United States Government Accountability Office

GAO Testimony before the Committee on 

Government Reform, House of 

Representatives

HOMELAND SECURITY

Challenges in Creating an 

Effective Acquisition 

Organization 

Statement of Michael J. Sullivan, 

Director, Acquisition and Sourcing Management 

For Release on Delivery

Expected at 10:00 a.m. EST 

Thursday, July 27, 2006

 

GAO-06-1012T 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

July 27, 2006

HOMELAND SECURITY

Challenges in Creating An Effective 

Highlights of GAO-06-1012T, a testimony Acquisition Organization 

before the Committee on Government 

Reform, House of Representatives

Since its establishment in March 2003, DHS has been faced with assembling

23 separate federal agencies and organizations with multiple missions and 

cultures into one department. This mammoth task involved a variety of 

transformational efforts, one of which is to design and implement the 

necessary management structure and processes for the acquisition of goods 

and services. We reported in March 2005 that DHS had opened 

communication among its acquisition organizations through its strategic 

sourcing and small business programs. With strategic sourcing, DHS’ 

organizations quickly collaborated to leverage spending for various goods 

and services—such as office supplies, boats, energy, and weapons—without 

losing focus on small businesses, thus leveraging its buying power and 

increasing savings. Its small business program, whose reach is felt across 

DHS, is also off to a good start. Representatives have been designated in 

each DHS procurement office to ensure small businesses can compete 

effectively for the agency’s contract dollars. 

We also reported that DHS’ progress in creating a unified acquisition 

organization has been hampered by policy decisions that create ambiguity

about who is accountable for acquisition decisions. To a great extent, we 

found that the various acquisition organizations within DHS were still 

operating in a disparate manner, with oversight of acquisition activities left 

primarily up to each individual organization. DHS continues to face

challenges in integrating its acquisition organization. Specifically, dual 

accountability for acquisitions exists between the Chief Procurement Officer 

(CPO) and the heads of each DHS component; a policy decision has 

exempted the Coast Guard and Secret Service from the unified acquisition 

organization; the CPO has insufficient capacity for department-wide 

acquisition oversight; and staffing shortages have led the Office of 

Procurement Operations, which handles a large percentage of DHS’ 

contracting activity, to rely extensively on outside agencies for contracting 

support—often for a fee. We found that this office lacked the internal 

controls to provide oversight of this interagency contracting activity. This

last challenge has begun to be addressed with the hiring of additional 

contracting staff. 

Some of DHS’ organizations have major, complex acquisition programs that 

are subject to a multi-tiered investment review process intended to help 

reduce risk and increase chances for successful outcomes in terms of cost, 

schedule, and performance. While the process includes many best practices, 

it does not include two critical management reviews, namely a review to 

help ensure that resources match customer needs and a review to determine 

whether a program’s design performs as expected. Our prior reports on large 

DHS acquisition programs, such as the Transportation Security 

Administration’s Secure Flight program and the Coast Guard’s Deepwater 

program, highlight the need for improved oversight of contractors and 

adherence to a rigorous management review process. 

The Department of Homeland

Security (DHS) has some of the 

most extensive acquisition needs 

within the U.S. government. In 

fiscal year 2005, the department

reported that it obligated almost 

$17.5 billion to acquire a wide

range of goods and services. DHS ‘s 

acquisition portfolio is broad and 

complex, including procurements

for sophisticated screening 

equipment for air passenger

security; technologies to secure the 

nation’s borders; trailers to meet 

the housing needs of Hurricane

Katrina victims; and the upgrading 

of the Coast Guard’s offshore fleet

of surface and air assets. 

This testimony summarizes GAO 

reports and testimonies, which 

have reported on various aspects of 

DHS acquisitions. It addresses 

(1) areas where DHS has been 

successful in promoting 

collaboration among its various 

organizations, and (2) challenges it 

still faces in integrating the 

acquisition function across the 

department; and (3) DHS’ 

implementation of an effective

review process for its major,

complex investments. The

information in this testimony is 

based on work that was completed

in accordance with generally

accepted government auditing

standards. 

www.gao.gov/cgi-bin/getrpt?GAO-06-1012T.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Michael 

Sullivan at (202) 512-4841 or 

sullivanm@gao.gov. 
Mr. Chairman and Members of the Committee: 

Thank you for inviting me here today to discuss the Department of 

Homeland Security’s (DHS) acquisition organization. Since its 

establishment in March 2003, DHS has been faced with assembling 

23 separate federal agencies and organizations with multiple missions, 

values, and cultures into one cabinet-level department. This mammoth 

task—one of the biggest mergers ever to take place within the federal 

government— involved a variety of transformational efforts, one of which 

is to design and implement the necessary management structure and 

processes for the acquisition of goods and services. 

DHS has some of the most extensive acquisition needs within the U.S. 

government. In fiscal year 2005, the department reported that it has 

obligated almost $17.5 billion to acquire a wide range of goods and 

services. The DHS acquisitions portfolio is broad and complex. For 

example, it has purchased increasingly sophisticated screening equipment 

for air passenger security; acquired technologies to secure the nation’s 

borders; purchased trailers to meet the housing needs of Hurricane 

Katrina victims; and is upgrading the Coast Guard’s offshore fleet of 

surface and air assets. DHS has been working to integrate the many 

acquisition processes and systems that the disparate agencies and 

organizations brought with them while still addressing ongoing mission 

requirements and emergency situations such as responding to Hurricane 

Katrina. As you know, we designated the establishment of the department 

and its transformation as high risk;1

 we also pointed out that not 

effectively addressing DHS’ management challenges and program risks 

could have serious consequences for our national security. 

Based on work done for this committee last year,2

 today I would like to 

discuss areas where DHS has been successful in promoting collaboration

among its various organizations and areas where it still faces challenges, 

such as integrating and unifying the acquisition function across the 

department. I will also discuss our assessment of the department’s 

progress in implementing an effective review process for its major, 

complex investments, highlighting some recent GAO work related to these 

issues. This testimony is based on GAO reports and testimonies that were 

 1

 GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: January 2003). 

2

 GAO, Homeland Security: Successes and Challenges in DHS’s Efforts to Create an 

Effective Acquisition Organization, GAO-05-179, (Washington, D.C.: Mar. 29, 2005). 

Page 1 GAO-06-1012T 
done in accordance with generally accepted government auditing 

standards. 

Designing and implementing the necessary management structure and 

processes for the acquisition of goods and services for 23 separate federal

agencies and organizations, with multiple missions and cultures, has been 

a mammoth task for DHS and, while it has had some success, there are 

many challenges remaining. DHS has opened communication among its 

acquisition organizations through its strategic sourcing and small business 

programs. DHS’ organizations quickly collaborated to leverage spending

for various goods and services without losing focus on small businesses, 

thus leveraging its buying power and increasing savings. 

Summary 

We reported in March 2005 that DHS’ efforts to create a unified, 

accountable acquisition organization have been hampered by policies that

create ambiguity as to who is accountable for acquisition decisions. 

Further, we found that, to a great extent, the various acquisition 

organizations within the department are still operating in a disparate 

manner, with oversight of acquisition activities left primarily up to each 

individual organization. DHS continues to face challenges in creating a 

more effective acquisition organization. For example: 

• A policy directive intended to integrate the acquisition function relies on a 

system of dual accountability for acquisitions between the Chief 

Procurement Officer (CPO) and the heads of each DHS component. This 

directive does not apply to the U.S. Coast Guard and the Secret Service,

which is likely to hinder the formation of a unified acquisition 

organization.

• Although the CPO has issued guidance providing a framework for 

acquisition oversight, implementation of the oversight program has been 

limited due to insufficient staffing in the CPO’s office. 

 

• Staffing shortages in the Office of Procurement Operations, which handles 

a significant portion of DHS’ contracting activity—over $4 billion last 

year—have led this office to rely heavily on outside agencies for 

contracting support, often for a fee. The office did not have adequate 

internal controls in place to effectively oversee this interagency 

contracting. Due to the challenges associated with interagency contracts, 

Page 2 GAO-06-1012T 
we recently designated interagency contracting as a government-wide high 

risk area.3

 

To protect its major, complex investments, DHS has put in place an 

investment review process that adopts many best practices—that is, 

proven methods, processes, techniques, and activities—to help the 

department reduce risk and increase the chances for successful 

acquisition outcomes. However the process does not include two critical 

management reviews that would help ensure that (1) resources match 

customer needs prior to beginning a major acquisition and (2) program 

designs perform as expected before moving to production. We also found

that some critical information is not addressed in DHS’ investment review 

policy or the guidance provided to program managers. For example, 

before a program is approved to begin, DHS does not require that cost and 

schedule estimates be established for the acquisition based on knowledge 

from preliminary designs. The review process also does not fully address 

how program managers are to conduct effective contractor tracking and 

oversight. Our prior reports on large DHS acquisition programs, such as 

the Transportation Security Administration’s (TSA) Secure Flight program 

and the U.S. Coast Guard’s Deepwater program, have highlighted the need

for improved oversight of contractors and a management review that 

provides decision makers with critical information at the right time. 

In the three years since its creation, DHS realized some successes among 

its various acquisition organizations in opening communication through its 

strategic sourcing and small business programs. Both efforts have involved

every principal organization in DHS, along with strong involvement from 

the CPO, and both have yielded positive results. DHS’ disparate acquisition 

organizations quickly collaborated on leveraging spending for various 

goods and services, without losing focus on small businesses. This use of 

strategic sourcing—formulating purchasing strategies to meet 

departmentwide requirements for specific commodities, such as office 

supplies, boats, energy, and weapons—helped DHS leverage its buying 

power, with savings expected to grow. At the time of our March 2005 

review, DHS had reported approximately $14 million in savings across the 

department. We also found that the small business program, whose reach 

is felt across DHS, was off to a good start. In fiscal year 2004, DHS 

reported that 35 percent of its prime contract dollars went to small 

businesses, exceeding its goal of 23 percent. Representatives have been 

Early Initiatives to 

Leverage Buying 

Power and Small 

Business Programs 

Fostered 

Collaboration Among 

DHS Organizations 

 3

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

Page 3 GAO-06-1012T 
designated in each DHS procurement office to help ensure that small 

businesses have opportunities to compete for DHS’ contract dollars. 

However, some officials responsible for carrying out strategic sourcing 

initiatives have found it challenging to balance those duties with the 

demands and responsibilities of their full-time positions within DHS. 

Officials told us that strategic sourcing meetings and activities sometimes 

stall because participants must shift attention to their full-time positions. 

Our prior work on strategic sourcing shows that leading commercial 

companies often establish full-time commodity managers to more 

effectively manage commodities. Commodity managers help define 

requirements with internal clients, negotiate with potential vendors, and 

resolve performance or other issues arising after a contract is awarded 

and can help maintain consistency, stability, and a long-term strategic 

focus. 

DHS continues to faces challenges in creating a unified, accountable 

acquisition organization due to policies that create ambiguity as to 

accountability for acquisition decisions, inadequate staffing to conduct 

department-wide oversight, and heavy reliance on interagency contracting 

in the Office of Procurement Operations, which is responsible for a large 

portion of DHS’ contracting activity.

Achieving a unified and integrated acquisition system is hampered because 

an October 2004 policy directive relies on a system of dual accountability 

between the CPO and the heads of the department’s principal 

organizations. Although the CPO has been delegated the responsibility to 

manage, administer, and oversee all acquisition activity across DHS, in 

practice, performance of these activities is spread throughout the 

department, reducing accountability for acquisition decisions. 

This system of dual accountability results in unclear working relationships 

between the CPO and heads of DHS’ principal organizations. For example, 

the policy leaves unclear how the CPO and the director of Immigration 

and Customs Enforcement are to share responsibility for recruiting and 

selecting key acquisition officials, preparing performance ratings for the 

top manager of the contracting office, and providing appropriate resources 

to support CPO initiatives. 

DHS Faces Key 

Challenges In 

Creating An 

Integrated Acquisition 

Organization 

Policy Directive Relies on 

Dual Accountability and 

Exempts Coast Guard and 

Secret Service 

Page 4 GAO-06-1012T 
The policy also leaves unclear what enforcement authority the CPO has to 

ensure that initiatives are carried out because heads of principal 

organizations are only required to “consider” the allocation of resources to 

meet procurement staffing levels in accordance with the CPO’s analysis. 

Agreements had not been developed on how the resources to train, 

develop, and certify acquisition professionals in the principal 

organizations would be identified or funded. 

While the October 2004 policy directive emphasizes the need for a unified, 

integrated acquisition organization, achievement of this goal is further 

hampered because the directive does not apply to the U.S. Coast Guard 

and U.S. Secret Service. The Coast Guard is one of the largest 

organizations within DHS, with obligations accounting for about $2.2

billion in fiscal year 2005, nearly 18 percent of the department’s total. The 

directive maintains that these two organizations are exempted from the 

directive by statute. We disagreed with this conclusion, as we are not 

aware of any explicit statutory exemption that would prevent the 

application of the DHS acquisition directive to either organization. We 

raised the question of statutory exemption with the DHS General Counsel, 

who shared our assessment concerning the explicit statutory exemptions. 

He viewed the applicability of the management directive as a policy

matter. 

DHS’ goal of achieving a unified, integrated acquisition organization is in 

part dependent on its ability to provide effective oversight of component 

activities. We reported in March 2005 that the CPO lacked sufficient staff 

to ensure compliance with DHS’ acquisition oversight regulations and 

policies. To a great extent, the various acquisition organizations within the 

department were still operating in a disparate manner, with oversight of 

acquisition activities left primarily up to each individual organization. In 

December 2005, DHS implemented a department wide management 

directive that establishes policies and procedures for acquisition oversight.

The CPO has issued guidance providing a framework for the oversight 

program and, according to DHS officials, as of May 2006, five staff were 

assigned to oversight responsibilities. We have ongoing work in this area 

and will be reporting on the department’s progress in the near future. 

Chief Procurement 

Officer’s Staffing for 

Oversight Is Insufficient 

Page 5 GAO-06-1012T 
The challenge DHS faces overseeing its various components’ contracting 

activities is significant. For example, in May 20044

 we reported that TSA 

had not developed an acquisition infrastructure, including organization, 

policies, people, and information that would facilitate successful 

management and execution of its acquisition activities. The development 

of those areas could help ensure that TSA acquires quality goods and 

services at reasonable prices, and makes informed decisions about 

acquisition strategy. 

To support the DHS organizations that lacked their own procurement 

support, the department created the Office of Procurement Operations. In 

2005, we found that, because this office lacked sufficient contracting staff,

it had turned extensively to interagency contracting to fulfill its 

responsibilities. At the time of our review, we found that this office had 

transferred almost 90 percent of its obligations to other federal agencies 

through interagency agreements in fiscal year 2004. For example, DHS had 

transferred $12 million to the Department of the Interior’s National 

Business Center to obtain contractor operations and maintenance services 

at the Plum Island Animal Disease Center. Interior charged DHS $62,000 

for this assistance. 

We found that the Office of Procurement Operations lacked adequate 

internal controls to provide oversight of its interagency contracting 

activity. For example, it did not track the fees it was paying to other 

agencies for contracting assistance. Since our report was issued, the office

has added staff and somewhat reduced its reliance on interagency

contracting. Recently, DHS officials told us that the office has increased its 

staffing level from 42 to 120 employees, with plans to hire additional staff. 

As reported by DHS, the Office of Procurement Operations’ obligations 

transferred to other agencies had decreased to 72 percent in fiscal year 

2005. 

Office of Procurement 

Operations’ Heavy Use of 

Interagency Agreements 

 4

 GAO, Transportation Security Administration: High-Level Attention Needed to 

Strengthen Acquisition Function, GAO-04-544 (Washington, D.C.: May 28, 2004). 

Page 6 GAO-06-1012T 
To protect its major, complex investments, DHS has put in place a review

process that adopts many acquisition best practices—proven methods, 

processes, techniques, and activities—to help the department reduce risk

and increase the chances for successful investment outcomes in terms of 

cost, schedule, and performance. One best practice is a knowledge-based 

approach to developing new products and technologies pioneered by 

successful commercial companies, which emphasizes that program 

managers need to provide sufficient knowledge about important aspects of 

their programs at key points in the acquisition process, so senior leaders 

are able to make well-informed investment decisions before an acquisition 

moves forward. 

While DHS’ framework includes key tenets of this approach, in March 2005 

we reported that it did not require two critical management reviews. The 

first would help ensure that resources match customer needs before any

funds are invested. The second would help ensure that the design for the 

product performs as expected prior to moving into production. We also 

found that some critical information is not addressed in DHS’ investment 

review policy or the guidance provided to program managers. In other 

cases, it is made optional. For example, before a program is approved to 

start, DHS policy requires program managers to identify an acquisition’s 

key performance requirements and to have technical solutions in place. 

This information is then used to form cost and schedule estimates for the 

product’s development to ensure that a match exists between 

requirements and resources. However, DHS policy does not establish cost 

and schedule estimates for the acquisition based on knowledge from 

preliminary designs. Further, while DHS policy requires program 

managers to identify and resolve critical operational issues before 

proceeding to production, initial reviews—such as the system and 

subsystem review—are not mandatory. 

In addition, while the review process adopts other important acquisition 

management practices, such as requiring program managers to submit 

acquisition plans and project management plans, a key practice—

contractor tracking and oversight—is not fully incorporated. We have 

cited the need for increased contractor tracking and oversight for several 

large DHS programs. While many of DHS’ major investments use 

commercial, off-the-shelf products that do not require the same level of 

review as a complex, developmental investment would, DHS is investing in

a number of major, complex systems, such as TSA’s Secure Flight program 

and the Coast Guard’s Deepwater program, that incorporate new 

technology. Our work on these two systems highlights the need for 

Review Process for 

Major Investments, 

Despite Use of Best 

Practices, Was 

Inconsistent and 

Lacked Some 

Management Controls 

Page 7 GAO-06-1012T 
improved oversight of contractors and greater adherence to a best 

practices approach to management review. Two examples follow. 

We reported in February 20065

 that TSA, in developing and managing its 

Secure Flight program, had not conducted critical activities in accordance 

with best practices for large scale information technology programs. 

Program officials stated that they used a rapid development method that 

was intended to enable them to develop the program more quickly. 

However, as a result of this approach, the development process has been

ad hoc, with project activities conducted out of sequence. TSA officials 

have acknowledged that they have not followed a disciplined life cycle 

approach in developing Secure Flight, and stated that they are currently 

rebaselining the program to follow their standard systems development 

life cycle process, including defining system requirements. TSA officials 

also told us they are taking steps to strengthen contractor oversight for the 

Secure Flight program. For example, the program is using one of TSA’s 

support contractors to help track contractors’ progress in the areas of 

cost, schedule, and performance and the number of TSA staff with 

oversight responsibilities for Secure Flight contracts has been increased. 

TSA reports it has identified contract management as a key risk factor 

associated with the development and implementation of Secure Flight. 

The Coast Guard’s ability to meet its responsibilities depends on the 

capability of its deepwater fleet, which consists of aircraft and vessels of 

various sizes and capabilities. In 2002, the Coast Guard began a major 

acquisition program to replace or modernize these assets, known as the 

Deepwater program. Deepwater is currently estimated to cost $24 billion.

We have reported6

 that the Coast Guard’s acquisition strategy of relying on

a prime contractor (“system integrator”) to identify and deliver the assets 

needed carries substantial risks. We found that well into the contract’s 

second year, key components for managing the program and overseeing 

the system integrator’s performance had not been effectively

implemented. As we recently observed, the Coast Guard has made 

progress in addressing our recommendations, but there are aspects of the 

Deepwater program that will require continued attention. The program 

continues to face a degree of underlying risk, in part because of the 

 5 GAO-05-356 and GAO-06-374T. 

6

 GAO, Coast Guard: Changes to Deepwater Plan Appear Sound, and Program 

Management Has Improved, but Continued Monitoring Is Warranted, GAO-06-546 

(Washington, D.C.: Apr. 28, 2006; Contract Management: Coast Guard’s Deepwater 

Program Needs Increased Attention to Management and Contractor

Oversight, GAO-04-380 (Washington, D.C.: Mar. 9, 2004). 

Page 8 GAO-06-1012T 
unique, system-of-systems approach with the contractor acting as overall 

integrator, and in part because it is so heavily tied to precise year-to year 

funding requirements over the next two decades. Further, a project of this 

magnitude will likely continue to experience other concerns and 

challenges beyond those that have emerged so far. It will be important for 

Coast Guard managers to carefully monitor contractor performance and to 

continue addressing program management concerns as they arise. 

In closing, I believe that DHS has taken strides toward putting in place an

acquisition organization that contains many promising elements. 

However, the steps taken so far are not enough to ensure that the 

department is effectively managing the acquisition of the multitude of 

goods and services it needs to meet its mission. More needs to be done to

fully integrate the department’s acquisition function, to pave the way for 

the CPO’s responsibilities to be effectively carried out in a modern-day 

acquisition organization, and to put in place the strong internal controls 

needed to manage interagency contracting activity and large, complex 

investments. DHS’ top leaders must continue to address these challenges 

to ensure that the department is not at risk of continuing to exist with a 

fragmented acquisition organization that provides stopgap, ad hoc 

solutions. DHS and its components, while operating in a challenging 

environment, must have in place sound acquisition plans and processes to 

make and communicate good business decisions, as well as a capable

acquisition workforce to assure that the government receives good value 

for the money spent. 

Mr. Chairman, this concludes my statement. I would be happy to respond

to any questions you or other Members of the Committee may have at this

time. For further information regarding this testimony, please contact 

Michael Sullivan at (202) 512-4841 or sullivanm@gao.gov. 

Page 9 GAO-06-1012T (120584) 
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