a

GAO

United States Government Accountability Office

Report to Congressional Committees

December 2004 HOMELAND 

SECURITY

Further Action 

Needed to Promote 

Successful Use of 

Special DHS 

Acquisition Authority

GAO-05-136
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

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

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact William T 

Woods at (202) 512-4841 or 

woodsw@gao.gov.. 

Highlights of GAO-05-136, a report to the 

Senate Committee on Governmental 

Affairs and the House Committee on 

Government Reform 

December 2004

HOMELAND SECURITY

Further Action Needed to Promote 

Successful Use of Special DHS 

Acquisition Authority 

The Department of Homeland Security has issued policy and is developing a 

workforce to implement its other transactions authority, but the 

department’s policies need further development and its contracting 

workforce needs strengthening to promote the successful use of the 

authority in the future. Soon after it was established, DHS issued other 

transactions solicitations using some commonly accepted acquisition 

practices and knowledge-based acquisition principles. Subsequently, the 

department issued a management directive and drafted guidance for using 

other transactions, loosely modeled on the practices of the Department of 

Defense (DOD), one of several other agencies with other transactions 

authority and the one with the most experience with using these agreements. 

Unlike DOD, however, DHS has not specified in its policies or guidance 

when its contracting staff should consider the use of independent audits to 

help ensure, for example, that payments to contractors are accurate. 

Similarly, DHS has not established training requirements to aid staff in 

understanding and leveraging the benefits of other transactions. The DHS 

contracting workforce is limited in size and capacity, which could impede 

the department’s ability to manage a potential increase in its other 

transactions workload. DHS is taking steps to enhance the capacity of its 

contracting workforce. 

The DHS Science and Technology Directorate included nontraditional 

government contractors in its first two other transactions projects. The 

Directorate engaged in extensive outreach efforts, such as conducting 

briefings on its mission and research needs to industry and academic 

institutions and using a number of Web-based tools to publicize its 

solicitations. But DHS has not yet developed mechanisms to capture and 

assess the knowledge gained about the use of other transactions. As a result, 

DHS may not be able to leverage information from current projects for use in 

future solicitations that use other transactions. 

Profile of Early DHS Other Transactions Awards 

Countermeasures for Man Portable Air 

Defense System 

Detection Systems for Chemical and 

Biological Countermeasures 

• Prototype project to protect commercial 

aircraft. 

• Estimated total budget: $96 million. 

• Three phase I awards and two phase II 

awards as of October 25, 2004. 

• Prototype project to protect against 

chemical and biological attacks. 

• Estimated budget for phase I: $6.6 

million. 

• 17 phase I awards as of August 2, 2004.

Source: DHS. 

Note: All awards included a nontraditional government contractor at either the prime or 

subaward level. 

The Homeland Security Act of 2002 

authorized the Department of 

Homeland Security (DHS) to 

establish a pilot program for the 

use of acquisition agreements 

known as “other transactions.” 

Because they are exempt from 

many of the requirements that 

apply to government contracts, 

other transactions can be useful in 

acquiring cutting-edge technologies 

from entities that traditionally have 

declined to do business with the 

government. 

The act requires GAO to report to 

Congress on the use of other 

transactions by DHS. To fulfill this 

obligation, GAO (1) determined if 

DHS has developed policies and 

established a workforce to manage 

other transactions effectively and 

(2) evaluated how effectively DHS 

has used its other transactions 

authority to attract nontraditional 

government contractors. 

What GAO Recommends

To promote the efficient and 

effective use of its other 

transactions authority GAO 

recommends that DHS (1) provide 

guidance on including audit 

provisions in other transactions 

agreements, (2) develop a training 

program in the use of other 

transactions, and (3) capture 

knowledge obtained during the 

acquisition process for use in 

planning and implementing future 

other transactions projects. 

DHS generally concurred with our 

recommendations. 
Page i GAO-05-136 Homeland Security 

Letter 1

Results in Brief 2 

Scope and Methodology 3 

Background 4 

DHS Placed Initial Priority on Project Implementation while 

Developing Other Transactions Policy and Acquisition 

Workforce 8 

DHS Included Nontraditional Government Contractors in Initial 

Projects, but Practices May Not Fully Leverage Market 

Capabilities 23 

Conclusions 31 

Recommendations 31 

Agency Comments and Our Evaluation 31 

Appendix I Comments from the Department of Homeland 

Security 34 

Tables 

Table 1: DHS’s List of Laws Generally Inapplicable to Its Other 

Transactions Agreements 6 

Table 2: DHS’s Purposes and Criteria for Using Other Transactions 

for Research and Prototype Projects 18 

Table 3: Composition of Counter-MANPADS Project Phase 1 

Contractor Teams 24 

Figures 

Figure 1: S&T Directorate’s Fiscal Year 2004 Acquisition Activity 8 

Figure 2: The S&T Directorate’s Offices and Overview of 

Their Functions 9 

Figure 3: Mobile Laboratory—Exterior and Interior Views 11 

Figure 4: Illustration of Commercial Airplane Using Laser 

Technology to Deflect MANPADS Missile 12 

Figure 5: Overview of the S&T Directorate’s Acquisition Process 

for Other Transactions 13 

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

Milestones 16 

Contents 
Page ii GAO-05-136 Homeland Security 

Figure 7: Timeline of DHS’s Development of Policies and Guidance 

for Using Other Transactions and Its Ongoing Other 

Transactions Projects 19 

Figure 8: Illustration of S&T Directorate’s Increasing Other 

Transactions Workload and Available In-house Contract 

Administration Support, Fiscal Year 2004 to 

Fiscal Year 2005 22 

Figure 9: Illustration of S&T Directorate’s Current Acquisition 

Processes with Possible Knowledge Management 

Function 30 

Abbreviations 

BAA broad agency announcements 

CAS Cost Accounting Standards 

Chem-Bio Chemical and Biological Countermeasures 

Counter-MANPADS Countermeasures for Man Portable Air 

 Defense System 

CPO Chief Procurement Officer 

DARPA Defense Advanced Research Projects 

 Agency 

DCAA Defense Contract Audit Agency 

DHS Department of Homeland Security 

DOD Department of Defense 

FAR Federal Acquisition Regulation 

FTE full-time equivalent 

HSARPA Homeland Security Advanced Research 

 Projects Agency 

IP intellectual property 

IPT Integrated Product Team 

R&D research and development 

S&T Science and Technology 

SED Systems Engineering and Development 

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Page 1 GAO-05-136 Homeland Security 

December 15, 2004 

The Honorable Susan M. Collins 

Chairman 

The Honorable Joseph I. Lieberman 

Ranking Minority Member 

Committee on Governmental Affairs 

United States Senate 

The Honorable Tom Davis 

Chairman 

The Honorable Henry A. Waxman 

Ranking Minority Member 

Committee on Government Reform 

House of Representatives 

Protecting the nation against terrorism by researching, developing, testing, 

and deploying cutting-edge technologies is a key mission of the new 

Department of Homeland Security (DHS). The Homeland Security Act of 

20021

 gave the Secretary of Homeland Security the authority to establish a 

5-year pilot program using special acquisition authority, known as “other 

transactions,” to carry out research and development (R&D) and 

prototype projects.2

 Other transactions are agreements other than 

government contracts, grants, and cooperative agreements. Other 

transactions are exempt from the Federal Acquisition Regulation (FAR), 

the government’s Cost Accounting Standards,3 and various federal 

statutes, and therefore can be customized to meet an agency’s project 

 1

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

2

 Congress authorized the Department of Defense’s (DOD) Defense Advanced Research 

Projects Agency to use other transactions for research projects in 1989, and in 1993, 

authorized DOD to use other transactions for prototype projects. In fiscal year 2003, the 

most recent year for which complete data are available, DOD awarded approximately 60 

other transactions agreements for prototypes, and several more for research projects. Two 

other agencies also have other transactions authority: National Aeronautics and Space 

Administration and the Department of Transportation. Recently, the Services Acquisition 

Reform Act authorized all federal agencies to use other transactions to acquire 

antiterrorism technology. 

3

 The Cost Accounting Standards are accounting requirements for the measurement, 

assignment, and allocation of costs to contracts. 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-05-136 Homeland Security 

requirements. Because fewer government-unique requirements apply, 

other transactions can be useful in attracting private-sector entities that 

traditionally have not done business with the government. 

Section 831(b) of the Homeland Security Act requires that we report to the 

House Committee on Government Reform and the Senate Committee on 

Governmental Affairs on the use of other transactions by DHS. Based on 

discussions with your staff, we (1) determined whether DHS has 

developed policies and established a workforce to effectively manage the 

use of other transactions, and (2) evaluated how effectively DHS has used 

its other transactions authority to attract nontraditional government 

contractors. 

The Department of Homeland Security has issued policy and is developing 

a workforce to implement its other transactions authority, but further 

development of the department’s policies and strengthening of its 

workforce are needed to promote successful use of the authority. Soon 

after it was established, the department issued solicitations based on its 

other transactions authority, using some commonly accepted acquisition 

practices and knowledge-based acquisition principles. The department 

subsequently issued a management directive and drafted guidance that 

together provide a framework for how other transactions authority should 

be implemented. These documents, which address such issues as 

acquisition planning and determining when other transactions might best 

be used, are loosely modeled after the other transactions policies of the 

Department of Defense (DOD), one of several other agencies with other 

transactions authority and the one with the most experience using these 

agreements. Unlike DOD, however, DHS has not specified in its policies or 

guidance when its contracting staff should consider the use of 

independent audits to help ensure, for example, that payments to 

contractors are accurate. The guidance also does not address training 

requirements for DHS contracting and program staff to ensure that they 

fully understand and leverage the benefits of using other transactions. 

Recognizing that the limited size and capacity of the contracting 

workforce at DHS could impede the department’s ability to achieve its 

goal of managing the potential increase in its other transactions workload 

with in-house resources, DHS is taking steps to enhance the capacity of its 

workforce. 

The Science and Technology (S&T) Directorate within DHS included 

nontraditional government contractors in its two other transactions 

projects thus far. The S&T Directorate penetrated the nontraditional 

Results in Brief 
Page 3 GAO-05-136 Homeland Security 

contractor market by engaging in a variety of outreach efforts, such as 

conducting briefings on its mission and research needs to industry and 

academic institutions and using a number of Web-based tools to publicize 

its solicitations. While the S&T Directorate moved quickly to establish its 

organization and initiate several acquisitions involving other transactions, 

it has not been effective in capturing and assessing the knowledge gained 

about the process of using other transactions. Without capturing such 

knowledge, DHS may not be able to leverage lessons learned from current 

projects for use in future solicitations. 

To help DHS realize the full benefits of other transactions authority, we 

are making several recommendations to improve the department’s policies 

and procedures. We are recommending that DHS (1) establish guidance on 

when it is appropriate to include audit provisions in other transactions 

agreements, (2) develop a training program for DHS staff in the use of 

other transactions to help ensure the appropriate use of this authority, and 

(3) capture knowledge obtained during the acquisition process for use in 

planning and implementing future other transactions projects. 

We provided a draft of this report to DHS for review and comment. DHS 

agreed with our first two recommendations and noted that it is working to 

address them. Regarding our recommendation that DHS capture 

knowledge obtained during the acquisition process for use in planning and 

implementing future projects that could use other transactions, DHS 

agreed with the utility of retaining historical information about its 

procurement activities. However, DHS sought clarification about the 

types of information we recommend it retain and to what end it is to be 

used. We have added information on how DHS could capture and use 

information on practices used successfully in the past to attract 

nontraditional contractors. DHS also provided technical revisions to our 

draft report, which we incorporated as appropriate. 

To determine whether DHS has developed policies and established a 

workforce to use other transactions, we analyzed DHS’s organization, and 

policy and draft guidance for using these authorities. We interviewed DHS 

contracting officials and representatives from the DOD agencies that DHS 

has used for contracting support, officials in its S&T Directorate, and 

contractors to whom it made initial other transactions awards. We 

collected and reviewed other transactions agreement documents for DHS’s 

Countermeasures for Man-Portable Air Defense System (CounterMANPADS) and Chemical and Biological Countermeasures (Chem-Bio) 

projects, the only two projects with other transactions awards as of the 

Scope and 

Methodology 
Page 4 GAO-05-136 Homeland Security 

time of our review. We also reviewed other S&T Directorate solicitations 

that could result in other transactions agreements, but which had not yet 

resulted in awards as of the completion of our audit work. We analyzed 

information obtained from our interviews and file reviews using criteria 

that we found are generally important to federal acquisitions, namely, 

planning, reviews and approvals, market knowledge, and monitoring of 

contractor performance. We derived these criteria from our prior reports 

on other transactions and knowledge-based acquisition principles, DOD’s 

policies for other transactions, and selected parts of the FAR. 

To determine how effectively DHS used its other transactions authority to 

attract nontraditional government contractors, we analyzed DHS’s 

reported results from using these authorities in the Counter-MANPADS 

and Chem-Bio programs. We also reviewed other DHS acquisitions that 

could result in other transactions awards but for which DHS had not yet 

made awards. DHS relies on contractors to self-certify their status as a 

nontraditional government contractors during agreement negotiation. In 

analyzing the reported results from DHS’s other transactions awards, we 

did not independently verify a contractor’s reported status as a 

nontraditional contractor. We also compared DHS’s practices to attract 

nontraditional government contractors against policies and practices used 

by DOD. In addition, we interviewed DHS contracting and project 

management officials, contractors that DHS made other transactions 

awards to, and representatives from the commercial research and 

development and technology communities to gain their perspectives on 

DHS’s use of other transactions to attract nontraditional government 

contractors. 

We performed our review from February through October 2004 in 

accordance with generally accepted government auditing standards. 

The acquisition function plays a critical role in helping federal agencies 

fulfill their missions. DHS is expected to spend billions of dollars annually 

to acquire a broad range of products, technologies, and services from 

private-sector entities. Other transactions authority is one of the 

acquisition tools—in addition to standard FAR contracts, grants, and 

cooperative agreements—available to DHS to help support its mission. 

Other transactions were created to enhance the federal government’s 

ability to acquire cutting-edge science and technology. They help agencies 

accomplish this, in part, through attracting nontraditional contractors 

from the private sector and other areas that typically have stayed away 

from pursuing government contracts. There are two types of other 

Background 
Page 5 GAO-05-136 Homeland Security 

transactions authorities—(1) research and (2) prototype. Other 

transactions for research are used to perform basic, applied, or advanced 

research. Other transactions for prototypes are used to carry out projects 

to develop prototypes used to evaluate the technical or manufacturing 

feasibility of a particular technology, process, or system. A single S&T 

program could result in multiple awards using other transactions. 

Because they are exempt from certain statutes, other transactions permit 

considerable latitude by agencies and contractors in negotiating 

agreement terms. For example, other transactions allow the federal 

government flexibility in negotiating intellectual property and data rights, 

which stipulate whether the government or the contractor will own the 

rights to technology developed under the other transactions agreement. 

Table 1 shows the statutes that DHS has determined are generally 

inapplicable to its other transactions agreements. 
Page 6 GAO-05-136 Homeland Security 

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

Law Description 

Sections 202-204 of the Bayh-Dole Act (35 U.S.C. sections 

200-212). 

Prescribes the government’s rights in patentable inventions made 

with government funds. 

Competition in Contracting Act (Pub. L. No. 98-369 [1984]), as 

amended. 

Promotes the use of competitive procurement procedures and 

prescribes uniform, governmentwide policies and procedures 

regarding contract formation, award, publication, and cost or 

pricing data. 

Contract Disputes Act, Pub. L. No. 95-563 (1978), as amended, 

41 U.S.C. 601 et seq. 

Provides for the resolution of claims and disputes relating to 

government contracts. 

Procurement Protest System, Subtitle D of Competition in 

Contracting Act, Pub. L. No. 98-369 (1984), 31 U.S.C. 3551 

et seq. 

Provides statutory basis for procurement protests by interested 

parties to the Comptroller General. 

31 U.S.C. 1352, Limitation on the use of appropriated funds to 

influence certain federal contracting and financial transactions. 

Prohibits the use of funds to influence or attempt to influence 

government officials or Members of Congress in connection with 

the award of contracts, grants, loans, or cooperative agreements. 

Anti-Kickback Act of 1986, 41 U.S.C. 51-58. Prohibits kickbacks in connection with government contracts and 

provides civil and criminal penalties. 

Procurement Integrity Provisions, Section 27 of the Office of 

Federal Procurement Policy Act, 41 U.S.C. 423. 

Imposes civil, criminal, and administrative sanctions against 

individuals who inappropriately disclose or obtain source selection 

information or contractor bid and proposal information. 

Service Contract Act, 41 U.S.C. 351 et seq, Walsh Healey Act, 

41 U.S.C. 35-45; Fair Labor Standards Act of 1938, 29 U.S.C. 

201-219. 

Provide protections for contractor employees. 

Drug-Free Workplace Act of 1988, 41 U.S.C. 701-707. Eliminates any connection between drug use or distribution and 

federal contracts, cooperative agreements, or grants. 

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

Source: DHS. 

Note: According to DHS, this list of key statutes that apply to procurement contracts that are not 

necessarily applicable to other transactions is not intended to be definitive. DHS’s other transaction 

policy states that contracting officers should review each statute with regard any particular 

arrangement using other transactions and consult their General Counsel to determine its applicability. 

To the extent a particular statute is funding- or program-related, or is not tied to the instrument used, 

it generally will apply to an other transaction. This table should not be construed as representing 

GAO’s views concerning the applicability of statutes to other transactions agreements. 

Because other transactions agreements do not have a standard structure 

based on regulatory guidelines, they can be challenging to create and 

administer. Experts on other transactions and industry officials who have 

used these procurement arrangements told us that other transactions 

agreement terms are significantly different from FAR contracts and more 

closely resemble procurement agreements between private-sector firms. 

According to DHS, the unique nature of other transactions agreements 

means that federal government acquisition staff who work with other 

transactions agreements should have experience in planning and 
Page 7 GAO-05-136 Homeland Security 

conducting research and development acquisitions, strong business 

acumen, and sound judgment to enable them to operate in a relatively 

unstructured business environment. 

DHS views the use of other transactions as key to attracting nontraditional 

government contractors—typically high-technology firms that do not work 

with the government—that can offer solutions to meet agency needs. As 

defined by the Homeland Security Act,4

 a nontraditional government 

contractor is a business unit that has not, for at least a period of 1 year 

prior to the date of entering into or performing an other transactions 

agreement, entered into or performed 

• any contract subject to full coverage under the cost accounting standards 

or 

• any contract in excess of $500,000 to carry out prototype projects or to 

perform basic, applied, or advanced research projects for a federal agency 

that is subject to compliance with the FAR. 

The S&T Directorate of DHS supports the agency’s mission by serving as 

its primary research and development arm. According to a senior DHS 

Chief Procurement Office official, the S&T Directorate currently is the 

only DHS organization using the other transactions authority provided in 

the Homeland Security Act. As of September 2004, other transactions 

agreements accounted for about $125 million (18 percent) of the S&T 

Directorate’s fiscal year 2004 total acquisition activity of $715.5 million.5

The S&T Directorate’s fiscal year 2004 total acquisition activity is depicted 

in figure 1. 

 4

 Section 831(d) of the Homeland Security Act of 2002, Pub. L. No. 107-296, Nov. 25, 2002, 

referring to section 845 of the National Defense Authorization Act for Fiscal Year 1994. 

5

DHS estimated that it spent approximately $6.6 billion on acquisitions in fiscal year 2004. 
Page 8 GAO-05-136 Homeland Security 

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

Note: Inter-Agency Agreements are the means by which the S&T Directorate transfers funds to 

national or university laboratories to conduct R&D activities. 

After DHS was established in 2003, the department rapidly established the 

S&T Directorate, which issued several solicitations using other 

transactions authority. These solicitations used some commonly accepted 

acquisition practices and knowledge-based acquisition principles. DHS 

issued a management directive, drafted guidance, and recruited additional 

program and contracting staff, which now provide a foundation for using 

other transactions authority; however, refinements in these policies and 

attention to workforce issues are needed to promote success in the 

department’s future use of other transactions. DHS’s policy guidance does 

not specify when audit requirements should be included in its other 

transactions agreements to help ensure, for example, that payments to 

contractors are accurate. Also, the department’s guidance does not 

DHS Placed Initial 

Priority on Project 

Implementation while 

Developing Other 

Transactions Policy 

and Acquisition 

Workforce 

4%

45%

33%

18%

Total, $715,533,314

Source: DHS.

Grants

$124,909,284

$31,976,189

Other transactions

$325,119,273

$233,528,568

Contracts

Inter-Agency Agreements
Page 9 GAO-05-136 Homeland Security 

address training requirements for its contracting and program staff to 

ensure that staff understand and leverage the use of other transactions. In 

addition, the limited size and capacity of DHS’s internal contracting 

workforce to conduct other transactions may hamper DHS’s goal to 

internally manage its increasing number of mission programs that could 

use its other transactions authority. 

DHS was directed by Congress and the executive branch to quickly initiate 

and execute R&D projects to help strengthen homeland security. The S&T 

Directorate at DHS was largely established to centralize the federal 

government’s homeland security R&D efforts, a function that was not the 

responsibility of any of DHS’s legacy agencies. Figure 2 depicts the 

Directorate’s four offices and their functions. The S&T Directorate 

initiated various projects to address homeland security concerns, 

including two prototype projects using other transactions authority. 

Initiating and executing these first projects took priority over establishing 

the Directorate’s operating procedures. The S&T Directorate’s need to 

rapidly initiate and execute projects forced a reliance on other federal 

agencies’ acquisition offices to award and administer its project 

agreements. 

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

a

HSARPA is managing the Chem-Bio program. 

b

SED is managing the Counter-MANPADS program. 

DHS Simultaneously 

Established Its Science 

and Technology 

Organization and 

Implemented Projects 

Establishes S&T's overall 

priorities and identifies 

operational needs

Manages and executes 

DHS's R&D programs with 

federal laboratories

Under Secretary for Science and Technology

Manages and executes DHS's 

R&D programs with public or 

private sector through 

competitive procedures

Prepares deployment, systems 

development and demonstration 

strategies for homeland security 

technologies

Office of Programs, Plans,

 and Budgets 

Office of Research and 

Development 

Homeland Security Advanced 

Research Projects Agency 

(HSARPA)a

Office of Systems Engineering 

and Development 

(SED)b

Source: DHS.
Page 10 GAO-05-136 Homeland Security 

The S&T Directorate hired program managers and staff with R&D 

expertise from other government agencies and the private sector to 

manage its other transactions authority and other acquisitions. These 

initial hires included several former Defense Advanced Research Projects 

Agency (DARPA) officials experienced in R&D and other transactions 

authority acquisitions. In the absence of DHS policies and procedures for 

other transactions, the S&T Directorate relied on these key officials and 

other staff with R&D expertise in their former organizations to implement 

its early projects. These experienced staff helped train DHS program and 

contracting staff in other transactions and supervised and managed the 

acquisition process. For example, one official drafted a model other 

transactions agreement and guided program managers and contracting 

officers through the other transactions process. In addition to these 

officials, the S&T Directorate obtained portfolio and program managers 

from other government agencies and federal laboratories to act in key 

programmatic positions in their areas of expertise. Some of these portfolio 

and program managers serve on detail from their home agency. The S&T 

Directorate’s workforce strategy is to have its program and technical staff 

serve term appointments, most of which will not be longer than 4 years, in 

order to promote the influx of leading-edge science and technology skills 

to DHS. 

DHS’s planning and budget documents identified the need to develop 

countermeasures and detection systems against chemical-biological 

(Chem-Bio) and radiological-nuclear attacks. Under one area of the ChemBio project, being implemented by the S&T Directorate using other 

transactions, DHS is developing mobile laboratories to be rapidly deployed 

in the field to detect and analyze chemical warfare agents and toxic 

industrial chemicals in the environment. Figure 3 depicts a mobile 

laboratory being developed for DHS. 
Page 11 GAO-05-136 Homeland Security 

Figure 3: Mobile Laboratory—Exterior and Interior Views 

The S&T Directorate also initiated projects to address homeland security 

needs identified by Congress and the executive branch. One such project 

is aimed at protecting commercial aircraft against possible terrorist use of 

shoulder-fired missiles, sometimes referred to as man-portable air defense 

systems (MANPADS). The Counter-MANPADS other transaction project is 

a multiyear development and demonstration program that will produce 

prototype systems to be used on commercial aircraft to defend against 

shoulder-fired missiles. An illustration of a proposed Counter-MANPADs 

technology being considered by DHS is depicted in figure 4. 

Source: Hamilton Sundstrand Corporation.
Page 12 GAO-05-136 Homeland Security 

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

MANPADS Missile 

The S&T Directorate and Office of the Chief Procurement Officer (CPO) 

used Federal Acquisition Regulation principles as a framework for other 

transactions solicitations. The Directorate also utilized additional 

acquisition tools commonly used by DARPA and other agencies, such as 

• broad agency announcements (BAA) to serve as general announcements 

of the Directorate’s research interest, including general principles for 

selecting proposals, and soliciting the participation of all offerors capable 

of satisfying the S&T Directorate’s needs; 

• a white paper process under which firms submit to S&T brief synopses of 

the main concepts of a proposal introducing technology innovations or 

solutions; and 

• payable milestone evaluations under which the S&T Directorate’s 

managers measure the progress of its projects at key points before making 

payments to contractors. 

Other Transactions 

Projects Used a Variety of 

Acquisition Techniques 

Source: BAE Systems.

MANPADS 

missile

Laser from airplane
Page 13 GAO-05-136 Homeland Security 

The S&T Directorate modeled its acquisition process after DARPA’s to 

solicit proposals from as many industry sources as possible to meet its 

research needs and hosted technical workshops and bidders conferences 

for its early solicitations to help convey its technical needs to industry. An 

overview of the S&T Directorate’s generally used acquisition process for 

other transactions is in figure 5. 

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

Transactions 

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

a

For the Counter-MANPADS and Chem-Bio solicitations, other transactions for prototypes were the 

only acquisition vehicle solicited. After the Counter-MANPADS and Chem-Bio projects, HSARPA 

modified its solicitation strategy and began issuing BAA solicitations offering the choice of different 

acquisition vehicles (contract, grant, cooperative agreement, or other transaction) for its projects. 

HSARPA indicated that the BAA process will be used the most for its future projects. 

Conduct acquisition planning

Perform market research

Hold technical workshop

Issue broad agency announcement

Conduct bidder's conference

Conduct white paper process

Contractors submit proposals 

Evaluate proposals and select winners

Negotiation of acquisition vehiclea

Agreement signed

Use of payable milestones evaluations

Design review points and deliverables

Presolicitation phase 

Solicitation phase 

Award phase 

Source: DHS.

Postaward phase 
Page 14 GAO-05-136 Homeland Security 

The Homeland Security Advanced Research Projects Agency (HSARPA) 

and Office of Systems Engineering and Development (SED) hosted 

technical workshops prior to publishing some of their early solicitations to 

obtain information from the industry on what technical requirements were 

feasible to include in the solicitation. Following the issuance of the 

solicitations, HSARPA and SED held bidder’s conferences to answer 

industry questions about the solicitations. 

The S&T Directorate used a white paper review stage in its early 

solicitations, including solicitations for the Counter-MANPADS and ChemBio programs. According to DHS’s Chem-Bio solicitation, the use of the 

white paper approach allows DHS to provide firms with feedback on their 

proposed technologies without the firms having to incur the expense and 

time of writing complete proposals. For the Chem-Bio project, HSARPA 

received over 500 white papers from industry. S&T officials told us they 

provided each contractor that submitted a white paper for this project 

with feedback, giving the agency’s views on the merits of the proposed 

technology. HSARPA officials told us that the white paper process helps 

ensure that the office gets the best proposals and represents an 

inexpensive way for nontraditional firms to pursue business with DHS. 

To rapidly execute its projects, including other transactions agreements, 

the S&T Directorate used other federal agencies to award and administer 

its contracts to fill DHS’s contracting workforce gaps. DHS has 

interagency agreements with these agencies for their contracting services. 

For example, HSARPA is using the U.S. Army Medical Research 

Acquisition Activity, based in Ft. Detrick, Maryland, which performs 

acquisition services for the Army, to award other transactions instruments 

in support of its Chem-Bio project.6

 In addition, DHS is using a contractor 

who is an expert in other transactions and R&D procurement to help draft 

its other transactions policy guidance and also provide assistance to 

administer several of its other transactions projects. 

 6

According to DHS, much of the contract award work done by the U.S. Army Medical 

Research Acquisition Activity for its Chem-Bio project is now being performed by DHS’s 

Office of Procurement Operations, which is part of its Chief Procurement Office. 
Page 15 GAO-05-136 Homeland Security 

The S&T Directorate incorporated some knowledge-based acquisition 

approaches throughout its acquisition process for using its other 

transaction authorities. We previously reported that an agency’s use of a 

knowledge-based acquisition model is key to delivering products on time 

and within budget. By using a knowledge-based approach, an agency can 

be reasonably certain about the progress of its project at critical junctures 

during development, which helps to ensure that a project does not go 

forward before the agency is sure that the project is meeting its needs.7

For example, some of the knowledge-based approaches being used by the 

S&T Directorate and CPO to manage their Counter-MANPADS and ChemBio other transaction projects are as follows: 

• Integrated Product Teams (IPTs). Using IPTs to bring together in a 

single organization the different functions needed to ensure a project’s 

success is a knowledge-based acquisition best practice.8

 The S&T 

Directorate formed IPTs that combine the expertise of representatives 

from each of its four offices to analyze customer requirements and make 

planning and budget decisions for the portfolio. 

• Contractor Payable Milestone Evaluations. The S&T Directorate’s 

program managers measure the progress of its projects at key points 

before making payments to contractors. These milestones are usually 

associated with contractors satisfying certain performance criteria—

commonly referred to as “exit criteria.”9

 Examples of SED’s four payable 

milestones for Phase I and six payable milestones for Phase II of the 

Counter-MANPADS project are shown in figure 6. 

• Design Reviews. HSARPA and SED program managers also use design 

review decision points to ensure the contractor’s product development is 

meeting program expectations and to determine if the product is ready to 

proceed to the next stage of development. (See figure 6 for the design 

review points in Phase I of the Counter-MANPADS project.) 

 7

 GAO, Best Practices: Highlights of the Knowledge-Based Approach Used to Improve 

Weapon Acquisition, GAO-04-392SP (Washington, D.C.: January 2004). 

8 GAO-04-392SP. 

9

 Our report on DHS’s Counter-MANPADS development program found that DHS needed to 

make its Counter-MANPADS exit criteria more knowledge-based, which would require the 

contractor to demonstrate that key product knowledge was obtained at a certain stage. See 

The Department of Homeland Security Needs to Fully Adopt a Knowledge-Based 

Approach to Its Counter-MANPADS Development Program, GAO-04-341R (Washington, 

D.C.: Jan. 30, 2004). 

Process for Other 

Transactions Uses Some 

Knowledge-Based 

Approaches 
Page 16 GAO-05-136 Homeland Security 

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

Note: Payment milestones depicted above are for illustration only as provided in DHS’s solicitation. 

According to DHS, proposers were encouraged to alter the schedule to accommodate their individual 

program solutions and this figure does not reflect the individual milestones that were ultimately 

negotiated with each of the successful teams. DHS has negotiated its phase II milestones, which 

may deviate from representation above. 

1 2 3 4 5 6 78

SRR ($)

IDR ($)

PDR ($)

LLF ($)

Phase I activities

Months after award (1-month interval)

System design activities

System Requirements Review (SRR)

Preliminary Design Review (PDR)

Source: DHS.

Final Phase I Report

Preliminary reports and documents

Long Lead Items List (LLF) 

Interim Design Review (IDR)

9 12 15 18 21 24

Phase II activities

Months after award (3-month intervals)

Program management

Reviews and payable milestones

Phase II Summary Review

System test and evaluation

Production decision

FAA certification

Airframe integration

Prototype development

Systems engineering

($)

($)

($) ($) ($) ($)

($)

Evaluation period

Payable milestones 
Page 17 GAO-05-136 Homeland Security 

In 2002 we identified key success factors for DHS to effectively create its 

organization, including creating strong systems and controls for 

acquisition and related business processes.10 The development of formal 

policies and procedures for DHS’s authority to use other transactions is 

guided by statute and DOD’s experiences and practices in using the other 

transactions authority. DOD’s extensive experiences with and policies for 

using other transactions provide a useful framework for the effective 

management of projects using other transactions. For example, DOD uses 

a guidebook for other transactions prototype projects, which provides 

detailed policies and procedures in areas such as criteria for using other 

transactions, acquisition planning, agreement execution, and reporting 

requirements.11

In 2004 DHS prepared several policy and draft guidance documents, which 

should help provide DHS with a structure for using its other transactions 

authority. In October 2004, DHS issued an other transactions management 

directive, which provides DHS’s policy for the use of other transactions for 

research and for prototype projects. The policy is generally consistent 

with DOD’s policy. The management directive prescribes the 

responsibilities of key officials in using other transactions, such as the 

DHS Under Secretary of Management and its Chief Procurement Officer. 

Specifically, under the management directive, the CPO is responsible for 

setting policy, conducting oversight, and approving the use of other 

transactions authority for each project. The management directive also 

provides general policies and requirements for the documentation of a 

strategy for using other transactions and provides the purposes and 

criteria for using research and prototype other transactions. DHS’s 

explanation of the types of other transactions and criteria for their use, if 

effectively implemented, should help promote its compliance with the 

Homeland Security Act12 by helping to ensure that agency officials 

adequately assess the utility of other acquisition vehicles—such as FAR 

 10 GAO, Homeland Security: Critical Design and Implementation Issues, GAO-02-957T

(Washington, D.C.: July 17, 2002). 

11 DOD, Under Secretary of Defense for Acquisition, Technology and Logistics, “Other 

Transaction” (OT) Guide for Prototype Projects, (August 2002). 

12 The Homeland Security Act requires DHS, as it carries out basic, applied, and advanced 

research and development projects, to first determine that the use of a contract, grant, or 

cooperative agreement is not feasible or appropriate prior to using an other transaction for 

research. Pub. L. No. 107-296, section 831(a)(1), Nov. 25, 2002. 

Changes in Policies and 

Enhancement of 

Acquisition Workforce 

Could Help Sustain LongTerm Use of Other 

Transactions 

DHS Is Developing Its 

Other Transactions 

Authority Policies 
Page 18 GAO-05-136 Homeland Security 

contracts, grants, or cooperative agreements, prior to using an other 

transaction for research. The purposes and criteria for other transactions 

use as stated by DHS are shown in table 2. 

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

Type of other 

transaction Purposes for use of other transaction Criteria for use of other transaction 

Research Carry out basic, applied, or advanced 

research programs where the main purpose 

is to stimulate or support homeland security 

technologies. Support nonfederal 

participants seeking to broaden the 

homeland security technology knowledge 

base. 

• To develop innovative approaches when a standard 

procurement contract, grant, or cooperative agreement is not 

appropriate or feasible. 

• Use the flexibility provided in the Homeland Security Act to 

reduce government-specific administrative requirements for 

acquisition or assistance instruments. 

• Require, to the maximum extent practicable, a 50 percent 

resource sharing of program costs between DHS and the 

contractor. 

Prototype Implement prototype projects in support of 

systems proposed to be developed or 

acquired by DHS. Help DHS achieve the 

commercial technology integration to 

reduce the cost of homeland security items 

and systems. 

• At least one nontraditional government contractor participates 

to a significant extent in the project. 

• If not, one of the following circumstances exists: 

• At least 1/3 of the total project cost is to be paid by parties 

to the transaction other than the federal government. 

• DHS’s CPO determines, in writing, that exceptional 

circumstances justify the use of a transaction that 

provides for innovative business arrangements or 

structures that would not be feasible or appropriate under 

a procurement contract. 

Source: DHS. 

DHS is using a contractor experienced with other transactions to assist in 

the preparation of a guidebook for using other transactions for prototype 

projects. The draft guidebook, which is loosely based on the DOD guide on 

other transactions for prototype projects, provides a broad framework for 

DHS to plan and use other transactions. It covers topics such as 

acquisition planning, market research, acquisition strategy, and 

agreements analyses requirements.13 According to a DHS official, its draft 

guidebook, when completed, is not to be part of the DHS official 

management directive system. 

In addition, the contractor drafted a lessons learned report on other 

transactions to help DHS fully leverage the benefits and minimize any 

 13According to a DHS CPO official, DHS intends to draft a separate guidebook for other 

transactions for research in the future. 
Page 19 GAO-05-136 Homeland Security 

problems associated with using other transactions. DHS’s draft lessons 

learned report on other transactions summarizes lessons from various 

sources, such as federal agencies and think tanks with other transactions 

experience, on topics related to those discussed in the draft guidebook. 

Figure 7 shows the development of DHS’s other transactions policy. 

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

Transactions Projects 

Note: In addition to the two programs noted in this figure, the S&T Directorate issued approximately 

five additional solicitations from November 2003 through October 2004 that could result in multiple 

other transaction awards. 

DHS’s management directive and draft guidebook for other transactions 

does not yet specify roles, responsibilities, and requirements for agency 

program and contracting officials in two key areas: audit and training. 

Addressing these areas is important since, according to DHS officials, DHS 

plans to issue solicitations that could result in other transactions use at an 

increasing rate. S&T Directorate and CPO officials acknowledged the 

importance of these areas and told us they intend to address them in the 

future. 

• Audit requirements. While DHS’s management directive covers 

Comptroller General access to contractor records under certain 

conditions, the directive does not address audits by other entities or 

specify other circumstances when audits of other transactions agreements 

may be needed to protect the government’s interest. For example, audits 

may be needed in certain other transactions agreements to help ensure 

that payments to contractors are accurate. DOD’s policy for auditing 

Other Transactions Policy 

Does Not Address Audit 

and Training Requirements 

Prototype Guide 

drafted

Lessons Learned 

Guide drafted

Management 

Directive issued

Chem-Bio 

solicitation issued

DHS 

established 

Counter-MANPADS

 solicitation issued

October 2003

June 2004

July 2004 

September 2003 October 2004

March 2003 

Source: GAO's analysis of DHS information.
Page 20 GAO-05-136 Homeland Security 

prototype other transactions projects,14 by contrast, provides more 

complete guidance on audits of other transactions agreements. For 

example, the DOD policy states that contracting officers should include 

information on the frequency of audits, scope of audits, and the means by 

which audits are to be performed. DOD’s policy also recognizes the 

flexibility in negotiating other transactions agreements by allowing the 

contracting officer, in certain circumstances, to waive the inclusion of 

audit provisions if it would adversely affect the execution of the 

agreement. DHS’s management directive, in contrast, does not address 

these conditions. A DHS official told us that its contracting officers 

negotiate specific auditing provisions in other transactions agreements 

with contractors on a case-by-case basis.15

Also, the DOD other transactions prototype projects policy has provisions 

for its contracting officers to use the Defense Contract Audit Agency 

(DCAA)16 or another independent auditor to audit other transactions 

agreements. Although DHS has a Memorandum of Understanding with 

DCAA to provide contract audit services, neither DHS’s other transactions 

management directive nor its draft guidance contain information on the 

specific conditions when contracting officers should use DCAA’s or 

another independent auditor’s services. 

• Training requirements. DHS’s management directive requires other 

transactions contracting officers to be senior warranted contracting 

officers with a Level III acquisition certification17 and who possess a level 

of experience, responsibility, business acumen, and judgment that enables 

them to operate in this relatively unstructured business environment. This 

staffing requirement for other transactions closely mirrors the contracting 

 14 DOD, Transactions Other Than Contracts, Grants, or Cooperative Agreements for 

Prototype Projects, 68 Fed. Reg. 27452, final rule (May 20, 2003). 

15 In our prior work on DOD’s use of prototype other transactions we found that DOD 

contracting staff included such audit provisions in almost all of the prototype other 

transactions agreements it awarded between fiscal years 1994 and 1998. See GAO, 

Acquisition Reform: DOD’s Guidance on Using Section 845 Agreements Could Be 

Improved, GAO/NSIAD-00-33 (Washington, D.C.: Apr. 7, 2000). 

16 DCAA is a component of DOD that performs contract audits for DOD and provides 

accounting and financial advisory services regarding contracts and subcontracts to all DOD 

components responsible for procurement and contract administration. DCAA also provides 

other government agencies with contract audit services. 

17 According to DHS policy, there are three levels of contracting officers: Level 1 (entrylevel), Level II (intermediate level), and Level III (senior level staff capable of performing 

the most sophisticated and complex contracting activities). 
Page 21 GAO-05-136 Homeland Security 

workforce staffing qualification used by DOD. DHS’s management 

directive also requires its contracting staff to possess a special contracting 

officer certification, which can be achieved only after the staff have 

received appropriate training in other transactions. However, DHS has not 

yet developed a training program on other transactions for its contracting 

officers or its program managers expected to work on other transactions 

projects. 

By not establishing other transactions training requirements and schedules 

for its contracting and program staff to complete them, DHS may not be 

equipping its staff to fully understand and leverage the benefits of other 

transactions. We have previously reported on the importance of training 

and reported that leading organizations usually prioritize key processes, 

identify staff needing training, and establish requirements to ensure that 

the appropriate staff are trained. Furthermore, because S&T’s technical 

program personnel serve on details from other government agencies and 

have varying levels of experience with other transactions, appropriate 

training is key to help ensure that such staff uniformly and effectively use 

other transactions. DHS’s draft lessons learned report on other 

transactions states that it is critical to train contracting officers on aspects 

such as (1) the flexibilities associated with other transactions to help 

ensure the proper and optimal use of the authority, and (2) negotiating 

intellectual property (IP) rights, which can vary from project to project. 

The S&T Directorate plans an increasing number of mission programs that 

could use its other transactions authority, but DHS’s current contracting 

workforce may not be sufficient to manage this workload. DHS has relied 

on a small number of key S&T program personnel, who are experienced 

other transactions practitioners, to develop or approve solicitations. In 

fiscal year 2004, two of the S&T Directorate’s programs resulted in other 

transactions awards—Counter-MANPADS and Chem-Bio. In fiscal year 

2005, the S&T Directorate could award other transaction agreements for at 

least eight additional programs, which could significantly increase its 

contracting workload because some programs could include multiple 

other transactions awards. (One S&T program could result in multiple 

awards using other transactions, contracts, grants, or cooperative 

agreements as the acquisition vehicle.) For example, S&T’s ongoing 

Chem-Bio project has resulted in 17 other transactions awards as of 

August 2, 2004. Figure 8 depicts the S&T Directorate’s project workload 

that could involve other transactions and the corresponding CPO in-house 

contracting support. 

Acquisition Workforce 

Capacity May Limit DHS’s 

Ability To Manage A 

Growing Future Other 

Transactions Workload 
Page 22 GAO-05-136 Homeland Security 

Figure 8: Illustration of S&T Directorate’s Increasing Other Transactions Workload 

and Available In-house Contract Administration Support, Fiscal Year 2004 to 

Fiscal Year 2005 

Note: This figure depicts the scenario where DHS uses only its in-house contracting staff for its other 

transactions projects. However, DHS is currently supplementing these staff by using other federal 

agencies for contract award and administration support. At the end of fiscal year 2004 CPO dedicated 

six contracting staff—some of which are warranted contracting officers qualified in other transactions 

agreements—to support the S&T Directorate’s acquisitions; at the start of fiscal year 2004, it had 1 

full-time (staffing) equivalent (FTE) supporting S&T’s acquisitions. According to CPO, these staff will 

help conduct S&T’s acquisitions, which include other transactions. According to CPO and S&T 

Directorate officials, they intend to increase this staff support to 15 staff by the end of fiscal year 

2005. 

DHS is currently developing a plan to address contracting workforce 

issues. Senior DHS officials told us that their strategy is to generally have 

in-house contracting staff award and administer all of the S&T 

Directorate’s other transactions and R&D projects by fiscal year 2006. 

Currently, CPO has dedicated six contracting staff—some of whom are 

warranted contracting officers dedicated to conducting other 

transactions—to support S&T acquisitions on a temporary basis. CPO and 

S&T Directorate officials told us that they intend to increase this staff 

support to 15 staff by the end of fiscal year 2005. 

FY 2005 FY 2004

8+ programs

 with potential

other transactions 

awards

DHS's in-house 

contracting personnel

6 FTEs 6 FTEs

Source: GAO's analysis of DHS data.

2 programs

 with other 

transactions awards
Page 23 GAO-05-136 Homeland Security 

As cited in DOD policy and DHS’s guidance, acquisition staff that award 

and administer other transactions need special skills and experience in 

business, market acumen, and knowledge of intellectual property issues. 

CPO and S&T Directorate officials told us that contracting officers with 

these skills and experience are difficult to find in the current acquisition 

workforce. In addition, they noted lengthy delays in DHS’s ability to 

process needed security clearances for these staff, which caused some 

contracting officer candidates to accept positions elsewhere. DHS’s 

challenges in developing its acquisition workforce are similar to other 

federal agencies’ experiences in managing attrition and retirements 

affecting their acquisition workforces.18

As a result, DHS will continue to rely on other agencies for contracting 

support until the end of fiscal year 2006. For example, for its Chem-Bio 

other transactions project, the S&T Directorate is using DOD’s U.S. Army 

Medical Research Acquisition Activity for contracting support. According 

to DHS’s S&T Directorate and CPO officials, the offices are in the process 

of drafting a Memorandum of Understanding regarding the contracting 

personnel that CPO will dedicate to support the S&T Directorate’s 

projects. 

DHS included nontraditional government contractors in its two initial 

other transactions projects. But DHS is not capturing knowledge learned 

from these acquisitions that could be used to plan and execute future 

projects. The S&T Directorate has conducted outreach to engage 

nontraditional government contractors in its early projects, including 

briefing industry associations, setting up a Web site to facilitate contractor 

teaming, and conducting project-specific workshops. However, the S&T 

Directorate does not systematically capture and use knowledge learned 

from its acquisition activities for use by program staff. 

 18 We previously reported on such acquisition workforce challenges in Acquisition 

Workforce: Status of Agency Efforts to Address Future Needs, GAO-03-55

(Washington, D.C.: Dec. 18, 2002). 

DHS Included 

Nontraditional 

Government 

Contractors in Initial 

Projects, but 

Practices May Not 

Fully Leverage Market 

Capabilities 
Page 24 GAO-05-136 Homeland Security 

The S&T Directorate’s Counter-MANPADS and Chem-Bio projects 

included nontraditional government contractors in all of the initial awards 

at the prime and subcontractor levels. For example, in February 2004 DHS 

made three Phase I awards for the Counter-MANPADS project to 

contractor teams led by BAE Systems, Northrop Grumman, and United 

Airlines (a nontraditional contractor). BAE Systems and NorthropGrumman, which are traditional contractors, included nontraditional 

contactors on their teams. Nontraditional government contractors serve 

significant roles in the Counter-MANPADS and Chem-Bio projects, such as 

leading the aircraft integration team incorporating the counter measure 

technology with commercial aircraft in the Counter-MANPADS project. 

Table 3 shows the composition of the Counter-MANPADS project 

contractor teams. 

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

Prime contractor Other principal team members 

Northrop Grumman Systems 

Corporation 

• FedEx Corporationa

• Northwest Airlines a

BAE Systems • Honeywell International’s Air Transport 

Systemsa

• Delta Airlines Technical Operationsa 

United Airlines, Inc.a • Avisys, Inc.b

• ARINC Engineering Services 

Source: DHS. 

a

Nontraditional government contractor. 

b

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

An intent of Congress in granting other transactions authority to DHS was 

to attract firms that traditionally have not worked with the federal 

government. The use of other transactions may help attract high-tech 

commercial firms that have shied away from doing business with the 

government because of the requirements mandated by the laws and 

regulations that apply to traditional procurement contracts. According to 

DHS officials, early DHS other transactions award recipients, and industry 

association officials, two primary barriers to nontraditional contractors 

pursuing government contracts are: 

• Intellectual Property (IP) Rights. IP rights refer to access to 

information or data used in the performance of work under a contract. We 

previously reported on contractors’ reluctance to pursue government R&D 

funding because the FAR’s IP provisions could give the government rights 

Other Transactions 

Authority Facilitated 

Inclusion of Nontraditional 

Government Contractors 

in Early Awards 
Page 25 GAO-05-136 Homeland Security 

to certain information and data, which could decrease their businesses’ 

competitive advantage.19 For example, a nontraditional contractor without 

prior federal R&D contracting experience under the FAR who won one of 

DHS’s early other transactions awards told us that the flexibility to 

negotiate IP rights was critical to its participation because it allowed the 

contractor to negotiate IP rights favorable to its company. 

• Cost Accounting Standards (CAS). CAS are the federal government’s 

accounting requirements for the measurement, assignment, and allocation 

of costs to contracts. According to contractors and procurement experts 

outside the government that we interviewed, nontraditional firms 

generally do not operate accounting systems in compliance with the 

federal government’s CAS, and developing such systems can be cost 

prohibitive. For example, a nontraditional contractor who won an initial 

DHS other transactions award told us developing a CAS-compliant 

accounting system would have required the establishment of a subsidiary 

firm to perform its accounting functions. 

DHS’s Science and Technology Directorate used extensive outreach to 

attract nontraditional contractors to participate in its projects. It briefed 

industry groups, conducted project-specific workshops, and used Web 

sites to publicize the agency’s needs. In the fall of 2003, shortly after the 

S&T Directorate was established, its HSARPA sponsored separate 1-day 

briefings to business and academia to help engage the private sector in 

R&D to satisfy DHS’s needs. These sessions were designed to gather input 

on best practices to optimize the solicitation, procurement, and program 

execution aspects of its projects. For example, at these sessions DHS 

officials presented information on its 

• organization and approach to program management, such as the roles and 

responsibilities of agency officials and managers; 

• investment and research priorities; 

• available solicitation methods, such as requests for proposals, broad 

agency announcements, and research announcements; and 

• possible procurement vehicles, including FAR contracts, grants, 

cooperative agreements, and other transactions. 

 19 GAO, Acquisition Reform: DOD’s Guidance on Using Section 845 Agreements Could Be 

Improved, GAO/NSIAD-00-33 (Washington, D.C.: April 2000). 

Extensive Outreach Used 

to Attract Nontraditional 

Contractors 
Page 26 GAO-05-136 Homeland Security 

The S&T Directorate supplemented these sessions by conducting projectspecific industry workshops and other outreach events. For example, in 

October 2003, the S&T Directorate held an industry day session for its 

Counter-MANPADS project. The session provided participants with 

background on the project, the structure of the DHS organization that 

would manage it, the program’s goals and schedule, and an overview of 

other transactions for prototypes. DHS presented detailed information on 

the nature and requirements of other transactions agreements, firms that 

may qualify as a nontraditional contractor, and laws that would not apply 

to other transactions. In addition, the S&T Directorate gave an overview of 

the other transactions solicitation process to be used for the project, 

which covered topics such as the white paper process, oral presentations, 

and the proposed other transactions agreement. DHS attracted almost 

200 participants to this event—approximately 85 percent of whom were 

from industry. 

Also, in September 2003, DHS held a bidders conference for its Chem-Bio 

project where it described its technical requirements and the solicitation 

process for this project. According to an agency official, the conference 

gave DHS the opportunity to obtain input from the private sector on the 

technical aspects of its solicitation and to answer participants’ questions 

about the solicitation. Similarly, DHS held technical workshops for 

projects that may result in other transactions awards, such as those 

intended to counter threats from truck, suicide, and public transportation 

bombs and to design cyber security systems. 

DHS also created and used Web sites to publicize its activities and 

procurement needs. For example, DHS created the “DHS—Open for 

Business” site, which centralizes information on its contracts, grants, small 

business opportunities, and R&D efforts. According to DHS, this site is 

intended to complement governmentwide portals such as Federal 

Business Opportunities, known as FedBizOpps. In addition, HSARPA 

created a solicitation and teaming portal Web site to help attract firms 

(www.hsarpabaa.com). On this site, HSARPA announces its current 

project solicitations and offers a teaming portal where contractors can 

learn about possible partners to bid on DHS work. This site also contains 

links to other DHS programs to facilitate industry participation in its 

projects, such as its Small Business Innovation Research program, which 

DHS established in December 2003 to increase the participation of 

innovative and creative small businesses in its R&D programs. Also, the 

site has a mailing list function where contractors can register to receive 

electronic e-mail notices of upcoming HSARPA solicitations. 
Page 27 GAO-05-136 Homeland Security 

We found that industry’s views vary on the effectiveness of DHS’s 

outreach efforts. Some contractors and industry associations we 

interviewed said these outreach efforts are having a positive impact on the 

procurement process. For example, an industry association head in the 

technology field told us that DHS’s use of Broad Agency Announcements 

and other flexible solicitation methods to publicize its technology and 

research needs may help to attract nontraditional contractors. Officials 

from two technology associations told us commercial firms that 

traditionally do not work with the federal government believe that 

government officials have preconceived ideas of exactly what technology 

they need and which contractors they want to work with. However, one of 

the officials stated that DHS’s use of the BAA process demonstrates to 

industry that the agency desires to hear all the possible technology 

solutions that may meet its needs. 

Other industry officials believed that DHS’s outreach actions could be 

improved, for example, if DHS took additional actions to inform industry 

that it has other transactions authority and developed a more user-friendly 

process to attract broader interest in its projects. Representatives of a 

large industry association we interviewed were not aware that DHS 

possesses other transactions authority and said if this fact were more 

widely known, it could increase industry’s interest in working with DHS. 

In addition, representatives of some small companies told us that the fee 

DHS charges to attend its outreach events20 could pose a barrier to 

attending them. Also, several contractors we interviewed told us that 

DHS’s teaming portal site is a good idea in concept but found it 

cumbersome to maneuver in the automated system. However, two of the 

nontraditional contractors we interviewed that received a DHS other 

transactions award used this site to help identify industry partners for 

their team. 

 20 For the projects we reviewed, we found that DHS’s fee for attending these events was 

usually between $100 and $150. 
Page 28 GAO-05-136 Homeland Security 

The S&T Directorate’s capacity to build and sustain knowledge for use in 

its future acquisitions involving other transactions is in the early stages of 

development but the Directorate has not yet developed policies or 

procedures to ensure that program and portfolio managers are capturing 

and assessing critical information and knowledge gained from its 

acquisition activities, including the use of other transactions, for use in 

future projects. 

Knowledge gained from prior other transactions acquisitions on issues 

ranging from seeking nontraditional government contractors to assessing 

project outcomes is key to planning future projects. A knowledge base of 

important lessons learned from outreach to private-sector firms, the 

acquisition process, and the design and execution of projects can facilitate 

the work of program and acquisition staff in planning future acquisitions 

using other transactions authority. DHS’s draft guidebook on other 

transactions for prototypes acknowledges the importance of documenting 

knowledge gained during the acquisition process for planning future other 

transactions acquisitions. We have also reported on the benefits of 

agencies using systematic methods to collect, verify, store, and 

disseminate information for use by their current and future employees.21

Our previous work has identified the importance of setting goals and 

identifying performance indicators that will inform federal agencies of 

whether they have achieved the performance they expected.22 S&T 

Directorate officials acknowledge the need to create a “corporate 

memory” function to provide future staff with access to information and 

knowledge obtained from its current projects and to incorporate such 

knowledge into its training efforts. 

The S&T Directorate’s workforce-staffing strategy necessitates that it have 

a policy and procedure in place to capture employees’ knowledge. Under 

its current workforce strategy, the S&T Directorate’s technical staff serves 

regularly rotating term appointments that typically do not exceed 4 years. 

This approach, according to S&T Directorate officials, is designed to 

promote the influx of leading-edge science and technology skills to DHS. 

 21 GAO, Best Practices: Highlights of the Knowledge-Based Approach Used to Improve 

Weapon Acquisition, GAO-04-392SP (Washington, D.C.: January 2004) and GAO, NASA: 

Better Mechanisms Needed for Sharing Lessons Learned, GAO-02-195 (Washington, D.C.: 

Jan. 30, 2002). 

22 GAO, Results-Oriented Government: GPRA Has Established a Solid Foundation for 

Achieving Greater Results, GAO-04-38 (Washington, D.C.; Mar. 10, 2004). 

Lack of Systematic 

Assessment of Acquisition 

Activities Involving Other 

Transactions Impairs 

Ability to Capture and Use 

Knowledge 
Page 29 GAO-05-136 Homeland Security 

S&T Directorate officials recognize that these rotations can place a burden 

on its contracting staff that plan, conduct, and manage highly specialized 

other transactions programs by having to continually guide new technical 

staff on the workings of the process. However, these officials have told us 

that there is no policy or process yet in place to ensure that the capturing 

and sharing of such knowledge occur. 

The S&T Directorate’s current practices for capturing knowledge gained 

from its acquisition efforts vary. In establishing its structure the S&T 

Directorate drew its technical staff from a variety of organizations, each of 

which used different acquisition approaches. Consequently, portfolio 

managers and program managers we spoke with did not consistently 

capture knowledge acquired. In addition, the S&T Directorate’s efforts to 

assess the effectiveness of its industry outreach activities involving the use 

of other transactions authority are not rigorous enough to capture 

information needed in planning future outreach. By not assessing its 

activities, S&T cannot be assured that it is reaching the broadest base of 

firms to provide technological solutions for the S&T Directorate’s needs. 

Without policies and a supporting process to capture the experiences and 

knowledge gained from its acquisition efforts, DHS may not capitalize on 

lessons learned from its early use other transactions. Given the S&T 

Directorate’s planned rotations of its key technical staff, building and 

maintaining institutional knowledge are critical to ensuring that new S&T 

Directorate staff have the ability to quickly learn about previous other 

transactions acquisitions when designing future projects. For example, the 

S&T Directorate invests funding and staff resources to advertise its 

organization and projects to help attract firms but does not fully assess 

the effectiveness of these activities for use in planning future projects. 

Figure 9 depicts the S&T Directorate’s acquisition process and a possible 

knowledge management function for collecting, storing, and sharing 

information. 
Page 30 GAO-05-136 Homeland Security 

Figure 9: Illustration of S&T Directorate’s Current Acquisition Processes with 

Possible Knowledge Management Function 

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

practices. 

 (1) Presolicitation reasearch and 

 aquisition planning phase

 (4) Postaward phase

Knowledge management 

function and policies

Systematically captures and 

disseminates information 

about acquisition process 

Facilitates sharing of best 

practices

Transfers knowledge among 

rotating staff 

Monitor project and 

contractor's work 

Perform payable 

milestone evaluations

 (2) Solicitation and 

 acqusition execution 

 phase

Use knowledge to plan 

and conduct a solicitation

 (3) Award phase

Evaluate proposal, 

select winner, negotiate 

agreement with contractor

Reserch information on customer 

needs and market capabilities 

Source: GAO's analysis of DHS data.
Page 31 GAO-05-136 Homeland Security 

Recognizing the flexibility offered by other transactions authority to tap 

nontraditional sources to meet its needs for new homeland security 

technologies, DHS moved quickly to use this authority to build its science 

and technology capabilities. In doing so it signaled its seriousness about 

using other transactions authority to advance its strategic objectives. 

However, to sustain its progress made to date DHS needs to take 

additional actions, such as completing the necessary foundation of 

policies and procedures, including guidance on audit provisions, and 

ensuring that it has an adequately trained and staffed acquisition function. 

Furthermore, given its strategy of using regularly rotating term 

appointments in staffing its S&T programs, long-term success will depend 

on the department’s ability to harness its institutional knowledge on other 

transactions. DHS’s ability to identify, prioritize, and access the most 

promising research and technologies in the future will depend, in part, on 

its ability to capture and make accessible critical knowledge on the 

agency’s use of other transactions authority to ensure that it is accessing 

the broadest and most appropriate technologies in the marketplace. By 

completing its foundation for using other transactions and creating a 

means for capturing key knowledge and measuring performance, DHS will 

be better prepared to capitalize on the full potential of the private sector to 

provide the innovative technology it needs to secure the homeland. 

To promote the efficient and effective use by DHS of its other transactions 

authority to meet its mission needs, we have three recommendations for 

the Secretary of Homeland Security. The Secretary should direct the 

Under Secretary for Management and the Under Secretary for Science and 

Technology to 

• establish guidance on when it is appropriate to include audit provisions in 

other transactions agreements, 

• develop a training program for DHS staff in the use of other transactions 

to help ensure the appropriate use of this authority, and 

• capture knowledge obtained during the acquisition process for use in 

planning and implementing future other transactions projects. 

We provided a draft of this report to DHS for its review and comment. 

DHS provided written comments generally agreeing with the facts and 

conclusions expressed in the draft report. DHS agreed with our first two 

recommendations and noted that it is already working to address them. 

Regarding our recommendation that DHS capture knowledge obtained 

during the acquisition process for use in planning and implementing future 

Conclusions 

Recommendations 

Agency Comments 

and Our Evaluation 
Page 32 GAO-05-136 Homeland Security 

projects that could use other transactions, DHS agreed with the utility of 

retaining such historical information and “lessons learned” about its 

procurement activities, acquisition planning, execution, and program 

management activities. DHS stated that while no formal system for 

assembling such information is in place within the organization, this 

information is being monitored. However, DHS sought further clarity 

about the types of information we recommend it retain and to what end it 

is to be used. 

Based on our review of DHS’s early use of its other transactions authority, 

we believe that systematically capturing, analyzing, and making readily 

available knowledge about using this authority is needed. We recognize 

that the S&T Directorate’s work and focus cuts across various technology 

areas, which are continuously evolving, making each solicitation’s 

requirements unique. We also recognize and appreciate DHS’s concern 

over the administrative aspects of collecting, maintaining, and monitoring 

this information over time. We believe, however, that DHS can build upon 

its current informal system of monitoring acquisition information. 

Specifically, we think DHS could collect and disseminate information on 

what has worked and not worked in areas such as outreach efforts. This 

information could be useful for future other transactions projects. For 

example, if DHS wants to ensure that its outreach attracts firms who have 

a recognized core competency desired by S&T, including nontraditional 

government contractors, it may want to use forms of outreach that have 

been used successfully in the past. We believe this information could be 

particularly important given the S&T Directorate’s workforce-staffing 

strategies, under which its technical staff serves regularly rotating term 

appointments. 

DHS also provided technical revisions to our draft report, which we 

incorporated as appropriate. The department’s comments are reprinted in 

appendix I. 

We are sending copies of this report to other interested congressional 

committees; the Secretaries of Homeland Security and Defense; and the 

Director, Office of Management and Budget. We also will make copies 

available to others on request. This report will be available at no charge on 

GAO’s Web site at http://www.gao.gov. 
Page 33 GAO-05-136 Homeland Security 

If you have any questions about this report, please contact me at 

(202) 512-4841, or John K. Needham, Assistant Director, at (202) 512-5274. 

Other major contributors to this report were Rachel Augustine, Eric 

Fisher, Alison Heafitz, John Krump, Robert Swierczek, and Anthony J. 

Wysocki. 

William T. Woods 

Director, Acquisition and Sourcing Management 
Appendix I: Comments from the Department 

of Homeland Security 

Page 34 GAO-05-136 Homeland Security 

Appendix I: Comments from the Department 

of Homeland Security 
Appendix I: Comments from the Department 

of Homeland Security 

Page 35 GAO-05-136 Homeland Security (120324) 
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