United States Government Accountability Office

GAO Testimony 

Before the Subcommittee on Defense, 

Committee on Appropriations, House of 

Representatives

DEFENSE ACQUISITIONS

Improved Management and 

Oversight Needed to Better 

Control DOD’s Acquisition 

of Services 

Statement of John P. Hutton, Director 

Acquisition and Sourcing Management 

For Release on Delivery

Expected at 10:00 a.m. EDT 

Thursday, May 10, 2007

 

GAO-07-832T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 10, 2007

DEFENSE ACQUISITIONS 

Improved Management and Oversight 

Needed to Better Control DOD's 

Acquisition of Services 

Highlights of GAO-07-832T, a testimony 

before the Subcommittee on Defense, 

Committee on Appropriations, House of 

Representatives 

The Department of Defense (DOD)

is relying more and more on 

contractors to provide billions of 

dollars in services. Congress has 

pushed DOD to employ sound 

business practices when using the 

private sector for services. 

This testimony discusses DOD’s 

(1) increasing reliance on 

contractors; (2) efforts to follow

sound business practices when 

acquiring services; and (3) actions 

to improve its management and 

oversight of services. 

This testimony is based on GAO’s 

work spanning several years as 

well as recent reports issued by the 

Inspectors General. 

What GAO Recommends

While GAO is making no 

recommendations in this 

testimony, 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. 

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, expressed in constant fiscal year 2006 dollars, rose from 

$85.1 billion in fiscal year 1996 to more than $151 billion in fiscal year 2006, 

a 78 percent increase. While obligations increased, the size of the civilian 

workforce decreased. Moreover, DOD carried out this downsizing without 

ensuring that it had the requisite skills and competencies needed to manage

and oversee service acquisitions. Overall, our work found that to a large 

degree, this growth in spending on services simply happened and was not a 

managed outcome. 

The lack of sound business practices—poorly defined requirements, 

inadequate competition, the lack of comprehensive guidance and visibility 

on contractors supporting deployed forces, inadequate monitoring of 

contractor performance, and inappropriate use of other agencies’ contracts 

and contracting services—expose DOD to unnecessary risk, waste 

resources, and complicate efforts to hold contractors accountable for poor 

service acquisition outcomes. For example, DOD awarded contracts for 

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

on an authorized, sole-source basis. The sole-source contracts were awarded 

by DOD despite recognizing it was paying about 25 percent more than 

previously paid for contracts awarded competitively. Further, the lack of 

sufficient surveillance on service contracts placed DOD 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. Overall, 

DOD’s management structure and processes overseeing service acquisitions 

lacked key elements at the strategic and transactional levels. 

DOD has taken some steps to improve its management of services 

acquisition, including developing a competency model for its contracting 

workforce; issuing policies and guidance to improve its management of 

contractors supporting deployed forces and its use of interagency contracts; 

and 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, 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-07-832T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact John P. Hutton 

at (202) 512-4841 or huttonj@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 2006, DOD obligated more than 

$151 billion on service contracts, a 78 percent real 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. 

The challenges faced by DOD in acquiring services are not new, but rather 

are emblematic of a range of systemic and long-standing issues. In this 

regard, we identified DOD contract management to be high risk because of 

its vulnerability to fraud, waste, abuse, and mismanagement 15 years ago1

and have reported on DOD’s long-standing problems with management 

and oversight of support contractors since 1997. In January 2005, we 

added the management of interagency contracting to our high-risk list. 

DOD is the largest user of interagency contracts. In a report issued in July 

2006, we concluded that with awards to contractors large and growing, 

DOD will continue to be vulnerable to contracting fraud, waste, or misuse 

of taxpayer dollars, and abuse.2

 While DOD has acknowledged its 

vulnerabilities and taken some actions to address them, many of the 

initiatives are still in their early stages, and it is too soon to tell what 

impact they may have. 

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

contractors, (2) efforts to follow sound business practices when acquiring 

services, and (3) actions to improve its management and oversight 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 

 1

GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007). 

2

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

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

Page 1 GAO-07-832T 
recent reports issued by the DOD Inspector General and the General 

Services Administration (GSA) Inspector General. 

Numerous persistent problems have resulted in reduced effectiveness and 

have exposed DOD to unnecessary risks when acquiring services. The 

growth in obligations on service contracts—from $85.1 billion in fiscal 

year 1996 to more than $151 billion in fiscal year 2006—reflects a growing 

reliance on contractors to provide a range of mission-critical services. At 

the same time, DOD’s civilian workforce was downsized without sufficient 

attention to requisite skills and competencies. 

Within this environment, our work, as well as that of some agency 

Inspectors General, have identified numerous instances of weak business 

practices—poorly defined requirements, inadequate competition, 

insufficient guidance and leadership, inadequate monitoring of contractor

performance, and inappropriate uses of other agencies’ contracts and 

contracting services. Collectively, these problems expose DOD to 

unnecessary risk, complicate efforts to hold DOD and contractors 

accountable for poor acquisition outcomes, and increase the potential for

fraud, waste, or abuse of taxpayer dollars. 

DOD’s structure and processes for managing services do not position the 

department to make service acquisitions a managed outcome. DOD has 

taken some actions to improve its management of services, including 

developing a competency model for its contracting workforce; issuing 

policies and guidance to improve DOD’s management of contractors 

supporting deployed forces and its use of interagency contracts; and 

developing an integrated assessment of how best to acquire services. DOD 

leadership will be critical for translating this assessment and other actions 

into effective frontline practices. At this point, however, DOD does not 

know how well its services acquisition processes are working and whether 

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

taxpayer’s interests. 

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, expressed in constant fiscal year 2006

dollars, rose from $85.1 billion in fiscal year 1996 to more than $151 billion 

in fiscal year 2006, a 78 percent increase. More than $32 billion—or 

Summary 

DOD Increasingly 

Relies on ContractorProvided Services 

Page 2 GAO-07-832T 
21 percent—of DOD’s obligations on services in fiscal year 2006 were 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. 

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

example, after the September 2001 terrorist attacks, increased security 

requirements and the deployment of active duty and reserve personnel 

resulted in DOD having fewer military personnel to protect domestic 

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

$733 million to acquire contract guards at 57 installations. Growth was 

also caused by changes in the way DOD acquired certain capabilities. 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.3

 Overall, however, our work found that to a large 

degree, this growth simply happened and was not a managed outcome. 

As the amount and complexity of contracting for services have increased,

the size of the civilian workforce has decreased. More significantly, DOD 

carried out this downsizing without ensuring that it had the requisite skills 

and competencies needed to manage and oversee service acquisitions. 

Consequently, DOD is challenged in its ability to maintain a workforce 

with the requisite knowledge of market conditions, industry trends, and 

the technical details about the services they procure; the ability to prepare 

clear statements of work; and the capacity to manage and oversee 

contractors. 

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 

 3

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

Page 3 GAO-07-832T 
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. For example, DOD’s Director of Defense 

Procurement and Acquisition Policy testified in January 2007 that DOD has 

been developing a model that will address the skills and competencies 

necessary for DOD’s contracting workforce. That model will be deployed 

this year. The Director stated that this effort would allow DOD to assess 

the workforce in terms of size, capability, and skill mix, and to develop a 

comprehensive recruiting, training, and deployment plan to meet the 

identified capability gaps. 

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

an example of downsizing in a critical area—cost estimating.4

 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. 

Turning to Iraq, DOD has relied extensively on contractors to undertake 

major reconstruction projects and provide 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, as well as to train and equip Iraqi

 4

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-07-832T 
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 contracts. 

Further, these contracts often contain award fee provisions, which are 

intended to incentivize more efficient and effective contractor

performance.5

 If contracts are not effectively managed and given sufficient

oversight, the government’s risk is likely to increase. For example, we 

have reported that DOD needs to conduct periodic reviews of services 

provided under cost-reimbursement contracts to ensure that services are 

being provided and at an appropriate level and quality. Without such a 

review, the government is at risk to pay for services it no longer needs. 

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. Further, DOD’s management and use of 

contractors supporting deployed forces suffers from the lack of clear and 

comprehensive guidance, among other shortfalls. Similarly, DOD does not 

always oversee and manage contractor performance, in part due to 

capacity issues, once a contract is in place. Many of these problems show

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

problems expose DOD to unnecessary risk, complicate efforts to hold 

DOD and contractors accountable for poor acquisition outcomes, and 

increase the potential for fraud, waste, or abuse of taxpayer dollars. 

DOD Does Not 

Consistently Use 

Sound Business

Practices to Acquire 

Services 

Poorly Defined 

Requirements 

Poorly defined or broadly described requirements have contributed to 

undesired service acquisition outcomes. To produce desired outcomes 

within available funding and required time frames, DOD and its 

contractors need to clearly understand acquisition objectives and how 

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

 5

In December 2005, we reported that DOD programs engage in award fee practices that 

undermine efforts to motivate contractor performance and that do not hold contractors 

accountable for achieving desired acquisition outcomes. See GAO, Defense Acquisitions:

DOD Has Paid Billions in Award and Incentive Fees Regardless of Acquisition 

Outcomes, GAO-06-66 (Washington, D.C.: Dec. 19, 2005). 

Page 5 GAO-07-832T 
well-defined requirements and clearly understood objectives complicates 

efforts to hold DOD and contractors accountable for poor acquisition 

outcomes. Contracts, especially service contracts, often do not have 

definitive or realistic requirements at the outset needed to control costs 

and facilitate accountability. This situation is illustrated in the following 

examples: 

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

requirements were not clear, DOD often entered into contract

arrangements that introduced risks. We reported that DOD often 

authorized contractors to begin work before key terms and conditions, 

such as 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. We will issue 

a report later this year on DOD’s use of undefinitized contract actions. 

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

Augmentation Program (LOGCAP) contract in Iraq, including those 

who 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.7

 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 do so. Further, we have reported that contract 

customers need to conduct periodic reviews of services provided under 

 6

GAO, Rebuilding Iraq: Continued Progress Requires Overcoming Contract Management 

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

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

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

7

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-07-832T 
cost-reimbursable contracts to ensure that services provided are 

supplied at an appropriate level. Without such a review, the 

government is at risk of paying for services it no longer needs. For 

example, the command in Iraq lowered the cost of the LOGCAP 

contract by $108 million by reducing services and eliminating unneeded

dining facilities and laundries. 

Inadequate Competition Competition is a fundamental principle underlying the federal acquisition 

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

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

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

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

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

authorized, sole-source basis.8 The sole-source contracts were awarded by

DOD despite recognizing it was paying about 25 percent more than 

previously paid for contracts awarded competitively. In this case, we 

recommended that the Army reassess its acquisition strategy for contract

security guards, using competitive procedures for future contracts and 

task orders. DOD agreed and is in the process of revising its acquisition 

strategy. 

In Iraq, the need to award contracts and begin reconstruction efforts 

quickly contributed to DOD’s using other than full and open competition 

during the initial stages of reconstruction. While full and open competition 

can be a tool to mitigate acquisition risks, DOD procurement officials had 

only a relatively short time—often only weeks—to award the first major 

reconstruction contracts. As a result, these contracts were generally 

awarded using other than full and open competition. We recently reported 

that DOD competed the vast majority of its contract obligations between 

October 1, 2003, through March 31, 2006.9

 We were able to obtain data on 

$7 billion, or 82 percent, of DOD’s total contract obligations during this 

period. Our ability to obtain complete information, however, on DOD 

reconstruction contract actions was limited because not all DOD 

components consistently tracked or fully reported this information. 

 8

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

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

9

GAO, Rebuilding Iraq: Status of Competition for Iraq Reconstruction Contracts,

GAO-07-40 (Washington, D.C.: Oct. 6, 2006). 

Page 7 GAO-07-832T 
Since the mid-1990s, our reports have highlighted the need for clear and

comprehensive guidance for managing and overseeing the use of 

contractors that support deployed forces. As we reported in December 

2006, DOD has not yet fully addressed this long-standing problem.10

Insufficient Guidance and 

Leadership to Manage 

Contractors Supporting 

Deployed Forces 

Such problems are not new. In assessing LOGCAP implementation during 

the Bosnian peacekeeping mission in 1997, we identified weaknesses in 

the available doctrine on how to manage contractor resources, including

how to integrate contractors with military units and what type of 

management and oversight structure to establish.11 We identified similar 

weaknesses when we began reviewing DOD’s use of contractors in Iraq. 

For example, in 2003 we reported that guidance and other oversight 

mechanisms varied widely at the DOD, combatant command, and service 

levels, making it difficult to manage contractors effectively. Similarly, in 

our 2005 report on private security contractors in Iraq, we noted that DOD 

had not issued any guidance to units deploying to Iraq on how to work 

with or coordinate efforts with private security contractors.12 Further, we 

noted that the military may not have a clear understanding of the role of 

contractors, including private security providers, in Iraq and of the 

implications of having private security providers in the battle space. 

In our view, establishing baseline policies for managing and overseeing 

contractors would help ensure the efficient use of contractors in places 

such as Iraq. DOD addressed some of these issues when it issued new 

guidance in October 2005 on the use of contractors who support deployed

forces.13 However, as our December 2006 report made clear, DOD’s 

guidance does not address a number of problems we have repeatedly

raised—such as the need to provide adequate contract oversight 

personnel, to collect and share lessons learned on the use of contractors 

supporting deployed forces, and to provide DOD commanders and 

contract oversight personnel with training on the use of contractors 

 10GAO, 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). 

11GAO, Contingency Operations: Opportunities to Improve the Logistics Civil 

Augmentation Program, GAO/NSIAD-97-63 (Washington, D.C.: Feb. 11, 1997). 

12GAO, Rebuilding Iraq: Actions Needed to Improve Use of Private Security Providers, 

GAO-05-737 (Washington, D.C.: July 28, 2005). 

13Department of Defense Instruction 3020.41, Contractor Personnel Authorized to 

Accompany the U.S. Armed Forces (Oct. 3, 2005). 

Page 8 GAO-07-832T 
overseas before deployment. Since our December 2006 report was issued, 

DOD officials indicated that DOD was developing a joint publication 

entitled Contracting and Contractor Management in Joint Operations,

which is expected to be distributed in May 2007.

Our work has also highlighted the need for DOD components to comply 

with departmental guidance on the use of contractors. For example, in our 

June 2003 report we noted that DOD components were not complying with 

a long-standing requirement to identify essential services provided by

contractors and develop backup plans to ensure the continuation of those 

services during contingency operations should contractors become 

unavailable to provide those services. Other reports highlighted our 

concerns over DOD’s planning for the use of contractor support in Iraq, 

including the need to comply with guidance to identify operational 

requirements early in the planning process. When contractors are involved

in planning efforts early and given adequate time to plan and prepare to 

accomplish their assigned tasks, the quality of the contractor’s services 

improves and contract costs may be lowered. 

DOD’s October 2005 guidance on the use of contractor support to 

deployed forces went a long way to consolidate existing policy and 

provide guidance on a wide range of contractor issues. However, as of 

December 2006, we found little evidence that DOD components were 

implementing that guidance, in part because no individual within DOD was 

responsible for reviewing DOD’s and the services’ efforts to ensure the 

guidance was being consistently implemented. In our 2005 report on 

LOGCAP we recommended DOD designate a LOGCAP coordinator with 

the authority to participate in deliberations and advocate the most 

effective and efficient use of the LOGCAP contract. Similarly, in 2006 we

recommended that DOD appoint a focal point within the Office of the 

Under Secretary of Defense for Acquisition, Technology, and Logistics—at 

a sufficiently senior level and with the appropriate resources—dedicated 

to leading DOD’s efforts to improve its contract management and 

oversight. DOD agreed with these recommendations. In October 2006, 

DOD established the office of the Assistant Deputy Under Secretary of 

Defense for Program Support to serve as the office of primary 

responsibility for contractor support issues, but the office’s specific roles

and responsibilities have not yet been clearly defined. 

Page 9 GAO-07-832T 
GAO has reported on numerous occasions that DOD did not adequately 

manage and assess contractor performance to ensure that the business 

arrangement was properly executed. Managing and assessing post-award 

performance entails various activities to ensure that the delivery of 

services meets the terms of the 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. 

Inadequate Management 

and Assessment of 

Contractor Performance 

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.14 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.15

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 contract requirements. 

 14GAO, Contract Management: Opportunities to Improve Surveillance on Department of 

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

15GAO-07-145. 

Page 10 GAO-07-832T 
The lack of visibility on the extent of services provided by contractors to 

deployed forces contributes to this condition. Without such visibility, 

senior leaders and military commanders cannot develop a complete 

picture of the extent to which they rely on contractors to support their 

operations. We first reported the need for better visibility in 2002 during a 

review of the costs associated with U.S. operations in the Balkans.16 At that 

time, we reported that DOD was unaware of (1) the number of contractors 

operating in the Balkans, (2) the tasks those contractors were contracted 

to do, and (3) the government’s obligations to those contractors under the 

contracts. We noted a similar situation in 2003 in our report on DOD’s use

of contractors to support deployed forces in Southwest Asia and Kosovo.17

Our December 2006 review of DOD’s use of contractors in Iraq found 

continuing problems with visibility over contractors. For example, when 

senior military leaders began to develop a base consolidation plan, 

officials were unable to determine how many contractors were deployed 

and therefore ran the risk of over- or under-building the capacity of the 

consolidated bases. 

DOD’s October 2005 guidance on contractor support to deployed forces 

included a requirement that the department develop or designate a joint 

database to maintain by-name accountability of contractors deploying 

with the force and a summary of the services or capabilities contractors 

provide. The Army has taken the lead in this effort, and recently DOD 

designated a database intended to provide improved visibility over 

contractors deployed to support the military in Iraq, Afghanistan, and 

elsewhere. According to DOD, in January 2007, the department designated 

the Army’s Synchronized Predeployment & Operational Tracker (SPOT) as 

the departmentwide database to maintain by-name accountability of all 

contractors deploying with the force. According to DOD, the SPOT 

database includes approximately 50,000 contractor names. Additionally, in

December 2006, the Defense Federal Acquisition Regulation Supplement 

was amended to require the use of the SPOT database by contractors 

supporting deployed forces. 

 16GAO, Defense Budget: Need to Strengthen Guidance and Oversight of Contingency 

Operations Costs, GAO-02-450 (Washington, D.C.: May 21, 2002). 

17GAO, Military Operations: Contractors Provide Vital Services to Deployed Forces but 

Are Not Adequately Addressed in DOD Plans, GAO-03-695 (Washington, D.C. June 24,

2003). 

Page 11 GAO-07-832T 
Inappropriate Use of 

Interagency Contracts 

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

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

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

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

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

support requires sound practices. For example, under an interagency 

arrangement, the number of parties in the contracting process increases, 

and 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. However, the problems I 

discussed previously regarding defining requirements, ensuring 

competition, and monitoring contractor performance are frequently 

evident in interagency contracting. Additionally, DOD pays a fee to other 

agencies when using their contracts or contracting services, which could 

potentially increase DOD costs. 

Our work, as well as that of the Inspectors General, found competitionrelated issues on DOD’s use of interagency contracting vehicles. DOD is 

required to foster competition and provide all contractors a fair

opportunity to be considered for each order placed on GSA’s multipleaward schedules, unless certain exceptions apply.18 DOD officials, 

however, have on numerous occasions avoided the time and effort 

necessary to award individual orders competitively and instead awarded 

all the work to be performed to a single contractor. We found that this 

practice resulted in the noncompetitive award of many orders that have 

not always been adequately justified.

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.19 These breakdowns included: 

• issuing 10 out of 11 task orders that were beyond the scope of 

underlying contracts, in violation of competition rules; 

 1810 U.S.C. 2304c. 

19GAO, Interagency Contracting: Problems with DOD’s and Interior’s Orders to Support 

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

Page 12 GAO-07-832T 
• 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. 

In July 2005, we reported on various issues associated with DOD’s use of 

franchise funds at the departments of the Interior and the Treasury—

GovWorks and FedSource—that acquired a range of services for DOD.20

For example, GovWorks did not receive competing proposals for work and 

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 were specified in the contracts, with no 

justification in the contract files. At both funds, we found that the files we 

reviewed lacked clear descriptions of requirements the contractor was 

supposed to meet. For its part, DOD did not analyze contracting 

alternatives and lacked information about purchases made through these 

arrangements. We also found DOD and franchise fund officials were not 

monitoring contracts and lacked criteria against which contractor 

performance could be measured to ensure that contractors provided 

quality services in a timely manner. 

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 

 20GAO, Interagency Contracting: Franchise Funds Provide Convenience, but Value to 

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

Page 13 GAO-07-832T 
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. 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. 

Similarly, the DOD Inspector General recently reported on issues with 

DOD’s use of contracts awarded by the departments of the Interior and the 

Treasury, GSA, and the National Aeronautics and Space Administration

(NASA). For example, in November 2006, the Inspector General reported 

that DOD contracting and program personnel did not comply with 

acquisition rules and regulations when using contracts awarded by NASA, 

such as not always complying with fair opportunity requirements or not 

adequately justifying the use of a non-DOD contracting vehicle. As a result, 

the Inspector General concluded that funds were not used as intended by 

Congress, competition was limited, and DOD had no assurance that it 

received the best value.

21 Additionally, the Inspector General found that 

DOD used Interior and GSA to “park” funds that were expiring. The 

agencies then subsequently placed contracts for DOD using the expired 

funds, thereby circumventing appropriations law. The Inspector General 

concluded that these problems were driven by a desire to hire a particular 

contractor, the desire to obligate expiring funds, and the inability of the 

DOD contracting workforce to respond to its customers in a timely 

manner. 

DOD and other agencies have taken steps to address some of these issues, 

including issuing an October 2006 memorandum intended to strengthen 

internal controls over the use of interagency contracts and signing a

December 2006 memorandum of understanding with GSA to work 

together on 22 basic contracting management controls, including ensuring

that sole-source justifications are adequate, that statements of work are 

complete, and that interagency agreements describe the work to be 

 21Department of Defense, Office of the Inspector General. Acquisition: FY 2005 DOD 

Purchases Made Through the National Aeronautics and Space Administration. Report 

No. D-2007-023. (Arlington, Va. Nov. 13, 2006). 

Page 14 GAO-07-832T 
performed. Similarly, GSA has worked with DOD to identify unused and 

expired DOD funds maintained in GSA accounts. Further, according to the 

Inspector General, Interior has withdrawn numerous warrants in response 

to these findings. 

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. Responsibility for acquiring services was spread among 

individual military commands, weapon system program offices, or 

functional units on military bases, and 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 with 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.22 Last year, Congress amended 

requirements pertaining to DOD’s service contracting management 

structure, workforce, and oversight processes, among others.23

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 

 22Pub. L. No. 107-107, §§ 801, 802 (2001)(section 801 added new sections 2330 and 2330a to

title 10, U.S. Code). 

23Pub. L. No. 109-163, § 812 (2006)(section 812 amended 10 U.S.C. § 2330). 

Page 15 GAO-07-832T 
framework to guide DOD’s reengineering efforts.24 In September 2003, we 

reported that DOD’s actions to implement the service acquisition 

management structure required under Sections 801 and 802 did not 

provide a departmentwide assessment of how spending for services could 

be more effective and recommended that DOD give greater attention to 

promoting a strategic orientation by setting performance goals for 

improvements and ensuring accountability for achieving those results.25

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.26 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 the acquisition of services tended to 

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

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

developed a normative position for gauging whether ongoing and planned

efforts can best achieve intended results. Further, DOD lacked good 

information on the volume and composition of services, perpetuating the 

circumstance in which the acquisition of services tended to happen to 

DOD, rather than being proactively managed. For example, despite 

implementing a review structure aimed at increasing insight into service 

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

 24GAO, Best Practices: Taking A Strategic Approach Could Improve DOD’s Acquisition of 

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

25GAO, Contract Management: High-Level Attention Needed to Transform DOD Services 

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

26GAO, Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition

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

Page 16 GAO-07-832T 
transactions had been reviewed.27 The military departments had only 

slightly better visibility, having reviewed proposed acquisitions accounting 

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

Additionally, most of the service acquisitions the military services review 

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

managing service acquisitions had no requirement, however, to review 

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

the task order exceeded the review threshold. 

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, officials 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 was 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 

 27The 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 17 GAO-07-832T 
arrangements, and providing effective oversight that I discussed 

previously, as the following examples show: 

• DOD and military department officials consistently identified poor 

communication and the lack of timely interaction between acquisition 

and contracting personnel as key challenges to developing good 

requirements. 

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

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

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

deviation was allowed only because the customer needed the product 

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

future. 

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

information on the number of service acquisitions they managed, and 

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

a command level, whether such acquisitions were meeting the 

performance objectives established in the contracts. 

To address these issues, we made several recommendations to the 

Secretary of Defense. DOD concurred with our recommendations and 

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

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

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

acquires and developing an integrated assessment of how best to acquire

such services. DOD expects this assessment will result in a 

comprehensive, departmentwide architecture for acquiring services that 

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

requirements, ensure that individual transactions are consistent with 

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

whether service acquisitions are meeting their cost, schedule, and 

performance objectives.

- - - - 

In closing, I would like to emphasize that DOD has taken, or is in the 

process of taking, action to address the issues we identified. These 

actions, much like the assessment I just mentioned, however, will have 

little meaning unless DOD’s leadership can translate its vision into changes 

in frontline practices. In our July 2006 report on vulnerabilities to fraud, 

waste, and abuse, we noted that leadership positions are sometimes 

Page 18 GAO-07-832T 
vacant, that the culture to streamline acquisitions for purposes of speed 

may have not been balanced with good business practices, and that even 

in newly formed government-industry partnerships, the government needs 

to maintain its oversight responsibility. Understanding the myriad causes 

of the challenges confronting DOD in acquiring services is essential to 

developing effective solutions and translating policies into practices. While

DOD has generally agreed with our recommendations intended to improve 

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

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

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

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

taxpayer’s interests. 

Mr. Chairman and members of the subcommittee, this concludes my 

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

In preparing this testimony, we relied principally on previously issued 

GAO and Inspectors General reports. We conducted our work in May 2007 

in accordance with generally accepted government auditing standards. 

For further information regarding this testimony, please contact John P. 

Hutton at (202) 512-4841 or huttonj@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 

Theresa Chen, Timothy DiNapoli, Kathryn Edelman, and John Krump. 

Contact and Staff 

Acknowledgments 

Page 19 GAO-07-832T (120661) 
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