United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Readiness 

and Management Support, Committee on 

Armed Services, U.S. Senate 

DEFENSE ACQUISITIONS

DOD Needs to Exert 

Management and Oversight 

to Better Control 

Acquisition of Services 

Statement of Katherine V. Schinasi, Managing Director 

Acquisition and Sourcing Management 

For Release on Delivery

Expected at 2:30 p.m. EST 

January 17, 2007

 

GAO-07-359T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

January 17, 2007

DEFENSE ACQUISITIONS 

DOD Needs to Exert Management and 

Oversight to Better Control Acquisition 

of Services 

Highlights of GAO-07-359T, a testimony 

before the Subcommittee on Readiness 

and Management Support, Committee on 

Armed Services, U.S. Senate 

The Department of Defense (DOD)

is relying more and more on 

contractors to provide billions of 

dollars in services. Congress has 

been concerned about DOD’s 

ability to prudently manage these 

funds, and this subcommittee in 

particular has pushed DOD to 

employ sound business practices

when using the private sector for 

services. Nevertheless, DOD may 

not have always obtained good 

value while spending billions of 

dollars on services at a time when 

serious budget pressures are facing

the nation. 

This testimony discusses DOD’s 

(1) increasing reliance on 

contractors; (2) failure to

consistently follow sound business

practices when acquiring services; 

and (3) opportunities for DOD to 

improve its management of 

services. 

The testimony is based on GAO’s 

work from the past decade as well 

as recent reports issued by the 

Inspectors General. 

What GAO Recommends

GAO is making no

recommendations in this 

testimony. However, GAO has 

made numerous recommendations 

through the years to help improve 

DOD’s contract management. DOD

has generally concurred with these 

recommendations and is taking or 

plans to take action to improve the 

acquisition of services, but much 

remains to be done. 

Numerous persistent problems have resulted in reduced efficiencies and 

effectiveness and have exposed DOD to unnecessary risks when acquiring 

services. Knowing the defense acquisition landscape helps put the 

magnitude of these problems in perspective— 

• DOD’s obligations on service contracts have jumped from $82.3 billion in 

fiscal year 1996 to $141.2 billion in fiscal year 2005.

• DOD’s acquisition workforce has been downsized during this time frame 

without sufficient attention to requisite skills and competencies. 

These events have occurred as DOD has become more reliant on contractors 

to provide services for DOD’s operations and as longstanding problems with 

contract management continue to adversely impact service acquisition 

outcomes. The lack of sound business practices—poorly defined

requirements, inadequate competition, inadequate monitoring of contractor 

performance, and inappropriate uses of other agencies’ contracts and 

contracting services—exposes DOD to unnecessary risk and wastes 

resources. Moreover, DOD’s current management structure to oversee 

service acquisition outcomes has tended to be reactive and its processes 

suffer from the absence of several key elements at both a strategic and 

transactional level. 

To produce desired outcomes, DOD and its contractors need to clearly 

understand acquisition objectives and how they translate into a contract’s 

terms and conditions. GAO has found cases in which the absence of welldefined requirements and clearly understood objectives complicates efforts 

to hold DOD and contractors accountable for poor service acquisition 

outcomes. Likewise, obtaining reasonable prices depends on the benefits of 

a competitive environment, but we have continually reported on cases in 

which DOD sacrificed competition for the sake of expediency. Monitoring 

contractor performance to ensure DOD receives and pays for required 

services is another control we have found lacking. Many of these problems 

show up in DOD’s use of other agencies’ contracts or contracting services, 

which adds complexity as the number of parties in the contracting process 

increases. 

DOD has taken some steps to improve its management of services 

acquisition, and it is developing an integrated assessment of how best to 

acquire services. DOD leadership will be critical for translating this 

assessment into policy and, most importantly, effective frontline practices. 

At this point, however, DOD does not know how well its services acquisition 

processes are working, which part of its mission can best be met through 

buying services, and whether it is obtaining the services it needs while 

protecting DOD’s and the taxpayer’s interests. 

www.gao.gov/cgi-bin/getrpt?GAO-07-359T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Katherine V. 

Schinasi at (202) 512-4841 or 

schinasik@gao.gov. 
Mr. Chairman and Members of the Subcommittee: 

I am pleased to be here today to discuss challenges the Department of 

Defense (DOD) faces in acquiring services to support its operations. 

Although many of these challenges are long-standing, they have become 

more apparent in recent years as the department’s reliance on contractors 

has grown in size and scope. In fiscal year 2005, DOD obligated more than 

$141 billion on service contracts, a 72-percent increase since fiscal year 

1996. As you know, however, DOD does not always use sound contracting 

practices when acquiring these services and the department is operating 

with a deficit of people with the right skills to support its acquisitions. 

Consequently, DOD may not have always obtained good value when 

buying billions of dollars of services at a time when serious budget 

pressures face the nation. 

This subcommittee has explored new approaches and supported 

legislation to improve DOD’s acquisition of services. It has emphasized the 

use of sound business practices and competition to obtain services at 

reasonable prices for DOD and ultimately the taxpayer. In addition, it has 

encouraged DOD to establish a structure to better manage its acquisition 

of services. Despite these efforts, many improvements are still needed. 

The recurring nature of DOD’s problems is evidenced by the fact that DOD 

contract management has been on GAO’s list of high-risk areas since 1992.1

In January 2005, we added the management of interagency contracting to

the list. In July 2006, we reported on DOD’s vulnerabilities to contracting 

fraud, waste, and abuse.2

Today, I would like to discuss DOD’s (1) increasing reliance on 

contractors, (2) failure to consistently follow sound business practices 

when acquiring services, and (3) opportunities for DOD to improve its 

management of services. My statement is based on work that GAO has 

completed over the past decade, which was conducted in accordance with 

generally accepted government auditing standards. Additionally, my 

statement draws on recent reports issued by the DOD Inspector General 

and General Services Administration Inspector General. 

 1

GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: January 2005). 

2

GAO, Contract Management: DOD Vulnerabilities to Contracting Fraud, Waste, and 

Abuse, GAO-06-838R (Washington, D.C.: July 7, 2006).

Page 1 GAO-07-359T 
Negative outcomes should be no surprise given the convergence of DOD’s 

growing reliance on contractors to provide services and long-standing 

problems with contract management. These problems—ill-defined 

requirements, inadequate competition, ineffective management and 

surveillance of contractor performance, and inappropriate uses of other 

agencies’ contracts—have resulted in outcomes that have cost the 

department valuable resources. These problems are not new and, if they 

remain unresolved, will only continue to waste DOD’s resources. However, 

the department is not in a good position to address these long-standing 

problems. DOD does not know where it wants service acquisitions to be in

the next few years or how to get there. DOD is taking some steps to 

address these problems but much remains to be done. 

Summary 

DOD Increasingly Relies 

on Contractor-Provided 

Services 

Over the past decade, DOD has increasingly relied on contractors to 

provide a range of mission-critical services from operating information 

technology systems to providing logistical support on the battlefield. The 

growth in spending on services clearly illustrates this point. DOD’s 

obligations on service contracts rose from $82.3 billion in fiscal year 1996 

to $141.2 billion in fiscal year 2005 (see table 1). DOD committed 

20 percent of its obligations on services in fiscal year 2005 for 

professional, administrative, and management support contracts. Overall, 

according to DOD, the amount obligated on service contracts exceeded 

the amount the department spent on supplies and equipment, including 

major weapon systems. To a large degree, this growth simply happened 

and was not a managed outcome. 

Page 2 GAO-07-359T 
Table 1: Changes in DOD’s Use of Service Contracts, Fiscal Years 1996 to 2005 (fiscal year 2005 dollars in billions) 

Service obligations 

Fiscal year 

Service category 1996 2005

Percentage of

service 

obligations,

fiscal year 2005

Percentage

change, fiscal 

years 1996 

to 2005

Professional, administrative, and management support $10.8 $28.3 20.0 161

Construction of facilities 7.3 11.7 8.3 62

Maintenance and repair of equipment 6.6 11.4 8.1 74

Information technology 4.9 10.3 7.3 110

Medical services 1.6 8.0 5.6 412

Transportation, travel, and relocation 2.4 6.2 4.4 154

Housekeeping services 2.4 4.8 3.4 98

All other services, excluding research and development

a

22.7 23.6 16.7 4

Research and development 23.7 37.0 26.2 56

Total, all service contracts $82.3 $141.2 100.0 72

Source: DOD’s DD350 database for all actions exceeding $25,000 (data); GAO (analysis).

a

Other services include photographic, mapping, and printing; education and training; and social 

services, among others. 

As service acquisition spending has grown, the size of the civilian 

workforce has decreased. More significantly, DOD carried out this 

downsizing without ensuring that it had the specific skills and 

competencies needed to accomplish DOD’s mission. For example, the 

amount, nature, and complexity of contracting for services have increased, 

which has challenged DOD’s ability to maintain a workforce with the 

requisite knowledge of market conditions and industry trends, the ability 

to prepare clear statements of work, the technical details about the 

services they procure, and the capacity to manage and oversee 

contractors. In addition, new skills have been required to use alternative 

contracting approaches introduced by acquisition reform initiatives. 

Participants in an October 2005 GAO forum on Managing the Supplier 

Base for the 21st Century commented that the current federal acquisition 

workforce significantly lacks the new business skills needed to act as 

contract managers. In June 2006, DOD issued a human capital strategy that 

acknowledged that DOD’s civilian workforce is not balanced by age or 

experience. DOD’s strategy identified a number of steps planned over the 

next 2 years to more fully develop a long-term approach to managing its 

acquisition workforce. Many personnel, however, are involved in acquiring 

services. In the broadest sense, these personnel include not only the 

contracting officers who award contracts, but also those personnel who 

Page 3 GAO-07-359T 
define the requirements, receive or benefit from the services obtained, 

monitor contractor performance, and pay for the services. 

A report we issued in November 2006 on DOD space acquisition provides 

an example of downsizing in a critical area—cost estimating.3

 In this case,

there was a belief within the government that cost savings could be 

achieved under acquisition reform initiatives by reducing technical staff, 

including cost estimators, since the government would be relying more on

commercial-based solutions to achieve desired capabilities. According to

one Air Force cost-estimating official we spoke with, this led to a decline 

in the number of Air Force cost estimators from 680 to 280. According to

this official, many military and civilian cost-estimating personnel left the 

cost-estimating field, and the Air Force lost some of its best and brightest 

cost estimators. In turn, because of the decline in in-house resources, 

space program offices and Air Force cost-estimating organizations are 

now more dependent on support from contractors. For example, at 

11 space program offices, contractors accounted for 64 percent of costestimating personnel. The contractor personnel now generally prepare 

cost estimates while government personnel provide oversight, guidance, 

and review of the cost-estimating work. Reliance on support contractors 

raises questions from the cost-estimating community about whether 

numbers and qualifications of government personnel are sufficient to 

provide oversight of and insight into contractor cost estimates. 

DOD also relies extensively on contractors to undertake major 

reconstruction projects and provide logistical support to troops in Iraq. 

DOD is responsible for a significant portion of the more than $30 billion in

appropriated reconstruction funds and has awarded and managed many of 

the large reconstruction contracts, such as the contracts to rebuild Iraq’s

oil, water, and electrical infrastructure, and to train and equip Iraqi 

security forces. Further, U.S. military operations in Iraq have used 

contractors to a far greater extent than in prior operations to provide 

interpreters and intelligence analysts, as well as more traditional services 

such as weapons systems maintenance and base operations support. 

These services are often provided under cost-reimbursement type 

contracts, which allow the contractor to be reimbursed for reasonable,

allowable, and allocable costs to the extent prescribed in the contract. 

Additionally, after the September 2001 terrorist attacks, increased security 

 3

GAO, Space Acquisitions: DOD Needs to Take More Action to Address Unrealistic Initial

Cost Estimates of Space Systems, GAO-07-96 (Washington, D.C.: Nov. 17, 2006). 

Page 4 GAO-07-359T 
requirements and the deployment of active duty and reserve personnel 

resulted in DOD having fewer military personnel to protect domestic 

installations. For example, the U.S. Army awarded contracts worth nearly 

$733 million to acquire contract guards at 57 installations. 

Other factors have contributed to the growth in service contracts. For 

example, DOD historically bought space launch vehicles, such as the Delta 

and Titan rockets as products. Now, under the Evolved Expendable 

Launch Vehicle program, the Air Force purchases launch services using 

contractor-owned launch vehicles. Similarly, the Air Force and Army 

turned to service contracts for simulator training primarily because efforts 

to modernize existing simulator hardware and software had lost out in the 

competition for procurement funds. Buying training as a service meant 

that operation and maintenance funds could be used instead of 

procurement funds.4

DOD Does Not 

Consistently Use Sound 

Business Practices

Our work, along with that of the Inspectors General, has repeatedly found

problems with the practices DOD uses to acquire services. Too often, the 

department obtains services based on poorly defined requirements and 

inadequate competition. Similarly, it does not always oversee and manage

contractor performance once a contract is in place. All of these problems 

show up in the department’s use of other agencies’ contracts. Collectively,

these problems expose DOD to unnecessary risk and poor outcomes. 

Poorly defined or broadly described requirements have contributed to 

undesired service acquisition outcomes. To produce desired outcomes 

within available funding and required time frames, DOD and its 

contractors need to clearly understand acquisition objectives and how 

they translate into the contract’s terms and conditions. The absence of 

well-defined requirements and clearly understood objectives complicates 

efforts to hold DOD and contractors accountable for poor acquisition 

outcomes. For example,

Poorly Defined Requirements 

• In June 2004, we found that during Iraqi reconstruction efforts, when 

requirements were not clear, DOD often entered into contract

arrangements that introduced risks.5

 We reported that DOD often 

 4

Various funds can be used to acquire services, depending on the nature of service. 

5

GAO, Rebuilding Iraq: Fiscal Year 2003 Contract Award Procedures and Management

Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004). 

Page 5 GAO-07-359T 
authorized contractors to begin work before key terms and conditions 

and the work to be performed and its projected costs were fully 

defined. In September 2006, we reported that, under this approach, 

DOD contracting officials were less likely to remove costs questioned 

by auditors if the contractor had incurred these costs before reaching 

agreement on the work’s scope and price.6

 In one case, the Defense 

Contract Audit Agency questioned $84 million in an audit of a task 

order for an oil mission. In that case, the contractor did not submit a 

proposal until a year after the work was authorized, and DOD and the 

contractor did not negotiate the final terms of the contract until more 

than a year after the contractor had completed the work. 

• The DOD Inspector General found similar problems with DOD’s use of 

letter contracts. While this type of contract may be necessary to initiate 

work quickly to meet urgent operational needs, costs on letter 

contracts are more difficult to control because the requirements and 

costs are undefined. In August 2004, the Inspector General reported 

that contracting officials did not adequately definitize the acquisition 

requirements within the required time frames. Further, the Inspector 

General noted officials did not document the reasonableness of the 

profit rates charged by the contractors.7

 We are continuing to do work 

in this area.

• In July 2004, we noted that personnel using the Army’s Logistics Civil 

Augmentation Program (LOGCAP) contract in Iraq, including those 

that may be called upon to write statements of work and prepare 

independent government cost estimates, had not always received the 

training needed to accomplish their missions.8

 We noted, for example, 

the statement of work required the contractor to provide water for 

units within 100 kilometers of designated points but did not indicate 

how much water needed to be delivered to each unit or how many 

units needed water. Without such information, the contractor may not 

be able to determine how to meet the needs of the Army and may take 

unnecessary steps to meet the customer’s needs. 

 6

GAO, Rebuilding Iraq: Continued Progress Requires Overcoming Contract Management 

Challenges, GAO-06-1130T (Washington, D.C.: Sept. 28, 2006); see also Iraq Contract Costs: 

DOD Consideration of Defense Contract Audit Agency’s Findings, GAO-06-1132 

(Washington, D.C.: Sept. 25, 2006). 

7

Department of Defense, Office of the Inspector General, Audit Report: Undefinitized 

Contractual Actions. Report Number D-2004-112 (Arlington, VA.: Aug. 30, 2004). 

8

GAO, Military Operations: DOD’s Extensive Use of Logistics Support Contracts 

Requires Strengthened Oversight, GAO-04-854 (Washington, D.C.: July 19, 2004). 

Page 6 GAO-07-359T 
• In July 2005, we reported that other agencies that DOD relied on to 

provide contracting services did not define desired outcomes or 

requirements.9 We found that required outcomes were not well-defined 

in the cases we reviewed at franchise funds at the Departments of the 

Interior and the Treasury—GovWorks and FedSource—that acquired a

range of services for DOD. The GovWorks and FedSource files we 

reviewed lacked clear descriptions of requirements the contractor was 

supposed to meet. Orders generally described work in broad terms and 

documentation sometimes specifically indicated that work would be 

defined more fully after an order was placed. 

Competition is a fundamental principle underlying the federal acquisition 

process. Nevertheless, we have reported on the lack of competition in 

DOD’s acquisition of services since 1998. We have reported that DOD has, 

at times, sacrificed the benefits of competition for expediency. For 

example, we noted in April 2006 that DOD awarded contracts for security 

guard services supporting 57 domestic bases, 46 of which were done on an 

authorized, sole-source basis.10 The sole-source contracts were awarded by

DOD despite recognizing it was paying about 25 percent more than 

previously paid for contracts awarded competitively. 

Inadequate Competition 

DOD has also misused the contracts available on the General Services 

Administration’s multiple-award schedules. Although DOD is required to 

foster competition and provide all contractors a fair opportunity to be 

considered for each order placed on the schedules, unless certain 

exceptions apply,11 DOD officials have on numerous occasions avoided the 

time and effort necessary to compete individual orders and instead 

awarded all the work to be performed to a single contractor. GAO work 

shows that this practice resulted in the noncompetitive award of many 

orders that have not always been adequately justified. 

GAO has reported on numerous occasions that DOD did not adequately 

manage and assess contractor performance to ensure that the business 

arrangement was properly executed. Managing and assessing post-award 

performance entails various activities to ensure that the delivery of 

Inadequate Management and 

Assessment of Contractor 

Performance 

 9

GAO, Interagency Contracting: Franchise Funds Provide Convenience, but Value to 

DOD Is Not Demonstrated, GAO-05-456 (Washington, D.C.: July 29, 2005). 

10GAO, Contract Security Guards: Army’s Guard Program Requires Greater Oversight 

and Reassessment of Acquisition Approach, GAO-06-284 (Washington, D.C.: Apr. 3, 2006).

1110 U.S.C. 2304c. 

Page 7 GAO-07-359T 
services meets the terms of contract and requires adequate surveillance 

resources, proper incentives, and a capable workforce for overseeing 

contracting activities. If surveillance is not conducted, not sufficient, or 

not well documented, DOD is at risk of being unable to identify and 

correct poor contractor performance in a timely manner and potentially 

paying too much for the services it receives. 

Our work has found, however, that DOD is often at risk. In March 2005, for 

example, we reported instances of inadequate surveillance on 26 of 90 

DOD service contracts we reviewed.12 In each instance, at least one of the 

key factors to ensure adequate surveillance did not take place. These 

factors are (1) training personnel in how to conduct surveillance, 

(2) assigning personnel at or prior to contract award, (3) holding 

personnel accountable for their surveillance duties, and (4) performing 

and documenting surveillance throughout the period of the contract. 

Officials we met with during our review expressed concerns about support 

for surveillance. The comments included those of Navy officials who told 

us that surveillance remains a part-time duty they did not have enough 

time to undertake and, consequently, was a low-priority task. 

More recently, in December 2006 we reported that DOD does not have 

sufficient numbers of contractor oversight personnel at deployed 

locations, which limits its ability to obtain reasonable assurance that 

contractors are meeting contract requirements efficiently and effectively.13

For example, an Army official acknowledged that the Army is struggling to

find the capacity and expertise to provide the contracting support needed 

in Iraq. A LOGCAP program official noted that, if adequate staffing had 

been in place, the Army could have realized substantial savings on the 

LOGCAP contract through more effective reviews of new requirements. A 

Defense Contract Management Agency official responsible for overseeing

the LOGCAP contractor’s performance at 27 locations noted that he was 

unable to visit all of those locations during his 6-month tour to determine 

the extent to which the contractor was meeting the contract’s

requirements. 

 12GAO, Contract Management: Opportunities to Improve Surveillance on Department of 

Defense Service Contracts, GAO-05-274 (Washington, D.C.: Mar. 17, 2005).

13GAO, Military Operations: High-Level DOD Action Needed to Address Long-standing 

Problems with Management and Oversight of Contractors Supporting Deployed Forces, 

GAO-07-145 (Washington, D.C.: Dec. 18, 2006). 

Page 8 GAO-07-359T 
Our review of GovWorks and FedSource also found that both DOD and 

franchise fund officials were not monitoring contracts. Further, these 

organizations lacked criteria against which contractor performance could 

be measured to ensure that contractors provided quality services in a 

timely manner.14 Similarly, in 2004, the General Services Administration 

Inspector General reported on problems with surveillance when DOD used 

the General Services Administration’s Federal Technology Service (FTS). 

For example, in reviewing task orders DOD placed through FTS, the 

Inspector General found that payments were made for substandard work 

or for work that was incomplete or never delivered, for bills that contained 

incorrect labor rates or did not adhere to contract pricing terms, and for 

bills that included unsubstantiated costs. 

In January 2005, we identified management of interagency contracts as a 

high-risk area because of their rapid growth, limited expertise of users and 

administrators, and unclear lines of accountability. Since DOD is the 

largest user of interagency contracts in the government, it can ill-afford to

expose itself to such risks. Relying on other agencies for contracting 

support requires sound practices. The problems in clearly defining 

requirements, inadequate competition, and monitoring contractor 

performance to ensure that the government is getting good value are also

evident in interagency contracting, as I have previously discussed. 

However, under an interagency arrangement, the number of parties in the 

contracting process increases and so too does the need to ensure 

accountability. Ensuring the proper use of these contracting arrangements 

must be viewed as a shared responsibility that requires agencies to define 

clearly who does what in the contracting process. Additionally, DOD pays 

a fee to other agencies when using their contracts or contracting services, 

which could potentially increase DOD costs. 

Inappropriate Use of 

Interagency Contracts 

In April 2005, we reported that a lack of effective management controls—

in particular insufficient management oversight and a lack of adequate 

training—led to breakdowns in the issuance and administration of task 

orders for interrogation and other services in Iraq by the Department of 

the Interior on behalf of DOD.15 These breakdowns included 

 14GAO-05-456. 

15GAO, Interagency Contracting: Problems with DOD’s and Interior’s Orders to Support

Military Operations, GAO-05-201 (Washington, D.C.: Apr. 29, 2005). 

Page 9 GAO-07-359T 
• issuing 10 out of 11 task orders that were beyond the scope of 

underlying contracts, in violation of competition rules; 

• not complying with additional DOD competition requirements when 

issuing task orders for services on existing contracts; 

• not properly justifying the decision to use interagency contracting; 

• not complying with ordering procedures meant to ensure best value for 

the government; and 

• not adequately monitoring contractor performance. 

Because officials at Interior and the Army responsible for the orders did 

not fully carry out their responsibilities, the contractor was allowed to 

play a role in the procurement process normally performed by government 

officials. Further, the Army officials responsible for overseeing the 

contractor, for the most part, lacked knowledge of contracting issues and 

were not aware of their basic duties and responsibilities. 

Similarly, our work on DOD’s use of franchise funds managed by the 

Departments of the Treasury and the Interior found that sound 

management practices for ensuring competition, analyzing contracting 

alternatives, and defining outcomes were not in place. For example, 

GovWorks did not receive competing proposals for work. GovWorks also 

added substantial work to the orders without determining that prices were 

fair and reasonable. FedSource generally did not ensure competition for 

work, did not conduct price analyses, and sometimes paid contractors 

higher prices for services than established in contracts with no 

justification in the contract files. DOD also did not analyze contracting 

alternatives and lacked information about purchases made through these 

arrangements. 

We identified several causes for the lack of sound practices. In some 

cases, there was a lack of clear guidance and contracting personnel were 

insufficiently trained on the use of interagency contracting arrangements. 

In many cases, DOD users chose the speed and convenience of an 

interagency contracting arrangement to respond and meet needs quickly. 

Contracting service providers, under a fee-for-service arrangement, 

sometimes inappropriately emphasized customer satisfaction and revenue 

generation over compliance with sound contracting policies and 

procedures requirements. These practices put DOD at risk of not getting 

required services at reasonable prices and unnecessarily wasting 

resources. Further, DOD does not have useful information about 

purchases made through other agencies’ contracts, making it difficult to 

assess the costs and benefits and make informed choices about the 

alternatives methods available. 

Page 10 GAO-07-359T 
Congress and GAO have identified the need to improve DOD’s overall 

approach to acquiring services for several years. In 2002, we noted that 

DOD’s approach to buying services was largely fragmented and 

uncoordinated, with responsibility for acquiring services spread among 

individual military commands, weapon system program offices, or 

functional units on military bases, with little visibility or control at the 

DOD or military department level. Despite taking action to address the 

deficiencies and implement legislative requirements, DOD’s actions to date

have not equated to progress. DOD’s current approach to acquiring 

services suffers from the absence of key elements at the strategic and

transactional levels and does not position the department to make service 

acquisitions a managed outcome. 

DOD Needs a Management 

Structure to Oversee 

Service Acquisition 

Processes and Outcomes 

Considerable congressional effort has been made to improve DOD’s 

approach to acquiring services. For example, in 2001, Congress passed 

legislation to ensure that DOD acquires services by means that are in the 

best interest of the government and managed in compliance with 

applicable statutory requirements. In this regard, sections 801 and 802 of 

the National Defense Authorization Act for Fiscal Year 2002 required DOD 

to establish a service acquisition management approach, including 

developing a structure for reviewing individual service transactions based

on dollar thresholds and other criteria.16 Last year, Congress amended 

requirements pertaining to DOD’s service contracting management 

structure, workforce, and oversight processes, among others.17

We have issued several reports that identified shortcomings in DOD’s 

approaches and its implementation of legislative requirements. For 

example, we issued a report in January 2002 that identified how leading 

commercial companies took a strategic approach to buying services and

recommended that DOD evaluate how a strategic reengineering approach, 

such as that employed by leading companies, could be used as a 

framework to guide DOD’s reengineering efforts.18 In September 2003, we 

reported that DOD’s actions to implement the service acquisition 

management structure required under Sections 801 and 802 did not 

provide a departmentwide assessment of how spending for services could 

 16Pub. L. No. 107-107, §§ 801, 802 (2001)(section 801 added new sections 2330 and 2330a to

title 10, U.S. Code). 

17Pub. L. No. 109-163, § 812 (2006)(section 812 amended 10 U.S.C. § 2330). 

18GAO, Best Practices: Taking A Strategic Approach Could Improve DOD’s Acquisition of 

Services, GAO-02-230 (Washington, D.C.: Jan. 18, 2002). 

Page 11 GAO-07-359T 
be more effective and recommended that DOD give greater attention to 

promoting a strategic orientation by setting performance goals for 

improvements and ensuring accountability for achieving those results.19

Most recently, in November 2006, we issued a report that identified a 

number of actions that DOD could take to improve its acquisition of 

services.20 We noted that DOD’s overall approach to managing services 

acquisitions suffered from the absence of several key elements at both a 

strategic and transactional level. The strategic level is where the 

enterprise, DOD in this case, sets the direction or vision for what it needs, 

captures the knowledge to enable more informed management decisions,

ensures departmentwide goals and objectives are achieved, determines 

how to go about meeting those needs, and assesses the resources it has to

achieve desired outcomes. The strategic level also sets the context for the

transactional level, where the focus is on making sound decisions on 

individual service acquisitions. Factors for good outcomes at the 

transactional level include valid and well-defined requirements, 

appropriate business arrangements, and adequate management of 

contractor performance. 

DOD’s current approach to managing services acquisition has tended to be 

reactive and has not fully addressed the key factors for success at either 

the strategic or the transactional level. At the strategic level, DOD has not 

developed a normative position for gauging whether ongoing and planned

efforts can best achieve intended results. Further, good information on the 

volume and composition of services is still wanting, perpetuating the 

circumstance in which the acquisition of services tends to happen to DOD, 

rather than being proactively managed. For example, despite 

implementing a review structure aimed at increasing insight into service 

transactions, DOD is not able to determine which or how many

transactions have been reviewed.21 The military departments have only 

 19GAO, Contract Management: High-Level Attention Needed to Transform DOD Services 

Acquisition, GAO-03-935 (Washington, D.C.: Sept. 10, 2003).

20GAO, Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition

Outcomes, GAO-07-20 (Washington, D.C.: Nov. 9, 2006). 

21The management structure has three review levels: (1) review by the Under Secretary of

Defense (Acquisition, Technology, and Logistics) for services acquisitions valued over 

$2 billion; (2) review by the component or designated acquisition executive for service 

acquisitions valued between $500 million and $2 billion; and (3) review by a componentdesignated official for the acquisition of services valued at less than $500 million. The Air 

Force, Army, and Navy each developed review processes and authorities to support the 

DOD review requirements. 

Page 12 GAO-07-359T 
slightly better visibility, having reviewed proposed acquisitions accounting 

for less than 3 percent of dollars obligated for services in fiscal year 2005.

Additionally, most of the service acquisitions the military services review 

involved indefinite delivery/indefinite quantity contracts. DOD’s policy for 

managing service acquisitions had no requirement, however, to review 

individual task orders that were subsequently issued even if the value of 

the task order exceeded the review threshold. 

Further, the reviews tended to focus more on ensuring compliance with 

applicable statutes, regulations, and other requirements, rather than on 

imparting a vision or tailored method for strategically managing service 

acquisitions. Our discussions with officials at buying activities that had 

proposed service acquisitions reviewed under this process revealed that, 

for the most part, they did not believe the review significantly improved 

those acquisitions. These officials indicated that the timing of the review 

process—which generally occurred well into the planning cycle—was too 

late to provide opportunities to influence the acquisition strategy. These 

officials told us that the reviews would be more beneficial if they were 

conducted earlier in the process, in conjunction with the program office or 

customer, and in the context of a more strategic approach to meeting the

requirement, rather than simply from a secondary or tertiary review of the

contract. 

At the transactional level, DOD tended to focus primarily on those 

elements associated with awarding contracts, with much less attention 

paid to formulation of service acquisition requirements and to assessment 

of the actual delivery of contracted services. Moreover, the results of 

individual acquisitions were generally not used to inform or adjust 

strategic direction. As a result, DOD is not in a position to determine 

whether investments in services are achieving their desired outcomes. 

Further, DOD and military department officials identified many of the 

same problems in defining requirements, establishing sound business 

arrangements, and providing effective oversight that I discussed 

previously. For example, 

• DOD and military department officials consistently identified poor 

communication and the lack of timely interaction between the 

acquisition and contracting personnel as key challenges to developing 

good requirements. 

• An Army contracting officer issued a task order for a product that the 

contracting officer knew was outside the scope of the service contract. 

The contracting officer noted in an e-mail to the requestor that this 

Page 13 GAO-07-359T 
deviation was allowed only because the customer needed the product 

quickly and cautioned that no such allowances would be granted in the 

future. 

• Few of the commands or activities could provide us reliable or current 

information on the number of service acquisitions they managed, and 

others had not developed a means to consistently monitor or assess, at 

a command level, whether such acquisitions were meeting the 

performance objectives established in the contracts. 

To address these issues, we made several recommendations to the 

Secretary of Defense. DOD concurred with our recommendations and 

identified actions it has taken, or plans to take to address them. In 

particular, DOD noted that it is reassessing its strategic approach to 

acquiring services, including examining the types and kinds of services it 

acquires and developing an integrated assessment of how best to acquire

such services. DOD expects this assessment will result in a 

comprehensive, departmentwide architecture for acquiring services that 

will, among other improvements, help refine the process to develop 

requirements, ensure that individual transactions are consistent with 

DOD’s strategic goals and initiatives, and provide a capability to assess 

whether service acquisitions are meeting their cost, schedule, and 

performance objectives. DOD expects its assessment will be completed in

early 2007. 

That assessment, however, will have little meaning unless DOD's 

leadership can translate its vision into changes in front line practices. In 

our July 2006 report on vulnerabilities to fraud, waste, and abuse, we 

noted that leadership positions are sometimes vacant, that the culture to 

streamline acquisitions for purposes of speed may have not been in 

balance with good business practices, and that even in newly formed 

government-industry partnerships, the government needs to maintain its 

oversight responsibility. Understanding the myriad causes of the 

challenges confronting DOD in acquiring services is essential to 

developing effective solutions and translating policies into practices. While

DOD has generally agreed with our recommendations intended to improve 

contract management, much remains to be done. At this point, DOD does 

not know how well its services acquisition processes are working, which 

part of its mission can best be met through buying services, and whether it 

is obtaining the services it needs while protecting DOD’s and the 

taxpayer’s interests. 

- - - - 

Page 14 GAO-07-359T 
Mr. Chairman and members of the subcommittee, this concludes my 

testimony. I would be happy to answer any questions you might have. 

In preparing this testimony, we relied principally on previously issued 

GAO and Inspectors General reports. We conducted our work in 

January 2007 in accordance with generally accepted government auditing

standards. 

For further information regarding this testimony, please contact Katherine

V. Schinasi at (202) 512-4841 or schinasik@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs can be found on the 

last page of this testimony. Key contributors to this testimony were 

Lily Chin, David E. Cooper, Timothy DiNapoli, James E. Fuquay, Matthew 

Lea, Sara Margraf, Kenneth Patton, Sylvia Schatz, and Amelia Shachoy. 

Scope and 

Methodology 

Contact and Staff 

Acknowledgments 

Page 15 GAO-07-359T (120621) 
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