use, the services being provided by those 

contracts, the number of contractors providing those services and 

the number and types of contracts awarded. 

At the contract level, poorly defined or changing requirements 

have contributed to increased costs as well as services that do not 

meet the Department’s needs. The absence of well-defined requirements and clearly understood objectives complicates efforts to hold 

DOD and contractors accountable for poor acquisition outcomes. 

Second, we have found that DOD does not always use the contract types or business arrangements that would result in the best 

value to the government. Selecting the appropriate contracting arrangement is important because some contracts increase the 

governments’s cost risk. For example, in January 2008, we reported 

on a cost-plus, fixed-fee provision of a task order to repair military 

equipment for use in Iraq and Afghanistan required the Army to 

pay the contractor to fix equipment that had failed to meet quality 

standards established in the task order. 

Third, we have reported on numerous occasions that DOD did 

not adequately manage and assess contractor performance, putting 

the Department at risk of being unable to identify and correct poor 

contractor performance in a timely manner. 

Collectively these problems expose DOD to unnecessary risk and 

make it difficult for the Department to ensure that it is getting 

good value for the dollars spent. 

In response to congressional legislation and numerous GAO recommendations on contract management and the use of contractors 

to support deployed forces, DOD has taken a number of actions including issuing guidance to address contracting weaknesses and 

promote the use of sound business arrangements, establishing a 

framework for reviewing major system acquisitions, promulgating 

regulations to better manage its use of contracting arrangements 

that compose additional risk for the government, and begun efforts 

to identify and improve the skills and capabilities of its workforce. 

These efforts include steps to improve training of military commanders and contract oversight personnel. 

These are positive steps, but in order to improve contract outcomes on the whole, DOD must ensure that these policy changes 

and other efforts are consistently put into practice and reflected in 

the decisions made on individual acquisitions. For example, in the 

near term, DOD must act forcefully to implement the new procedures and processes in a sustained, consistent and effective manner 

across the Department. Doing so will require continued sustained 

commitment by senior DOD leadership to translate policy and practice and to hold decision makers accountable. 

At the same time, many of the actions DOD is taking, such as 

the Army’s efforts to increase its acquisition workforce, will not be 

fully implemented for several years. DOD will need to continue to 

monitor such efforts to ensure intended outcomes are achieved. 

At the department-wide level, DOD has yet to conduct the type 

of fundamental examination or reexamination of its reliance on 

contractors that we called for in 2008. Without an understanding 

of the depth and breadth of contractor support, the Department 

will be unable to determine if it has the appropriate mix of military 

personnel, DOD civilians and contractors. As a result, DOD may 
9 

not be totally aware of its risk it faces and will therefore be unable 

to mitigate those risks in a cost-effective and efficient manner. 

The implementation of existing and emerging policy, the monitoring of the Department’s actions, and the comprehensive assessment of what should and should not be contracted for are not easy 

tasks, but they are essential if DOD is to place itself in a better 

position to deliver goods and services to warfighters. Moreover, 

with the increase of forces in Afghanistan, the urgency for action 

is heightened to help the Department avoid the same risk of fraud, 

waste and abuse it is experiencing in using contractors in support 

of Operation Iraqi Freedom (OIF). 

This concludes my statement, and we will be happy to answer 

your questions. 

Mr. ANDREWS. Mr. Solis, thank you very much. 

[The joint prepared statement of Mr. Solis and Mr. Hutton can 

be found in the Appendix on page 43.] 

Mr. ANDREWS. Mr. Hutton, are you adding something? You are 

certainly welcome to. 

Mr. HUTTON. Mr. Chairman, Mr. Solis has covered both sides of 

the issue. 

Mr. ANDREWS. Very well. As I say, the joint statement that you 

wrote is already part of the record. 

Mr. Parsons, welcome. We are looking forward to hearing from 

you. 

STATEMENT OF JEFFREY P. PARSONS, EXECUTIVE DIRECTOR, 

U.S. ARMY CONTRACTING COMMAND, U.S. ARMY MATERIEL 

COMMAND 

Mr. PARSONS. Thank you. Chairman Andrews, Congressman 

Conaway and distinguished members of the Defense Acquisition 

Reform Panel, thank you for this opportunity to discuss the processes used by the Army Materiel Command to measure value and 

risk in service contracts. We are pleased to report that these processes enable our contracting mission to be agile, expeditionary and 

responsive to our warfighters, while ensuring proper fiscal stewardship of taxpayer dollars. 

We are pleased to report to you that we have increased the resources devoted to oversight of service contracts and have also developed improved techniques for evaluating and managing those 

contracts to provide good value to the taxpayer and effective support to deployed warfighters. The Army Materiel Command has improved its Contracting Officer Representative Program, has a plan 

in place to increase the number of personnel in the contract administration area, and has improved its ability to inspect the worldwide contracting offices that execute the Army’s acquisition programs. 

In addition, the Army has increased the rigor of its acquisition 

process to focus on obtaining better values from the service contracts it awards. 

Recent RAND studies and GAO reports state that the Department of Defense needs to become more strategic in the way it buys 

and manages services. Trends in Army service contracting support 

the fact that the Army has embraced this concept. On major service 

contracts over $500 million, a panel of senior experts in con-
10 

tracting, finance and law, as well as the senior representatives 

from the technical areas that are the focus of the acquisition, review the acquisition strategy to ensure that the planned contract 

will provide an efficient and effective solution to the Army’s needs, 

and that there are strong metrics that will enable the Army to 

track the value delivered by the contractor that ultimately receives 

the contract. 

One of the interesting side benefits of the senior review is the 

evolution of a deliberate strategic sourcing movement that focuses 

on establishing Army-wide contracts for common-use supplies and 

services. For example, we now have an Army-wide contract for cell 

phone service that has achieved substantial discounts from Government Services Administration (GSA) contract prices and provides 

better controls over who is given a cell phone and what type of calling program they may use. Net effect is the cost avoidance is $79.2 

million per year. The centralized agreements provide consistent enterprise terms and conditions; eliminate activation, deactivation 

and other fees; and provide aggressive prices on both cellular devices and service plans. 

This approach is not limited to commercially available services. 

The Army uses suites of multiple-award, indefinite-quantity contracts to support all types of operations leveraging our service 

spending. The Field and Installation Readiness Support Team, 

commonly known as ‘‘FIRST,’’ provides logistical support requirements including logistics program management, repair and maintenance support, supply chain management, quality assurance support, logistics training support and transportation support in both 

the Continental United States (CONUS) and Outside the Continental United States (OCONUS) locations. The first program 

metrics include how well small business and competition requirements are being met, as well as goals for reducing logistics burdens, customer satisfaction, timeliness of performance, cost control 

and reliability. 

The Global Maintenance and Supply Program metrics include 

how well the contractor met the technical requirements of its individual task orders. Currently we are at 99.7 percent, which is an 

improvement over previous lows of 69 percent. Cost and schedule 

performance are evaluated on a program level across all task orders. 

We continue to search out even more opportunities to better leverage Army’s purchasing power. For example, we are reviewing 

alternative ways to support the Army’s installation maintenance 

support contracts; $438.2 million worth of work is performed by 37 

contractors under 41 contracts. Under the AMC Materiel Enterprise approach, we will eliminate redundancy in contracts and capabilities, and thereby gain efficiencies across the Army. This is an 

example of how we strive every day to improve the value the Army 

and the taxpayer receive from Army contracts. 

The Army has made great progress in providing training and 

tools for overall contracting activities and expeditionary operations. 

This includes improvements in contractor oversight and tracking 

value realized under contracts. 

We have also shared expectations for contingency contracting 

support and are increasing our oversight of deployed contracting of-
11 

ficials. The Army uses a pocket-sized joint contingency contracting 

handbook to equip contingency contracting officers with the necessary tools for joint service operations. This handbook has been incorporated in new training material for the Expeditionary Contingency Force structure. We will soon also field the Virtual Contracting Enterprise that will move existing contracting tools to a 

Web-based environment allowing for the sharing of contract information and enhanced oversight in a paperless environment, including the tracking of contract performance information. 

As stewards of the taxpayers’ dollars, the Army is committed to 

excellence in managing and documenting contractor performance 

and the overall discipline of contract administration services. With 

service contracts representing an ever-increasing percentage of our 

overall contract dollars, greater emphasis is rightfully being placed 

on their management and oversight. This includes documenting 

contractors’ current and past performance, and developing key 

metrics related to cost, schedule and performance during acquisition planning that focus on value delivered to the Army, and tracking those metrics as part of contract administration and oversight. 

Those metrics are key early warning signals to program officials 

as they are the first indicators that a program is in trouble, be it 

from technical difficulties beyond the contractors’ control due to 

changes in the operating environment caused by war-related issues 

or problems directly related to contractor performance. 

Despite exceptionally hard circumstances, the Army’s contracting 

and acquisition staff has made improvements in the strategic management of the Army requirements, and specifically has better insight into the values being delivered under key service contracts. 

We believe with improved staff levels and contract administration, 

this trend will continue. The Army is dedicated toward executing 

its warfighting mission while simultaneously protecting the taxpayers’ interest. It is my honor to lead the Army Contracting Command as we persevere to achieve those goals. 

This concludes my statement, and I welcome any questions you 

may have. 

Mr. ANDREWS. Thank you very much, Mr. Parsons. 

[The prepared statement of Mr. Parsons can be found in the Appendix on page 69.] 

Mr. ANDREWS. And I thank each of you for your contribution this 

morning. 

In reading your testimony, it appears to me that although it is 

by no means the exclusive cause that one of the major causes of 

any gap that we have in the value between what we get and what 

we pay is a flawed requirements process, that we don’t really understand what is going on in it, and we don’t handle it very well. 

And I wanted to emphasize an example of a process that evidently 

didn’t work very well and then one that did, to learn more about 

that. 

On page five of the GAO report, the GAO written testimony, Mr. 

Solis and Mr. Hutton, you tell us about a problem in Iraq where 

the Defense Contract Audit Agency (DCAA) had a dispute with a 

contractor on providing meals for the soldiers in Iraq that resulted 

in $171 million in questioned costs. Do you have the document I 

am referring to? It is page five of the testimony document here. 
12 

I want to make sure I understood this correctly. It says that ne- gotiations resulted in a settlement whereby $36 million would not 

be paid to the contractor. Does that mean that $135 million was? 

Mr. HUTTON. Yes, I believe that is correct. 

Mr. ANDREWS. And if I understand correctly, the dispute was 

whether or not the contract required us to pay on the basis of the 

scope of work in the document or the actual head count at the base. 

Now, do you know whether the contract answered that question 

in advance? In other words, did this dispute come up because the 

contract was vague and ambiguous, or did it come up because there 

was a dispute about the factual meaning of it? 

Mr. HUTTON. It is my understanding, sir, that the dispute centered on the statement of work and differing views. 

The CHAIRMAN. I am sorry? 

Mr. HUTTON. I am sorry. My understanding is that the dispute 

centered on the statement of work and how that was written. 

Mr. ANDREWS. So, Mr. Parsons, do you know the answer to that 

question? Was the contract just ambiguously worded? 

Mr. PARSONS. Sir, I think the contract they are making reference 

to is the Logistics Civil Augmentation Program, especially the early 

days of the operation, and that was part of the issue, and it gets 

to the heart of the matter and being able to really identify clearly 

what the requirements are, especially in a service contract. 

Mr. ANDREWS. Can I say something? I am not a very good lawyer. I went to law school. One thing I did learn, if you are writing 

a contract, one of the basic things you put in there is are we going 

to pay on the basis of number of people who show up to get fed 

or some other basis? 

How did the contract get written so ambiguously in the first 

place? Who dropped the ball on that? Do we know? 

Mr. HUTTON. I can’t point to that, sir, but what I can point to 

again, though, is one thing that we have noticed is, particularly in 

this environment, sometimes that people act to move very swiftly 

to get something under contract, and when you do that, these types 

of problems arise. And I think that is one of the things—— 

Mr. ANDREWS. I think that is a valid excuse if it is the issue that 

they were supposed to deliver a certain kind of food and couldn’t 

do it because of refrigeration problems. But it is pretty basic that, 

you know, if you have ever planned a sweet 16 party for your 

daughter, we are going to pay the caterer on the basis of either the 

number of people who show up, or we are going to pay them for 

200 people. It is kind of self-evident that you write that in the contract from the beginning. 

Now, let’s talk about apparently a successful story. Mr. Parsons, 

you talked about the cell phone initiative that you say saved us 

$79.2 million. Can you tell us a little bit more about that, what you 

did and how you did it? 

Mr. PARSONS. I would be happy to, sir. And one of the things 

that we really noticed when we started taking a lot the cell phone 

service is that there were people across the Army writing their own 

contracts or entering into agreements for cell phone services. So we 

really weren’t leveraging the total dollar value of cell phone service. 

So we were able to convince the Chief Intelligence Officer (CIO) of 

the Army that we need to find a way to write a single contract or 
13 

a single series of contracts that would allow us to leverage that 

spend. Then we also found that the terms and conditions of the 

contracts varied, and again, by bringing all those dollars together, 

we were able to negotiate with the vendors a more favorable pricing plan than what was currently in the GSA contracts. 

But more importantly, I think, and this again gets back to the 

requirements issue, it alerted a lot of organizations to the extent 

of the cell phones that they had out there. And they started asking 

questions like, well, why does everybody need a cell phone? And 

then they started putting some policies in place on who would have 

them, what they were authorized for. And we found that by reducing the requirements that weren’t well defined, we saved as much 

money through reducing requirements as we did in the actual pricing. 

Mr. ANDREWS. So the savings really came from two achievements, right? The first was leveraging our purchasing power, the 

Sam’s Club approach, right? We bought more of it, so you get a better price. And the second was the various decision makers started 

to do an inventory of how many cell phones they had out there, and 

they said, how come we have so many out? Maybe we need fewer 

than we have. Why did that happen? Is that because your organization got stood up and caused that? What was the causal phenomenon that caused that good development to occur? 

Mr. PARSONS. I wouldn’t attribute it to the standup of the Army 

Contracting Command, although one of the things we have developed within our command is what we call a Strategic Sourcing 

Branch. Really what we have been doing is capitalizing on a lot of 

the work that RAND did back in the late 1990s and early 2000. 

Mr. ANDREWS. In this instance did this sort of spontaneously 

combust, or did someone—who made a decision that said, you know 

what, we have to bring all these contracts under a centralized authority and get more bang for our buck or more minutes for our 

dollar in this case? 

Mr. PARSONS. It was initiated out of the Army Acquisition Office. 

Lieutenant General Thompson, who is the military deputy for the 

Army acquisition executive, who is a strong supporter for strategic 

sourcing and encouraged us and all the organizations within the 

Army to start taking a look at their service spend to see how we 

can get our arms around that to better leverage it—— 

Mr. ANDREWS. I want to be sure we move on to my colleagues. 

But I did want to just ask one more question, and I assume the 

GAO witnesses would be the best to know, perhaps Mr. Parsons 

and you, Ms. Baldwin. Is there one person in the Department of 

Defense who can answer this question: What do your data show 

that of the $200 billion that we spend, how much might it be—how 

much of that might be wasted? Is there a person who could say, 

yeah, you know what? Based upon the data, I think we probably 

could recover $15 billion of that and do a better job; or, all of it 

is fine. Is there a person who is in charge of answering that question? Mr. Hutton. 

Mr. HUTTON. I do not believe there is a person that can answer 

that question. That is in part one of the points that we made in 

our 2006 report was the need to look at service contracting from 

a strategic as well as a transactional level, meaning at the contract 
14 

level. The important thing right now is does DOD know exactly 

what they are buying, what they are paying, how many contractors 

do they have and—— 

Mr. ANDREWS. The answer is no. 

Mr. HUTTON. I think what Mr. Parsons was talking about strategic sourcing is one opportunity of centralized procurement—— 

Mr. ANDREWS. But the answer to your rhetorical question is, no, 

they do not, they do not have that complete database? 

Mr. HUTTON. People that assign a percent to how much is wasted, no. 

Mr. ANDREWS. Ms. Baldwin, in your analysis of the private sector, would the answer to my question, the private sector, typically 

be yes, that at Microsoft or—I was going to say Bank of America, 

I guess I shouldn’t—at a large private-sector institution that there 

would be an officer who would be able to say, this is what we spend 

on services, and I can assure you that we are getting what we 

should; or, I am troubled that it might be five or six percent off? 

Does the private sector typically have the data and have such a 

person? 

Ms. BALDWIN. Certainly the goal of setting up the strategic corporate-wide offices to manage purchasing more broadly, services in 

specific, commercial firms struggle with this, too, is what we found. 

Even the leading firms that we interviewed for this particular 

study, they were still in the process of gathering the right data, 

creating the right systems to be able to get the information they 

need to better manage this. But, yes, the goal is for them to be able 

to look broadly—— 

Mr. ANDREWS. Are they closer to achieving the goal than we are? 

Ms. BALDWIN. I can’t speak for the other services, but our work 

in the Air Force suggests that some in the commercial sector are 

ahead of that, in that capability. I wouldn’t say that broadly. Commercial firms have the same issues that the Air Force and other 

services have. 

Mr. ANDREWS. Thank you all very much. 

Mr. Conaway. 

Mr. CONAWAY. Thank you, Mr. Chairman. I have a couple of just 

relatively insignificant questions to start with. 

Ms. Baldwin, you mentioned supplier satisfaction at least twice. 

What does that mean? 

Ms. BALDWIN. It means, broadly, how the supplier views the 

working relationship with the customer firm. So do they feel like 

they have a good working relationship? Can they talk with them? 

Do they feel like they are being treated fairly? 

Mr. CONAWAY. So you would put that in the matrix of—where in 

the matrix indicia, where would that go? Bottom? Top? 

Ms. BALDWIN. That would be—well, it is one of the three measures that the firms we interviewed said that they reported that to 

high-level management. So I would think it would rank—— 

Mr. CONAWAY. What do they do with that data if someone says, 

I really don’t like working for you? It is a rhetorical question. 

Ms. BALDWIN. I can’t answer that question specifically. 

Mr. CONAWAY. Mr. Parsons, listening to your statement, it 

sounds like you have it going totally in the right direction, you 

have everything solved, which is generally the kind of testimony we 
15 

get from folks. You mentioned a consolidation of contracts for facilities management, almost $500 million in services. Where is that? 

What progress have you made on getting that done? 

Mr. PARSONS. Sir, just recently the Army Materiel Command and 

the Installation Management Command have agreed to transfer 

the maintenance functions at the installation level over to Army 

Materiel Command. When we started that process, what we found 

was that over 30-some installations, we had 40-some contracts, 

with 37 different contracts valued at $438 million for essentially 

the same types of services being performed for maintenance. But 

there is no standardization of requirements, inspections and those 

types of things. And so now what we are doing is we have done an 

inventory of all those contracts and are assessing how can we strategically source those. Do we really need 40-some contracts, or do 

we need maybe 3 or 4 on a regional basis and then try to standardize the terms and conditions and the way that we will oversee 

the management? 

Mr. CONAWAY. When are you going to report back to us that that 

has saved us X amount of money or has done what you wanted it 

to do? 

Mr. PARSONS. When can we report back? Sir, we just initiated 

this action. I would say probably another six months to a year before we will be able to report what type of savings we are going 

to see out of that. 

Mr. CONAWAY. Thirty installations, that is the total in the Army? 

Or is that just CONUS? 

Mr. PARSONS. It is just CONUS, does not include OCONUS, and 

it only includes maintenance that was being performed out of what 

they call the Directorate of Logistics. 

Mr. CONAWAY. So it is relatively narrow. If you look at the risks 

of loss to the taxpayer, obviously the full-flown strategic, use all 

the buzzwords you guys use, kind of a management system to 

make all this work, at what level does it make sense to begin applying those, and at what level below which it doesn’t make sense? 

I mean, you spend more time in management and oversight and reporting than you do on actually buying the stuff that you are trying 

to get provided. Is there a de minimis amount? Is there some line 

that you put in the deal? 

Mr. Solis. 

Mr. SOLIS. Last year, for example, the Congress put in legislation, section 807, which required the Department and the services 

to begin to do an inventory of all the contracted services to develop 

a baseline of what exactly was being contracted out, how many contractors you are using, the cost of those contractors and the type 

of services provided. I think that is the kind of thing at the strategic level that will help not only to look at it from a procurement 

function, but from a human capital or blended workforce in terms 

of what am I going to need, how am I going to do that? 

I think at the other end, I think in looking at different contracts 

and going back to your issue of risk, I think particularly for deployed, when you have contracts in a contingency or a deployed location, I think your risk is going to probably be higher because of 

the things you have to do in terms of providing oversight and getting out and seeing how those things are working. And I think it 
16 

becomes, you know, in terms of looking at what you are going to 

spend your time in terms of oversight, those are the kinds of decisions that you have to look at, where are my risks at, what is the 

potential for fraud, waste and abuse, and I think that is where you 

probably need to focus what kind of attention in terms of oversight 

you are going to do versus something back here possibly in 

CONUS, I will just say some service like grass cutting or some of 

the things you can monitor more easily. But I think the different 

types of contracts, and more complex contracts particularly, for like 

intel services and maintenance services, you have to spend your 

time to look at those things more. 

Mr. CONAWAY. Are the recommendations that you are making 

and Mr. Parsons and Ms. Baldwin, is that concept reflected in how 

you set your system up; in other words, is it more of a risk-based 

arena? If you have a contract to cut the grass around this building, 

relatively little exposure to the taxpayer of major waste, fraud and 

abuse. We don’t want any, but, Mr. Parsons, Ms. Baldwin, does 

that fold in with what you guys recommend? 

Ms. BALDWIN. Yes, that is exactly what we have seen in the commercial sector, that they first look broadly to understand how much 

are we spending in these individual areas, looking at a service 

across an organization, not specific contracts, and then they make 

those decisions based on dollar value and their risk of poor performance. 

Mr. CONAWAY. Mr. Parsons. 

Mr. PARSONS. Sir, we actually take a look and stratify our service 

contracts on the level of oversight they will review. In fact, the Department of Defense does that as well. Any service contractor over 

$1 billion is actually reviewed by what they call a peer review at 

the Office of the Secretary of Defense (OSD) level now where we 

have got senior-level service-type people that review certain acquisitions over $1 billion. Within the Army—— 

Mr. CONAWAY. Is that on services or—— 

Mr. PARSONS. Services and hardware, but they are doing it both. 

In the Army they do it at the $500 million. At my level I do it at 

$250 million—— 

Mr. CONAWAY. One final one. It is a bit broad. There has been 

a recommendation that we create these centers for excellence for 

purchasing. I have great confidence that center will work wonderfully to make sure the Pentagon has everything it needs. How confident are we that that consolidated purchasing will make sure 

that some warfighter in a trench in the Horn of Africa gets what 

they need? 

Ms. BALDWIN. I think that what you are highlighting is the need 

to have user involvement in those decisions. And certainly our research suggests that in the commercial sector purchasing professionals are a key part of this process, but they are only one player. 

The user has to be directly involved, and you have to have industry 

experts as well. So you have to have that user representation, that 

warfighter representation. 

Mr. HUTTON. Mr. Conaway, I would add that what you just 

pointed out, the centralized procurement organization, I think you 

get—you can get some efficiencies, and you can leverage perhaps 

even your workforce in a certain way. But I would like to take it 
17 

back to, though, to be sure that you are getting good outcomes, you 

have to make sure you have sufficient people to oversee the actual 

execution of that contract, and that means having people assigned 

up front like a contracting officer representative and having them 

there in sufficient numbers, sufficiently trained to make sure that 

you are getting that outcome. 

Mr. CONAWAY. Thank you, Mr. Chairman. 

Mr. ANDREWS. Thank you, Mr. Conaway. 

Mr. Cooper. 

Mr. COOPER. Thank you, Mr. Chairman. I thank the witnesses. 

In any organization, mistakes are going to happen. And the real 

question is how you deal with those mistakes? Like in a hospital 

you might get the doctors together to confer about what happened 

with the bad outcome. Sometimes there are after-action reports in 

other contexts. 

I would be curious, particularly for Mr. Parsons, to understand 

mistakes that you have personally seen so that we can get some 

raw data on which to kind of build an understanding. 

Mr. PARSONS. Sir, are you asking whether we have raw data 

to—— 

Mr. COOPER. No. I want your personal recollection of mistakes 

that you have seen in your tenure, and then we can talk about 

what we did about them, a bad contract, a bad contractor, those 

sorts of things. 

Mr. PARSONS. As far as the performance? I have a hearing difficulty. So I am not following you completely. 

Mr. COOPER. As far as the government and the taxpayer not getting value for the money that was expended. And it might be performance. It might be price. It might be all sorts of things. But you 

gave us some of the most cheerful testimony I have ever heard. It 

almost didn’t seem to apply to this topic. So I am interested in the 

horror stories. 

Mr. PARSONS. Certainly I think there are instances of what are 

perceived to be horror stories out there. 

Mr. COOPER. Give us those instances. 

Mr. PARSONS. I think in reference to the GAO testimony in reference to the early days of Logistics Civil Augmentation Program 

and how well or how well we did not define those requirements are 

an example of, you know, where we can get ourselves in a position 

where we are not getting the best value for the taxpayers. 

Mr. COOPER. Give me some examples. 

Mr. PARSONS. Specific examples? 

Mr. COOPER. Yes. 

Mr. PARSONS. Well, sir, I think the dining facility is one that—— 

Mr. COOPER. That is from their report. I want examples that you 

have seen. 

Mr. PARSONS. I think another example—and, again, this was one 

that Ms. Harman was aware of—is our global maintenance and 

support services contract where we did not have proper oversight 

of the High Mobility Multipurpose Wheeled Vehicle (HMMWV) repairs that were taking place in Kuwait. We had very poor first-pass 

yields. A lot of the work was being rejected, and the contractor was 

redoing the work. The way the contract was structured, we ended 

up paying for that rework again. So I think that is an example of 
18 

a horror story where we had a poorly defined requirement. We 

didn’t have the right type of contract vehicle in place, and we did 

not have adequate oversight. 

Mr. COOPER. So we paid twice for vehicle repairs in Kuwait because we had a poorly defined requirement that didn’t specify they 

should be repaired properly the first time? 

Mr. PARSONS. Correct. When we would inspect the vehicles, there 

was a reject of anywhere from 30 to 40 percent. But the way the 

contract was written, essentially the contractor, when they were directed to redo the work, was allowed to bill the government again. 

Mr. COOPER. Who wrote that contract? This gets back to Mr. Andrews’ question about per capita or fixed price. Who would write 

a contract saying that a 30 or 40 percent failure to repair rate 

could be acceptable? 

Mr. PARSONS. Nobody. 

Mr. COOPER. Well, someone wrote the contract. 

Mr. PARSONS. The contracting officer is the one that wrote the 

contract out of Rock Island, our Rock Island contracting center. But 

it was a good example of where we did not have adequate controls 

or proper metrics in place to make sure we are getting value. 

Mr. COOPER. Give another example other than the one you just 

gave. 

Mr. PARSONS. Sir, the other area where I know that we have a 

lot of challenges is in the area of what we call advisory and assistance services, where you really are buying contractor support to 

help manage your operation. And while I can’t give you a specific 

example, I know that one of the areas we have been looking at very 

hard is do we really need all of these contractors providing some 

of the services and support services within our operations? 

Oftentimes what you find is that the requirements are not well 

defined, and many times we aren’t even sure totally what the value 

is that those contracts are providing, certainly in the area of advisory and assistance services. So the DOD has a very strong initiative right now to take a very hard look at that. Any of those types 

of services that are enduring we are looking at trying to reconvert 

to civilian positives. And then for those that are contractor is to put 

in proper oversight and metrics to evaluate their performance. 

Mr. COOPER. Who initiates the purchase of services that the government does not want? 

Mr. PARSONS. What was that again, sir? 

Mr. COOPER. Who initiates the purchase of services that the government does not want? 

Mr. PARSONS. Who does that? 

Mr. COOPER. Is this Rock Island again who does this? 

Mr. PARSONS. Sir, I have 115 different contracting locations, all 

of them which buy services to some degree. And as I mentioned 

earlier, what we are trying to do in our contracting community is 

to establish a strategic sourcing organization that looks at all that 

service spend to find ways to do this better, be more consistent in 

our terms and conditions and our oversight. 

Mr. COOPER. I see that my time has expired, Mr. Chairman. 

Mr. ANDREWS. Thank you very much, Mr. Cooper. 

Mr. Coffman is recognized. 

Mr. COFFMAN. Thank you, Mr. Chairman. 
19 

It seems if we go back, say, from the post-World War II environment until now, that there has been an expanded role of outside 

contractors in what may have been deemed traditional military 

functions in a post-World War II environment to the present, that 

evolution. 

So it seems to me that maybe it falls in two categories. There is 

the one category of the more routine items that are fairly transparent, that are easy to come up with what the requirements are, 

and that can be competitively bid, and there is some certainty 

going in as to what the costs are going to be. And then you get into 

this I guess what I would call a murkier area, and that is, say, 

using contractors in a deployed environment where it seems to be 

more of a cost-plus structure to—that it is harder to define the requirements, that they are not as routine. 

And so it seems to be that—first of all, maybe from anybody on 

the panel, is that an accurate description of where we are today in 

those two categories of contracts, that the cost-plus one being more 

for the irregularity and uncertainty of, say, having a contractor in 

a deployed environment versus somebody in CONUS, in the United 

States, cutting the grass as an example? Can anybody comment on 

that. 

Mr. PARSONS. Sir, I think definitely, you know, where the requirements are fairly known and can be defined, we tend to use 

fixed-price contracts, and it reduces the government’s overall risk. 

Where the requirements are less defined, where conditions are 

changing, we typically do use the cost-type contracts, and that is 

where we assume more risk. And as the GAO noted, that is where 

we need to provide more contract oversight, when we use those 

types of instruments. 

Mr. COFFMAN. Have we gone too far in that process? I mean, 

have we set ourselves up for failure by virtue of outsourcing too 

much? Have we gone too far in this continuum of things that were 

done by the military, that aren’t done by the military, that maybe 

we should look at returning to having the military perform some 

of these functions and not having contractors? 

Mr. SOLIS. I would offer, one of the things that Admiral Mullen 

initiated I think last year was to begin to look at, for future operations based on what has happened in Iraq and Afghanistan, to 

look at future operations to look at the reliance on contractors. And 

I think for future operations they are going to be looking and planning from the get-go to see, is this where we want to be, is this 

what we are going to have to do in terms of contracting out, or is 

it better to bring it back in-house, either a uniformed military 

member or DOD civilian. 

So I think that kind of examination is the kind of thing that I 

think we have said should be done, and I think the joint staff and 

the combatant commands are starting to do this. 

And I also mention the provision of 807, which begins to look at 

what exactly is the Department and the services starting to contract—what are they contracting, to get a baseline to see if that is 

where the Department wants to be, whether it is for grass-cutting, 

intel services, interrogators, private security contractors. And I 

think that is the kind of examination that will hopefully begin to 

answer the question that you are asking: Have we gone too far? 
20 

Mr. COFFMAN. Okay. 

Yes? 

Mr. HUTTON. Sir, I might just add to that, as Mr. Solis said, 

knowing what you are buying is important, and in making those 

specific decisions as to what you want to make sure is a core capacity of the military or a civilian person can do it. 

But part of that is you really don’t know if you are over-relying 

on contractors until you know what you are contracting for. And 

there is an aspect of it that I think is important. There are certain 

activity you might be asking a contractor to do that might be very 

sensitive or activities that are closely supporting, say, an inherently governmental function. And when you are in that arena, I 

think it is important that the government has the capacity to understand and oversee that contractor in those situations. 

They also have to think about whether that is something that 

they prefer to use a government person or not. But if they have to 

use a contractor because of the mission expediency, and they want 

to use the government, at that point they have to be thinking and 

doing advanced planning of how they are going to bring in the people to be on the government side, if that is their policy choice. 

So the government has to have capacity to be able to oversee that 

contractors. And if that number, that ratio gets out of balance, I 

think the government is at risk. 

Mr. COFFMAN. Okay. 

I served with the United States Marine Corps in Iraq, and I 

think the contractors did a great job. But I don’t know if it was 

cost-competitive. I have no idea, just being the end user. 

But there was some criticism, certainly, that I read about back 

home about sole source contracts not bid out on a competitive 

basis, extremely large contracts like Halliburton. And I wonder if 

any of you can comment on that. 

Mr. PARSONS. Well, sir, I think the Army recognized that, within 

a few years after the extended operation, that being in a position 

where we just had one contractor providing those types of services 

presented some risk to us. So that is why we moved to Wildcat IV, 

Logistics Civil Augmentation IV, where we now have three contractors that compete for that work at the task order basis. 

So another lesson learned as we go forward in this is, in the future, we should have vehicles that allow multiple contractors to 

perform that work. And then capitalizing upon what Mr. Hutton 

said is, we also need to make sure we have got the right number 

of folks that are available to provide oversight of that contractor effort. 

And I think that was the biggest lesson learned that we had in 

Iraq and Afghanistan, is that while you can probably debate on 

whether it is too much contracting or too many contractors, I think 

it was clear we didn’t have enough people to do the oversight of 

what we were contracting for. And that is where we are working 

hard to reverse that. 

Mr. COFFMAN. Okay. 

In this situation that you mentioned with the Humvees, I mean, 

in Kuwait, I think probably you wouldn’t have to go that far back 

to where an upper echelon of maintenance would have been performed by a maintenance command, in-house military organization. 
21 

And, you know, somebody would have been relieved if they had a 

fail rate at that level in place with somebody, a competent military 

commander. 

Mr. PARSONS. Sir, the level of maintenance that was really taking place there in Kuwait was above what you find in a typical 

maintenance unit. But you are exactly right, we do have experience 

in doing major overhaul and repair. We weren’t taking those practices that we use here in the States and applying them in an overseas condition, which we have reversed since then. 

Mr. COFFMAN. Okay. 

Thank you, Mr. Chairman. 

Mr. ANDREWS. Thank you, Mr. Coffman. 

Mr. Ellsworth. 

Mr. ELLSWORTH. Thank you, Mr. Chairman. 

And thank you to our witnesses. 

I have heard for years, for a long, long time, that government 

ought to run more like a business. I guess my first question is to 

you, Mr. Parsons. And thanks for being here. I know it seems like 

you are the one catching the brunt of this, and I apologize for that. 

The cell phone example, when did that initiative begin? When 

did that occur in time, that you had this savings? 

Mr. PARSONS. Sir, I don’t know the exact date, but I think it was 

in 2006, 2007. 

In fact, there is a report that was sent to the Office of Management and Budget (OMB) by OSD in fiscal year 2007 that captures 

a lot of these different initiatives we have in strategic sourcing, including the cell phones. So, if the panel is not aware of this report, 

I would recommend that you take a look, because I think it has 

some great examples of where the Department has been trying to 

move in strategic sourcing for the last several years. 

Mr. ELLSWORTH. And I appreciate that, and I applaud those efforts. I was just trying to think, when we said that, and we didn’t 

bring up the date, I can remember on a much smaller level at the 

Vandenberg County Sheriff’s Office, 300 officers, we did that same 

thing when the phones were in big black bags. If you remember, 

we had the antenna on the side that you flipped up. And we looked 

at the cost of phones, and did the narcotics officer need it, and how 

many minutes. I know it is a much bigger scale for the United 

States Army. But we were doing those kind of things in 1985 with 

bag phones. And then, as it progressed—and we were just a small 

sheriff’s department. 

And I guess that is my point. Does anybody remember what year 

we were talking about the $400 hammers and the toilet seats? Anybody remember what year? 

Mr. PARSONS. 1985. 

Mr. ELLSWORTH. You know, we have been talking about these 

kinds of things for a long, long time. And we are bragging, and that 

is good. I am all for saving $171 million. But 2006, 2007 on phones, 

and they are just figuring out that we need to maybe work contracts on the cell phones? So maybe we do need to run more like 

a business, not to make a profit, but if businesses ran like government did, this economy would be in a lot worse shape than it is 

now. 
22 

I guess my next thing would be: During your testimony, Mr. Solis 

and Mr. Parsons, your poker faces weren’t exactly—you weren’t 

putting them to use. 

Ms. Baldwin, you did a great job. 

But when you were listening, there were, just in facial expressions, Mr. Solis, things that you heard Mr. Parsons say during his 

testimony. Anything you want to bring up, comments to what he 

said? 

Then I will give Mr. Parsons the same chance, because you had 

a few reactions to some of the things Mr. Solis said in his. 

And so, any things that you heard in the testimony you would 

like to say, ‘‘Well, that is not exactly right,’’ or, ‘‘We see it a different way?’’ And don’t fight, please. 

Mr. HUTTON. Because I am in the middle. 

Mr. ELLSWORTH. Yeah, that is right. 

Mr. SOLIS. I don’t know that I would necessarily debate what he 

said. I think, again, what I have seen, not just in contract services, 

but when the Department says, ‘‘We are making changes, we have 

policies in place now,’’ I think the key is going to be execution and 

can they pull those things off. We talk about the need for more 

oversight and continued oversight, particularly in deployed locations. Is that really going to happen? 

And I mentioned at the end of my testimony about Afghanistan, 

there is going to be probably—and there already is—a substantial 

amount of contract support that is going in for Afghanistan. Given 

that we still have a large contractor-supported force over in Iraq, 

where are we going to find the folks and how are we going to do 

the oversight in Afghanistan? I think the Gansler report said it is 

going to take a number of years to build the acquisition workforce. 

So, again, I think we are at a point where I think a lot of people 

have gotten religion that we need to do better jobs on this. The 

question is, a couple of years from now, a year from now, are we 

going to be in any better shape? What is the Department really 

going to be able to do about that? 

I think if you look even going back to the increases in forces that 

the military has, how many of those folks are going be in the acquisition workforce? How are you making provisions for those things? 

So there is a lot of work to be done. And I have seen those kinds 

of things, and I think they are promising things, but will it be sustained, and can the leadership continue that? I think that is the 

key. 

Mr. ELLSWORTH. And I think, Mr. Parsons, in your own comments on page six about the Global Maintenance and Supply Services (GMASS), it says, ‘‘We are beginning to get a handle on.’’ And 

you have been at this since 1977. I am just picking on you because 

you are here. But, you know, if we are just now beginning to get 

a handle on this in 2009, where we have been? We have been procuring for quite a long time. 

But I would give you a chance. And I know we got the red light, 

but they may give us a second. 

Mr. PARSONS. Yeah, well, when I say we are beginning, I think 

really what we are doing is we are taking the lessons that we 

learned out of that GMASS and really now applying that across the 

board when it comes to contract oversight. 
23 

You know, actually, especially from my personal perspective, 

having the GAO go out and identify these shortfalls has really been 

helpful in getting the Department, especially the Department of 

the Army, to realize that this contracting business is serious; we 

are very dependent upon contractor support. And we need to put 

the right type of focus on this to make sure that we are doing this 

properly, not only to get the support to the warfighter, but also to 

make sure that we are executing the taxpayer dollars responsibly. 

And, you know, I think we have worked very closely with the 

GAO. I know that Major General Radden, who had responsibility 

of the GMASS contract, followed up with the GAO on the improvements we have done there. We have now taken those improvements and are spreading that across the command. 

In relation to Afghanistan, I think that the Department also recognizes that there is going to be a large contractor support mission 

there. We have the operational commanders recognizing that they 

have to play in that, from the standpoint that they have to provide 

CORs, contracting officer representatives. We have recently published a Contracting Officer Representative Handbook that goes to 

all of our deployed forces. And, most recently, the commander in 

Afghanistan issued direction to all of his brigades, all of his commanders, that they will provide people and get them trained to do 

proper oversight of contracting. 

So I think we are on the right path. And I agree, it is frustrating 

that it has taken as long as it has. But I think as long as we keep 

this focus and continue to get the support out of panels like yours 

in Congress so that we don’t fall back into the past practices, I 

think that the warfighter and the taxpayer will be better off in the 

long run. 

Mr. ELLSWORTH. Thank you all. 

Thank you, Mr. Chairman. 

Mr. ANDREWS. Thank you, Mr. Ellsworth. 

Mr. Conaway, I think Mr. Cooper had a follow-up question. I 

would obviously offer you the same opportunity, if you would like. 

Mr. CONAWAY. Mr. Parsons and everyone has talked about the 

shortage of personnel in the system. Do you track the number of 

people that you want versus the number of people you have in 

place? And do you have a plan that says, by six years out, five 

years out, whatever it is, you will have those folks fully populated? 

Do you have the resources to do that? 

It may be somewhat dynamic, but how shorthanded are you in 

your system, which, as I suspect—we heard the same thing about 

the weapons systems. They don’t have the right number of people, 

as well. So how many people are you short, and how are you going 

to manage to get to that right number? And how long will it take? 

Mr. PARSONS. When we established the Army Contracting Command, if you recall, the Gansler Commission also recommended increasing the number of contracting officials we had, both on the 

military and on the civilian side. And this command will add about 

an additional 1,000 civilians and about an additional 400—700 

military. 

Mr. CONAWAY. 400 to 700? 

Mr. PARSONS. 700 additional military. 

Mr. CONAWAY. What was the 400? You said 400. 
24 

Mr. PARSONS. That was a mistake. The total is 700 additional. 

At our end state, which should be about 2013, between the active, the reserve, and the guard, we should have over 1,000 soldiers 

that have contracting expertise, which is a three-fold, four-times increase over what we had at the early days of Operation Enduring 

Freedom (OEF) and Operation Iraqi Freedom (OIF). So that will be 

a marked improvement and will be able to give us the type of individuals we need to deploy in environments like Iraq and Afghanistan. 

Mr. CONAWAY. Okay. In order to maintain that end strength, 

though—I mean, those folks get out. You are going to have to have 

a pipeline of folks that would provide that level of end strength. Is 

that possible to do? Is it rational to do? 

Mr. PARSONS. Sir, we have a disciplined accessions plan that 

brings a certain number of new officers and new non-commissioned 

officers (NCOs) into the contracting workforce each year. So we 

plan that. We know what our exit rates will be, our attrition rates, 

and we plan for that for the new accession. So we will have a constant pipeline. 

Mr. CONAWAY. So why are you shorthanded on the civilian side? 

Mr. PARSONS. On the civilian side, we are doing the same thing. 

I have hired, out of the additional 1,000, I have about 400, 450 additional civilians on board since last March. 

Mr. CONAWAY. So when will you have the other 550? 

Mr. PARSONS. Our plan is to try to have those in the next two 

years. 

To be honest with you, our challenge right now is trying to hire 

what we call mid-grade level folks, you know, people that have between 5 and 15 or 5 and 20 years of experience. There is such a 

shortage of those across the Federal Government, all the federal 

agencies are competing for them. So what we find ourselves doing 

is hiring a lot of new people, entry-level people, and it is going to 

take time to get them trained and experienced. 

But approximately 30 percent of my workforce today on the civilian side has less than 5 years of contracting experience. 

Mr. CONAWAY. You can only hire mid-grade folks who are already 

in the system? You can’t hire from the private sector at those levels, with equivalent experience? 

Mr. PARSONS. It is a challenge to hire them. 

Mr. CONAWAY. But you can. I mean, there is no restriction of hiring somebody in the middle from outside the system. 

Mr. PARSONS. Well, if they are outside of Federal Government 

contracting and don’t have Federal Government contracting experience, it is hard to bring them in at the mid-grade level. You have 

to, again, bring them in at entry level, unless they have some kind 

of procurement or purchasing experience. 

And I will give you an example. Out at Warren, Michigan, near 

Detroit, where I have a contracting office, we have hired a number 

of former buyers from the auto industry and have brought them in 

and get them up to speed rather quickly. 

Mr. CONAWAY. Okay. So there is no legislative or regulatory restriction to doing that. It is just finding the right people. 

Mr. PARSONS. Correct. 

Mr. CONAWAY. Okay. 
25 

Thank you, Mr. Chairman. 

Mr. ANDREWS. Mr. Cooper, did you have a follow-up question? 

Mr. COOPER. Thank you, Mr. Chairman. I just wanted to give 

Mr. Parsons another chance, given his 32-year career in contracting, to help us find some more horror stories. 

Mr. Parsons. 

Mr. PARSONS. Sir, I am a little bit perplexed on how to answer 

the horror stories. I mean, my experience over the 32 years is that 

we aren’t always as efficient as we should be in the way we acquire 

goods and services. But I think as the GAO has pointed out, and 

I think based on my experience, it really starts with the requirements definition. And do you really know what it is you are buying? Do you really understand what it is? And then how best do 

you execute that? 

Mr. COOPER. Thank you, Mr. Parsons, but those are generalities. 

How many contractors have been banned from doing DOD work in 

cases that you have supervised? 

Mr. PARSONS. Cases that I supervised. 

Mr. COOPER. Or been directly involved with or knowledgeable 

about. 

Mr. PARSONS. In 32 years, I would just say a handful that I have 

been involved with—— 

Mr. COOPER. Can you remember the details of any of those cases? 

Mr. PARSONS. Well, certainly the one that I have testified before, 

having to do with A.E. Yates Ltd. (AEY) delivering ammunition to 

the Afghanistan army, is one that I was personally involved with. 

Mr. COOPER. So you were involved with that? Faulty ammunition. This was faulty World War I or II ammunition? 

Mr. PARSONS. This was a situation where the contractor was delivering ammunition that had its origins in China, which was prohibited by contract and prohibited by law. 

Mr. COOPER. And these were two young people who had been 

given this government contract with little, if any, prior experience, 

if the newspaper reports were correct? 

Mr. PARSONS. Correct. 

Mr. COOPER. How were they chosen as a suitable contractor? 

Mr. PARSONS. Sir, the process, the acquisition process, does not 

discriminate based on age. It does not discriminate based on the 

extent of contracts they have had before. There was a deliberate 

process that went through. There were some gaps in that process. 

The contracting officer was not aware of some poor performance by 

that contractor. I think—— 

Mr. COOPER. They had no experience, right? They were two college kids who, like, thought they would get in the business. 

Okay, that is two examples you have given us. Is there a third? 

Mr. PARSONS. Sir, really, you know, again, if I gave it some 

thought, I am sure I could come up with some other examples of 

where I have seen some poor—— 

Mr. COOPER. Well, maybe we can hold the record open so you can 

supply us some written examples. 

[The information referred to can be found in the Appendix on 

page 85.] 

Mr. PARSONS. Okay. 
26 

Mr. COOPER. Final point, if the chairman would indulge me. I 

would be curious, especially from our GAO friends, about how 

many pages of regulations regarding purchasing that there are. 

Like, is it possible for a human being in any one of Mr. Parsons’s 

115 contracting locations to completely master the material? 

Mr. HUTTON. I can’t tell you how many pages, but I believe it is 

a very thick—if you are talking about the Federal Acquisition Regulations, it is very thick. It is probably thousands of pages. 

But if I can make one comment, because you are asking for horror stories, my observation would be it is difficult because you don’t 

know—you wouldn’t know any horror stories unless you have real 

good contractor surveillance. And that has been one issue that we 

have been pushing on. Typically, the examples are coming because 

auditors have gone in later and identified some of these. 

I would like to loop back, though, to what the DOD is trying to 

do, which I hope will either prevent horror stories or help them 

find them themselves and be able to take corrective actions. That 

would be when they are looking at the pre-award and post-award 

as part of their peer review process, where they bring people in and 

look at how they are defining their requirements, are they getting 

sufficient competition, things like that, before the award, and then 

in the post-awards where you go evaluate. 

And that is where I think your question about value comes in, 

too, in their post-award peer review—and this is all new. I don’t 

know to what extent they have executed this yet, but it is in their 

5000.2 directive on acquiring acquisitions. It is in the post-award 

review where I think you are going to start seeing, if it is executed, 

you start getting insights: Did we get value? Did we get what we 

paid for? And are there lessons learned? And you loop it back to 

the pre-award. 

So I think, conceptually, those are key factors. But I am not surprised he might be hard-pressed, because we have been saying time 

and time again that surveillance of contractor performance has 

been a weakness. 

Mr. COOPER. With the Chairman’s continued indulgence, this is 

pretty amazing. It is like quicksand. To find out more about service 

contracting, we have to have more service contractors. And already 

the body of knowledge is so great, it is probably difficult for any 

individual to master. 

I am almost wondering, what if we repealed all those regs? What 

if we paid Mr. Parsons on commission to do a good job? That might 

completely change the incentive structure. Because today we have 

an extremely paper-intensive, bureaucratic, where it is difficult to 

even, after 32 years of experience, to list more than two examples 

of things that kept you up at night, things that were embarrassing 

for the government or the taxpayer. Not that it is Mr. Parsons’s 

fault or anyone’s fault, but were these Afghan munitions contractor 

kids, are they still eligible to contract for the Federal Government? 

So those are two folks who were banned, okay. 

It is just, you know, most people in a business career would have 

a lengthy list of things they wish they had done differently. And 

we seldom, if ever, hear about those things. Occasionally we read 

about them in the newspaper. But there has to be a better system. 
27 

We have attempted to reform this 130 times since World War II. 

We haven’t gotten it right. So what is it going to take new to do 

it right? We haven’t even been able to get Ms. Baldwin’s information transferred to the other services. You know, it is just like— 

it is a quagmire. So how do you wiggle your way out of a quagmire? 

I am not finding good proposals. 

Mr. ANDREWS. Well, that is a good place to segue because I was 

going to ask the panel, both to tell us now and then we will keep 

the record open for written recommendations, as to what legislative 

changes you might like to see us enact to address the problems we 

heard about this morning. 

Ms. Baldwin, do you have any ideas for us? 

[The information referred to can be found in the Appendix on 

page 85.] 

Ms. BALDWIN. I have ideas. I am not sure how to turn them into 

legislation in a way that would be most effective. 

But I think there are several themes coming out of these discussions. One is the problems with requirements for setting the right 

kinds of contracts for managing these service acquisitions in the 

right way. 

And I think a key point that hasn’t come up in discussion today 

is the need for the military departments to really understand the 

nature of the industries that they are dealing with, to have people 

who understand the services they are buying, who have worked in 

those industries, for example, who understand how to write requirements; what are the key points that the contractor needs to 

know? How to write contracts in the best way; what are the typical 

kinds of contracts that are used? What are the pitfalls associated 

with different options? And how to evaluate performances of those 

services in the right way; what do we look for when we are evaluating whether or not a contractor has performed well? 

So I think that is a key part of this process that the DOD is still 

struggling with and needs to be able to move forward with, but I 

don’t know how to write that into legislation. 

Mr. ANDREWS. Well, as I say, we would keep the record open for 

any ideas you would have as to how to pursue that. 

Mr. Solis, Mr. Hutton, does the GAO have some legislative recommendations? 

Mr. SOLIS. Well, looking at what the Congress has already done, 

I think there is already quite a bit out there. And I think it is probably a good time maybe to even sit back and say, what has the Department responded to? 

And, again, I keep coming back to 807. The Army has begun to 

provide some of that type of information. The Navy and the Air 

Force have yet to do that. And I don’t know exactly where they are 

at. But I think that would be a key in following up on a lot of the 

legislation that is already in existence to make sure that the Department is complying. Because I think then you are going to begin 

to get some of the answer to your questions, I believe. 

And I guess there are other policies that are already out there 

that the Department has begun to do. And I think following up to 

making sure that those are executed, I think, are the key. 

Mr. ANDREWS. Mr. Hutton. 
28 

Mr. HUTTON. The only thing I would add is that oftentimes when 

we do our work and GAO tries to prepare itself when we go in and 

look at contracts—and, as I mentioned earlier, the Federal Acquisition Regulations has a lot of practices and guidance as to how 

things should be done. And what we find is that oftentimes the 

guidance is there but it is just not done. 

And I think that is, again, how do you translate policies and regulations into execution? Is it a matter of sufficiently amount of 

trained acquisition professionals, for example? 

The only way I think—one way you can get to good requirements, particularly in an area of service contracting where it is a 

little more difficult to define the requirements, you have to make 

sure you allow yourself some time and you have the right folks together talking about how you write that requirement. 

As I mentioned earlier, it is a fact that oftentimes it is the rush 

to get the contract award, and there is a little less focus on the requirements and the back end on oversight. 

Mr. ANDREWS. Thank you. 

Mr. Parsons, what do you think? 

Mr. PARSONS. Sir, I have to agree with the General Accountability Office here. I don’t think there is a real need for additional 

legislation, because I think the Congress has put a lot of legislation 

in place having to deal with service contracts that is trying to force 

discipline in the way we manage those. And I think really the 

question is, are we following through on those? I think the Army 

is following through on those legislative initiatives. 

The other thing that I would encourage the Congress to do, 

though, is also keep up the focus on the training of the acquisition 

workforce and ensuring that the Department sets aside the proper 

funds to train. I think section 852, which was passed in the National Defense Authorization Act (NDAA), is very critical for our 

line of business, and we need to keep that focus. 

I think a lot of it is just how well are we following through on 

the initiatives that Congress has already put in place for these 

things. 

Mr. ANDREWS. Well, thank you. I am struck, in concluding this 

morning’s hearing, by two points. One is about enormity; the other 

is about irony. 

The enormity is I come from a state that is a large, expensive 

state to live in. We will spend in one year in the acquisition of services for the Department of Defense what my state will spend in six 

years to run the affairs of the state government. This is an enormous, enormous issue. Since we have met this morning, the United 

States taxpayers have spent about $35 million during this hearing 

to acquire services. That is the enormity. 

The irony is that we have the best military in the world because 

we have mastered data. Our warfighters know more about the battle space than anybody else does, sooner than anybody else does, 

so they can make decisions that are far more effective and, when 

necessary, lethal than anybody else can. It is why we are as powerful as—and, frankly, because the people we empower with data are 

as well-trained and as courageous and as skilled as they are. 

It is supremely ironic to me that we know so little, we have so 

little data about such an enormous amount of money. And I am not 
29 

ascribing blame to anyone sitting here this morning, other than us, 

frankly. But what I am hearing out of this is that we really don’t 

have the tools to get our arms around the scope of this issue. 

The cell phone example is a really interesting one because it is 

a success story. But Mr. Ellsworth’s question is very pointed as to, 

why such a tardy success? It seems kind of self-evident. I think Mr. 

Coffman’s questions about the distinction between very complex 

services that we buy and very simple services that we buy is another good one. 

So I think one of the projects of the panel is to think about a way 

to collect in one place and hold one organization accountable for 

this information. 

I mean, I will come back to one question I asked, which I am convinced there is no answer to: Of the $200 billion we will obligate 

for service acquisition this year, how much value are we getting? 

Are we getting $200 billion worth of value? Are we getting $170 

worth of value? Are we getting $230 billion worth of value? 

I am convinced that we just don’t know, and that is very troubling. If I were the shareholder of a company whose Chief Financial Officer (CFO) could not answer that question, I would sell my 

stock. I am not selling my stock in the United States of America, 

particularly in the Department of Defense. I mean, the success 

story of the Department of Defense is that it does a great job defending this country. But I think it could do a greater job if we 

could figure this out. 

And, you know, I keep coming back—and we will conclude with 

this story about the food contract in Iraq. Iraq is, by definition, 

probably the most hostile environment on the face of the Earth 

today. A lot had to be done in a hurry. You don’t want people to 

be arguing about contracts when people are hungry; you have to 

feed them. I understand all that. 

And, again, that would explain to me why, you know, vegetarian 

meals weren’t readily available for soldiers that needed them. Or 

it might explain why certain religious preferences couldn’t be honored at first. That explains a lot of that. Or that certain meals had 

to be Meals, Ready-to-Eat (MREs) for an extended period instead 

of refrigerated meals. But not to figure out whether you are paying 

on a per capita basis or fixed price is—wow. I mean, to have a situation where that can happen is very troubling. 

So, listen, what is not troubling is your efforts this morning. We 

appreciate them very, very much. 

And we will hold the record open to receive requests from the 

questions my colleagues have asked. 

The panel is going to proceed down this road of trying to develop 

better metrics. And then our next step will be to look at the 

hypotheses that have been generated over the years, over the 131 

reports, as to what the problems are, both in this service contracting area and the hardware area. 

So, ladies and gentlemen, we appreciate your participation this 

morning. And the panel is adjourned. 

[Whereupon, at 9:30 a.m., the panel was adjourned.] 

A P P E N D I X 

APRIL 23, 2009 

PREPARED STATEMENTS SUBMITTED FOR THE RECORD 

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WITNESS RESPONSES TO QUESTIONS ASKED DURING 

THE HEARING 

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RESPONSES TO QUESTIONS SUBMITTED BY MR. ANDREWS 

Ms. BALDWIN. No recommendations for legislative changes. [See page 25.] 

Mr. PARSONS. Chairman Andrews, let me say that as far as I am concerned, almost everything that we’ve asked from Congress has in fact been enacted in some 

form of legislation to support us. At the present time I think what we need to do 

is utilize the flexibilities and capabilities that Congress has given us to move forward. [See page 27.] 

QUESTIONS SUBMITTED BY MEMBERS POST HEARING 

APRIL 23, 2009 

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QUESTIONS SUBMITTED BY MR. ANDREWS 

Mr. ANDREWS. RAND was asked by the Air Force to help develop measures that 

would allow the newly established Air Force services contracting office to assess the 

health of its acquisition efforts and analyze problems and make corrections. 

To your knowledge has the Air Force undertaken the recommendations made in 

your report? Could your recommendations apply to all the services? 

Ms. BALDWIN. I have not worked with the Air Force’s Program Executive Officer 

(PEO) for services in several years, and as a result am not aware of whether, or 

to what degree, the Air Force has implemented our recommendations. I believe our 

recommendations could apply to all of the military Services. 

Mr. ANDREWS. GAO has found that the Department lacks a strategic approach to 

managing services, and needs to develop methods to assess risk when acquiring 

services. 

Do you have any comments on this? 

Ms. BALDWIN. I have no comment beyond the recommendations found in my official written statement. 

Mr. ANDREWS. It has been suggested that the Department of Defense (DOD) establish centers of excellence for services contracting, and some moves have already 

been made in this direction, such as the Air Force’s services contracting office. 

In your opinion, would DOD benefit from centralizing the contracting of services 

to a greater degree in order to capitalize on best practices and the Department’s 

buying power? 

Or, would the establishment of separate services contracting offices lead to great 

bureaucracy and restrict communication between those monitoring performance and 

those awarding new contracts? 

Ms. BALDWIN. I have not studied the costs and benefits of further centralization 

of services contracting at the DOD level, and so have no comment on the development of DOD centers of excellence. 

Mr. ANDREWS. GAO has found that DOD has made few efforts to collect information and share lessons learned regarding oversight and management of contractors 

supporting deployed forces. But that is just a microcosm of the larger universe of 

services contracting. 

In your opinion, would greater visibility on all contracted services help agencies 

better measure the value of those contracts? 

If so, what suggestions do you have on how to provide that visibility? 

Ms. BALDWIN. I agree that greater visibility of all contracted services would help 

agencies better track expenditures on services contracts to determine if the taxpayer 

is getting good value for money. Some of our recent research has highlighted the 

importance of standardized collection and reporting of contracting data to do this 

(see Analyzing Contracting Purchases for Operation Iraqi Freedom, Laura H. Baldwin, et al., MG–559/1–AF, The RAND Corporation, Santa Monica, CA, 2008). Some 

important steps have already been taken in this direction. For example, the Joint 

Contracting Command Iraq/Afghanistan (JCC–I/A) maintains a data system called 

the Joint Contingency Contracting System (JCCS), which contains information on 

what is purchased, by whom, from whom, and for whom in Iraq and Afghanistan. 

Mr. ANDREWS. One of the most important challenges facing agencies today has 

been the move toward more performance-based contracts to meet mission and program needs. 

Has RAND conducted any reviews of performance based contracts within DOD? 

If so, has RAND assessed whether DOD has been able to adequately determine 

whether the value or risks associated with this type of contracting can be measured 

accurately? Also, has RAND assessed whether DOD has adequate systems in place 

to compare alternative options? 

Ms. BALDWIN. In 2001 RAND conducted a study of Air Force performance-based 

contracting (Performance-Based Contracting in the Air Force: A Report on Experiences in the Field, DB–342–AF, John Ausink and Frank Camm, The RAND Corporation, Santa Monica, CA, 2001). This work examined the experiences of 15 Air 

Force bases that were responsible for the successful implementation of 22 performance-based contracts awarded between FY 1998 and FY 2000. The study found that 
90 

1GAO, Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition Outcomes, GAO–07–20 (Washington, D.C.: November 9, 2006). 

Air Force personnel were generally pleased with the results of performance-based 

services acquisition as well as with many of the practices it encourages, including 

teamwork, market research, and the use of past-performance data in evaluating 

offerors. However, the study also found that no effort had yet been made to compare 

the performance of current contractors hired using PBSA practices with that of their 

predecessors hired through other practices, pointing to a need for more assiduous 

data collection on the efficacy of the PBSA approach to acquiring services. This work 

did not assess the adequacy of Air Force or DOD systems to compare alternative 

contracting options. 

Mr. ANDREWS. In Performance based logistics contracts, in your opinion what 

types of cost metrics should be included to ensure that costs are being reduced as 

intended? 

Ms. BALDWIN. While I have not studied performance-based logistics contracts specifically, our research on services contracting (Air Force Service Procurement: Approaches for Measurement and Management, Laura H. Baldwin, et al., MG–299, 

The RAND Corporation, Santa Monica, CA, 2005) indicates that commercial firms 

use at least three basic types of metrics to track cost savings. The first is to examine 

internal costs by, for example, comparing current spending to that of a previous period (adjusting for inflation), or comparing costs for a particular service across divisions within the firm to determine if there are opportunities to reduce costs. A second approach is to compare the firm’s change in costs for a particular service to the 

change in the relevant market cost index. For example, if the firm’s costs increased 

by 3% while the market index increased by 5%, the firm has essentially achieved 

a net savings of 2%. A third basic cost metric is the return on investment of a new 

approach: dividing the reduction in expenditures by the cost of the new procurement 

activities that led to the realized savings. 

Mr. ANDREWS. Under a Performance Based Logistics contract, what steps should 

DOD take to ensure that the right balance is struck between giving the contractor 

sufficient autonomy to manage the resources to achieve the performance objectives 

and ensuring that an adequate level of competition is maintained to incentivize performance? 

Ms. BALDWIN. I have not addressed performance-based logistics contracts in my 

research to date. 

Mr. ANDREWS. Service contracting is often viewed as being less complex than purchases for products. However, service contracting now makes up approximately 60 

percent of the Department’s budget and includes weapon systems and support and 

IT systems. 

Do you believe the Department has the tools to measure value on services contracting to support the warfighter in terms of ensuring that contractor supported 

services are provided on a timely basis and in an economical and efficient manner? 

Mr. HUTTON and Mr. SOLIS. To ensure the Department receives value when using 

contractors to support its mission or operations, it is essential that DOD employ 

sound practices—clearly defining its requirements, using the appropriate contract 

type, and properly overseeing contract administration. Our work, however, has repeatedly identified problems with the practices DOD uses to acquire services. Further, an overarching issue that impacts DOD’s ability to properly manage its growing acquisition of services is having an adequate workforce with the right skills and 

capabilities. Collectively, these problems expose DOD to unnecessary risk and make 

it difficult for the Department to ensure that it is getting value for the dollars spent. 

Although DOD has taken steps to improve the planning, execution, and oversight 

of services acquisitions, remaining concerns with the Department’s management and 

use of service contracts are among the reasons why we continue to include DOD’s 

contract management on our high-risk list. 

Mr. ANDREWS. GAO has found that the Department lacks a strategic approach to 

managing services and needs to develop methods to assess risks when acquiring 

services. Would you detail what actions DOD needs to take to develop such an approach? 

Mr. HUTTON and Mr. SOLIS. In November 2006, we made six recommendations 

to put DOD in a position to proactively manage service acquisition outcomes and 

to assist DOD in identifying specific solutions at the strategic and transactional levels.1 In this regard, we recommended that the Secretary of Defense 

• establish a normative position of how and where service acquisition dollars were 

currently and will be spent (including volume, type, and trends); 
91 

2GAO–07–20. 

• determine areas of specific risk that were inherent in acquiring services and 

that should be managed with greater attention (including those areas considered sensitive or undesirable in terms of quantity or performance); 

• on the basis of the above, clearly identify and communicate what service acquisition management improvements were necessary and the goals and timelines 

for completion; 

• ensure that decisions on individual transactions were consistent with DOD’s 

strategic goals and objectives; 

• ensure that requirements for individual service transactions were based on 

input from key stakeholders; and 

• provide a capability to determine whether service acquisitions were meeting 

their cost, schedule, and performance objectives. 

DOD concurred with our recommendations and agreed that a more coordinated, 

integrated, and strategic approach for acquiring services is needed. We currently 

have ongoing work to assess DOD’s management, oversight, and execution of its 

service contracts. We plan to issue a report later this year. 

Mr. ANDREWS. It has been suggested that the Department of Defense establish 

centers of excellence for services contracting and some moves have already been 

made in this direction, such as the Air Force’s services contracting office. 

In your opinion, would DOD benefit from centralizing the contracting of services 

to a greater degree in order to capitalize on best practices and the Department’s 

buying power? 

Or would the establishment of separate services contracting offices lead to greater 

bureaucracy and restrict communication between those monitoring performance and 

those awarding new contracts? 

Mr. HUTTON and Mr. SOLIS. We have not specifically assessed the merits of establishing centers of excellence for service contracts on a departmentwide basis or the 

Air Force’s specific approach as a means to improve service acquisition outcomes. 

It is important to note, however, that DOD’s size, the range and complexity of the 

services it acquires, the multiple sources of risk, and the wide variety of organizations that are involved in individual acquisitions are among the factors that may 

preclude DOD from developing an ideal, ‘‘one-size-fits-all’’ departmentwide review 

process or organizational structure. Further, these challenges may require DOD to 

pursue a number of different approaches depending on its needs and requirements. 

For example, we have recommended that DOD conduct additional analysis of its 

spending on service contracts to identify opportunities to leverage its buying power 

and identify opportunities to achieve other procurement efficiencies, consider whether cross-functional teams would improve the coordination and management of service acquisitions, and assess whether it would be beneficial to establish full-time 

dedicated commodity/service managers to provide more effective management of key 

services. DOD has generally agreed with these recommendations and has taken 

steps to address our concerns. 

Mr. ANDREWS. GAO has found that DOD has made few efforts to collect information and share lessons learned regarding oversight and management of contractors 

supporting deployed forces. But that is just a microcosm of the larger universe of 

services contracting. 

Would greater visibility on all contracted services help agencies better measure 

value of these contracts? 

What suggestions do any of you have on how to provide that visibility? 

Mr. HUTTON and Mr. SOLIS. We do believe that DOD would benefit from having 

greater visibility on its services contracts. As we reported in November 2006, DOD 

lacked good information on the volume and composition of service acquisitions, perpetuating the circumstance in which the acquisition of services tended to happen 

to DOD, rather than being proactively managed.2 We made six recommendations to 

put DOD in a position to proactively manage service acquisition outcomes, beginning with improving its knowledge on how and where service acquisition dollars 

were being spent and the desired volume of spending by type of service in the future. While DOD agreed with these recommendations, DOD still lacks basic data 

about its service contracts that could help it determine how it contracts for services 

and how reliant it is on contractors. For example, at this time, the Department does 

not have complete and accurate information on the number of service contracts in 

use, the services being provided under those contracts, and the number of contractors providing those services, and the number and types of contracts awarded. Section 807 of the National Defense Authorization Act for 2008 required DOD to pro-
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3P.L 110–181, January 28, 2008. 

4GAO, Defense Management: DOD Needs to Reexamine Its Extensive Reliance on Contractors 

and Continue to Improve Management and Oversight, GAO–08–572T (Washington, D.C.: Mar. 

11, 2008). 5For additional information on the challenges with accurately reporting on the amount agencies obligate on A&AS contracts in the President’s Budget, see GAO, Federal Contracting: Congressional Action Needed to Address Long-standing Problems with Reporting of Advisory and 

Assistance Services, GAO–08–319 (Washington, D.C.: March 31, 2008). 6To help improve service acquisition outcomes, federal procurement policy calls for agencies 

to use a performance-based approach to the maximum extent practicable. This approach includes a performance work statement that describes outcome oriented requirements, measurable 

performance standards, and quality assurance surveillance. 7For additional information on the challenges an agency may face when attempting to employ 

performance-based approaches, see GAO, Department of Homeland Security: Better Planning 

and Assessment Needed to Improve Outcomes for Complex Service Acquisitions, GAO–08–263 

(Washington, D.C.: April 22, 2008). 

vide Congress an annual inventory of contractor-provided services, to include information on the missions and functions of the contractor, the number of full-time contractor employees paid for performing the activity, and the organization whose requirements are being met through contractor performance.3 In addition, this provision required the military departments to review the inventory to identify activities 

that should be considered for conversion to performance by DOD civilian employees 

or to an acquisition approach that would be more advantageous to DOD. The first 

inventory was to have been reported to Congress not later than June 30, 2008. As 

we noted during the testimony, only the Army had begun the process to comply with 

this requirement. According to DOD officials, the Air Force and Navy will issue 

their prototype inventories in the third quarter of fiscal year 2009. Collectively, 

these inventories, if successfully completed, could provide DOD with the enhanced 

visibility on its spending on contractor-provided services and allow for more strategic decision making. 

With regard to contractors supporting deployed forces, we would add that in late 

2008, DOD began an effort, directed by the Chairman of the Joint Chiefs of Staff, 

to examine the Department’s use of service contracts in Iraq and Afghanistan. The 

purpose of this effort is to improve DOD’s understanding of the range and depth 

of contractor capabilities necessary to support the Joint Force. The study is to address where DOD is most reliant on contractor support and may help inform longer 

term force structure issues such as the potential for increasing DOD’s military and 

civilian work force in order to in-source services currently provided by contractors. 

At the departmentwide level, however, DOD had yet to conduct the type of fundamental reexamination of its reliance on contractors that we called for in 2008.4

Mr. ANDREWS. What is the difference between Advisory and Assistance Services 

and consulting services? 

What recommendations do you have for improving acquisition outcomes for these 

types of services? 

Mr. HUTTON and Mr. SOLIS. Advisory and assistance services (A&AS) and consulting services may be thought of, for all practical purposes, as being one and the 

same; indeed, advisory and assistance services were previously referred to as consultant services. A&AS are services intended to be used by federal agencies to acquire three broad areas of services: management and professional support; studies, 

analyses, and evaluations; and engineering and technical services.5

With regard to improving acquisition outcomes for these types of services, we have 

noted that factors contributing to promoting successful outcomes on individual service contracts include having clearly defined and valid requirements, the use of sound 

business arrangements, and effective contractor management and oversight. These 

factors apply to all service contracts, including those for A&AS. 

Mr. ANDREWS. One of the most important challenges facing agencies today has 

been the move toward more performance-based contracts to meet mission and program needs. 

Has GAO assessed whether DOD has been able to adequately determine whether 

the value or risks associated with this type of contracting can be measured accurately? 

Mr. HUTTON and Mr. SOLIS. We have not recently assessed DOD’s overall use of 

performance-based contracting approaches 6 and therefore cannot comment on a 

broader level. We have, however, assessed DOD’s use of performance-based logistics 

(PBL) arrangements, a specific type of a performance-based approach, which illustrates some of the challenges agencies face when implementing performance-based 

approaches.7 PBL is defined by DOD as the purchase of performance outcomes (such 

as the availability of functioning weapon systems) through long-term support ar-
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8 A business case analysis is an analytical tool for assessing the projected costs, benefits, and 

risks of a PBL arrangement compared with other alternative weapon system support options. 9GAO, Defense Logistics: Improved Analysis and Cost Data Needed to Evaluate the Cost-effectiveness of Performance Based Logistics, GAO–09–41 (Washington, D.C.: Dec. 19, 2008). 10These arrangements transfer responsibility for making support decisions—and corresponding risk—to the support provider, and risk is one of the major cost drivers for contractors. Therefore, the use of performance metrics could introduce a large element of risk for the 

contractor that may be built into the costs of such an arrangement. 11 Under Secretary of Defense (Acquisition, Technology and Logistics), Memorandum, Performance Based Logistics: Purchasing Using Performance Based Criteria (Aug. 16, 2004). 12DOD had previously issued guidance for using economic analysis in the Department’s decision making (DOD Instruction 7041.3, Economic Analysis for Decisionmaking, November 7, 

1995), and this guidance recommends the analysis of both quantitative and qualitative factors. 

However, when DOD in 2001 recommended the development of a business case analysis prior 

to implementing a PBL arrangement, it provided little criteria for conducting such an analysis. 13The Defense Acquisition Guidebook provides an interactive, online reference to policy and 

discretionary best practices. The guidebook is available at https://akss.dau.mil/dag/. 

rangements, rather the purchase of individual elements of support, such as parts, 

repairs, and engineering support. 

DOD has not been able to adequately determine the value and risks associated 

with PBL arrangements. Two key limiting factors are (1) deficiencies in DOD’s use 

of business case analysis and (2) insufficient cost data from existing arrangements. 

Although DOD’s guidance recommends that business case analyses 8 be used to 

guide decision making regarding the implementation of PBL to provide weapon system support, and that the analyses be updated at key decision points both to validate the approach taken and to support future plans, we found that the services are 

not consistent in their use of such analyses.9 About half of the DOD program offices 

responsible for the 29 PBL arrangements we reviewed either did not use a business 

case analysis (or economic analysis) or could not provide documentation for significant parts of their analyses. Even when business cases were prepared, we found 

that program offices often did not update them in accordance with DOD’s guidance 

and service policies. Additionally, most of the analyses we reviewed did not identify 

and quantify the benefits that could be expected from contractor incentives to increase reliability or improve processes to reduce support costs, nor recognize or 

quantify the costs associated with the transfer of risk that occurs under a performance-based support arrangement.10 The lack of detailed and standardized cost data 

maintained by program offices further limits DOD’s evaluation of PBL costs, as 

many factors influence the overall costs of weapon system support. Despite DOD 

guidance issued in 2004 stating that PBL contracts shall include cost reporting requirements to support contract management and future cost estimating and price 

analysis,11 we found that program offices generally did not receive detailed cost data 

and only knew the overall amounts paid for support. 

Mr. ANDREWS. Has GAO assessed whether DOD has adequate systems in place 

to compare alternative options, especially when a performance based logistics contract is being considered? 

Mr. HUTTON and Mr. SOLIS. DOD does not have adequate systems in place to 

compare alternative support options when considering performance based logistics 

arrangements. Although DOD’s guidance recommends that business case analyses 

be used to guide decision making regarding the implementation of PBL to provide 

weapon system support, we found that the use of these analyses was not consistent 

among the services because DOD did not require that the analyses be conducted and 

updated and did not provide specific criteria to guide their development.12 In addition, we noted that DOD, in updating its Defense Acquisition Guidebook,13 no longer 

specifically recommends a business case analysis as a best practice; rather, it recommends the development of a ‘‘support strategy analysis’’ as part of the PBL implementation process. According to the guidebook, the support strategy analysis can 

be a business case analysis, economic analysis, decision-tree analysis, or other bestvalue-type assessment. Most of the services eventually issued some policies and 

guidance for business case analyses. However, with the exception of the Army, the 

services have not established the internal controls, including a review and approval 

process, necessary to ensure that business case analyses are conducted prior to PBL 

implementation and updated after implementation. DOD fully concurred with our 

recommendations to require the development of a business case analysis to support 

the decision-making process regarding weapon system support alternatives, including PBL, and to require that each service revise guidance to implement internal controls to ensure that program offices prepare and update business case analyses. 

DOD stated that the Department will take steps to require the use of business case 

analyses in the next iteration of DOD’s acquisition regulations. DOD also stated 

that the Army’s internal controls will be reviewed by its Life Cycle Product Support 
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14DOD Instruction 5000.02, Operation of the Defense Acquisition System, was issued on December 8, 2008. 15GAO, Defense Management: Opportunities to Enhance the Implementation of PerformanceBased Logistics, GAO–04–715 (Washington, D.C.: Aug. 16, 2004). 

Assessment Team, which will make recommendations for expansion of DOD-wide 

policy as part of the team’s overall recommendations. DOD partially concurred with 

our recommendation to revise PBL business case analysis guidance to clearly define 

what should be included in a business case analysis and to establish specific criteria 

and methods for evaluating PBL support arrangements, stating that the Life Cycle 

Product Support Assessment Team will review existing business case analysis policy. The Department will evaluate the team’s recommendations on providing specific 

criteria and methods for evaluating support arrangements and determine how best 

to incorporate these recommendations into mandatory policy. 

Mr. ANDREWS. In PBL contracts, what types of cost metrics should be included 

to ensure that costs are being reduced as intended? 

Mr. HUTTON and Mr. SOLIS. While it is the agency’s role to determine what type 

of cost metrics should be used, GAO has recommended DOD collect detailed, standardized cost data to support effective program management. While DOD has identified performance-based metrics for PBL arrangements, it has not specified metrics 

for ensuring that costs are being reduced as intended. DOD guidance issued in 2004 

directed PBL arrangements to be constructed to purchase performance, which is defined using criteria such as cost per unit usage, operational availability, operational 

reliability, logistics footprint, and logistics response time. The guidance recommended that PBL metrics be tailored to reflect the unique circumstance of the 

arrangement, but still support these desired outcomes and that performance measures be tailored by the Military Departments to reflect the unique circumstances of 

the PBL arrangement. Many of the 29 PBL arrangements we reviewed did not contain cost metrics. Some of the aviation PBL arrangements we reviewed were negotiated on a cost per flight hour basis, but none of the non-aviation PBL arrangements included a similar cost per unit of usage metric. As previously mentioned, the 

lack of detailed and standardized cost data maintained by the program offices also 

limited the evaluation of PBL costs, as many factors influence the overall costs of 

weapon system support. Based on our work, we recommended that DOD require 

program offices to collect and report support cost data for PBL arrangements in a 

consistent, standardized format with sufficient detail to support traditional cost 

analysis and effective program management. DOD partially concurred and stated 

that a provision for tailored cost reporting for major acquisition programs designed 

to facilitate future cost estimating and price analysis has been included in the draft 

DOD Instruction 5000.2.14 Additionally, the Life Cycle Product Support Assessment 

Team is reviewing support cost reporting and cost analysis as a part of its ongoing 

study. According to DOD’s response, the ultimate goal is standardized support cost 

reporting for all life cycle product support efforts, to include support provided by 

government activities. 

Mr. ANDREWS. Under a performance based logistics contract, what steps should 

DOD take to ensure that the right balance is struck between giving the contractor 

sufficient autonomy to manage the resources to achieve the performance objectives 

and ensure that an adequate level of competition is maintained to incentivize performance? 

Mr. HUTTON and Mr. SOLIS. While our PBL work has not directly addressed this 

question, in 2004 we compared industry practices for activities using complex and 

costly equipment with life-cycle management issues similar to those of military systems to identify lessons learned that could be useful to DOD.15 In general, company 

officials said that performance-based contracts are a tool most often used selectively 

in a noncompetitive environment in an effort to control cost and reduce risk. Our 

review found that while 7 of the 14 companies interviewed used some type of performance-based contracting, it was used at the subsystem or component level—for 

commodities such as engines, wheels, and brakes—and it was generally used for 

older systems. Company officials said that performance-based contracting works better for subsystems and components where available cost and performance data are 

sufficient to establish a good business case analysis, noting that this is more difficult to accomplish for new systems, where performance data are uncertain. In general, company officials said they relied more widely on other contracting vehicles, 

such as time and material contracts, particularly for newer systems that don’t have 

a performance history. We also found no private-sector performance-based contracts 

being used at the platform level. Instead, company representatives preferred to retain the program integration function that they considered a core function essential 

to the success of their business operations. Additionally, they preferred to (1) take 
95 

advantage of competition when it is available for subsystems or components, (2) 

gain purchasing power from volume discounts on subsystems or components across 

their entire fleet, and (3) avoid the administrative costs that would be charged by 

a prime integrator for managing subcontractors. 

Mr. ANDREWS. Service contracting is often viewed as being less complex than purchases for products. However, service contracting now makes up approximately 60% 

of the Department’s budget and includes weapons systems and support and IT systems. Do you believe the Army has the tools to measure value on services contracting to support the warfighter in terms of ensuring that contractor supported 

services are provided on a timely basis and in an economical and efficient manner? 

Mr. PARSONS. The Army’s primary tool for evaluating how well a given service 

contractor performs its contract requirements is the Contracting Officer Representative (COR) Program. The CORs are the ‘‘eyes and ears’’ of the contracting officer 

and track technical performance to validate the contractor is performing the work 

that was ordered under a contract. We combine this process with performance based 

work statements (PWSs) that specify the results that are to be delivered and how 

the Army will measure those results. We use techniques such as the DOD’s Seven 

Steps method, http://www.acquisition.gov/comp/sevenlsteps/index.html, to develop 

PWS’s that are tailored to reflect the specific requirements of the work to be performed and the performance environment. The metrics that we use to evaluate performance include cost, schedule, and various aspects of technical performance that 

are focused on outcomes. 

Mr. ANDREWS. GAO has found that the Department lacks a strategic approach to 

managing services, and needs to develop methods to assess risk when acquiring 

services. Would you detail what actions the Army has taken to develop such an approach? 

Mr. PARSONS. The Army is building upon its functional organizational and command structure to facilitate and further the initiatives of commodity management 

and strategic sourcing. Medical products, services, and research are exclusively 

managed and sourced through the Army Medical Command. Major weapon systems 

and equipment, material, and related logistics support are primarily managed and 

sourced through the Army Materiel Command. Garrison and Base operations support for Army installations is managed by the Army Installation Command with 

procurement support provided by the Army Contracting Command. Major construction is managed and sourced by the Army Corps of Engineers. Strategic transportation services are managed and procured by the Army Surface Deployment and 

Distribution Command. 

The Army’s established strategic sourcing goals are to: 

• Establish enterprise-wide cross-functional acquisition strategies 

• Reduce Total Cost of Ownership for acquired goods and services 

• Improve ability to meet socio-economic goals 

• Standardize acquisition business processes 

• Improve the skills of acquisition community 

We are evolving a deliberate strategic sourcing movement that focuses on establishing Army-wide contracts for common use supplies and services. For example, we 

now have an Army-wide contract for cell phones that has achieved substantial discounts from the GSA contracts prices and support better controls over who is given 

a cell phone and what type of calling program they may use. Net effect is a cost 

avoidance of $79.2 million per year. The Blanket Purchase Agreements provide consistent enterprise terms and conditions, eliminate activation, deactivation and other 

fees previously charged, and provide aggressive pricing on both cellular devices and 

service plans. Service plans also include a new flat rate pricing option not previously 

available to Army users. The flat rate price plan helps minimize the costs of using 

more than monthly allotted minutes and using fewer than the total minutes purchased each month by charging the user a low flat rate per minute only for minutes 

used each month. Use of this pricing option takes a lot of the guesswork out of 

matching individual users to the appropriate pricing plan and significantly lowers 

the total cost of cellular service for most users relative to existing plans. 

The Army uses suites of multiple-award indefinite quantity contracts to support 

all types of operations leveraging our service spending. Examples include the Field 

and Installation Support Readiness Team (FIRST) that provides logistical support 

requirements including logistics program management, repair and maintenance support, supply chain management, quality assurance support, logistics training support, and transportation support in worldwide locations. 

Other examples of our strategic sourcing initiatives: The Computer Hardware, Enterprise, Software and Solutions (CHESS) program and the Information Technology, 
96 

E–Commerce and Commercial Contracting Center (ITEC–4) developed negotiated 

bulk purchase pricing for commercial desktops and notebooks. We consolidate most 

of the Army requirements for desktops and notebooks into semiannual buys to maximize cost savings through volume discounts. Two contracts at CECOM provide centralized management of requirements for logistics and service support (the so-called 

R2 and S3 suites of contracts). These contracts are used across the Army. Finally, 

the AMCOM EXPRESS contracts provide professional engineering and support services—once again for all Army customers—at a savings to the prices on the related 

GSA schedules. 

Mr. ANDREWS. Does the Army or the Department maintain a common database 

of past performance data for services? In particular, for commercial services that fill 

similar needs across various agencies? If so, how widespread is its use and what 

could be done to improve its use? If not, would such a database be a useful tool for 

finding good contractors, similar to a Better Business Bureau? 

Mr. PARSONS. The Army uses the Contractor Performance Assessment Reporting 

System to feed data on how well a contractor performed on a given contract into 

the central federal Past Performance Information Retrieval System (PPIPRS), which 

is similar to the Better Business Bureau concept. The National Institutes of Health, 

NASA and DOD operate systems to track contractor performance. These systems all 

feed into PPIRS. Contracting officers must collect past performance information on 

any Services or Information Technology contract for more than $1,000,000 and 

transmit that information to the central database. We have been collecting this type 

of information since 1999. Contracting Officers can access data within PPIRS from 

across the Federal Government and use that data as part of the evaluation of past 

performance that is part of most source selections. 

Mr. ANDREWS. What is the difference between Advisory and Assistance Services 

and Consulting Services? Generally, these types of contracts have broad statements 

of work, so how does the Army measure value? What steps does the Army take, and 

what additional steps, if any, should the Army take to minimize conflicts of interest 

that may develop with the acquisition of Advisory and Assistance Services, given 

that contractor personnel work in the same office environment as the Army customer? What challenges are created in objectively measuring performance of contractor personnel who seem to be an indistinguishable part of the government team? 

Mr. PARSONS. Advisory and Assistance Services, according to FAR Part 2.101 

means ‘‘those services provided under contract by nongovernmental sources to support or improve: organizational policy development; decision-making; management 

and administration; program and/or project management and administration; or 

R&D activities. It can also mean the furnishing of professional advice or assistance 

rendered to improve the effectiveness of Federal management processes or procedures (including those of an engineering and technical nature). In rendering the 

foregoing services, outputs may take the form of information, advice, opinions, alternatives, analyses, evaluations, recommendations, training and the day-to-day aid of 

support personnel needed for the successful performance of ongoing Federal operations.’’ These services are obtained to improve the efficiency of the agency. They 

do not include routine information technology support services. The acquisition of 

advisory and assistance services is a legitimate way to improve Government services 

and operations. Advisory and assistance services may be used at all organizational 

levels to help managers achieve maximum effectiveness or economy in their operations. 

Consulting Services are a possible subset of Advisory and Assistance Services— 

if advice is being provided that will improve agency efficiency. 

Mr. ANDREWS. What unique issues, if any, does the Army face in obtaining services via fixed price contracts? 

Mr. PARSONS. Services may be obtained under a fixed price contract if the statement of work is well defined and there are clear end products that will be delivered. 

If you are in a ‘‘tear down and quote’’ or other repair situation where the contractor 

cannot tell what the exact work required will be, a fixed price contract is not the 

right arrangement. Professor Steve Schooner, Co-Director of the Government Procurement Law Program at the George Washington University, uses the analogy of 

obtaining plumbing service to repair a broken toilet to illustrate this problem. 

Plumbing is normally obtained under a time and materials arrangement. If you ask 

a plumber to pre-price a job before he is able to examine the broken fixture, he will 

set a price that would cover the worst-case scenario—$400, or the price to completely replace the entire toilet. If you priced it on a time and material basis, it 

could be just $50 for his time to snake the drain. 

Mr. ANDREWS. We often hear of ‘‘contractors managing other contractors’’. In your 

experience, how prevalent is this practice? Does the Army have contractors whose 
97 

responsibility it is to supervise or evaluate the work of other contractors? If so, how 

does the Army ensure that best value is being obtained for the warfighter? 

Mr. PARSONS. The Army uses contractors to advise government personnel about 

technical issues. Government personnel make decisions about what supplies or services are to be acquired by the Government, take actions based on evaluations of contractor performance, and accept or reject contractor products or services. As part of 

the acquisition planning process, senior Army officials must certify that the contractor will not perform inherently governmental services. If the services are closely 

related to inherently governmental, there must be controls in place (as part of the 

contract execution/oversight process) to prevent contractors from performing prohibited services. This policy has been in place for about two years. Requiring officials 

must provide the contracting officer a written determination that none of the functions required are inherently governmental as part of the acquisition package provided to contracting. Disagreements regarding the determination must be resolved 

by the Contracting Officer prior to issuance of the solicitation. The DOD guidance 

that addresses how to evaluate the contractor services is DOD Instruction 1100.22, 

Guidance for Determining Workforce Mix. 

QUESTION SUBMITTED BY MR. COOPER 

Mr. COOPER. Please describe, in detail, acquisition ‘‘horror stories’’ you have seen 

in your career. And how many incidents occur that are squashed internally? 

Mr. PARSONS. The chart provided with this QFR appears to be a summary of the 

POGO on-line database of contractor misconduct data. However, we have not been 

able to duplicate the number of cases indicated for the Army on the QFR chart 

using the on-line search capabilities of the POGO database which indicates 19 cases 

of misconduct where Army is the contracting agency. We offer the following information regarding some of the most recent cases that have been investigated and adjudicated: 

• Stephen Seamans—Convicted of fraud relating to a subcontract with a Kuwaiti 

cleaning company. Mr. Seamans has been convicted and debarred. He served 8 

months of a year and a day prison term; released September 2007. 

• Jeff Mazon—Indicted for fraud for a subcontract related to La Nouvelle. Mr. 

Mazon was accused of inflating Nouvelle’s bid to eight times over the estimated 

cost for providing fuel tankers before awarding the resulting contract. Mazon 

was indicted in March 2005 and pled guilty in March 2009 to making a false 

statement. He has not been sentenced. This matter has been turned over to 

DoJ, Criminal and Civil Divisions for recovery/remedy. Mr. Mazon and La 

Nouvelle have been suspended indefinitely, pending completion of investigation, 

court proceedings, etc., effective 18 May 2005. A former managing partner of 

La Nouvelle, Mr. Alhijazi, has also been suspended in connection with this case. 

He is a fugitive in Kuwait. Company and personal suspension remain in place 

until DoJ dismisses the indictment or closes its investigation. 

• Glenn Powell—Admitted to accepting $110,000 in kickbacks from an Iraqi subcontractor. Mr Powell has been debarred effective 16 February 2006 until 14 

September 2009. Additionally, Mr. Powell is prohibited from serving in any capacity with the authority to influence, advise, or control decisions on any DOD 

Contracts or first tier subcontracts effective 18 November 2005 until 17 November 2010. Powell will repay $91,000 IAW court ruling. He was sentenced to 15 

months confinement. 

• Anthony Martin—Admitted to taking kickbacks from First Kuwaiti General 

Trading & Contracting Company in exchange for the award of subcontracts. 

Martin pled guilty in July 2007 to violating the Anti-Kickback Act. He was sentenced to 12 months and a day and supervised release for 2 years. He must 

repay approximately $200,000. This matter has been turned over to DoJ, Criminal and Civil Divisions for recovery/remedy. Martin was proposed for debarment 

indefinitely on 29 September 2008. Mr. Martin is prohibited from serving in any 

capacity with the authority to influence, advise, or control decisions on any 

DOD Contracts or first tier subcontracts effective, 06 June 2008 until 05 June 

2013. The Army suspension/debarment official has agreed to delay any action 

against First Kuwaiti until DoJ has completed its investigation if the company 

does not enter into new government contracts. Agreement date is 11 December 
98 

2008. A one-time exception granted on 3 February 2009 to compete for 3 Corps 

of Engineers contracts. 

Æ