Enclosure II 

Page 1 GAO-07-675R Defense Transportation Coordination Initiative

 

United States Government Accountability Office

Washington, DC 20548 

May 8, 2007 

Congressional Committees 

Subject: Defense Transportation: DOD Has Taken Actions to Incorporate Lessons 

Learned in Transforming Its Freight Distribution System 

The Department of Defense (DOD) transports second destination freight1

 from over 600 

locations to thousands of destinations throughout the continental United States each 

year at a cost of approximately $900 million. In 2001, DOD conducted a prototype 

program to better understand whether commercial best practices—specifically the use 

of a third-party logistics provider2

—could be applied to its freight transportation system 

and reduce costs. The prototype, which included a 1-year base agreement with two 

1-year option periods, was conducted at selected Defense Logistics Agency (DLA) and 

military service shipping locations in the southeastern United States. At the conclusion 

of the first year, DLA exercised an option to extend the prototype at its shipping 

locations, whereas the military service shipping locations returned to DOD’s previous 

freight shipping system due to dissatisfaction with the prototype’s performance. 

On the basis of the prototype, DOD concluded that a third-party logistics provider could 

successfully integrate with DOD transportation processes if the program was designed 

and implemented correctly to capitalize on the benefits of using a third-party logistics 

provider while also addressing the performance problems that were experienced with 

the prototype. In 2004, the Under Secretary of Defense for Acquisition, Technology, and 

Logistics initiated the Defense Transportation Coordination Initiative (DTCI) to improve 

the reliability, predictability, and efficiency of moving materiel within the continental 

United States through a long-term partnership with a third-party logistics provider. DOD 

issued a request for proposals in June 2006 and plans to award a contract during fiscal 

year 2007. The DTCI contracting vehicle will be an indefinite-delivery, requirements-type 

1

Second destination transportation is the movement of freight among and between depots, logistics 

centers, and field activities. It excludes freight that is shipped from commercial suppliers to DOD 

locations. 

2

A third-party logistics firm, also known as a 3PL, provides logistics services to companies for part or all of 

a company’s supply chain management functions, such as transportation or warehousing. 
contract3

 that will pay the contractor on a cost-reimbursable basis for moving freight, a 

monthly fixed price for management services, and a semi-annual award fee based on 

contractor performance. The contract covers commodities that DOD refers to as “freight 

all kinds”4

 and excludes a number of shipment types, such as household goods; arms, 

ammunition, and explosives; and sensitive and classified shipments. Scheduled for a 

phased implementation over 3 years, DTCI will encompass 67 DLA and military service 

shipping locations by the end of 2009, with the potential to add almost 200 more military 

service shipping locations. According to DOD, freight costs at the DTCI locations are 

estimated at about $250 million annually.5

 DOD has projected a savings in freight costs 

of approximately $60 million in the third year of implementation, after DTCI has become 

operational at all sites. Net savings will be less due to management costs associated with 

implementing DTCI. 

DOD views DTCI as an organizational transformation aimed at leveraging a third-party 

logistics provider’s existing commercial business, along with its best commercial 

practices, to achieve efficiencies in distribution and associated cost savings. The 

implementation of DTCI represents a shift from the current decentralized transportation 

management practice of having individual DOD transportation officers manage freight, to 

the use of a centralized system in which a single third-party logistics provider 

coordinates freight transportation for the sites. DTCI is also a key DOD initiative to 

address distribution problems in supply chain management, which we have designated 

as a high-risk area in the federal government.6

In response to Senate Report No. 109-254 accompanying the National Defense 

Authorization Act for Fiscal Year 2007 and as agreed with your office, this letter provides 

information on DOD’s plans for implementing DTCI. Our specific objectives were to (1) 

identify the actions DOD took to incorporate lessons learned from the earlier prototype 

program in its planning for DTCI and (2) evaluate the steps DOD has taken to achieve the 

organizational transformation envisioned under DTCI. 

The Senate Report also asked us to assess the business case analysis DOD developed, 

including the assumptions regarding cost savings that could be generated by DTCI. The 

 3

An indefinite-delivery, requirements-type contract provides for filling all actual purchase requirements of 

designated Government activities for supplies or services during a specified contract period, with 

deliveries or performance to be scheduled by placing orders with the contractor. Federal Acquisition 

Regulation (FAR) Subpart 16.503 (2006). 

4

“Freight all kinds” consists of those commodities that carriers offer to transport at one inclusive rate or 

charge regardless of their differing transportation characteristics or their classification rating, except for 

excluded freight classifications. 

5

This figure, based on historic data, is the estimated total direct freight costs during the third year of DTCI 

implementation. 

6

In 2005, DOD developed a supply chain management improvement plan to address problems in this highrisk area and place it on a path toward removing supply chain management from our high-risk list. The 

plan lists 10 related initiatives, which include DTCI. For more information on this high-risk area, see GAO,

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

Page 2 GAO-07-675R Defense Transportation Coordination Initiative 
business case analysis was addressed in a Comptroller General decision7

 on a protest 

that was filed regarding the terms of the DTCI request for proposals. In that decision, we 

denied the protest and concluded that DOD reasonably determined that consolidating 

the management of freight shipments under a third-party logistics provider would result 

in substantial cost savings and efficiencies and was necessary to meet the agency’s 

needs. The Comptroller General’s decision further stated that DOD had concluded the 

third-party logistics provider concept could work if designed and implemented correctly. 

Therefore, we did not address the business case analysis in this letter. 

Scope and Methodology 

To identify the lessons learned from the prototype program, we reviewed several 

assessments commissioned by DOD that were completed in 2002 and 2005. 8 We also 

obtained the views of the military services regarding both the lessons learned from the 

prototype and DOD’s plans for DTCI. For reporting purposes, we consolidated lessons 

learned that covered similar issues and grouped them into the following categories—role

of the third-party logistics provider, program development and implementation, 

information technology systems and integration, performance and performance metrics, 

business processes, contracting, and miscellaneous. We met with DTCI program 

officials to discuss the actions taken to incorporate lessons learned from the prototype 

into DOD’s planning for DTCI. To verify these actions, we obtained key program 

documents such as the acquisition plan, communication plan, and contract solicitation, 

which included the performance work statement. We considered a lesson learned to be 

incorporated when we determined that DOD’s planned actions were evident in these key 

program documents. Because the provisions of the contract solicitation, including those 

that resulted from lessons learned, will be subject to negotiation and may change 

following contract award, it was too early to determine whether DOD fully implemented 

all the actions planned in response to lessons learned from the prototype. In reviewing 

the steps DOD has taken to achieve the organizational transformation envisioned under 

DTCI, we made use of our prior work to identify key practices organizations use to 

transform their cultures to become more results oriented, customer focused, and 

collaborative in nature. We determined the extent to which the DTCI program 

management office had incorporated these practices into its plans and operations. As 

part of this effort, we reviewed DOD’s plans for assessing and managing performance 

after the contract is awarded. We determined that the data we used were sufficiently 

reliable for our purposes. We conducted our work between July and August 2006 and 

 7

2B Brokers, et al., B-298651, Nov. 27, 2006, 2006 CPD ¶178. 

8

PricewaterhouseCoopers, Third Party Logistics (3PL) Prototype TEST - Management Reform

Memorandum #15 - Final Report (Aug. 15, 2002); Center for Transportation Research, National 

Transportation Research Center, The University of Tennessee, Third Party Logistics (3PL) Prototype Test 

Conducted by MTMC/DLA Business Case Analysis (Sept. 15, 2002); IBM Business Consulting Services,

Addendum Report to Third Party Logistics (3PL) Prototype Test, Management Reform Memorandum 

#15, Final Report (July 29, 2005). 

Page 3 GAO-07-675R Defense Transportation Coordination Initiative 
between December 2006 and March 20079

 in accordance with generally accepted 

government auditing standards. 

Summary 

DOD took numerous actions to incorporate lessons learned from the prototype program 

in its planning for DTCI. Specifically, we identified 36 lessons learned—including 

successes and problems—from the prototype, and determined that DOD had taken 

actions that were responsive to each of these. For example, the prototype succeeded in 

showing the benefits of using both electronic data interchange10 between the 

government’s and contractor’s systems and a Web-based tracking system to provide 

visibility over shipments, and DOD plans to require the DTCI contractor to use both of 

these technologies. However, the prototype also experienced problems in areas such as 

program development and implementation, information technology systems and 

integration, performance, business processes, and contracting. DOD, in its planning for 

DTCI, has made changes in response to these lessons learned. For example, during the 

prototype, the military services had several concerns about performance, such as the 

contractor’s inconsistency in picking up freight on time, contributing to their 

dissatisfaction with that program. To address this lesson learned, the contract 

solicitation for DTCI includes on-time pickup as one of several key indicators to measure 

contractor performance. The prototype also showed that a 1-year base contract period 

was inadequate to secure a level of commitment or investment from the partners in a 

third-party logistics relationship and to develop effective communication processes. In 

contrast to the prototype contract, DOD plans to enter into a 3-year base agreement with 

a third-party logistics provider for DTCI with the option for two 1-year extensions and 

the possibility of two additional 1-year award options—a potential contract period 

totaling up to 7 years. Furthermore, the prototype experienced problems because the 

interfaces between the contractor’s and the government’s information technology 

systems were not fully operational when the prototype began. For DTCI, DOD has 

established a team addressing interface integration, and it plans to conduct robust 

testing at each site before DTCI is implemented. The DTCI program management office 

has also developed a policy of “safe start,” intended to reduce risk to the government and 

build confidence in the partnership between the third-party logistics provider and the 

government. For example, according to program officials, in the initial phase of DTCI 

implementation, only DLA shipping sites are involved. The military service sites will not 

be participating until the contractor has demonstrated full capability with their system 

interfaces and training of shipping installation personnel is completed. While DOD 

incorporated lessons learned from the prototype in its planning for DTCI, DOD 

components pursuing similar types of acquisitions may be unable to benefit from the 

successes and problems experienced during implementation of DTCI because DOD lacks 

a plan for disseminating DTCI lessons learned. Effective sharing of lessons learned is a 

key tool for institutionalizing change and facilitating efficient operations. The DTCI 

 9

We suspended audit work when the protest was filed on the contract solicitation and resumed our work

after the issuance of the protest decision. 

10Electronic data interchange is the business-to-business electronic exchange of documents using standard

formats that are widely recognized both nationally and internationally. 

Page 4 GAO-07-675R Defense Transportation Coordination Initiative 
program management office has initiated efforts to gather lessons learned. However, 

without dissemination of these lessons learned to the broader DOD acquisition 

community, other DOD components pursuing similar types of acquisitions may lack 

useful information that could assist their efforts. Therefore, we are recommending that 

DOD develop and implement a plan for sharing DTCI lessons learned across the 

department. In commenting on a draft of this correspondence, DOD concurred with our 

recommendation. 

To make the fundamental changes in the freight transportation system envisioned under 

DTCI, DOD has taken positive steps to initiate best practices employed by other private 

and public sector organizations to transform their cultures so they can become more 

results oriented, customer focused, and collaborative in nature. Still, the long-term 

success of DTCI remains uncertain given the challenges inherent in undertaking 

organizational transformation and because the program is still in its early stages, with a 

contract yet to be awarded and the program scheduled for rollout over a 3-year period. 

Our prior work has identified key practices that have been used by large organizations to 

achieve transformation. Some of these practices include dedicating an implementation 

team to manage the transformation process, establishing a communication strategy to 

create shared expectations and report related progress, and focusing on a key set of 

principles and priorities. So far, DTCI has employed these and other best practices in its 

efforts to move from the current decentralized transportation management activities to a 

centralized system under a single third-party logistics provider. For example, the DTCI 

program management office has established a transition planning team to oversee the 

transformation of DTCI from acquisition activity to implemented program, including 

developing initial plans and building relationships with all the government stakeholders 

at sites where DTCI will be initially implemented. One of the key priorities of the DTCI 

program management office has been to establish plans and initiate efforts for assessing 

and managing performance after contract award. Specifically, DOD has built 

performance indicators into the DTCI contract solicitation, scheduled periodic program 

management reviews, initiated a process improvement team, developed a quality 

assurance surveillance plan, and proposed to use award fees as an incentive to promote 

desired outcomes—elements aimed at ensuring the delivery of services to meet or 

exceed the terms of the contract. For example, DOD plans to conduct periodic 

performance management reviews at various points during the rollout of the program. 

The first review is scheduled to occur after DTCI is implemented at the first three sites, 

and a second review is scheduled after implementation at the next three sites. 

Subsequently, the contractor is expected to conduct program management reviews on a 

monthly basis. According to program officials, the reviews will include, among other 

things, a comparison of actual costs to projected costs and a review of various 

performance indicators. While these planned post-contract award efforts are promising, 

the long-term success of DTCI will depend on the extent to which DOD follows through 

on institutionalizing the practices it has initiated to transform its freight transportation 

system, as well as the contractor’s performance during implementation of the program. 

Page 5 GAO-07-675R Defense Transportation Coordination Initiative 
Background 

DOD’s freight transportation is currently managed by transportation officers, who are 

assigned to various components of DOD, such as DLA and the military services. To 

arrange for freight movements within the United States, transportation officers generally 

use one of two vehicles: a Tailored Transportation Contract, which is generally awarded 

to multiple carriers for large and small-volume shipments based on specific regions, 

shipment lanes, and commodities;11 or tenders, which are generally issued to carriers for 

shipments outside the requirements of a Tailored Transportation Contract, such as 

ammunition, explosives, or unit moves.12

 

When notified of a shipment requirement, the transportation officer may contact several 

potential carriers, eventually selecting one and arranging for the shipment. DOD 

shippers execute these actions without centralized planning, coordination, or control. 

They independently select the mode of transportation, level of service, and 

transportation provider. This decentralized process focuses on satisfying the 

requirements of local shippers, rather than on achieving DOD-wide efficiencies or cost 

savings. 

We have previously reported on deficiencies in DOD’s management of its transportation. 

These deficiencies included a lack of coordination among the services, which 

contributed to ineffective oversight programs. In 1993, we reported on strategies that 

commercial shippers use for managing their transportation functions and reducing 

costs. 13 We identified opportunities where DOD can make greater use of commercial 

practices and encouraged DOD to adopt some of these practices where feasible. In 

1999, we noted that DOD had made progress in reforming its transportation system 

through initiatives to reengineer its financial management processes, and we 

recommended that DOD assess the costs and benefits of reengineering the 

transportation financial management processes through contracting to a third-party 

logistics provider.14

Noting the growing use of third-party logistics providers in the commercial sector, the 

Deputy Secretary of Defense approved a study to assess the feasibility of using thirdparty logistics providers to meet some of DOD’s continental United States surface 

 11The Tailored Transportation Contract is an indefinite-delivery, indefinite-quantity type contract with 

traffic lanes awarded to multiple contract carriers where the shipment capacity may not necessarily be

guaranteed and the contract carriers can decline transportation requests. 

12According to DOD, a tender is an unsolicited rate provided by a carrier that an agency can use to offer 

freight shipment services to carriers; a contract based upon a tender is created only when the agency and

carrier agree to the shipment of services and a bill of lading has been issued. 

13GAO, Defense Transportation: Commercial Practices Offer Improvement Opportunities, GAO/NSIAD94-26 (Washington, D.C.: Nov. 26, 1993).

14GAO, Defense Transportation: Process Reengineering Could Be Enhanced by Performance Measures, 

GAO/NSIAD-00-7 (Washington, D.C.: Dec. 20, 1999). 

Page 6 GAO-07-675R Defense Transportation Coordination Initiative 
freight transportation requirements. The feasibility study,15 initiated in 1998, concluded 

that using a third-party logistics provider had the potential to generate transportation 

cost savings, provide better access to performance data, improve customer service, and 

improve shipment data. The study recommended a prototype study in a small region 

using a third-party logistics provider. 

Based on that recommendation, the Assistant Deputy Under Secretary of Defense for 

Transportation Policy requested the U.S. Transportation Command and DLA serve as 

codirectors for the prototype to ensure effective implementation and thorough analysis 

of the full range of options a third-party logistics provider may offer in satisfying DOD 

freight movement requirements. To support this prototype, the Military Traffic 

Management Command, a subcomponent command of the U.S. Transportation

Command, contracted for a third-party logistics provider to manage freight 

transportation and provide related services in support of installation transportation 

officers for the movement of freight shipments for selected commodities outbound from 

DLA and military service locations in the southeastern region of the United States—

specifically in the states of Alabama, Georgia, and Florida—to all points in the

continental United States. The prototype began in 2001 and ended in 2004. 

DOD concluded from its experiences with the prototype that a third-party logistics 

provider (or coordinator) could successfully be integrated with DOD’s shipping 

processes if the program was designed and implemented correctly and that the 

integration of coordination services with freight transportation could achieve cost 

savings. In 2004, the DTCI logistics transformation concept was initiated by the Under 

Secretary of Defense for Acquisition, Technology, and Logistics. U.S. Transportation 

Command, designated as DOD’s single manager of transportation and the department’s 

distribution process owner, is the lead agency for DTCI and has established a program 

management office to manage this effort. In June 2006, DOD issued a request for 

proposals for a third-party logistics provider to handle all aspects of freight shipment for 

certain commodities. 

Under plans for DTCI, the coordinator would eliminate the need for DOD transportation 

officers to contact freight carriers for those commodities covered in the program. The 

coordinator would be expected, among other things, to 

• coordinate, manage, and optimize freight shipments from notification to delivery; 

• provide in-transit visibility to government systems and real-time access to 

shipment information;

• facilitate the resolution of loss and damage claims with carriers; 

• manage carrier quality and performance; and 

• collaboratively develop, recommend, and implement process improvements. 

The DTCI contractor is expected to assume responsibility for transportation services in a 

phased approach, increasing the number of DOD sites as implementation progresses. 

Phase I will include DLA Defense Distribution Centers, Phase II will include various 

 15PricewaterhouseCoopers Draft Report, Third Party Logistics (3PL) Feasibility Study (Dec. 23, 1999). 

Page 7 GAO-07-675R Defense Transportation Coordination Initiative 
military service locations that are located within close proximity of the Defense 

Distribution Centers, and Phase III will include additional military service locations. 

DOD Took Numerous Actions to Incorporate Lessons Learned from the 

Prototype Program into Plans for DTCI 

DOD took numerous actions to incorporate lessons learned from the prototype program 

into its planning for DTCI. Specifically, we identified 36 lessons learned—including 

successes and problems—from the prototype, and determined that DOD had taken 

actions that were responsive to each of these. Some of the lessons learned highlighted 

benefits derived from using a third-party logistics provider. For example, one success of 

the prototype was its demonstration that a contractor could serve as a single point of 

contact for transportation officers, enabling them to initiate a request for shipment 

simply by contacting the third-party provider instead of making multiple calls to 

potential carriers. Hence, a third-party logistics provider could reduce the time needed 

to find a freight carrier, allowing transportation officers to concentrate on other duties. 

The prototype also demonstrated that the systems DOD uses to manage its shipping 

could successfully interface with commercial shipping systems through the use of an 

electronic data interchange. This paperless process reduces processing time and 

minimizes data errors. Prior to the prototype, the transportation officers in the 

prototype region relied on telephone, fax, and e-mail to transmit information. In 

addition, the prototype revealed the benefit of using a Web-based tracking system to 

provide visibility over shipments. In response to both of these benefits demonstrated by 

the prototype, DOD plans to require the DTCI contractor to use electronic data 

interchange and to provide DOD with the ability to track and trace shipments through 

the use of a Web-based tool. DOD has also included provisions in the contract 

solicitation that would require the contractor to establish a secure connection with DOD 

systems, as well as maintain an appropriate level of security in its information 

technology systems. 

However, the prototype also experienced problems in areas such as program 

development and implementation, information technology systems and integration, 

performance and performance metrics, business processes, and contracting. In its 

planning for DTCI, DOD has made changes in response to these lessons learned. Some 

of these lessons learned and DOD’s related actions are highlighted below. Enclosure I 

provides a more comprehensive list of lessons learned and related DOD actions. 

For example, during the prototype, the military services had several concerns about 

performance, such as the contractor’s inconsistency in picking up freight on time, 

contributing to their dissatisfaction with that program. To address this lesson learned, 

the DTCI contract solicitation includes on-time pickup as one of several key indicators to 

measure contractor performance. Another performance-related concern that one 

military service expressed was that on numerous occasions, the contractor in the 

prototype was unable to provide next-day service. This concern is addressed in the DTCI 

performance work statement which provides for urgent deliveries through the use of 

expedited service and surge requirements. Furthermore, the DTCI quality assurance 

Page 8 GAO-07-675R Defense Transportation Coordination Initiative 
surveillance plan specifies penalties for failure to achieve the key performance

indicators, which includes not meeting delivery dates. 

The prototype also showed that a 1-year base contract period was inadequate to secure a 

level of commitment or investment from the partners in a third-party logistics 

relationship and to develop effective communication processes. In contrast to the 

prototype contract, DOD plans to enter into a 3-year base period with a third-party 

logistics provider for DTCI with the option for two 1-year extensions and the possibility 

of two additional 1-year award term options—a potential contract period totaling up to 7 

years.16 Furthermore, the prototype experienced problems because the interfaces 

between the contractor’s and the government’s information technology systems were not 

fully operational when the prototype began. For DTCI, DOD has established a team 

addressing interface integration, and it plans to conduct robust testing at each site before 

DTCI is implemented. The DTCI program management office has also developed a 

policy of “safe start,” intended to reduce risk to the government and build confidence in 

the partnership between the coordinator and the government. For example, according to 

program officials, in the initial phase of DTCI implementation, only DLA shipping sites 

are involved. The military service sites will not be participating until the contractor has 

demonstrated full capability with their system interfaces and training of shipping 

installation personnel is completed. 

Another lesson learned from the prototype was the value of having a third-party logistics 

provider help develop the request for proposals. To assist in the development of the 

DTCI request for proposals, DOD hired a logistics management consultant and its 

subcontractor—a commercial third-party logistics provider. Both the consultant and its 

subcontractor signed organizational conflict of interest agreements and agreed not to 

compete under the DTCI solicitation. DOD also provided several opportunities for 

industry involvement, including discussions with industry representatives early in the 

development of requirements and later on to share comments and concerns on the draft 

solicitation.

Finally, the contract requirements in the prototype program limited the contractor’s 

ability to optimize shipment consolidations and make process improvements. The 

contract structure also limited the incentives for the contractor to assess DOD’s logistics 

systems and offer suggestions to improve service and lower cost. In contrast, DTCI is 

designed to provide more flexibility to the contractor in order to encourage efficiencies 

in distribution and associated cost savings. The solicitation establishes a cost savings 

goal based on the contractor’s ability to consolidate and optimize freight shipments and 

the contractor is expected to show significant annual progress toward that goal. In 

addition, the DTCI solicitation provides historical workload data to include spikes due to 

seasonal demands for the offerors to base their proposed rates and has a “Not-ToExceed” structure for all DTCI shipment route rates, therefore balancing risk to the 

contractor and providing greater flexibility to satisfy requirements.

 16The DTCI award term option plan describes the specific criteria and procedures used to assess the 

contractor’s performance and to determine the amount of additional performance periods, if any, the

contractor may earn. 

Page 9 GAO-07-675R Defense Transportation Coordination Initiative 
While DOD incorporated lessons learned from the prototype in its planning for DTCI, 

other DOD components, including the military services and agencies, may be unable to 

benefit from the successes and problems experienced during implementation of DTCI 

because DOD lacks a plan for disseminating DTCI lessons learned throughout DOD. As 

GAO has previously noted, effective sharing of lessons learned is a key tool for 

institutionalizing change and facilitating efficient operations. During our review, we 

identified a number of steps DOD has taken to transform the freight transportation 

system under DTCI. These steps, discussed later in this letter, could result in lessons 

learned about the successes and problems experienced during this organizational 

transformation. Further, the DTCI program management office has initiated efforts to 

gather lessons learned during implementation For example, the DTCI program 

management office has drafted a charter to establish a process improvement team to 

serve as a forum to collect and implement lessons learned by gathering, reviewing, and 

approving proposed process improvements, authorizing rollout of process improvement 

plans, and acting as an advocate within DOD for changes to improve DTCI. However, 

without dissemination of these lessons learned to the broader DOD acquisition 

community, other DOD components pursuing similar types of acquisitions may lack 

useful information that could assist their efforts. For example, DOD components seeking 

to apply commercial practices to their logistics or other service functions may not be 

aware of, or have access to, DTCI lessons learned. The Under Secretary of Defense for 

Acquisition, Technology, and Logistics, as the principle advisor to the Secretary of 

Defense for all matters relating to DOD acquisition, maintains a knowledge-sharing Web 

site operated in conjunction with the Defense Acquisition University. This Web site 

could be one vehicle for disseminating the DTCI lessons learned. 

DOD Has Initiated Practices Needed for Organizational Transformation

To make the fundamental changes in the freight transportation system envisioned under 

DTCI, DOD has taken positive steps to initiate best practices that have been used by 

private and public sector organizations to transform their cultures so they can become 

more results oriented, customer focused, and collaborative in nature. Still, the long-term 

success of DTCI remains uncertain given the challenges inherent in organizational 

transformational efforts and because the program is still in its early stages, with a 

contract yet to be awarded and the program scheduled for rollout over a 3-year period. 

Our prior work has identified key practices that large private and public sector

organizations have used to achieve transformation.17 Some of these practices include 

dedicating an implementation team to manage the transformation process, establishing a 

communications strategy to create shared expectations and report related progress, and 

focusing on a key set of principles and priorities. So far, DTCI has employed these and 

other best practices in its efforts to move from its current decentralized transportation 

 17GAO, Results-Oriented Cultures: Implementation Steps to Assist Mergers and Organizational 

Transformations, GAO-03-669 (Washington, D.C.: July 2, 2003). 

Page 10 GAO-07-675R Defense Transportation Coordination Initiative 
management activities to a centralized system under a single third-party logistics 

provider. 

For example, the DTCI program management office has established a transition planning 

team to oversee the transformation of DTCI from acquisition activity to implemented 

program, including developing initial plans and building relationships with all the 

government stakeholders at sites where DTCI will be initially implemented. As GAO has 

previously reported, a strong and stable implementation team that is responsible for dayto-day management of the transformation is important to ensure that the program 

receives the focused, full-time attention needed to be sustained and successful. DTCI’s 

transition planning team, which includes guidance from a change management expert, 

has already conducted several site visits to bring stakeholders on board with the changes 

DTCI will bring about compared to DOD’s current freight distribution practices. In doing 

so, the team has started preparing notebooks, called “battle books,” to be used as a 

reference point for site unique requirements and to familiarize team members traveling 

to each DTCI site for implementation purposes. Each battle book will eventually 

incorporate site visit notes, “as is” and “to be” process charts denoting potential process 

changes, key personnel, blueprints of warehousing and shipping facilities, minutes from 

video and teleconferences, photos, local maps, and action items. In addition, DTCI’s 

transition planning team is responsible for drafting plans covering the areas of transition, 

change management, and training, as well as a plan of action and milestones. Once a 

contractor is on board, the team intends to assist in the integration process, address 

issues unique to certain sites, perform “rehearsal of concept” drills, and document 

lessons learned from each site implementation. 

Based on our review, we found that implementing an effective communications strategy 

is a key priority for the DTCI program management office. During organizational 

transformations, communicating information early and often helps to build an 

understanding of the purpose of planned changes and builds trust among stakeholders. 

For example, the DTCI program management office has worked towards gaining buy-in 

and collaboration through a steady flow of communication with stakeholders. In doing 

so, the DTCI program management office has made information-sharing a priority 

through several avenues. For example, the program manager and office division chiefs 

participate in biweekly teleconferences with all military service representatives and 

other key DOD stakeholders, during which participants discuss program updates, 

scheduling, and other concerns, among other things. Two-way exchange that allows for 

feedback from stakeholders is central to forming the effective internal and external 

partnerships that are vital to the success of any organization. Further, the DTCI program 

manager has briefed senior leaders at various venues such as the Distribution Process 

Owner Executive Council, the Defense Business Board, and the Surface Deployment and 

Distribution Command Symposium. 

DOD has initiated efforts indicating that it is focused on a key set of principles and 

priorities at the outset of the transformation. For example, the DTCI program 

management office has embedded customer satisfaction as a core value. Embedding 

core values is one way an organization can show that it is focused on a key set of 

principles and priorities by defining the attributes that are intrinsically important to what 

Page 11 GAO-07-675R Defense Transportation Coordination Initiative 
the organization does and how it will do it. The implementation of DTCI will affect a 

large number of stakeholders. According to the DTCI program management office, the 

greatest internal effect will be on the transportation officers, who will be changing the 

way they do their work. To adapt to this change, DTCI’s transition planning team has 

had to manage the expectations of stakeholders, including explaining to transportation 

officers that the third-party logistics provider will perform some—but not all—of the 

transportation officers’ current functions while their responsibilities will expand into 

other areas such as process improvement, distribution analysis, and customer relations 

management. Furthermore, the contractor will be expected to monitor and measure 

customer satisfaction on an ongoing basis to ensure that any problems reported by 

customers, including government stakeholders, are addressed upon receipt and resolved 

as quickly as possible. Finally, according to the contract solicitation, the contractor will 

be responsible for staffing, managing, and providing resources for customer support 24 

hours a day, 7 days a week. 

Another key priority of the DTCI program management office has been to establish plans 

and initiate efforts for assessing and managing performance after contract award. Our 

prior work has shown that assessing and managing contractor performance is important 

to ensure that the business arrangement is properly executed. Specifically, DOD has 

built performance indicators into the DTCI contract solicitation, scheduled periodic 

program management reviews, initiated a process improvement team, developed a 

quality assurance surveillance plan, and proposed to use award fees as an incentive to 

promote desired outcomes—elements aimed at encouraging the delivery of services to 

meet or exceed the terms of the contract. While these planned post-contract award 

efforts are promising, the long-term success of DTCI will depend on the extent to which 

DOD follows through on institutionalizing the practices it has initiated to transform its 

freight transportation system, as well as the contractor’s performance during 

implementation of the program. 

Some of the key performance indicators that the contractor is expected to track include 

on-time pickup and delivery, processing time for loss and damage claims, information 

technology system availability, and small business subcontracting goals. We observed 

that these indicators are directly related to meeting the desired program goals such as 

increasing efficiencies and reducing cycle time—the time from request for movement to

delivery. According to the contract solicitation, the performance threshold for on-time 

pickup and delivery is 96 percent for the first 2 years, increasing to 97 percent by the 

third year; and the performance threshold for processing of claims and system 

availability is 99 percent. The performance threshold for meeting small business 

subcontracting goals is 20 percent of all subcontract dollars during the first year, 

increasing to 25 percent by the third year. 

Furthermore, DOD plans to conduct periodic program management reviews at various 

points during the rollout of the program. Specifically, after DTCI is implemented at the 

first three sites—Defense Distribution Center in Barstow, California; Defense 

Distribution Center in Corpus Christi, Texas; and Defense Distribution Center in Puget 

Sound, Washington—the contractor, in collaboration with the DTCI program 

management office and stakeholders, is expected to conduct a thorough review, over a 

Page 12 GAO-07-675R Defense Transportation Coordination Initiative 
30-day period, of those sites to determine necessary adjustment to schedules, identify 

areas of improvement, and develop methods to ease implementation at future locations. 

A second review, again over a 30-day period, is scheduled after implementation at the 

next three sites—currently planned for Defense Distribution Center in San Diego, 

California; Defense Distribution Center in Red River, Texas; and Defense Distribution 

Center in San Joaquin, California. Subsequently, the contractor is expected to conduct 

program management reviews on a monthly basis. During the monthly program 

management reviews, a review and discussion of the government assessment and the 

contractor’s self-assessment for the previous month is planned. The government intends 

to review metrics and performance data supplied by the contractor as well as present the 

government’s own findings on contractor performance. According to program officials, 

the reviews will also include a comparison of actual costs to projected costs and a 

review of various performance indicators. 

Also, as mentioned previously, the DTCI program management office is establishing a 

process improvement team. This team plans to meet on a monthly basis, in conjunction 

with monthly program management reviews, and capture all process improvement 

requests through a DTCI Web site into a process improvement database repository. The 

process improvement requests may be prioritized by the originator of the request and 

that priority should be based on potential resource savings to be realized if the change is 

implemented. All process improvement requests will be presented before the team, and 

the team will vote on whether to implement them. Some of the questions that will need 

to be addressed with each process improvement request include: actions that 

precipitated the submission of the request, which stakeholders will benefit and be 

required to work the change, the cost in time and resources, the return on investment, 

and whether the proposed improvement conflicts with the performance work statement 

requirements. 

To assess performance, the quality assurance surveillance plan lays the foundation for 

evaluating contractor performance while implementing the DTCI performance work 

statement. The plan defines the performance objectives and thresholds, the procedures 

for evaluating performance and resolving issues, and the process to be followed to 

reduce contractor payment for nonperformance of services. In addition to 

enterprisewide performance objectives and thresholds, the contractor will be held to 

site-specific objectives and thresholds for on-time delivery and pickup. This plan also 

states that the contractor, at the commencement of shipping, will need to compile data 

to review performance, conduct trend analysis, and identify potential process 

improvements. For example, the quality assurance personnel representing the 

government shipper will review DTCI’s shipments and make comparisons between the 

scheduled pickup date and time with the actual shipment information to determine the 

contractor’s performance level in relation to the performance threshold. During the first 

phase of implementation, this evaluation is expected to be conducted on a quarterly 

basis with report findings presented to the DTCI program management office. In turn, 

the DTCI program management office will share the information with the contractor to 

help focus management attention on performance areas below contractual standards. 

Page 13 GAO-07-675R Defense Transportation Coordination Initiative 
To motivate the contractor’s performance, DOD has established an award fee plan to 

provide a financial incentive to the contractor to achieve program outcomes beyond the 

contract requirements. In examining DOD’s plans for including award fees in the DTCI 

contract, we found that the award fee factors are linked to the outcomes outlined in the 

program’s performance work statement. In developing the DTCI award fee plan, the 

DTCI program management office identified four areas as evaluation criteria—

implementation, information management, transportation coordination services, and 

small business participation. Within each of these areas, there are three levels of

performance—satisfactory, very good, and exceptional—under which the DTCI 

contractor’s performance will be evaluated. 

Conclusions 

By incorporating the lessons learned from the prototype into its plans for DTCI, DOD is 

continuing to make progress in improving its transportation management. DOD also has 

recognized the challenges of making fundamental changes to its current decentralized 

freight distribution system and has adopted key practices that—with appropriate follow 

through during program implementation—should enable this organizational 

transformation to occur. Just as DOD has applied the lessons learned from its own past 

experiences with the prototype, the lessons that DOD learns from implementing DTCI 

and transforming the freight transportation system could be useful to other DOD 

components that plan to undertake similar types of acquisition and organizational 

transformation efforts. However, without disseminating lessons learned from DTCI’s 

implementation, the knowledge of successes and problems derived from the 

implementation of DTCI will be of limited use beyond the program. 

Recommendations 

To provide for effective dissemination of lessons learned from the implementation of 

DTCI, we recommend the Secretary of Defense direct the Under Secretary of Defense for 

Acquisition, Technology, and Logistics, in conjunction with the Commander, U.S. 

Transportation Command, to develop and implement a plan for sharing DTCI lessons 

learned across the department. 

Agency Comments and Our Evaluation 

In its written comments on a draft of this correspondence, DOD concurred with our 

recommendation. DOD stated that it will include DTCI lessons learned in an existing 

Web site maintained by the Defense Acquisition University. We believe this action, if 

implemented, will be responsive to our recommendation. DOD also provided technical 

comments that we incorporated as appropriate. DOD’s comments are reprinted in 

enclosure II of this correspondence. 

- - - - 

We are sending copies of this report to the appropriate congressional committees. We 

are also sending copies to the Secretary of Defense; the Deputy Secretary of Defense; the 

Page 14 GAO-07-675R Defense Transportation Coordination Initiative 
Under Secretary of Defense for Acquisition, Technology, and Logistics; the Commander 

of the U.S. Transportation Command; the Director of the Defense Logistics Agency; the 

Secretaries of the Army, Navy, and Air Force; and the Commandant of the Marine Corps. 

This report will also be available at no charge on our Web site at http://www.gao.gov. 

Should you or your staff have any questions concerning this report, please contact me at 

(202) 512-8365 or solisw@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. Key 

contributors to this report were Carleen Bennett, Susan Ditto, Chanee Gaskin, Dawn 

Godfrey, Tom Gosling, Curtis Groves, Art James, Kevin Keith, and Marie Mak.

William M. Solis 

Director, Defense Capabilities and Management 

Page 15 GAO-07-675R Defense Transportation Coordination Initiative 
List of Congressional Committees 

The Honorable Carl Levin 

Chairman 

The Honorable John McCain 

Ranking Member 

Committee on Armed Services 

United States Senate 

The Honorable Daniel Inouye 

Chairman 

The Honorable Ted Stevens 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Ike Skelton 

Chairman 

The Honorable Duncan Hunter 

Ranking Member 

Committee on Armed Services 

House of Representatives 

The Honorable John P. Murtha 

Chairman 

The Honorable C.W. Bill Young 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 

Page 16 GAO-07-675R Defense Transportation Coordination Initiative 
Enclosure I Enclosure I 

Actions Taken by DOD to Incorporate Lessons Learned from the 

Third-Party Logistics (3PL) Prototype Program into Its Plans for the 

Defense Transportation Coordination Initiative (DTCI) 

Lesson learned from the 3PL prototype DOD actions in planning for DTCI 

Role of the 3PL 

The 3PL prototype provided “one-stop-shopping” for the 

coordination of freight transportation services, enabling 

DOD transportation officers to spend less time tendering 

shipments to carriers and more time planning their 

shipments and carrying out other duties. 

Under plans for DTCI, the 3PL will be the single point of 

contact to complete all transportation services. Instead of 

directly dealing with freight carriers, DOD transportation

officers will contact the 3PL, which will serve as the 

intermediary to arrange for freight transportation. 

Based on the 3PL prototype contractor’s perspective, 

DOD will need to delegate more authority to the 3PL, 

placing the 3PL in a stronger position to negotiate and 

execute with the carriers. In successful 3PL relationships, 

there is a partnership between the client and 3PL where 

the 3PL is an extension of the client in working with 

carriers, and actions it takes are done in the best interests 

of the client. 

Under plans for DTCI, carrier management will reside 

solely with the contractor. According to the performance 

work statement, the contractor shall establish, maintain, 

and manage all necessary subcontracts with carriers that 

move freight under this contract. 

There should be a continuous exchange of information 

between DOD and the contractor. The 3PL needs to have 

a thorough understanding of the contract to operate more 

effectively. In any 3PL environment, a spirit of partnership

is critical for operations as well as for smooth flow of 

information. 

The DTCI program management office has made 

information a priority of the program through several 

avenues. The solicitation requires the winning contractor 

to hold a postaward conference within 7 days after 

contract award, engage transportation association 

leaders and industry partners for the purpose of sharing 

information, conduct monthly program management 

reviews, and participate as a member of the DTCI 

Process Improvement Team. 

The 3PL prototype was too restrictive to make best use of 

a 3PL’s capabilities. The program, for example, was 

restricted to a small number of sites in the southeastern 

United States and included a limited volume of 

commodities. The 3PL prototype also limited functions 

that use 3PL management, such as inbound and 

outbound transportation, warehousing, and bill paying. 

The plans for DTCI cover all Defense Logistics Agency 

sites and 49 additional service sites across the 

continental United States. While shipments will be 

restricted to freight all kinds, program officials believe that 

the freight volume will be sufficient to take advantage of 

the 3PL’s capabilities. The DTCI is structured for a 3PL to 

manage outbound freight transportation, freight payment, 

and carrier management. DOD made a decision not to 

include the warehousing function as this would have 

required A-76 studies to implement. 

Program development and implementation

Stakeholder buy-in and collaboration is needed for 

successful implementation. All stakeholders must support 

the program, and the support must come from the highest 

level in the organization’s hierarchy. 

The DTCI program management office has initiated

several actions to gain and maintain buy-in from 

stakeholders. The DTCI program manager and division 

chiefs host a biweekly teleconference with all the service 

representatives and any other key service stakeholders, 

along with sending out weekly e-mail updates. The DTCI 

program management office has made several service 

site and headquarters visits. The DTCI program manager 

briefs at senior leader distribution governance meetings. 

The DTCI transition planning team holds planning 

meetings to ensure stakeholder collaboration. 

Page 17 GAO-07-675R Defense Transportation Coordination Initiative
Enclosure I Enclosure I 

Lesson learned from the 3PL prototype DOD actions in planning for DTCI 

Successful program development and implementation 

requires a thorough understanding of what 3PLs can do. 

Experienced 3PL representatives should be included in

the project team. The 3PL prototype employed an 

integrated process team consisting of transportation 

experts from DOD, the commercial sector, and 

representatives from stakeholder organizations. 

During program development, the DTCI program 

management office worked with stakeholder 

organizations, including the Defense Distribution Centers, 

the military services, and the Surface Deployment and 

Distribution Command. The effort was also supported by 

a management consultant and a commercial 3PL. Private 

sector companies were engaged though industry days, 

requests for information, and individual face-to-face 

meetings. For the implementation phase, the DTCI 

program management office intends to form an integrated 

government/contractor partnership for site 

implementation.

Site visits should be conducted with DOD and contractor 

personnel before start-up to ensure that all sites 

understand the process and are ready to begin shipping. 

If face-to-face site visits are not possible, a conference 

call should be conducted to review any requirements and 

issues specific to the shipping site. 

DOD’s schedule calls for a gradual rollout, which it refers 

to as a “safe start” approach. Coordination has been 

completed with all the stakeholders in determining the 

rollout plan. Initial sites will be DLA Defense Distribution 

Centers with high-volume shipping activity. The DTCI 

program management office has established a transition 

planning team that has visited implementation sites to 

provide information about DTCI processes and benefits. 

The team will visit or conduct video teleconferences with

all sites prior to implementation at each site. According to 

program officials, these visits will also help identify site 

unique requirements in order to tailor implementation 

efforts at each location. 

The first shipment should not be released until all systems 

and processes have been tested and are functioning 

properly. A poorly executed start-up can jeopardize the 

success of the program. Both parties (the government 

and the contractor) should ensure that their systems and 

processes are ready before initiating the first shipment. 

The DTCI solicitation specifies the contractor shall 

establish information systems communications integration

prior to initiating shipments. The contractor will prepare a 

test plan that must be approved by the DTCI program 

management office. The final DTCI joint test plan is due 

no later than 30 days after contract award. To

accommodate any site-specific differences, the contractor 

shall deliver site-specific test plan addendums no later 

than 30 calendar days prior to implementation at each 

DTCI shipping location. 

Training of DOD transportation officers should have been

conducted in multiple sessions rather than completed all 

at once. The transportation officers were expected to 

learn several new processes and systems to operate 

within the 3PL prototype. A phased training approach 

would help transportation officers go through the 

transition more effectively without being flooded with 

information and training. 

According to the DTCI performance work statement, 

shipper training will be provided on-site during Phase I 

and on-site or regionally during Phases II and III. Training 

will be conducted between 1 and 4 weeks before site 

implementation. The contractor is expected to work with 

DOD to establish an on-going training curriculum for 

government personnel that will be kept up-to-date to 

reflect current operating procedures. 

There should be on-site 3PL representatives based at 

selected shipping sites. The criteria for having on-site 3PL 

support would be large shipping volume or unique 

shipping requirements that need special attention. The 

one DLA depot out of four that had an on-site

representative from the 3PL prototype firm was extremely 

pleased with the support and service it received. Benefits 

included claims processing and a reduced time and effort 

for placing shipping orders. 

Under DTCI plans for Phase I of implementation, 3PL 

personnel will be on-site for at least the first 60 days. For 

Phases II and III, regional support is required. The 

solicitation also requires permanent on-site personnel at 

some locations. 

Page 18 GAO-07-675R Defense Transportation Coordination Initiative 
Enclosure I Enclosure I 

Lesson learned from the 3PL prototype DOD actions in planning for DTCI 

Information technology systems and integration 

Use the 3PL’s systems and procedures to the maximum 

extent, including information systems. 

A goal of DTCI is to learn from the best commercial 

practices of the 3PL. This entails maximizing the use of 

the 3PL’s procedures and information systems. During 

the training of DOD transportation officers, emphasis will 

be placed learning all the applicable capabilities of the 

coordinator’s information systems to facilitate the 

incorporation of those systems into their daily operations. 

The DTCI program management office also intends to 

use its process improvement team to share and 

incorporate useful processes throughout the enterprise. 

The 3PL’s Web-based tracking system allowed shippers 

to track their shipments. Where operationally and 

economically feasible, the contractor’s systems should be 

used to process shipment requests and track shipments. 

DOD personnel should be trained on how to use the 

system. 

The DTCI contract solicitation requires the 3PL to provide 

a track and trace capability of materiel in-transit through 

the contractor's Web-based system and through 

transmission to the government's shipper systems. 

According to the program office, this capability will enable 

DOD customers to track shipments through the 

contractor's Web site, their service/agency shipping 

system, or the Global Transportation Network. While 

operational needs require DLA and service shippers to 

prefer the use of their existing tracking shipment systems 

when available, the coordinator's shipment system will be 

used whenever those systems are not available. Also, 

the coordinator's system may become the preferred 

method for tracking shipments due to constraints in the 

government system. Use of these tools will be thoroughly 

covered in the training of DOD transportation officers. 

During the 3PL prototype, a Web-based reporting tool 

was used to generate monthly Contracting Officer 

Representative Reports, monthly Customer Satisfaction 

Reports, and Service Exception Reports. The use of this 

tool should be continued. 

Web-based reporting and the automated capture of data 

for reporting is a requirement in the DTCI solicitation. 

Electronic data interchange provides the capability to 

transmit shipment requests and receive shipping 

information. In the past, the government has relied on 

telephone, fax, and e-mail to transmit this information. 

The use of electronic data interchange will speed up this 

process and reduce the chance of data errors. 

DOD transportation officers at DTCI sites will be able to 

electronically submit their shipment requests to the 3PL. 

The DTCI performance work statement defines the use of 

the electronic data interchange interfaces. 

During the early phases of the 3PL prototype, DOD 

personnel experienced problems using the information 

technology systems because of the department’s 

restrictive security firewalls. This problem was 

subsequently resolved. A core systems technical team 

should have been dedicated during the development 

stage of the 3PL prototype. Early involvement of systems 

personnel in the development team would have avoided, 

or greatly reduced, the amount of time and effort required

to resolve systems-related issues. In future 3PL 

arrangements, allocate sufficient time and resources for 

thorough testing of the systems and interfaces before 

going live. 

The DTCI program management office established an 

information technology integration team to address 

system integration issues. The team has developed an

action plan and meets monthly with systems personnel. In 

addition, according to the DTCI performance work 

statement, thorough testing of the systems and interfaces 

is required prior to initiating shipments. DTCI’s information

technology integration team will work closely with the 

selected contractor to ensure the necessary data links 

have been connected and verified before site activation. 

Performance and performance metrics 

While the 3PL prototype probably improved customer 

service by reducing transit times and achieving more 

reliable on-time delivery, such improvements could not be 

validated through metrics. Lowering costs was also not a 

stated goal of the 3PL prototype. 

Key performance indicators including on-time delivery, 

on-time pickup, and others have been built into the DTCI 

performance work statement. In addition, DOD plans to 

track and document cost savings achieved under DTCI. 

Page 19 GAO-07-675R Defense Transportation Coordination Initiative 
Enclosure I Enclosure I 

Lesson learned from the 3PL prototype DOD actions in planning for DTCI 

Obtain agreement regarding the data and methodology to 

be used to develop metrics before moving the first 

shipment. In the 3PL prototype, reporting discrepancies 

could have been avoided or minimized if both parties met 

early in the project, and agreed to the data source and 

methodology. 

The DTCI program management office assembled a team 

of subject matter experts from key DOD stakeholders to 

collaborate on the development and fielding of the 

performance work statement. Performance indicators 

were identified that make up the basis of the metrics that 

will be collected and evaluated during the life cycle of the 

program. The quality assurance surveillance plan (and 

Contracting Officer's Representative document) describes 

the process by which the contractor’s performance will be

evaluated. 

One military service noted that certain high-priority aircraft 

spare parts were currently transported using smallpackage express carriers and expressed concern that 

consolidating these shipments under the 3PL could result 

in longer transit times. 

DTCI has provided exclusions within the performance 

work statement that address the concerns of the military 

service and other stakeholders. Small-package shipments 

have been excluded from the DTCI program.

Definitions of service levels should be clearly defined and 

understood by both the transportation officers and the 

3PL contractor to avoid confusion. DLA and the military 

services require different types of transportation service. 

DLA requires regular (daily), volume oriented service. 

Military services require urgent service for critical spare 

parts with periodic unit moves involving numerous 

truckload moves. During the 3PL prototype, since the 

military services' requirement for urgent service was not 

fully satisfied, the military services' transportation officers 

perceived that their workload actually increased rather 

than decreased. 

The DTCI solicitation is written as a performance contract. 

The solicitation has defined expedited service and surge 

requirements. The DTCI performance work statement is 

structured to allow urgent deliveries using a “Mandatory 

Delivery Date.” The 3PL prototype was a firm fixed-price 

contract that limited the contractor’s ability to provide 

delivery if the service exceeded the allowed price. 

According to some military services, smaller, low-volume 

sites did not receive acceptable levels of service under 

the 3PL prototype. 

The DTCI performance work statement requires the 

contractor to provide an acceptable service to all shipping 

locations, regardless of volume. 

One military service expressed some concern regarding 

performance and operational issues in the 3PL prototype 

that included late freight deliveries and hazardous 

shipments offered to nonqualified carriers. 

In the DTCI performance work statement, there are key 

performance indicators for on-time delivery and the 

quality assurance surveillance plan specifies penalties for 

failure to achieve. The DTCI performance work statement 

describes the contractor requirements for offering freight 

to the carriers.

Business processes 

DOD’s claims process for lost and damaged goods was 

ineffective and confusing to users, and many claims were

probably not filed because of frustration with the 

transportation discrepancy report system. The 3PL 

prototype improved the claims process by making the use 

of transportation discrepancy report system optional when 

filing claims. 

Although the transportation discrepancy report system will 

continue to be used under DOD’s plans for DTCI, the 

contractor will be required to accept, process, and resolve 

claims within a specified time period. 

One military service noted problems that occurred during

the 3PL prototype with the 3PL’s interface with 

PowerTrack (method of payment to contractor for freight 

movements). 

The DTCI performance work statement states that the 

contractor’s information systems must be able to interface 

with PowerTrack. 

In the 3PL prototype, the 3PL process was not designed 

for shippers that do not have the capability to order their 

own transportation services. 

All shippers in DTCI have the capability to order 

shipments using one of the government’s electronics 

systems. In addition, the performance work statement 

requires the contractor to provide its own Web-based 

system as a backup capability.

Contracting

The 3PL prototype showed that acquisition of 3PL 

services could be acquired through a Federal Acquisition 

Regulation (FAR)-based contract, in accordance with 

DOD policy. 

DOD’s contract solicitation for DTCI is FAR-based. 

Page 20 GAO-07-675R Defense Transportation Coordination Initiative 
Enclosure I Enclosure I 

Lesson learned from the 3PL prototype DOD actions in planning for DTCI 

The contracting process needs to be flexible to test or 

implement a 3PL. The contracting team must: have 

experience with 3PLs, use commercial or 3PL contracting 

processes, relinquish some control of the processes, and 

not be overburdened with excessive workload to be 

innovative and responsive. 

Market research was conducted for DTCI to benefit from 

commercial 3PL experience. DTCI program management 

office advisors supporting the DTCI acquisition have 3PL 

experience and include a leading commercial 3PL firm. 

Further, the DTCI requirements have been developed in a 

performance-based manner, encouraging the offerors to 

submit their own approaches to meeting the DTCI 

objectives by employing their own proven commercial 

best practices.

Proposed contract modifications should be resolved and 

implemented quickly. It is impossible to anticipate and 

include every requirement in the initial contract. But when 

a situation occurs that requires a contract change, both 

parties should resolve the issue and implement the 

change to the contract in an expeditious manner. 

U.S. Transportation Command is building a robust 

capability within the DTCI program management office to 

manage postaward contract activities and respond quickly

to any contractual issues. 

The contract’s structure should allow the 3PL to identify 

cost savings and create incentives to share those savings 

with DOD. To achieve cost savings and additional service 

improvements, the 3PL prototype would have to be 

expanded to permit a 3PL to take advantage of its 

abilities to improve overall logistics processes, like 

reducing inventories, and saving on total costs while 

improving service. 

While “gain sharing” may be used for commercial 3PL 

arrangements, it is not an option available to DTCI under 

FAR. The contract solicitation has cost savings goals 

identified throughout the life of the contract and metrics 

for measuring the coordinator’s progress toward those 

goals. The cost-reimbursable provisions of the contract 

solicitation allow the government to retain savings 

achieved from the contractor’s optimization and 

consolidation efforts. 

Use 3PLs to help write the request for proposals. The DTCI program management office used a 3PL to 

help develop the request for proposals requirements. In 

addition to having commercial 3PL expertise in

developing the solicitation, the contracting officer led 

extensive market research to include industry interaction

and collaboration on draft requirements. 

Commit to a 6-month contracting process. The DTCI program evolved over a 2-year period. The 

program was initiated in 2004, and the final solicitation 

was distributed in the summer of 2006. As of early 2007, 

the source selection process was ongoing. 

Use a down-select process, then write a contract. U.S. Transportation Command is evaluating proposals 

and intends to award a contract after conducting 

discussions, both written and oral, with offerors whose 

proposals have been determined to be within the 

competitive range. 

Select a World-Class 3PL that has done an 

implementation as large as the one pursued by DOD. 

The 3PL's ability to implement DTCI will be considered 

during the source selection process. 

A 1-year timeframe is inadequate to demand commitment 

or investment from the partners and to develop effective 

communications processes. 3PLs want a minimum of 3 

years to enter into a 3PL relationship with a shipper. They 

prefer 5 years with a 5-year option. 3PLs can invest in 

equipment, processes, and personnel and expect a return 

on investment with a longer contract timeframe. 

The DTCI solicitation provides for a 3-year base period 

with two 1-year options and two 1-year award term 

options, for a total potential contract period of 7 years. 

Page 21 GAO-07-675R Defense Transportation Coordination Initiative 
Enclosure I Enclosure I 

Lesson learned from the 3PL prototype DOD actions in planning for DTCI 

Allow for seasonal pricing in the contract to give the 3PL 

greater flexibility in securing capacity during periods of 

heavy demand. The spring and summer months are 

“produce season” in the southeastern United States (the 

geographic region where the 3PL prototype was 

implemented). During these months, truck capacity is at a 

premium as most are being used to transport produce. 

Since the 3PL was locked into the contracted rates, it had 

difficulty in obtaining carriers to move some DOD freight 

at these rates. Commercial best practices usually allow 

for seasonal pricing to compensate for this spike in 

demand and supply of trucks in the market. 

According to program officials, the DTCI solicitation 

balances risk to the contractor by providing significant 

historical workload data to include spikes due to seasonal 

demands for the offerors to base their proposed rates. In 

addition, proposed rates will be priced on a Not-ToExceed basis, with actual costs reimbursed on a direct 

cost basis allowing for some degree of fluctuation (within 

the Not-To-Exceed limit) caused by foreseen seasonal 

demands and other factors. The Not-To-Exceed rates will 

cover seasonal pricing fluctuations. 

Miscellaneous

Address personnel reductions and reassignments that 

may result from implementation of the program and 

changes made from process improvements. 

According to program officials, DTCI is designed to be 

“personnel neutral,” with no cost savings projected as a 

result of personnel reductions. The change management 

plan and communications plan are structured to carry this

message forward from the DTCI program management 

office. 

Military services expressed concern regarding

management and award fees under DTCI coming from 

their service budgets. 

The DTCI program management office has advised the 

services to plan for these costs in their fiscal year 2008 to 

fiscal year 2013 Program Objective Memorandum (POM). 

The DTCI program management office also noted that in

future years, these costs should be offset by reduced 

transportation costs. 

Source: GAO analysis.

Page 22 GAO-07-675R Defense Transportation Coordination Initiative 
Enclosure II Enclosure II 

Comments from the Department of Defense

Page 23 GAO-07-675R Defense Transportation Coordination Initiative 
Enclosure II Enclosure II 

(350880) 

Page 24 GAO-07-675R Defense Transportation Coordination Initiative 
This is a work of the U.S. government and is not subject to copyright protection in the 

United States. It may be reproduced and distributed in its entirety without further 

permission from GAO. However, because this work may contain copyrighted images or 

other material, permission from the copyright holder may be necessary if you wish to 

reproduce this material separately. 
GAO’s Mission The Government Accountability Office, the audit, evaluation and 

investigative arm of Congress, exists to support Congress in meeting its 

constitutional responsibilities and to help improve the performance and 

accountability of the federal government for the American people. GAO 

examines the use of public funds; evaluates federal programs and policies; 

and provides analyses, recommendations, and other assistance to help

Congress make informed oversight, policy, and funding decisions. GAO’s 

commitment to good government is reflected in its core values of 

accountability, integrity, and reliability. 

The fastest and easiest way to obtain copies of GAO documents at no cost

is through GAO’s Web site (www.gao.gov). Each weekday, GAO posts 

newly released reports, testimony, and correspondence on its Web site. To

have GAO e-mail you a list of newly posted products every afternoon, go 

to www.gao.gov and select “Subscribe to Updates.” 

The first copy of each printed report is free. Additional copies are $2 each. 

A check or money order should be made out to the Superintendent of 

Documents. GAO also accepts VISA and Mastercard. Orders for 100 or 

more copies mailed to a single address are discounted 25 percent. Orders 

should be sent to: 

U.S. Government Accountability Office 

441 G Street NW, Room LM 

Washington, D.C. 20548 

To order by Phone: Voice: (202) 512-6000 

TDD: (202) 512-2537 

Fax: (202) 512-6061 

Contact: 

Web site: www.gao.gov/fraudnet/fraudnet.htm

E-mail: fraudnet@gao.gov

Automated answering system: (800) 424-5454 or (202) 512-7470 

Gloria Jarmon, Managing Director, JarmonG@gao.gov (202) 512-4400 

U.S. Government Accountability Office, 441 G Street NW, Room 7125 

Washington, D.C. 20548 

Paul Anderson, Managing Director, AndersonP1@gao.gov (202) 512-4800

U.S. Government Accountability Office, 441 G Street NW, Room 7149 

Washington, D.C. 20548 

Obtaining Copies of 

GAO Reports and 

Testimony

Order by Mail or Phone 

To Report Fraud,

Waste, and Abuse in 

Federal Programs 

Congressional 

Relations 

Public Affairs 

PRINTED ON RECYCLED PAPER