United States Government Accountability Office

Washington, DC 20548 

July 7, 2006 

The Honorable John Warner 

Chairman 

The Honorable Carl Levin 

Ranking Member 

Committee on Armed Services 

United States Senate 

The Honorable Duncan Hunter 

Chairman 

The Honorable Ike Skelton 

Ranking Member 

Committee on Armed Services 

House of Representatives 

Subject: Contract Management: DOD Vulnerabilities to Contracting Fraud, Waste, and Abuse

In recent years, the Department of Defense (DOD) has increasingly relied on goods and services 

provided by the private sector under contract. Since fiscal year 2000, DOD’s contracting for 

goods and services has nearly doubled, and this trend is expected to continue. In fiscal year 

2005 alone, DOD obligated nearly $270 billion on contracts for goods and services. Given the 

magnitude of the dollar amounts involved, it is essential that DOD acquisitions be handled in an 

efficient, effective, and accountable manner. In other words, DOD needs to ensure that it buys 

the right things, the right way. 

Enacted January 6, 2006, the National Defense Authorization Act for Fiscal Year 20061

 required 

us to review DOD’s efforts to identify and assess the vulnerability of its contracts to fraud,

waste, and abuse. We reviewed the areas of vulnerability that DOD faces with regard to 

contracting fraud, waste, and abuse, and the recent initiatives that DOD has taken to address 

these vulnerabilities, including actions DOD has taken in response to a March 2005 Defense 

Science Board report on management oversight in acquisition organizations. 

Because of the limited time available to conduct our work, we relied heavily on a review of 

GAO and DOD Office of the Inspector General (DOD IG) reports issued over the past 5 years 

(listed in app. I) supplemented by interviews with senior acquisition policy, general counsel, 

and investigative service officials at the Office of the Secretary of Defense level and within each 

of DOD’s military departments. We also reviewed relevant studies prepared by or for DOD, the 

most notable of which is the report written by the Defense Science Board, a panel of high-level

 1

 Pub. L. No. 109-163, sec. 841.

Page 1 GAO-06-838R DOD Contracting 
outside experts that conducts analyses and advises DOD’s top leadership on such areas 

as scientific and technical issues and acquisition processes. We met with a Department 

of Justice task force established to address contract fraud. To identify recent DOD 

initiatives, we interviewed senior acquisition officials and reviewed applicable policy 

memorandums and management oversight reports. We focused on DOD activities and 

actions rather than on contractor actions and efforts. Several contracting-related terms 

are used in this report and are described in appendix II. We conducted our review 

between February and June 2006 in accordance with generally accepted government 

auditing standards. 

Summary

DOD faces vulnerabilities to contracting fraud, waste, and abuse due to weaknesses in 

five key areas: sustained senior leadership, capable acquisition workforce, adequate 

pricing, appropriate contracting approaches and techniques, and sufficient contract 

surveillance. Because of numerous concerns about control weaknesses in these areas 

and others, GAO has had contract management on its list of high-risk2

 areas since 1992.3

DOD’s recent reports and studies, plus our discussions with senior DOD acquisition 

officials, point to specific weaknesses in these five areas. One of the senior leadership 

issues pertains to the tone at the top, which includes leadership’s commitment or lack of 

commitment to sound acquisition practices.4

 DOD has emphasized making contract 

awards quickly; sometimes, however, the focus on speed has come at the expense of 

sound contracting techniques. Increased demands on the acquisition workforce have led 

to vulnerabilities in contract pricing and competition and in the selection of the most 

appropriate contracting techniques. Some practices have led to insufficient contract 

surveillance, and such surveillance is essential for ensuring that contractors provide 

quality goods and services as required by their contracts. For each instance in which an 

area of vulnerability affects a contract award or execution, DOD risks paying contractors

more than the value of the goods and services they provide. 

DOD has taken several steps to address the above contracting vulnerabilities. In 

particular, DOD initiated a Defense Science Board review in November 2004, after a highlevel Air Force official pled guilty to a conflict-of-interest and admitted giving favorable 

treatment to a large DOD contractor in negotiations and contract awards involving 

billions of dollars. In March 2005, the Defense Science Board concluded that nothing in 

the department’s existing general acquisition structure or policies would prevent 

contracting malfeasance such as that carried out by the senior Air Force official from 

happening again. The board also made 20 recommendations to address its concerns. In 

response, the Office of the Under Secretary of Defense for Acquisition, Technology, and 

 2

 GAO’s high-risk designation is given to major programs and operations that need urgent attention and 

transformation in order to ensure that our national government functions in the most economical, efficient,

and effective manner possible. It also emphasizes programs that at high risk because of their greater

vulnerabilities to fraud, waste, abuse, and mismanagement.

3

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

4

 “Tone at the top” refers to management's philosophy and operating style, which sets the degree of risk the

organization is willing to take in its operations and programs, including the acquisition function. 

Page 2 GAO-06-838R DOD Contracting 
Logistics (AT&L) has begun several initiatives, including issuing numerous 

memorandums to acquisition personnel reemphasizing their roles and responsibilities 

related to ethical conduct and revitalizing ethics training. AT&L also asked each military 

service in November 2004 to assess its own acquisition functions. In March 2006, AT&L 

completed its analysis of the military services’ self-assessments and proposed six 

recommendations to address weaknesses in the oversight, source selection, and contract 

award processes to improve the integrity of DOD acquisition decisions. The military 

services and DOD have taken other steps to address fraud, waste, and abuse. Two of the 

military services established the Procurement Fraud Working Group, a DOD-wide 

grassroots forum for acquisition personnel to discuss ways to better address 

vulnerabilities to contracting fraud. The working group recently developed a Web-based 

community of practice to allow the immediate dissemination of information. Since 

September 2004, DOD has issued several policy memorandums to improve the oversight 

of the department’s use of interagency contracts and time and materials contracts. In 

addition, the military services have each undertaken specific initiatives, which range 

from creating new offices to focus audit and investigative efforts on areas of 

vulnerability to promoting general awareness about fraud through training and 

newsletters. Because the recent initiatives are still in their early stages, it is too soon to 

determine what impact they may have on reducing vulnerabilities to contracting fraud, 

waste, and abuse. We provided a draft of this letter to DOD for comment. The 

Department concurred with our findings. 

Background

DOD defines fraud, waste, and abuse in the following ways: 

• Fraud is any intentional deception taken for the purpose of inducing DOD action or 

reliance on that deception. Fraud can be perpetrated by DOD personnel—whether 

civilian or military—or by contractors and their employees. 

• Waste is the extravagant, careless, or needless expenditure of DOD funds or the 

consumption of DOD property that results from deficient practices, systems, 

controls, or decisions. Waste includes improper practices not involving prosecutable 

fraud. 

• Abuse is the manner in which resources or programs are managed that creates or 

perpetuates waste or contributes to acts of fraud. Abuse is also called 

mismanagement. 

Studies have shown that, generally speaking, the position a perpetrator holds within an 

organization will tend to have the most significant effect on the size of losses in a fraud 

scheme. Trust and access to funds and assets that come with senior leadership and 

tenure can become a vulnerability if the control environment in an organization is weak. 

Although waste and abuse are not as well defined as fraud, their effects can be just as 

profound. 

The amount of DOD funding used to contract for goods and services continued to 

increase in the past 5 years, as shown in figure 1. If this trend continues, more and more 

Page 3 GAO-06-838R DOD Contracting 
funds will be vulnerable to potential fraud, waste, and abuse unless effective controls are 

in place. 

Figure 1: DOD Contract Obligations for Fiscal Years 2000 to 2005 

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005

Contract obligations (in billions of dollars)

Fiscal year

Services other than research, development, test, and evaluation

Research, development, test, and evaluation

Products 

Source: DD350 database, actions over $25,000; GAO (analysis and presentation).

53

19

61

56

21

67

65

27

78

85

33

90

94

33

102

104

37

117

Oversight and management of DOD contracting activities is shared among numerous 

organizations. Collectively, these organizations help detect instances of fraud, waste, and

abuse, try to prevent them from happening, or are involved in correcting policies and 

procedures when they occur. Table 1 shows DOD organizations involved in overseeing 

and managing contracting activities and what the primary responsibilities are. 

Page 4 GAO-06-838R DOD Contracting 
Table 1: DOD Organizations Responsible for Oversight and Management of DOD Contracting Activities 

DOD organization Responsibility 

Office of the Under Secretary of Defense 

for Acquisition, Technology, and Logistics

(AT&L) 

Provides policy, guidance, and oversight to acquisition functions

DOD Office of General Counsel Establishes procedures to implement policies relating to prosecution of 

identified instances of fraud (Department of Justice has primary 

responsibility for handling prosecutions related to fraud in federal court 

system); oversees ethics programs throughout DOD 

DOD Inspector General (DOD IG) Conducts audits and oversees matters relating to detection and 

prevention of fraud, waste, and abuse; collaborates with numerous other 

DOD entities, as many activities are involved in addressing these issues

across DOD; DOD IG does not issue policy regarding acquisition 

Defense Criminal Investigative Service Investigates fraud allegations

Defense Contract Audit Agency Makes investigation referrals, usually to DOD IG or to Defense Criminal 

Investigative Service, regarding situations that reasonably appear to 

entail fraud that it encounters during its contract audits

Air Force, Army, Navy Conduct audits and investigations; each military department has its own 

audit agency, criminal investigation service, and office of general 

counsel 

Source: DOD (data); GAO (presentation and analysis). 

Table 2 shows prosecutorial actions and monetary collections related to DOD 

procurement fraud cases for the last 5 fiscal years. Although fraud settlements are 

significant, it is likely that the amount of funds lost to DOD contracting waste and abuse 

exceeds those lost from fraud. 

Table 2: DOD Procurement Fraud Case Results for Fiscal Years 2001-2005 (dollar amounts in millions) 

Fiscal 

year 

Criminal 

indictmentsa

Criminal 

convictionsa

Military 

Article 15b

Criminal 

judgment 

amount

Civil 

settlement 

amount

Administrative 

amount 

Investigative 

recoveries 

and seizures

2001 177 137 6 $38.6 $103.5 $4.9 $0.6

2002 200 109 14 $313.6 $528.4 $2.4 $4.8

2003 176 121 10 $40.7 $492.4 $19.3 $3.8

2004 86 113 7 $28.0 $61.8 $40.2 $0.7

2005 79 85 2 $27.1 $263.6 $23.7 $0.0

Total 718 565 39 $448.1 $1,449.6 $90.4 $9.9

Source: DOD IG (data); GAO (presentation and analysis). 

a

Convictions sometimes occur in the year or years following indictments and

therefore may be less than or exceed the number of indictments. In addition, 

some indictments do not result in convictions. 

b

For minor fraud committed by military personnel, punishment is usually levied by 

the commanding officer. Such non-judicial punishment is referred to as an Article 

15 procedure.

Page 5 GAO-06-838R DOD Contracting 
DOD Continues to Face Vulnerabilities in Contracting Fraud, Waste, and Abuse 

On the basis of our review of relevant GAO and DOD IG reports from the last 5 years, as 

well as current discussions with senior DOD officials, we found that DOD continues to 

face vulnerabilities to contracting fraud, waste, and abuse due to weaknesses in the 

areas of sustained senior leadership, capable acquisition workforce, adequate pricing, 

appropriate contracting approaches and techniques, and sufficient contract surveillance. 

While we believe the overwhelming majority of DOD acquisition professionals are ethical 

and hard-working, vulnerabilities in DOD’s contract management organizations and 

functions are not new. GAO designated aspects of DOD’s contract management as a 

high-risk area in 1992 because of the large amount of dollars involved and numerous 

concerns about control weaknesses over its management of contracts. Despite DOD 

efforts to address some of GAO’s concerns, changes in the acquisition environment—

such as increasing reliance on contractor-provided services, reductions in the acquisition 

workforce, and the introduction or expansion of alternative contracting approaches—

have caused DOD’s contract management to remain on GAO’s high risk list. 

Sustained Senior Leadership

DOD senior leadership is a critical factor in providing direction and vision as well as in 

maintaining the culture of the organization. As such, senior leaders have the 

responsibility to communicate and demonstrate a commitment to sound practices 

deemed acceptable for the acquisition function. Without sustained and prominent senior 

leadership, DOD increases its vulnerability to contracting fraud, waste, and abuse if it 

does not ensure that its decision makers, personnel, and contractors act in the best 

interests of DOD and taxpayers. DOD faces vulnerabilities in aspects of its senior 

leadership because of certain disconnects, including senior positions that have remained 

unfilled for long periods of time, the acquisition culture fostered by management’s tone 

at the top, and the management approach used in new industry partnering relationships. 

In the March 2005 Defense Science Board report, DOD recognized that senior positions 

requiring confirmation by the U.S. Senate remain unfilled for significant periods of time.5

 

An environment in which senior positions remain vacant provides opportunities for 

determined individuals to circumvent established policies and procedures for their own 

personal gain or otherwise fail to act in the government’s best interest. Vacant positions 

can allow a breakdown in one key internal control at senior leadership levels, that being 

separation of duties. For example, this type of environment allowed a former senior Air 

Force official’s misconduct to go unchecked as the official amassed a significant amount 

of power and control within the acquisition function. When we recently discussed senior 

leadership issues with DOD officials, they acknowledged that some positions remain 

unfilled. In addition, an AT&L official emphasized that filling the senior-level vacancies 

requires assistance or actions beyond the Office of the Secretary of Defense. 

DOD’s tone at the top allows a certain level of vulnerability to enter into the acquisition 

process. Senior acquisition officials ultimately shape the environment that midlevel and 

 5 Defense Science Board. Report of the Defense Science Board Task Force on Management Oversight in 

Acquisition Organizations, Washington, D.C.: March 2005. 

Page 6 GAO-06-838R DOD Contracting 
frontline acquisition personnel operate within, and it is that tone that clearly identifies 

and emphasizes the values deemed acceptable within the acquisition function. The 

Defense Science Board report stated that the department lags behind the “best in class” 

in creating a systematic, integrated approach and in demonstrating the kind of leadership 

necessary to drive ethics to the forefront of organizational behavior. DOD officials told 

us that, in recent years, the tone set in DOD was one of streamlining acquisitions to get 

results as fast as possible. While this is a desired outcome of the acquisition process, the 

acquisitions should still be carried out within prescribed policies and practices. With 

regard to the situation involving the former senior Air Force official, the misconduct of 

that official occurred within a centralized acquisition process that was often praised for 

being streamlined. But the environment failed to provide sufficient management 

oversight and control, allowing the abuses perpetrated by this official to continue to 

override management controls, disregard organizational transparency of key decisions, 

and demonstrate unprofessional behavior toward other DOD personnel and contractor 

officials. 

Effective senior leadership at DOD’s major program management level is also needed to 

minimize fraud, waste, and abuse. In recent years DOD has been using a lead systems 

integrator approach that allows one or more contractors to define a weapon system’s 

architecture and then manage both the acquisition and the integration of subsystems into 

the architecture. This new approach relies on contractors to fill roles and handle 

responsibilities that differ from the more traditional prime contractor relationship the 

contractors had with program offices and can blur the oversight responsibilities between 

the lead systems integrator and program management officials. For example, the Army’s 

Future Combat System program is managed by a lead systems integrator that assumes 

the responsibilities of developing requirements, selecting major system and subsystem 

contractors, and making trade-off decisions among costs, schedules, and capabilities. 

While this management approach has some advantages for DOD, we found that the 

extent of contractor responsibility in many aspects of the Future Combat System 

program management process is a potential risk.6

Moreover, if DOD uses a lead systems integrator but does not provide effective oversight, 

DOD is vulnerable to the risk that the lead systems integrator may not make its decisions 

in a manner consistent with the government’s best interest, especially when faced with 

potential organizational conflicts of interest. DOD acquisitions require that tough 

decisions and trade-offs be made when new technologies do not work out, available 

funding is reduced, or changes in performance expectations are made. 

Capable Acquisition Workforce

DOD needs to have the right skills in its acquisition workforce to effectively implement 

best practices and properly manage the acquisition of goods and services. In the everchanging DOD contracting environment, the acquisition workforce must be able to 

rapidly adapt to increasing workloads while continuing to improve its knowledge of 

 6

 GAO, Defense Acquisitions: Business Case and Business Arrangements Key for Future Combat 

System’s Success, GAO-06-478T (Washington, D.C.: March 1, 2006).

Page 7 GAO-06-838R DOD Contracting 
market conditions, industry trends, and the technical details of the goods and services 

they procure. Moreover, effective workforce skills are essential for ensuring that DOD 

receives fair and reasonable prices for the goods and services it buys. However, DOD’s 

acquisition workforce is subject to conditions that increase the vulnerabilities to 

contracting fraud, waste, and abuse: 

• The overall contracting workload has increased. 

• The demand for contract surveillance (addressed later in this report) continues to 

grow because of DOD’s increasing reliance on contractors for services. 

• DOD is making greater use of alternative contracting approaches, which offer the 

benefits of improved efficiency and timeliness for acquiring goods and services. 

• Many contracting personnel are due to retire in the next few years, taking with them 

a wealth of experience and capabilities. 

Between fiscal years 1989 and 2002, DOD reduced its civilian acquisition workforce by 

about 38 percent without ensuring the department had the specific skills and 

competencies needed to accomplish future DOD missions. The size of the acquisition 

workforce has remained relatively constant since fiscal year 2000. However, overall 

contract obligations and the number of contract actions processed by DOD have

increased nearly twofold, as figure 2 illustrates. 

Figure 2: DOD Contract Obligations and Workforce Size for Fiscal Years 2000-2005

0

50

100

150

200

250

300

2000 2001 2002 2003 2004 2005

0

50

100

150

200

250

300

Contract obligations

(in billions of dollars)

Number of personnel

 (in thousands)

Source: Contract obligations data from DD350 database; work force data from Office of Personnel 

Management for 14 acquisition-related job series, GAO (analysis and presentation).

Fiscal year

 Workforce 

Obligations

Workforce 

generally 

unchanged

Obligations 

increased by 

88 percent

Some of the DOD contracting workload increases can be attributed to post-September 

11, 2001, acquisition demands, including increased deployments to support military 

Page 8 GAO-06-838R DOD Contracting 
activities overseas. To handle some of the additional work, DOD has begun using 

contractors to provide technical support to its acquisition activities. In other words, 

contractors are helping carry out the contracting function.

7

The acquisition workforce continues to face the challenge of maintaining and improving 

skill levels for using alternative contracting approaches introduced by acquisition reform 

initiatives of the past few decades. Because the contracting approach influences the type 

of contracting vehicle to be used and the pricing and payment options considered, this 

expanding universe of approaches requires DOD acquisition personnel to have the 

knowledge and skills to successfully select and implement each approach. For example, 

in the past several years, the workforce has been increasingly involved with the use of 

multiple-award indefinite delivery/indefinite quantity contracts, performance-based 

contracts, and interagency contracts. Participants in an October 2005 GAO forum on 

Managing the Supplier Base for the 21st Century commented that the current federal 

acquisition workforce significantly lacks the new business skills needed to act as 

contract managers.8

 

Finally, DOD will be subject to vulnerabilities in the next few years as experienced 

acquisition personnel are expected to retire from government service and significant 

amounts of acquisition knowledge and experience will be lost. As GAO reported in 2005, 

more than half of DOD’s current workforce will be eligible for early or regular retirement 

in the next 5 years.9

 More recently, Navy officials told us that they already are seeing a 

“hemorrhaging” of senior contracting officers as large numbers have started to retire. 

Adequate Pricing

DOD is generally required to obtain fair and reasonable prices for the goods and services 

it procures.10 The Federal Acquisition Regulation provides procedures for making price 

determinations.11 As our work has shown, DOD faces various risks associated with 

obtaining adequate contract pricing that can lead to vulnerabilities. These pricing risks 

stem from non-competitive contract actions, delays in setting requirements for 

undefinitized contracts, failure to use available pricing information, and misclassification

of items as commercial items. 

The Federal Acquisition Regulation emphasizes the use of competition in the acquisition 

process.12 While a competitive environment provides more assurance of reasonable 

 7

 Congress has recently placed certain requirements on contractor performance of DOD acquisition

functions closely associated with inherently governmental functions. 10 U.S.C. 2383, added by sec. 804 of

the Ronald W. Reagan National Defense Authorization Act for Fiscal Year 2005, Pub. L. No. 108-375. 

8

 GAO, Highlights of a GAO Forum: Managing the Supplier Base in the 21st Century, GAO-06-533SP

(Washington, D.C.: March 31, 2006).

9 GAO-05-207.

10 See Federal Acquisition Regulation 15.402(a).

11 Federal Acquisition Regulation subpart 15.4. 

12 Federal Acquisition Regulation part 6.

Page 9 GAO-06-838R DOD Contracting 
prices than a noncompetitive one does, DOD continues to be exposed to contracting 

vulnerabilities due to practices that limit competition. For example, we have reported 

that DOD often did not promote competition when issuing task orders under General 

Services Administration schedule or multiple award indefinite delivery/indefinite 

quantity contracts.13

DOD’s lack of timeliness in finalizing requirements for undefinitzed contract actions, 

which are usually in the form of letter contracts, leaves DOD vulnerable to waste and 

abuse. In fiscal year 2004, DOD obligated nearly $6.5 billion under letter contracts. While 

this type of contract may be necessary to initiate work quickly to meet urgent 

operational needs, costs on letter contracts are more difficult to control because 

information detailing the requirements and potential costs are likely vague or undefined. 

In August 2004, the DOD IG reported that contracting officials did not adequately 

definitize the acquisition requirements within the required time frames, and the report 

said the officials did not document the reasonableness of the profit rates charged by the 

contractors.14 In another example, an undefinitized contract action to support ongoing 

efforts to rebuild Iraq was modified nine times over a 6-month period, increasing costs 

from about $900,000 to over $200 million without DOD and the contractor reaching 

agreement on the scope of work or price. Delays in definitizing contract requirements 

can pose various risks and potentially increase DOD’s costs and exposure to waste and 

abuse. 

DOD’s failure to use available pricing information for sole-source contract awards leaves 

it vulnerable to waste. In the case of sole-source awards, the contractor may be required 

to provide the department with pricing information to support proposed prices and to 

justify proposed costs. Furthermore, where such information is not required, DOD 

contracting officials should use other available information and techniques to determine 

price reasonableness and conduct price negotiations. DOD contracting officials are 

expected to review the information obtained and use appropriate techniques to ensure 

that DOD avoids paying unreasonable prices and questionable costs. Prior GAO reports 

show that, in some cases, DOD did not sufficiently evaluate the data or DOD waived the 

requirement for the contractor to provide the data. For example, when the Air Force 

purchased spare parts for the Airborne Warning and Control System aircraft program, it 

did not obtain sales information for the spare parts or similar items to justify the 

contractor’s proposed price.15 Neither did the Air Force consider analyses performed by 

the Defense Contract Management Agency that showed a much lower price was 

warranted. Instead, the contracting officer relied on a contractor-prepared analysis. 

Similarly, the Army Corps of Engineers (the Corps) recently purchased portable 

 13 GAO, Contract Management: Guidance Needed to Promote Competition for Defense Task Orders, GAO04-874 (Washington, D.C.: July 30, 2004); Interagency Contracting: Problems with DOD’s & Interior’s 

Orders to Support Military Operations, GAO-05-201 (Washington, D.C.: April 29, 2005); Rebuilding Iraq: 

FY2003 Contract Award Procedures and Management Challenges, GAO-04-605 (Washington, D.C.: 

June 1, 2004).

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

Actions. Report Number D-2004-112, Arlington, Virginia: August 30, 2004. 

15 GAO, Contract Management: The Air Force Should Improve How It Purchases AWACS Spare Parts, 

GAO-05-169 (Washington, D.C.: Feb. 15, 2005). 

Page 10 GAO-06-838R DOD Contracting 
classrooms from a contractor to support Hurricane Katrina relief operations.16 The Corps 

accepted the contractor’s proposed price of $39.5 million although the Corps had 

information that the cost of the classrooms was significantly less than what the 

contractor was charging. We believe that by not using available information, the Corps 

could have, but failed to, negotiate a lower price. When various pricing information is not 

fully utilized, DOD contracting activities remain vulnerable to paying more than 

warranted.

Also, DOD sometimes uses commercial item procedures to procure items that are 

misclassified as commercial items and therefore not subject to the forces of a 

competitive marketplace. While the use of commercial item procedures is an acceptable 

practice, misclassification of items as commercial can leave DOD vulnerable to 

accepting prices that are not the best value for the department. When an item is 

designated as commercial, DOD should be able to determine if the price is reasonable on 

the basis of prices in the commercial sector. However, if DOD designates an item as 

being a commercial item when it is not readily available in the commercial market, DOD 

limits its ability to assess the reasonableness of the contractor’s price because it might 

have less information on prices to make its decision. The DOD IG reported in the past 

few years on two cases in which a commercial item determination was unjustified.17

Appropriate Contracting Approaches and Techniques

When selecting contracting approaches and techniques for an award, the government’s 

objective is to negotiate a contract type and price that will result in reasonable risk and 

provide the contractor with the greatest incentive for efficient and economical 

performance. While the full extent to which business like contracting approaches and 

techniques have transformed DOD’s acquisition processes cannot be ascertained, data 

collected by GAO suggest that DOD’s increased use of certain contracting approaches 

and techniques over the past few years has increased DOD’s vulnerability to contracting 

fraud, waste, and abuse. 

The interagency contracting approach enables DOD and other federal agencies to 

leverage their buying power and provide a simplified and expedited method of acquiring 

goods and services. DOD has the option to go to other federal agencies to carry out the 

contracting process for selected goods and services. When this contracting approach is 

not utilized properly, however, DOD is exposed to greater risk of fraud, waste, and 

abuse. In January 2005, GAO designated the use of interagency contracts as a 

governmentwide high-risk area.18 GAO and DOD IG have identified instances in which 

acquisition personnel were provided insufficient training and guidance on the use of 

 16 GAO, Hurricane Katrina: Army Corps of Engineers Contract for Mississippi Classrooms, GAO-06-454

(Washington, D.C.: May 1, 2006). 

17 DOD, Office of the Inspector General, Audit Report: Procurement Procedures Used for F-16 Mission 

Training Center Simulator Services, Report Number. D-2006-065, Arlington, Virginia: March 24, 2006, and 

Audit Report: Contracting for and Performance of the C-130J Aircraft, Report Number D-2004-102, 

Arlington, Virginia: July 23, 2004. 

18 GAO-05-207. 

Page 11 GAO-06-838R DOD Contracting 
interagency agreements and a lack of effective management control and oversight over 

these contracts occurred. In our high-risk report, we reported that instances of 

insufficient oversight of contractor services occurred because of blurred lines in the 

shared contract management responsibilities between DOD and the awarding agency. 

The DOD IG also reported that the department used interagency contracts to “park” 19

several hundred million dollars in funds, a violation of DOD funding policies and 

regulations.20 Additional vulnerabilities arose when the non-DOD agency providing 

acquisition support did not follow prescribed policies and regulations. For example, 

DOD obtained interrogator services in Iraq through a Department of the Interior 

acquisition center that used a General Services Administration contract for information 

technology services. In this situation, the contracted services were not within the scope 

of the contract and were not subject to competition. 

DOD also faces vulnerabilities when it misuses multiple-award indefinite 

delivery/indefinite quantity contracts and General Services Administration multipleaward schedules. For multiple award indefinite delivery/indefinite quantity contracts, 

DOD is required to provide all contractors a fair opportunity to be considered for each 

order unless certain exceptions apply.21 This is meant to provide an ongoing competitive 

environment in which each awardee would be fairly considered for each order issued.22

When ordering from the General Services Administration schedules, agencies are 

required to follow certain ordering procedures, which, for services, can entail a 

comparison of quotations from multiple schedule contractors. But in practice, DOD 

officials have on numerous occasions avoided the time and effort necessary to compete 

individual orders and instead awarded all the work to be performed to a single 

contractor. GAO work shows that this practice resulted in the noncompetitive award of 

many orders that have not always been adequately justified.23 Without competition for 

individual task orders (or adequate justification for awarding them noncompetitively), 

DOD faces increased vulnerability to fraud, waste, and abuse. 

DOD faces additional vulnerability to fraud, waste, and abuse in the way it structures and 

implements award and incentive fees. These monetary incentives are intended to 

motivate excellent contractor performance and improve acquisition outcomes. However, 

GAO recently reported that DOD paid an estimated $8 billion in award fees for contracts 

in the study population regardless of the outcomes of the contract.24 Furthermore, DOD 

 19 The term to “park” funds refers to the transfer of budgetary funds by DOD officials to another agency’s 

acquisition center for the procurement of goods and services under circumstances where the bona fide

need determination is in doubt. 

20 DOD, Office of the Inspector General, Acquisition: DOD Purchases Made Through the General Services 

Administration, Report Number D-2005-096, Arlington, Virginia: July 29, 2005. 

21 10 U.S.C. 2304c. 

22 H.R. Conf. Report No. 103-712, at 178 (1994), reprinted in 1994 U.S.C.C.A.N. 2607, 2608; Senate Report No. 

103-258, at 15-16 (1994), reprinted in 1994 U.S.C.C.A.N. 2561, 2575-76.

23 GAO, Contract Management: Guidance Needed to Promote Competition for Defense Task Orders, 

GAO-04-874 (Washington, D.C.: July 30, 2004). 

24 GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees Regardless of 

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

Page 12 GAO-06-838R DOD Contracting 
gave contractors a second opportunity to earn an estimated $669 million of initially 

unearned or deferred fees on approximately half of the award-fee contracts. GAO 

believes these practices, along with paying significant amounts of fees for “acceptable, 

average, expected, good, or satisfactory” performance, undermine the effectiveness of 

fees as a motivational tool, marginalize their use in holding contractors accountable for 

acquisition outcomes, and waste taxpayer funds. As our report noted, DOD has little 

evidence to support its belief that these fees improve contractor performance and 

acquisition outcomes. 

Sufficient Contract Surveillance

The role of the acquisition function does not end with the award of a contract. It requires 

continued involvement throughout contract implementation and closeout to ensure that 

contracted services are delivered according to the schedule, cost, quality, and quantity 

specified in the contract. The Federal Acquisition Regulation requires that quality 

assurance, such as surveillance, be performed at such times and places as necessary to 

determine that the goods or services satisfy the contract requirements.25 If surveillance is 

insufficient, is not conducted, or is not documented when appropriate, DOD risks paying 

contractors more than the value of the goods and services provided. 

In the past 4 years, GAO and DOD IG have reported that DOD’s contracts have been 

subject to insufficient surveillance. In July 2004, we reported that DOD did not have a 

sufficient number of trained personnel in place to provide effective oversight of its 

logistics support contractors. 26 These contractors provide many of the supplies and 

services needed to support the Logistics Civilian Augmentation Program, which has been 

used to support operations in both Kuwait and Afghanistan. In another example, we 

reported in March 2005 instances of inadequate surveillance on 26 of 90 DOD service 

contracts we reviewed.27 In each instance, at least one of the key factors to ensure 

adequate surveillance did not take place. These factors are (1) training personnel in how 

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

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

surveillance throughout the period of the contract. The DOD IG reported similar findings 

in its reports issued in October 2003 and October 2005. Officials we met with during this 

review expressed concerns about the current state of the acquisition workforce to 

support surveillance. The comments included those of Air Force officials who told us 

that they are concerned that surveillance remains an “other duty as assigned” and, 

consequently, is a low-priority task. 

Recent DOD Initiatives to Address Contracting Fraud, Waste, and Abuse 

DOD recognizes that its contracting practices leave the department vulnerable to 

misusing or wasting taxpayer dollars and is taking some actions to mitigate the risk. In 

 25 Federal Acquisition Regulation subpart 46.4. 

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

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

27 GAO-05-274. 

Page 13 GAO-06-838R DOD Contracting 
addition to the Defense Science Board review, we identified several DOD-wide and 

military service initiatives taken since the fall of 2004 that address aspects of the 

acquisition process in an effort to deal with vulnerabilities to fraud, waste, and abuse. 

These include a DOD analysis of the self-assessments of the acquisition function made by 

each military service, the establishment of the Procurement Fraud Working Group, and 

issuance of policy to address concerns about the use of interagency contracting. The 

Defense Science Board review and the DOD analysis of the military service selfassessments are directed primarily at senior leadership and oversight vulnerabilities and 

do not deal with the other areas of vulnerability we identified above. While the initiatives 

are positive steps, several DOD officials we spoke with agreed that it is too soon to see 

an impact, particularly from those memorandums dealing with the acquisition culture. 

DOD-wide Initiatives

AT&L initiated the Defense Science Board task force review of management oversight in 

acquisition organizations in November 2004 to examine the checks and balances of the 

processes to ensure the integrity of acquisition decisions. In the resulting March 2005 

report, the Defense Science Board identified weaknesses in the acquisition function 

related to processes, oversight, leadership, and people, and provided 20 

recommendations to address these issues. In response, AT&L initiated multiple efforts to 

address each recommendation, including the issuance of several policy memorandums to 

the defense agencies and the largest defense contractors to address the issue of ethics. 

For example, beginning in fiscal year 2005, AT&L began trying to shift the tone at the top 

by issuing a series of memorandums to acquisition personnel and contractors with the 

intent of changing the culture and reinforcing the importance of ethics in the acquisition 

function. In addition, AT&L issued other memorandums emphasizing the need for the 

contracting officer to remain independent from the program office and stressing

acquisition personnel’s responsibility to report unusual practices. Other actions created 

an overarching fraud awareness and ethics training program. To assist in this effort, the 

Defense Acquisition University, a DOD-run training institute for the AT&L workforce, 

appointed a performance learning manager for ethics who is responsible for ensuring 

that ethics issues are addressed not only in the traditional acquisition courses but also in 

the executive-level courses. The Defense Acquisition University also added specific 

ethics-related information to its Web site, including discussion vignettes that pose ethical 

dilemmas or questions for readers to test their judgment. Appendix III provides a 

detailed account of the Defense Science Board recommendations and AT&L’s 

responding actions. 

Also in November 2004, AT&L issued a memorandum to the military services and other 

defense agencies directing them to perform a self-assessment of their acquisition 

organization and processes for use in a DOD-wide Acquisition Integrity Analysis. In 

March 2006, AT&L completed the analysis and proposed six recommendations to 

address weaknesses in the oversight, source selection, and contract award processes to 

improve the integrity of DOD acquisition decisions. AT&L’s recommendations included 

the need for several new policies to address (1) specifically prohibiting senior leaders 

from performing multiple roles on major acquisition projects, (2) filling vacant positions 

from below on an acting basis until permanent appointments are made, (3) requiring 

Page 14 GAO-06-838R DOD Contracting 
documentation of the source selection processes, and (4) requiring legal review of the 

source selection documentation prior to award. AT&L also recommended that 

Acquisition Process Reviews, which are currently performed for other defense agencies, 

be instituted for the military services. 

In late 2004, the Air Force’s and the Army’s general counsel offices initiated a grassroots 

effort that resulted in the Procurement Fraud Working Group. The goal of the working 

group is to provide a discussion forum that will develop closer working relationships 

among the relevant DOD activities and agencies that identify, investigate, and prosecute 

contracting fraud—the contracting officers, quality assurance personnel, investigative 

staff, and legal staff—and provide an exchange of information and ideas among these 

DOD agencies, the Department of Justice, and other government agencies. The working 

group, which is hosted by the Defense Contract Management Agency, recently 

established a Web site that allows working group members to solicit advice and share 

good practices. The working group held its second annual conference in March 2006. The 

conference provided attendees with information on current issues, future trends, 

investigative strategies, and enforcement remedies related to contracting fraud. Although 

the working group includes members from levels within various acquisition and 

investigative functions across DOD, the working group does not have formal sponsorship 

or authority from AT&L. 

DOD has issued several policies directed at strengthening controls over these types of 

contracting approaches and techniques. In September 2004, AT&L issued policy on the 

department’s surveillance of cost-reimbursable and time and materials contracts. DOD 

also issued policies on the use of interagency contracts in October 2004, March 2005, and 

March 2006. 

Military Department-Specific Initiatives

Each of the military departments has taken steps to address some of the vulnerabilities 

related to contracting fraud, waste, and abuse. These initiatives range from creating new 

offices to focus resources on the most vulnerable areas to promoting general awareness 

about fraud through training and newsletters. 

In December 2005, the Navy centralized its approach to addressing vulnerabilities to 

contracting fraud, waste, and abuse by creating its Acquisition Integrity Office. The office 

links the legal, audit, and investigative resources by dedicating units from both the Naval 

Audit Service and the Navy Criminal Investigative Service to work alongside the Office of 

the General Counsel in a coordinated effort to detect, investigate, and correct instances 

of fraud. The idea for this office grew out of the General Counsel’s interest in pursuing 

fraud and the low number of suspension and debarment cases involving Navy 

contractors. The Acquisition Integrity Office conducts risk assessments of acquisition 

functions and has begun data-mining efforts to focus the investigative and audit 

resources to areas they deem as being most vulnerable to fraud. The Acquisition Integrity 

Office is also developing a newsletter and a “desk book” reference to educate and assist 

acquisition personnel in identifying and addressing fraud. In addition, the office is 

Page 15 GAO-06-838R DOD Contracting 
responsible for issuing fraud alerts to acquisition personnel, as necessary, to inform 

them of identified instances of fraud. 

During 2005, the Air Force initiated several changes to its acquisition policies and 

procedures to address vulnerabilities identified during the investigation of the senior 

level acquisition official convicted of violating a conflict-of-interest law. To begin, the Air 

Force made changes to the Air Force Federal Acquisition Regulation Supplement to 

require further documentation of source selections. The Air Force also issued 

memorandums regarding ethics and postemployment restrictions as part of an effort to 

shift the acquisition culture from the previous emphasis on streamlining procurement to 

“doing the right thing.” As an additional initiative, the Air Force created a Special 

Assistant for Acquisition Governance and Transparency position to monitor new weapon 

acquisition programs and ensure that all weapon acquisitions are fully explained to 

Congress and the public. The goal of the special assistant position is to ensure 

procurement integrity and adherence to procurement guidance in all weapon acquisition 

programs. The Air Force also created an ombudsman program to handle concerns of 

government and contractor employees. 

Also during 2005, the Army set up new procurement fraud advisers’ offices that are 

deployed alongside units in Afghanistan and Iraq to address the high vulnerability to 

fraud in contracts to support the war and reconstruction efforts. The advisers’ offices 

also coordinate with Special Inspector General for Iraq Reconstruction. In addition, the 

Army created a Fraud Fighters Web site to promote fraud awareness and discuss various 

issues related to fraud as they arise. 

Conclusions

With awards to contractors large and growing, DOD will continue to be vulnerable to 

contracting fraud, waste, and abuse. As the last several years have shown, those 

vulnerabilities have resulted in numerous cases in which taxpayer dollars were misused 

or wasted. As these cases have come to light, DOD has begun to respond. As in other 

areas, the impact of DOD actions to make corrections will be evident as policies get 

translated into effective practices. Otherwise, DOD will remain at risk. Ongoing 

monitoring of results will be the prudent course of action. To do this may be a challenge 

because no single office within DOD maintains responsibility to monitor the efforts 

related to detecting and preventing fraud, waste, and abuse across all organizations in 

DOD. 

Agency Comments and Our Evaluation

The Department provided written comments, which are reproduced in appendix IV. 

DOD concurred with our findings and stated that it shares our concern about the areas of 

vulnerability to contracting fraud, waste, and abuse that we cited in this letter. 

We are sending copies of this report to the Secretary of Defense and interested 

congressional committees. We will also make copies available to others upon request. In 

Page 16 GAO-06-838R DOD Contracting 
addition, the report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 

If you have any questions about this report or need additional information please contact 

me at (202) 512-4841 or schinasik@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 James E. Fuquay, Assistant Director; Noah Bleicher; 

Lily Chin; R. Eli DeVan, Tim DiNapoli, Matthew T. Drerup, Jean K. Lee, and Adam 

Vodraska. 

Sincerely, 

Katherine V. Schinasi 

Managing Director, Acquisition and Sourcing Management 

Page 17 GAO-06-838R DOD Contracting 
Appendix I: GAO and DOD Inspector General Reports Reviewed 

Senior Leadership

GAO, Highlights of a GAO Forum: Managing the Supplier Base in the 21st Century, 

GAO-06-533SP, Washington, D.C.: March 31, 2006. 

GAO, Agency Management of Contractors Responding to Hurricanes Katrina and 

Rita, GAO-06-461R, Washington, D.C.: March 15, 2006. 

GAO, Defense Acquisitions: Business Case and Business Arrangements Key for Future 

Combat System’s Success, GAO-06-478T, Washington, D.C.: March 1, 2006. 

GAO, Defense Ethics Program: Opportunities Exist to Strengthen Safeguards for 

Procurement Integrity, GAO-05-341, Washington, D.C.: April 29, 2005. 

GAO, Defense Acquisitions: Future Combat Systems Challenges and Prospects for 

Success, GAO-05-428T, Washington, D.C.: March 16, 2005. 

GAO, 21st Century Challenges: Reexamining the Base of the Federal Government, 

GAO-05-325SP, Washington, D.C.: February 1, 2005.

Acquisition Workforce

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

DoD Acquisition Workforce Count, Report Number D-2006-073, Arlington, Virginia: 

April 17, 2006. 

GAO, DOD Civilian Personnel: Comprehensive Strategic Workforce Plans 

Needed, GAO-04-753, Washington, D.C.: June 30, 2004. 

GAO, March 19 Hearing on Sourcing and Acquisition—Questions for the Record, 

GAO-03-771R, Washington, D.C.: May 23, 2003.

GAO, Federal Procurement: Spending and Workforce Trends, GAO-03-443, Washington, 

D.C.: April 30, 2003. 

Pricing

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

and Reassessment of Acquisition Approach,GAO-06-284, Washington, D.C.: April 3, 

2006. 

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

Procedures Used for F-16 Mission Training Center Simulator Services, Report Number 

D-2006-065, Arlington, Virginia: March 24, 2006.

Page 18 GAO-06-838R DOD Contracting 
Appendix I: GAO and DOD Inspector General Reports Reviewed 

GAO, Contract Management: The Air Force Should Improve How It Purchases AWACS 

Spare Parts, GAO-05-169, Washington, D.C.: February 15, 2005. 

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

Contractual Actions, Report Number D-2004-112, Arlington, Virginia: August 30, 2004. 

GAO, Contract Management: Guidance Needed to Promote Competition for Defense 

Task Orders, GAO-04-874, Washington, D.C.: July 30, 2004. 

Department of Defense, Office of the Inspector General, Audit Report: Contracting for 

and Performance of the C-130J Aircraft, Report Number D-2004-102, Arlington, Virginia: 

July 23, 2004.

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

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

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

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

Contracting Techniques

GAO, Defense Acquisitions: DOD Has Paid Billions in Award and Incentive Fees 

Regardless of Acquisition Outcomes, GAO-06-66, Washington, D.C.: December 19, 2005. 

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

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

Department of Defense, Office of the Inspector General, Acquisition: DOD Purchases 

Made Through the General Services Administration, Report Number D-2005-096, 

Arlington, Virginia: July 29, 2005. 

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

Military Operations, GAO-05-201, Washington, D.C.: April 29, 2005. 

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

Contract Surveillance

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

Surveillance for Service Contracts, Report Number D-2006-010, Arlington, Virginia: 

October 28, 2005. 

GAO, Defense Logistics: High-Level DOD Coordination Is Needed to Further Improve 

the Management of the Army's LOGCAP Contract, GAO-05-328, Washington, D.C.: 

March 21, 2005. 

Page 19 GAO-06-838R DOD Contracting 
Appendix I: GAO and DOD Inspector General Reports Reviewed 

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

Defense Service Contracts, GAO-05-274, Washington, D.C.: March 17, 2005. 

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

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

Department of Defense, Office of the Inspector General, Audit Report: Contracts for 

Professional, Administrative, and Management Support Services, Report Number 

D-2004-015, Arlington, Virginia: October 30, 2003. 

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

Acquisition, GAO-03-935, Washington, D.C.: September 10, 2003.

Page 20 GAO-06-838R DOD Contracting 
Appendix II: Contracting-Related Terms 

Delivery order: An order for supplies placed against an established contract or with 

government sources. 

Indefinite delivery/indefinite quantity contract: A kind of contract used to acquire goods 

and services when the exact date of future deliveries is unknown but a recurring need is likely to 

arise. There are three types of indefinite delivery contracts: definite quantity contracts,

requirements contracts, and indefinite quantity contracts. Indefinite quantity contracts provide 

for an indefinite quantity, within stated limits, of supplies or services during a fixed period. 

Interagency contract: Agencies may use another agencies’ contracting services to purchase 

goods and services. Typically, such contracts are used to provide agencies with commonly used 

goods and services, such as office supplies or information technology services. Agencies that 

award and administer interagency contracts usually charge a fee to support their operations. 

Lead systems integrator: Typically, the lead systems integrator is the prime contractor with 

increased program management responsibilities. These responsibilities may include greater than 

usual involvement in requirements development, design, and source selection of major system 

and subsystem subcontractors. 

Letter contract: A written preliminary agreement authorizing the contractor to immediately 

begin manufacturing supplies or performing services. 

Obligation: As used here, a definite commitment that creates a legal liability of the government 

for the payment of goods and services ordered or received. An agency incurs an obligation, for 

example, when it places an order, signs a contract, or purchases a service.

Performance-based contract: Performance-based contracting emphasizes that all aspects of an 

acquisition be structured around the results of the work to be performed as opposed to the 

manner in which the work is to be performed. When using this type of contract, the contracting 

agency specifies the outcome or result it desires and leaves it to the contractor to decide how 

best to achieve the desired outcome. 

Sole-source acquisition: A contract for the purchase of goods or services that is entered into 

by an agency after soliciting and negotiating with only one source. 

Task order: An order for services placed against an established contract or with government 

sources. 

Time and materials contract: A contract that provides for acquiring supplies or services on the

basis of direct labor hours at specified fixed hourly rates that include wages, overhead, general

and administrative expenses, and profit and materials at cost. 

Page 21 GAO-06-838R DOD Contracting 
Appendix III: Status of DOD Actions in Response to March 2005 Defense Science Board 

Recommendations 

# Recommendation Action/status

1 For major procurements, Acquisition, 

Technology, and Logistics (AT&L) 

should codify best practices into 

policy (written recommendations by 

advisory bodies to the source 

selection authority [SSA] and the 

SSA decision and rationale) 

AT&L is fielding a Best Practices Clearing House. It is also initiating 

implementation of Acquisition Process Reviews.

Air Force issued new Air Force Federal Acquisition Regulation 

Supplement changes in August 2005 requiring documentation of 

recommendations made to the SSA, mandatory independent contract 

clearance approvals, notification of solicitation release for source 

selections over $100 million; and expansion of the Ombudsman 

Program. 

2 AT&L should ensure a process for 

meaningful feedback to bidders

The Acquisition Process Review Working Group is reviewing the 

military departments’/agencies’ use of debriefings. 

3 AT&L should ensure distribution of 

delegated acquisition responsibilities

for major procurements

AT&L issued a memorandum, "Acquisition Integrity," requiring 

services/agencies to prepare policy that reflects procedures for 

ensuring the separation of functions in all acquisitions, so that authority 

does not reside in one person. AT&L’s Acquisition Integrity Analysis

was completed in March 2006, but has not been issued. 

AT&L recommended issuing a new policy specifically prohibiting a

senior leader from performing multiple roles for any one major weapon 

systems or major service acquisition. AT&L also recommended that 

vacant positions be filled from below to avoid accretion of duties at the 

top. 

4 Oversight, source selection, and 

contract negotiations should not 

reside in one person 

Addressed by actions in response to number 3 above. 

AT&L issued a memorandum, "Change in Milestone Decision Authority” 

(MDA), March 2005, reducing the Air Force’s MDA authority during 

management organization instability. In January 2006, AT&L 

redesignated MDA authority for 10 major programs back to the Air 

Force, but limited the authority to the Secretary of Air Force until a

Senior Acquisition Executive is appointed and confirmed. 

Air Force eliminated the Acquisition Principal Deputy position, 

restructured the contracting and program management decision 

authority, and realigned its Program Executive Officer (PEO) structure. 

Air Force also updated the Air Force regulations. The Secretary of the 

Air Force appointed a Special Assistant for Governance and

Transparency.

5 Provide many avenues for voicing 

concerns (Ombudsman and ethics

offices set up to address concerns) 

The Acquisition Process Review Working Group is reviewing the 

military departments’ oversight initiative. 

AT&L is gathering best practices from the Defense Acquisition 

University (DAU) and other sources. 

Air Force incorporated new Ombudsman program in August 2005.

6 AT&L should oversee processes as

well as programs

Defense Acquisition Performance Assessment (DAPA) study and 

Acquisition Process Review study in AT&L. DAPA report was released 

January 2006. 

Acquisition Process Review Working Group met with SAEs and outlined 

plan of action March 2006. 

7 Identify and share best practices In fall 2004, AT&L fielded the Defense Acquisition Guidebook, which 

contains repository of best practices. 

Best Practice Clearing House effort is in progress. 

8 Question unusual practices and 

organizational structures

DAU is incorporating the policy and identified Best Practices in 

Acquisition Oversight into the content of Acquisition Executive Courses. 

Air Force eliminated the Acquisition Principal Deputy position, 

restructured the contracting and program management decision 

authority, and realigned its PEO structure. Air Force also updated its

regulations. The Secretary of the Air Force appointed a Special 

Assistant for Governance and Transparency. 

AT&L issued a memorandum, "Question Unusual Practices," in October 

2005. 

Page 22 GAO-06-838R DOD Contracting 
Appendix III: Status of DOD Actions in Response to March 2005 Defense Science Board 

Recommendations 

# Recommendation Action/status

9 Use mistakes and failures as case 

studies and communicate them 

broadly 

DAU plans to incorporate case studies based on mistakes and failures

in senior-level courses and is reviewing level III courses in all functional 

areas for the appropriate use of similar case studies. 

AT&L developed ethics on-line training for the Acquisition Professional 

Community (APC). All APC staff were required to complete training by 

October 2005 (over 124,000 took the training as of December 2005). 

10 Require defense components to 

perform periodic self-assessments

and demonstrate continuous selfimprovement 

AT&L developed 360-degree assessments for key leaders. Pilot 

program was launched in October 2005. 

11 Develop and periodically review 

metrics roll-up on senior acquisition 

leaders

Plan to submit proposed metrics in October 2005 was delayed due to 

request for "framing" paper to send to Deputy Secretary for decision. 

12 DOD should articulate more explicitly 

its vision and values as a highintegrity organization and expect the 

same of its contractors

Issued memorandum, “Ethics and Integrity,” signed by Secretary of 

Defense in September 2005. AT&L memorandum, “Acquisition Integrity 

and Ethics,” issued in September 2005. 

13 DOD should put ethics at the 

forefront of Department 

communications

Issued memorandums, “Ethics and Integrity” and “Growth and 

Development,” signed by Secretary of Defense September 2005. 

14 Institutionalize an orientation program 

in Office of Secretary of Defense 

(OSD) for incoming senior leadership 

that addresses: 

• values/objectives of DOD, 

• importance of leadership to sustain 

an ethical culture, and 

• performance expectation tied to 

both of the above

AT&L sent unsigned letter to P&R requesting OSD Orientation Program 

for Senior Leaders July 2005. AT&L and P&R met December 2005 to 

discuss. Washington Headquarters Services is now the lead on an 

orientation program. 

OSD Director of Administration and Management (ODA&M) is

coordinating with DAU to provide quarterly leadership orientation 

program to address the Defense Science Board recommended 

objectives. Course material developed March 2006. 

15 Senior DOD leadership should

ensure flow-down 

AT&L and Secretary of Defense issued memorandums to articulate 

promotion of ethical behavior, encourage prudent risk taking, and 

distinguish it from illegal and unethical behaviors in September 2005. 

AT&L issued memorandum on ethics to top 100 companies and trade

associations in January 2006. AT&L issued memorandum addressing 

tanker and leasing issues in March 2006. 

16 Secretary of Defense should place 

priority on filling appointed acquisition 

positions: 

• champion reforms to streamline 

nomination and confirmation 

processes, 

• institute a succession planning

process, and

• avoid more restrictions that would 

limit interest by experienced

personnel 

This effort requires coordination at the very highest levels (i.e., 

Secretary of Defense, President, Senate) across multiple branches of 

government. 

DOD supports the efforts of the administration to correct these findings. 

DAPA study recommended that the Secretary of Defense ask the White 

House Liaison Office to create a pool of White House precleared, noncareer senior executives and political appointees to fill executive 

positions in acquisition. 

17 P&R modernize Senior Executive 

Service performance management 

practices: 

• institute 360-degree feedback,

• implement 5-year DOD-wide 

rotation policy, and 

• reissue bonus and new award 

system 

AT&L 360-degree pilot program is serving as a pilot for the 

departmentwide initiative. 

AT&L memorandum on rotation and tenure is in process. P&R 

discouraged changes to tenure/rotation policy in light of the need for 

balance between accountability/retention and "too much authority" 

concern. 

Addressed by DAU actions in response to number 10 above. 

Page 23 GAO-06-838R DOD Contracting 
Appendix III: Status of DOD Actions in Response to March 2005 Defense Science Board 

Recommendations 

# Recommendation Action/status

18 Standards of Conduct—add 

disclosure requirement for 

employment of majority children 

AT&L is developing memorandum, "What you do sends a message

about your ethics." 

19 DOD should undertake a top-town 

internal assessment to simplify and 

streamline the acquisition system and 

better align workforce as a result 

DAPA report was issued in December 2005. 

20 AT&L should closely monitor the new 

defense component services

acquisition oversight processes, 

especially in confirming that these 

contracts represent the best use of 

DOD resources

AT&L Acquisition of Services Policy Review is in progress.

Source: DOD (data); GAO (analysis and presentation). 

Page 24 GAO-06-838R DOD Contracting 
Appendix IV: Comments from the Department of Defense 

(120518)

Page 25 GAO-06-838R DOD Contracting 
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