GAO

United States General Accounting Office

Report to the Chairman, Subcommittee

on Military Readiness, Committee on

Armed Services, House of

Representatives

July 2000 DEFENSE

MANAGEMENT

Electronic Commerce

Implementation

Strategy Can Be

Improved

GAO/NSIAD-00-108

Page 1 GAO/NSIAD-00-108 Defense Management

Contents

Letter 3

Appendixes Appendix I: Objectives, Scope, and Methodology 28

Appendix II: Selected Electronic Commerce Initiatives 30

Appendix III: DOD Electronic Business Strategic Goals, Objectives,

and Strategies 57

Appendix IV: Comments From the Department of Defense 60

Appendix V: GAO Contact and Staff Acknowledgments 64

Related GAO Products 65

Tables Table 1: Status of Selected Electronic Commerce Initiatives 20

Table 2: Percent of Contracting Transactions Completed

Electronically, as of December 1999 45

Table 3: Purchase Card Transactions by DOD Component

(fiscal year 1999 totals) 48

Table 4: Electronic Business Goals, Objectives, and Strategies 57

Figures Figure 1: Organizations Involved in Electronic

Commerce 7

Abbreviations

DOD Department of Defense

DLA Defense Logistics Agency
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-283283 Letr

July 18, 2000

The Honorable Herbert H. Bateman

Chairman, Subcommittee on Military Readiness

Committee on Armed Services

House of Representatives

Dear Mr. Chairman:

The Department of Defense’s (DOD) Joint Electronic Commerce Program

is an outgrowth of the Defense Reform Initiative.1 Established in May 1998,

the program is intended to increase the use of electronic business practices

that are common in private sector companies, practices such as using the

Internet and commercially available computer software to conduct

business. Through this program, the Department expects that all of its

business functions—from acquisitions to health care—will be able to

reduce operating costs and streamline business processes. In doing this,

the Department hopes to free up funds for weapon systems modernization

as well as to improve operations. Since the Defense Reform Initiative was

announced, the Department has begun laying the groundwork for moving

to electronically based business practices. During 1999, it unveiled its first

electronic business/electronic commerce strategic plan. At its core, the

plan attempts to express a vision in which technologies are used not to

simply automate existing processes but to also help fundamentally change

the way the Department does business. Besides developing this plan, the

Department already has a number of electronic commerce initiatives under

way, many of which predate the Defense Reform Initiative and the

electronic commerce program.

At your request, we have periodically monitored and reported on the

Department’s overall progress in implementing the Defense Reform

Initiative. This is the first report to focus on the electronic commerce

program alone. Specifically, it addresses (1) issues the Department needs

to resolve to successfully implement its vision for electronic commerce and

1 The Defense Reform Initiative was established in November 1997 to increase funding for

weapon system modernization programs by reducing infrastructure costs and streamlining

business processes.
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(2) the implementation status and performance measures associated with

key electronic commerce initiatives.

Results in Brief The Department of Defense faces several implementation issues that, if not

resolved, could adversely effect the success of its electronic commerce

program. The Department has not yet (1) completed a detailed plan to

implement its strategic vision, (2) developed an electronic commerce

architecture,2 (3) determined how to best manage the electronic commerce

program, and (4) fully implemented key security measures that are needed

for electronic commerce. The officials responsible for developing a

Department-wide implementation plan have not been able to draft a plan

that is acceptable to the Department’s military services and agencies. A

Department-wide plan has thus been put on hold, and the Department’s

components are developing individual plans; without an overarching,

Department-wide plan to guide the military service and Defense agency

efforts, the individual plans that result may not be consistent with program

goals. In addition, the Department has made little progress in developing a

common electronic commerce architecture, which is needed to provide a

framework to integrate the individual parts or systems. Consequently,

Department components may develop separate architectures, which may

lead to systems and capabilities that are redundant or unable to share

information. The Department established an electronic commerce program

office, but its authority is unclear and its chain of command is

cumbersome; as a result, the office has been hampered in carrying out its

program planning and implementation responsibilities. The Department is

taking steps to improve the program office’s effectiveness, but these steps

may not be sufficient. Finally, the Department’s ability to transact business

electronically, particularly over the Internet, will not be as secure as

desired until it completes ongoing work necessary to better protect and

authenticate electronic transactions and data.

The Department is implementing a number of specific, electronic businessrelated initiatives that it believes will help modernize selected business

2 Architecture development is a primary means of integrating business areas or processes

across an organization in a cost-effective manner. Architectures align information system

requirements with the business areas and processes that they support and promote systems

that readily exchange and share information. A system architecture defines the critical

attributes of an agency’s collection of information systems in both business/functional and

technical/physical terms.
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processes. These initiatives, which are at various stages of implementation,

include (1) expanding the use of purchase cards to streamline aspects of

the procurement process, (2) establishing an electronic mall as a source of

supplies for DOD customers, and (3) making aspects of the contracting

process paper-free. Many of these initiatives began several years ago, and

they predate the Defense Reform Initiative and the electronic commerce

program. While the initiatives may improve aspects of the Department’s

business processes, it is not yet clear if and how they will fit into its

electronic commerce architecture and support its strategic vision.

Moreover, because the initiatives are assessed largely through output,

rather than outcome, performance measures, their potential to improve the

Department’s existing business processes is unclear.

We are recommending that the Department of Defense place a high priority

on completing an electronic commerce implementation plan; finishing an

electronic commerce architecture; establishing clearer lines of program

management responsibility, authority, and accountability; and ensuring that

all new electronic commerce initiatives support the Department’s strategic

goals and have meaningful performance measures. In commenting on a

draft of this report, the Department concurred with our findings and

recommendations.

Background The emphasis on adopting commercial best practices and electronic

commerce capabilities has its roots in the Federal Acquisition Streamlining

Act of 1994 and the Clinger-Cohen Act of 1996, which called for business

improvements and singled out technology as a vehicle for making the

needed improvements. In November 1997, when DOD announced the

Defense Reform Initiative, the notion of electronic business was given

additional emphasis. The Defense Reform Initiative called for the

Department to revolutionize its business operations by adopting best

business practices, particularly those that promote electronic business

operations. In May 1998, to move ahead on the reform effort, the Deputy

Secretary of Defense established a Joint Electronic Commerce Program to

accelerate the use of electronic business practices and associated

information technologies to improve Defense operations.3

3 This direction was in the form of Defense Reform Initiative Directive Number 43, titled

Defense-wide Electronic Commerce. Defense Reform Initiative Directives are memoranda

signed by the Deputy Secretary of Defense that assign responsibility, identify specific

actions, and set milestones for implementing aspects of the Defense Reform Initiative.
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Besides establishing a Joint Electronic Commerce Program, the Deputy

Secretary assigned Department-wide policy and oversight responsibilities

for the program to the Department’s Chief Information Officer. Centralizing

policy and oversight responsibilities for the electronic commerce program

under the Chief Information Officer complements his role of overseeing

information technology policy throughout the Department. The Deputy

Secretary also established the Joint Electronic Commerce Program Office

and designated it as the executive agent for supporting, facilitating, and

accelerating the use of electronic commerce throughout the Department.

The program office reports to the Deputy Secretary of Defense through the

Chief Information Officer. However, the program office receives its funding

and personnel through the Defense Information Systems Agency and the

Defense Logistics Agency (DLA). This arrangement reflects the Defense

Reform Initiative’s goal to streamline headquarters organizations by not

creating new organizations under the Office of the Secretary of Defense.

Together, the Chief Information Officer and the joint program office are

responsible for ensuring that DOD’s electronic commerce program meets

the requirements of the Clinger-Cohen Act. This act provides a framework

for making information technology decisions to help ensure that initiatives

(1) are implemented at acceptable costs and within reasonable time frames

and (2) contribute to improvements in mission performance.

In addition to the Chief Information Officer and the Joint Electronic

Commerce Program Office, other DOD organizations have a direct role in

implementing the Department’s electronic commerce program. The

military services have established electronic business/electronic commerce

offices to oversee implementation in their respective service. Also, DOD

established the Electronic Business/Electronic Commerce Panel to provide

a DOD-wide forum for sharing information and addressing problems

important to all stakeholders involved in implementing electronic

commerce operations. This panel is comprised of representatives of

numerous principal staff assistants to the Secretary of Defense,4 the

military services, the larger Defense agencies, and the Joint Staff. Figure 1

depicts these relationships.

4 The principal staff assistants represent the Secretary of Defense. They have responsibility

for specific DOD business areas. The business areas include procurement, logistics,

financial management, medical, and personnel. For example, the Under Secretary of

Defense (Acquisition, Technology, and Logistics) is the principal staff assistant for the

procurement and logistics business areas/processes. The Under Secretary of Defense

(Comptroller) is the principal staff assistant for the financial management business area.
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Figure 1: Organizations Involved in Electronic Commerce

Source: Our analysis of DOD data.

In March 1999, after establishing the Joint Electronic Commerce Program

Office, DOD issued overall policy guidance for the program. The policy

guidance identified (1) a strategic plan, (2) an overarching implementation

plan, and (3) an overarching electronic commerce architecture as essential

elements of the program. Together, these elements form the road map the

Department believes is needed to achieve its electronic commerce goals.

In May 1999, the Department issued an Electronic Business/Electronic

Commerce Strategic Plan that identifies the goals, objectives, and

strategies DOD will pursue over the next 10 years to achieve an electronic

business operations environment. (As used in this report, the term

electronic commerce is synonymous with electronic business.) As called

for by the Defense Reform Initiative, the plan broadened the scope of
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electronic commerce to include all of DOD’s business processes, not just

the buying and selling activities traditionally associated with electronic

commerce. The plan includes 41 strategies aimed at achieving broad goals

such as improving productivity and promoting cultural changes in the

Department; the goals are to be achieved through the 41 strategies that call

for actions such as establishing training programs, partnering with

industry, and basing new electronic commerce applications on commercial

standards and practices. In addition, the plan embodies the principles of

the Government Performance and Results Act of 1993 in that it establishes

strategic goals for the Department, points out the need for the military

services and Defense agencies to link their strategic goals and objectives to

the Department’s, and encourages the use of outcome-oriented

performance measures to track progress.5 See appendix III for a complete

list of DOD’s electronic commerce goals, objectives, and strategies.

Key Implementation

Issues Must Be

Addressed

Although a strategic plan is in place, other key implementation issues have

not been addressed. Efforts to develop a Department-wide implementation

plan have ceased, and work on an electronic commerce systems

architecture is lagging. In addition, organizational issues affecting the Joint

Electronic Commerce Program Office’s ability to manage a DOD-wide

program have not been resolved. Finally, efforts to strengthen and improve

departmental capabilities to safeguard and verify the authenticity of

electronically based data and transactions are under way, but these

capabilities are not likely to be in place for several years. If these issues are

not addressed, the military services and Defense agencies may proceed

with efforts that do not support DOD’s overall electronic commerce goals

and that put the Department at risk of developing systems and capabilities

that are inadequate, redundant, or not interoperable with other systems

and processes.

5 The Results Act requires federal agencies to set strategic goals, measure performance, and

report on the degree to which goals are met. Its intent is to focus agencies on results, service

delivery, and program outcomes. It is expected to provide the Congress and other

decisionmakers with objective information on the relative effectiveness and efficiency of

federal programs.
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Efforts to Develop A

Department-wide

Implementation Plan Have

Been Abandoned

DOD has abandoned efforts to develop an implementation plan primarily

because the Chief Information Officer and the Joint Electronic Commerce

Program Office were unable to reach agreement with the military services

and Defense agencies on the scope and content of an overarching

implementation plan. The implementation plan is key to guiding all of DOD

in meeting the goals, objectives, and strategies included in its strategic

plan. Without the plan, DOD has no assurance that the military services and

Defense agencies will proceed with their individual electronic commerce

programs in a manner that is consistent with the goals and objectives of the

strategic plan.

After the strategic plan was issued in May 1999, the joint program office

prepared two draft implementation plans that the military services and

Defense agencies reviewed. Military service officials and others were not

satisfied with the drafts, primarily because they believed the draft plans

were narrowly focused on the joint program office’s responsibilities and

projects. The draft plans did not, in their view, (1) describe how the 41

strategies in DOD’s strategic plan would be implemented,6 (2) identify who

would be responsible for implementing the strategies, (3) describe how

progress would be assessed, or (4) address the amounts and sources of

funding that would be needed. Military service officials said they needed

this information to develop supporting implementation strategies and

plans. For example, 1 of the 41 strategies called for DOD to consolidate its

electronic commerce requirements to increase the private sector’s

participation in the Department’s electronic commerce program. Another

strategy called for DOD to incorporate electronic commerce requirements

into its planning and budgeting processes. The draft implementation plans

did not describe how these strategies would be implemented; consequently,

accountability and milestones for accomplishing them were not

established. The Army commented that “the plan does not seek to

incorporate the respective service and component implementation plans

and, accordingly, may be missing an opportunity to provide a true joint

picture of what is planned within the Department.” The Air Force

commented that the military services were being asked to “implement the

Joint Electronic Commerce Program Office’s vision without additional

funding and manpower.” The Navy commented that the plan “does not

provide clear guidance...[on] what each of the components need to do to

6 The strategic plan sets out three overall goals for the Department. These goals are

supported by 10 objectives, which are supported by 41 subobjectives or strategies. These

goals, objectives, and strategies are listed in appendix III.
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support the overall DOD implementation plan.” We reviewed the initial

draft plan and discussed the unresolved issues surrounding both draft

plans with the program office and the military services; our observations

are similar to those of the military services.

Representatives of the DOD Chief Information Office and the Joint

Electronic Commerce Program Office attempted to address these

concerns. However, the concerns persisted among the military services

and, in a February 2000 Electronic Business/Electronic Commerce Panel

meeting, the panel’s participants decided to abandon efforts to develop a

DOD-wide plan. Instead, the joint program office, the military services, and

three of the larger Defense agencies7 will issue separate plans. According to

representatives from the Chief Information Office, aspects of the separate

plans may be merged into a DOD-wide plan at some point in the future.

However, no specific approach or date for doing this has been established.

In the meantime, the military services and Defense agencies have

proceeded with their respective electronic commerce efforts without an

overarching implementation plan to guide these efforts. For example, in

October 1999, the Army issued its Electronic Business/Electronic

Commerce Implementation Plan. This plan was tied to its March 1998 Army

Strategic Plan for Electronic Commerce. It made no mention of DOD’s

strategic plan or the DOD-wide goals and objectives included in the DOD

plan. Likewise, the Air Force issued its implementation plan in February

2000. The Air Force implementation plan does make reference to DOD’s

strategic plan and its guiding principles and goals. However, its

implementation plan is tied to the requirements of its Global Combat

Support System, which is a concept that provides for the development,

integration, and deployment of agile combat support information systems.

While the services’ plans may support and advance electronic business

operations in their areas, they are not linked to a Department-wide plan

and, therefore, may not support DOD’s overall electronic commerce goals

and objectives.

Development of an

Architecture Is Lagging

Although the Department is making efforts to develop an electronic

commerce architecture (i.e., an information systems blueprint), little

progress has been made. An architecture is needed to integrate business

7 These agencies are the Defense Finance and Accounting Service, the Defense Logistics

Agency, and the Defense Information Systems Agency.
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processes and information systems across the military services and

Defense agencies. Without an architecture, the Department runs the risk of

having the services and Defense agencies develop and implement

initiatives that are redundant, do not readily share information, and do not

maximize the Department’s investments in information technology.

In general, architecture development begins by analyzing the functional

requirements of each business area—such as acquisition, financial

management, and logistics—and identifying improved business processes

and underlying systems that will be used to satisfy the requirements. Next,

the analysis identifies the information that must be shared among the

modernized processes and systems to ensure that they can readily

exchange this information.

Our work at other agencies, such as the Customs Service and the Internal

Revenue Service, has illustrated the criticality of an agencywide

architecture in helping to reduce systems development risk and minimizing

investment costs.8 Our work showed that, consistent with best business

practices, architectures for these agencies are essential for identifying

relationships among business processes and systems. These agencies ran

into difficulties that delayed their modernization efforts, in part, because

they did not develop an overarching architecture to help move them toward

their strategic goals.

The joint program office—which has been assigned the responsibility for

developing an electronic commerce architecture—has taken several steps

to begin the effort. In August 1999, it briefed and received approval from

the DOD Architecture Coordination Council9 on how it planned to proceed

with development. In November 1999, it held a DOD-wide “town hall”

meeting to discuss the need for an electronic commerce architecture and to

8 See Tax Systems Modernization: Blueprint Is a Good Start But Not Yet Sufficiently

Complete to Build or Acquire Systems (GAO/AIMD/GGD-98-54, Feb. 24, 1998) and Customs

Service Modernization: Architecture Must Be Complete and Enforced to Effectively Build

and Maintain Systems (GAO/AIMD-98-70, May 5, 1998).

9 The Architecture Coordination Council provides strategic direction on architecture issues.

It oversees DOD-wide application of the Command, Control, Communications, Computers,

Intelligence, Surveillance, and Reconnaissance Architecture Framework and, in that

capacity, reviews and approves major integrated architecture development plans for the

Department. The Council is chaired by the Under Secretary of Defense (Acquisition,

Technology, and Logistics); the Assistant Secretary of Defense (Command, Communication,

Computers, and Intelligence); and the Director, Command, Control, Communications, and

Computer Systems, Joint Chiefs of Staff.
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present an approach for analyzing the various business areas. At that

meeting, the program office did two things: (1) it showcased or modeled

the analysis the procurement community had completed to develop

procurement architecture requirements and (2) it emphasized the need for

other DOD components to follow DOD’s prescribed framework for

developing architecture requirements.10 DOD principal staff assistants are

integral to the program office’s architecture development approach; these

officials are expected to take the lead in analyzing their respective business

areas and defining their architecture requirements.

Despite the efforts made thus far, much work remains to be done to

develop an electronic commerce architecture. Altogether, Department

officials estimate that the number of business areas that need to be

analyzed range from as few as 8 to as many as 21.11 However, only one

business area—procurement—has identified architecture requirements,

and an analysis of this business area actually began before DOD called for

an electronic commerce architecture. In December 1998, the Deputy

Secretary called for a complete analysis of the procurement process;12 this

analysis was part of a broader effort to improve DOD contract

administration and related financial management processes across the

Department. The analysis was completed in about 15 months and involved

nearly 200 participants. It describes how DOD expects to support and

process procurement actions in the future. It was clear from our

discussions with representatives of the Joint Electronic Commerce

10 The requirements are documented in DOD’s Command, Control, Communications,

Computers, Intelligence, Surveillance, and Reconnaissance Architecture Framework. This

framework prescribes how DOD architectures are to be developed. The framework, first

published in 1996, provides a common approach for the commanders in chief, the military

services, and the Defense agencies to follow in developing their architectures. The

framework is intended to facilitate, improve, and ensure compatibility, interoperability, and

integration among command, control, communications, computers, intelligence,

surveillance, and reconnaissance capabilities.

11 As of late January 2000, the Department had not determined the number and scope of the

business areas that need to be analyzed to develop an electronic commerce architecture. At

that time, staff assigned to the Chief Information Officer and the Joint Electronic Commerce

Program Office had identified over 10 areas that could potentially encompass the

Department’s business processes. These areas include procurement; life-cycle support;

health affairs; military personnel; civilian personnel; financial management; programming,

planning, and budgeting; nuclear, biological, and chemical programs; inspections and audits;

and legal.

12 The Deputy Secretary decision was formalized in Defense Reform Initiative Directive

Number 47, titled End-to-End Procurement Process.
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Program Office that the Deputy Secretary’s direction played an important

role in getting the analysis completed in a timely manner. Only a few other

business areas, such as transportation, have some architecture

development efforts under way, but these efforts are not complete.

DOD officials representing the Chief Information Officer and the joint

program office estimate the initial architecture development effort might

take 3 to 5 years to complete if all principal staff assistants work diligently

toward developing architecture requirements for their respective business

areas.13 However, DOD components have not fully embraced the

architecture development approach being put forth by the joint program

office. They have been concerned about the amount of time and funding

that might be required, the utility of an architecture, and the role other

DOD organizations were to play in architecture development. In February

2000, representatives of the Chief Information Officer met with the

principal staff assistants for major functional areas, such as acquisition,

logistics, and financial management, to address their concerns and to

determine how to move ahead on developing an electronic commerce

architecture.

In the meantime, the military services are addressing architecture

development within their respective services. For example, the Air Force is

tying its electronic commerce initiatives to its Global Combat Support

System.14 Army officials we spoke with stated that the Army has its own

electronic commerce architecture and questioned the value of a DOD-wide

electronic commerce architecture. Consequently, these separate

approaches may not support the Department’s electronic commerce

strategic objectives, such as achieving systems interoperability across the

Department and streamlining its processes before implementing electronic

commerce technologies.

13 Most of the critical work is expected to be done over a 3- to 5- year period, but changing

requirements, new technologies, and improved business practices will cause the initial

architecture to continually evolve.

14 According to the Air Force’s Electronic Business/Electronic Commerce Implementation

Plan, the concept of a Global Combat Support System supports the Air Force’s goal of

providing its warfighters a real-time integrated view of the entire spectrum of combat

support. As envisioned, it relies on technology to bring business processes and information

into the integrated view.
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Problems Surrounding the

Joint Program Office Hinder

Program Implementation

DOD may have difficulty effectively implementing its electronic business

goals because of the way its joint program office has been set up. The office

is organizationally situated to receive its funding and personnel through

two Defense agencies—the Defense Logistics Agency and the Defense

Information Systems Agency. Consequently, it has had to report through

these agencies’ chains of command as well as to the Chief Information

Officer, creating a number of problems. For example, the organizational

setup has diluted the Chief Information Officer’s authority over the joint

office, thereby hampering his ability to guide the Department’s overall

efforts. Memoranda and decisions have often been passed up the Defense

Logistics Agency and Defense Information Systems Agency chains of

command before being forwarded to the Chief Information Officer, slowing

communications. At other times, the Chief Information Officer has been

left out of communications altogether. For example, in conjunction with

the Defense Logistics Agency, the joint program office prepared a

memorandum to be sent to the Director of the Defense Reform Office. The

memorandum addressed issues involving the Department’s Electronic Mall.

When we discussed this memorandum with representatives of the Chief

Information Officer, we found they had not been involved with the decision

to prepare the memorandum although they have oversight responsibilities

for initiatives such as the Electronic Mall. In addition, ambiguities over who

is in charge have created day-to-day management issues that have impeded

the joint office’s effectiveness. For example, the Defense Information

Systems Agency has withheld about $4.4 million of the joint office’s fiscal

year 2000 funds because the Agency’s officials have viewed those funds as

the Agency’s first and the program office’s second, giving the Agency the

discretion to use the funds for other priorities. According to program office

officials, this withholding of funds has created shortfalls that could require

the office to delay progress on certain projects.

The joint office’s affiliation with the two Defense agencies has raised

doubts about the office’s independence and even its long-term viability.

Officials assigned to the Defense Reform Office and the Chief Information

Officer expressed concern that the office may already be too closely

affiliated with the agencies’ specialized missions and agendas. Specifically,

they told us that the close alignment with the Defense Logistics Agency

could result in the joint office being perceived as having more of an

acquisition and inventory management orientation that mirrors the

Logistics Agency’s mission. If so, this could impede DOD’s goal of

expanding electronic commerce across other business areas. If other DOD

organizations view the program office in this manner, the office may not

have enough influence to negotiate the diverse interests of the military
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services and Defense agencies. Also, the joint office’s reliance on other

organizations for its resources has led some DOD officials to question

whether the office will continue to exist in the long term; they reason that

the program office’s staff and funds could be easily folded into the Defense

Logistics Agency and the Defense Information Systems Agency.

The Department is taking steps to address weaknesses associated with the

joint office’s organizational structure and alignment. In a March 2000

decision memorandum, the Deputy Secretary of Defense directed that

(1) an electronic commerce board of directors be established to provide

direction and to coordinate activities across the Department and (2) the

joint office director’s position be funded by the Defense Logistics Agency,

rather than the Defense Information Systems Agency. The memorandum,

however, did not specify who is to serve on the board of directors or how it

is to function; instead, it directed the Chief Information Officer to develop a

charter for the board, which will provide these details. Also, the

memorandum did not change the way the joint office is staffed or funded.

Consequently, it is not clear what impact these actions will have.

Efforts to Better Protect

Electronic Data and

Transactions Are Not

Complete

The Department’s electronic commerce goals cannot be fully realized

unless it improves its ability to safeguard and verify the authenticity of

electronic data and transactions. DOD has launched many initiatives to

improve security over its information, but one effort—the Public Key

Infrastructure15 Program—is seen as crucial because it will provide

important safeguards. Although this effort is under way, it will be several

years before it is fully implemented.

Officials representing the Chief Information Officer and the Defense

Information Assurance Program Office readily acknowledge that the

Department’s systems and networks are more vulnerable than the

Department would like. DOD did not dispute the findings of our August

1999 report that said serious weaknesses in DOD information security

continue to provide hackers and hundreds of thousands of authorized users

the opportunity to modify, steal, inappropriately disclose, and destroy

15 The Public Key Infrastructure Program revolves around establishing a Department-wide

system for managing special types of encryption “keys,” which allow personnel to digitally

sign and encrypt documents and data.
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sensitive DOD data.16 The report made a number of recommendations to

strengthen the Department’s security oversight program. In its response to

the findings, DOD stated that it was working to correct the deficiencies

cited in the report and was making progress in reducing the risks to its

information systems. Moreover, in its March 1999 update of the Defense

Reform Initiative report, the Department recognizes that its increasing

reliance on interconnected networks of computers puts it at increased risk

of having data stolen or of being adversely affected by attacks. According

to the updated report, DOD’s shift toward the electronic environment it

envisions only amplifies these risks and further underscores the need for

better information security.

DOD officials responsible for information security consider the Public Key

Infrastructure Program essential for allowing the Department to achieve its

electronic commerce goals. It is key to improving security because it will

allow DOD to ensure that (1) the data contained in electronic transactions

and messages have not been tampered with, (2) systems users can confirm

who is on the other end of an electronic transaction, (3) the parties

involved in a transaction cannot later deny they participated in the

transaction, and (4) the transaction or message data cannot be accessed

and read without proper authorization. The program will achieve these

assurances by giving DOD personnel digital signature and encryption

capabilities. These capabilities are needed, for example, to carry out

paperless contracting, which cannot become truly paperless until contracts

can be signed digitally and those signatures can be verified, stored, and

recreated for the life span of the documents, which can be up to 30 years

for weapon system acquisitions. Similarly, DOD’s ability to transact

business over the Internet may suffer if personnel are not ensured that

confidential information, such as a vendor’s bank account number, will stay

confidential.

The Public Key Infrastructure Program, however, is not a simple

undertaking for the Department. The “infrastructure” in the program’s title

refers to the policies, procedures, systems, facilities, and organizations that

need to be involved in issuing, managing, and revoking digital “certificates,”

which vouch for a user’s identity and contain the keys that are used to

digitally sign and encrypt documents and data. Although the technology

supporting the planned public key infrastructure is being piloted by many

16 DOD Information Security: Serious Weaknesses Continue to Place Defense Operations at

Risk (GAO/AIMD-99-107, Aug. 26, 1999).
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federal agencies, including DOD, it is still not mature. Technical issues,

including problems with scalability, interoperability, and ease-of-use, have

not been fully resolved. Moreover, for the infrastructure to work properly,

DOD will have to confirm the identity of each user, mass distribute the socalled “tokens” that will carry the mathematical keys, make sure

personnel’s computer workstations have the necessary hardware to accept

the tokens, and ensure that DOD software and systems can accept and

process the information on the tokens. The details associated with all of

these tasks are still being worked out.

Consequently, it is not clear when the digital signature and encryption

capabilities will be fully in place. The Deputy Secretary of Defense

originally called for completing this task by October 1, 2001, and for more

secure versions of these capabilities to be phased in beginning in January

2002. DOD is revising these timetables, however. Public Key Infrastructure

Program officials said the program is making progress, but new

requirements are expected to create some delays. In November 1999, the

Department decided to issue smart cards, which are credit card-sized cards

with a computer chip, as the token that will carry an individual’s digital

signature and provide encryption capabilities. Setting up an infrastructure

to issue and control the cards will take some time. (See app. II for more

information about smart cards and how they support DOD’s public key

infrastructure effort.)

In addition to addressing these issues, the Department must also make a

substantial up-front investment to establish a public key infrastructure.

However, the infrastructure’s full cost is not yet clear. Although DOD has

projected that it will spend about $700 million from fiscal years 2001-2005,

several costs still need to be determined. For example, DOD is still

assessing what needs to be done to enable its systems and software to

accommodate the digital signature and encryption capabilities. Similarly,

the Department is also assessing how much it will cost to use smart cards

as part of its public key infrastructure efforts.

Progress on Individual

Initiatives Varies, and

Benefits Are Uncertain

Notwithstanding the implementation issues discussed, the Department has

a number of specific electronic commerce initiatives under way. Most of

the initiatives have not been fully implemented, and the extent to which

they will provide their expected benefits is uncertain. The current

initiatives cover aspects of several DOD business processes—primarily

acquisition, logistics, and financial management. In general, they are

directed at reducing operating costs and improving responsiveness to DOD
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personnel, contractors, and vendors. For example, the Business

Opportunities web site supports the acquisition process. It is accessible via

the Internet and identifies solicitations issued by acquisition organizations

throughout the Department. The Defense Travel System is intended to

improve aspects of financial management by streamlining travel

administration and payment procedures and by relying more on the private

sector to help travelers make travel arrangements. The DOD Electronic

Mall is intended to streamline aspects of acquisition and logistics by

allowing buyers to search for and compare products available from both

DOD supply organizations and commercial vendors.

Table 1 identifies the status and nature of the key initiatives (a more

detailed discussion of each one appears in app. II). The initiatives are in

various stages of implementation; consequently, progress is mixed. Some—

such as the Business Opportunities site, the Central Contractor

Registration System, and the Purchase Card Program—have been

successfully implemented. Several, such as the paperless contracting

initiative, are still under development. Some, such as the Electronic Mall

and the Defense Travel System, are experiencing technical and other

problems. For example, substantial progress has been made on paperless

contracting (an initiative that was expected to make all aspects of major

weapon system contracting paperless by January 1, 2000), but new

standard bill paying and procurement systems that are needed to fully

implement this initiative will not be available until 2002 and 2003,

respectively. In addition, technical issues, such as developing an electronic

signature capability, are still being resolved. Similar issues have delayed

progress on DOD’s initiative to reengineer its travel management system.

This initiative, which is to significantly improve DOD’s process for

requesting, approving, and paying for employee travel, may not be fully

deployed until 2003—about 2 years later than expected. Some of the

problems encountered include insufficient internal controls (such as

allowing travel payments to be made without first obligating funds to cover

the cost of the travel) and interfaces between the travel system and

financial systems that do not work as designed.

The benefits that may be realized from some of these initiatives are

uncertain because many have not been fully implemented. Also, the current

performance measures have limitations. As shown by table 1, the

Department is assessing most initiatives through output measures, which

provide status information (such as completing an action in a specified

time frame), rather than outcome measures, which show results or

outcomes in terms of effectiveness, cost reduction, and/or impact. In our
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previous work on the Defense Reform Initiative, we pointed out that the

Department had opportunities to add to or improve existing performance

measures.17 These opportunities continue to exist. For example, paperless

contracting is supposed to help the Department acquire and pay for goods

in a more efficient manner. Yet, no outcome-oriented measures, such as

cost reductions or improvements in contract administration time, exist to

show how paperless contracting is contributing to this goal. Without this

kind of outcome-oriented data, DOD cannot clearly determine if the

initiative is successful in achieving its goals. Likewise, the Department

wants to reduce supply inventories and points to the prime vendor program

as one of the methods being used to accomplish this goal, but the

performance measures being used for the prime vendor program do not

show how this method contributes to this goal. DOD officials recognize the

value of having outcome-oriented measures and told us the Department has

efforts under way to improve the measures used to gauge the progress of

its reform initiatives.

17 Defense Infrastructure: Improved Performance Measures Would Enhance Defense Reform

Initiative (GAO/NSIAD-99-169, Aug. 4, 1999).
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Table 1: Status of Selected Electronic Commerce Initiatives

Initiative Goal/milestone Business area Status Performance measures

Central Contractor

Registration

System

Provide a central

registration system and

database of vendors who

conduct business with DOD.

Vendors must register to

receive contract awards and

payments.

Acquisition and

financial

management

System has been

implemented.

DOD uses two measures to track

the Central Contractor Registration

System’s performance—the

number of registrants (which is an

output measure) and the amount of

time needed to process a

registration (which is an outcome

measure).

Defense Travel

System

By October 2000,

implement a reengineered

travel system for official

DOD travel. Begin initial

implementation in April

1998.

Financial

management

Defense Travel System

implementation has been

delayed. As of April 2000,

it had not been

implemented at any

location. The system

encountered problems

during testing that have

not been resolved. Initial

implementation will be

delayed at least 2 years.

Performance measures have not

been established. As planned,

performance will be measured

against 28 cost elements that were

used in the Defense Travel

System’s economic analysis. DOD

plans to collect data at preselected

sites prior to and after

implementation so that it can

compare expected costs against

actual costs.

DOD Business

Opportunities

Provide a single web site

and search capability for

vendors to locate and

access DOD solicitations.

Through the web site,

vendors can link to the

appropriate military service

or agency and make offers

on specific solicitations.

Acquisition System has been

implemented.

DOD uses several output oriented

measures to track the Business

Opportunities performance. These

include the number of hits daily,

average length of time users spend

at the site, and peak usage hours.

DOD Electronic

Mall

Expand the use of a DOD

electronic mall. By July

1998, allow for on-line

payment with purchase

cards. By January 1, 2000,

use purchase cards for all

mall purchases. Integrate

other military service

electronic malls into a

single, DOD-wide mall in

accordance with direction in

the Strom Thurmond

National Defense

Authorization Act for Fiscal

Year 1999.

Acquisition;

logistics; and

financial

management

Although not complete,

DOD is working on

integrating other military

service electronic malls

into a single, DOD-wide

mall in accordance with

congressional direction.

Payments can now be

made with the purchase

card. However, the mall is

experiencing low user

acceptance, low vendor

participation, and low

sales volumes. Sales for

fiscal year 1999 were

about $2 million.

Numerous

implementation problems

exist.

Several output-oriented measures

are being used. The program office

is tracking the number of purchase

transactions made on the mall, the

dollar value of sales, and the

number of people registered to use

the mall.
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Household goods

reengineering

Streamline and simplify the

process for managing the

movement of household

goods associated with

changes in the permanent

duty station of DOD

personnel.

Personnel and

logistics

Progress has been

limited. DOD plans to

evaluate two Departmentwide pilot programs

aimed at improving the

movement of household

goods. DOD expects to

have a new process in

place sometime during

2002.

DOD plans to use the following

measures, which are outcomeoriented measures, to evaluate the

pilots: (1) quality of life, (2) cost,

(3) impact on small businesses,

and (4) process improvements.

Paperless

contracting

By January 1, 2000, make

all aspects of the major

weapon systems contracting

process paperless.

Acquisition and

financial

management

Progress is being made,

but the January 1, 2000,

goal was not met. By this

date, about 78 percent of

DOD’s contracting

transactions were being

accomplished

electronically.

Implementation will take

longer than expected due

to system integration and

development

requirements. Two key

systems—the Standard

Procurement System and

the Wide Area Workflow

system—are not fully

implemented. Also, to

operate effectively, the

initiative requires the

availability of a public key

infrastructure that is still

under development.

DOD uses output-oriented

measures to track performance.

They measure progress, both

DOD-wide and by military service

and Defense agency, against six

generic components of the

contracting process: requirements;

solicitations; awards and

modifications; receipts and

acceptance of goods and services;

invoices and payments; and closeout actions.

(Continued From Previous Page)

Initiative Goal/milestone Business area Status Performance measures
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Prime vendors Increase the use of prime

vendors (private-sector

providers who help store,

distribute, and manage

inventory) for DLA-managed

items. To help do this, by

January 1, 1999, have prime

vendor contracts in place for

one category of hardware

items—maintenance, repair,

and operating materiel—for

all major installations in the

United States. These

contractors must provide a

capability for DOD

customers to place orders

via the Internet.

Logistics (inventory

management and

distribution)

Overall, DLA prime

vendor sales have

increased. Sales reached

about $1.8 billion for fiscal

year 1999. However,

progress in some supply

categories, such as

hardware items, has been

slow. Contracts for

maintenance, repair, and

operating materiel are

available for use by the

military services, but they

are not widely used.

Prime vendor sales

represented less than

10 percent of the

$670 million spent on this

materiel during fiscal year

1999.

Currently, DLA uses output- and

outcome-oriented measures to

track prime vendor performance.

These include sales volumes,

vendor response times, and order

fill rates.

Purchase cards By fiscal year 2000, 90

percent of micropurchases

(orders of $2,500 or less)

should be acquired using

the purchase card.

Acquisition and

financial

management

Program exceeded its

goal. Over 90 percent of

micropurchases are now

being made with the

purchase card rather than

using traditional

purchasing methods.

Some implementation

issues remain; for the

most part, they involve

system integration issues

and expanding the

program’s use of the

Internet.

DOD tracks purchase card

performance using several outputoriented measures: number of

cards issued, number of

transactions, dollar volume of

purchases, and percentage of

micropurchases made with the

card.

Smart card Begin implementation of a

DOD-wide smart card

program in fiscal year 2001.

Smart cards will be an

integral part of DOD’s efforts

to increase security over its

systems and networks.

DOD personnel will be

issued smart cards for

physical access to buildings

and controlled areas and for

access to DOD’s systems

and networks.

All business

processes

Thus far, the Navy has

been DOD’s primary user

of smart cards. The

requirement that smart

cards be used for identity

cards and to increase

security over information

and provide access to

DOD systems and

networks is a recent

decision (November

1999). DOD expects to

begin issuing smart cards

throughout the

Department in fiscal year

2001 and complete this

effort in 2002.

For the DOD-wide program, smart

card measures have not been

finalized. DOD officials are

considering output-oriented

measures, such as whether DOD

has met its timetables for the cards’

distribution, and outcome-oriented

measures, such as how the new

card has helped reduce paperwork.

Likewise, the Navy has not

established measures but is

planning to track the number of

cards that have been issued and

the specific applications being used

at Navy locations.

(Continued From Previous Page)

Initiative Goal/milestone Business area Status Performance measures
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Note: With the exception of the smart card initiative, the table includes only initiatives in the Defense

Reform Initiative and the Electronic Business/Electronic Commerce Strategic Plan. It therefore is not

an exhaustive list of DOD electronic business initiatives. It does not include the initiatives that are

unique to the military services and Defense agencies and that may be included in their individual

electronic commerce plans once they are all completed.

Source: Our analysis of DOD data.

As the military services and Defense agencies move forward with their

individual plans, the list of proposed electronic commerce initiatives is

likely to increase. Ideally, all initiatives involving information technology,

new ones as well as those already under way, will be linked to and

evaluated against outcome-based performance measures, the Department’s

strategic plan, and an electronic commerce architecture. The ClingerCohen Act of 1996, as well as the Department’s implementing guidance,

calls for information technology investments to be linked to strategic goals

and use outcome-based performance measures to evaluate and manage the

project or investment. In the short term, initiatives that are not linked in

these ways may bring improvements to DOD’s current business processes.

However, until DOD completes its electronic commerce road map,

particularly its system architecture, it will not know if and how these

initiatives will support its future processes.

Transportation

reengineering

Reduce costs, eliminate

government-unique

documentation (government

bills of lading) and replace it

with commercial

documentation, improve

billing and payment

accuracy, increase the use

of electronic commerce, and

adopt best commercial

practices in the billing and

paying processes. In

addition, DOD will test the

use of a third-party logistics

provider to provide

transportation services.

Logistics and

financial

management

Progress is being made,

but some problems have

been encountered. DOD

decided to use a

commercial-off-the-shelf

software package called

PowerTrack to process

transportation bills and

payments. As of April

2000, DOD was using

PowerTrack at about 150

sites and was paying

about 50 percent of its

transportation bills with

the software. Some

problems still need to be

resolved. They involve

Internet access, system

security, and data

reliability. In May 2000,

DOD issued a Request for

Proposals to pilot test

third-party logistics

support. Proposals are

due to DOD in July 2000.

DOD has identified several

output-oriented performance

measures for PowerTrack that

include the dollar amount of

shipments, transaction volumes,

the number of DOD shippers using

PowerTrack, the number of carriers

using PowerTrack, and the time it

takes the Defense Finance and

Accounting Service to pay bills.

DOD has not finalized the

performance measures it will use to

assess the third-party logistics

provider pilot. This will occur after

the Department receives proposals

and selects a contractor.

(Continued From Previous Page)

Initiative Goal/milestone Business area Status Performance measures
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Conclusions The Department’s vision of using electronic commerce technologies to

transform and streamline its business processes is at risk because key

elements of its overall electronic commerce road map—an implementation

plan and an electronic commerce architecture—have not been completed.

Without these elements, the Department does not have the unifying

direction needed to carry out its electronic commerce program. With each

of the military services and Defense agencies developing its own plan and

supporting initiatives, the Department may further risk applying its

resources to initiatives that may be redundant or unnecessary. Also, it may

not realize the fundamental changes in its business processes that it is

seeking across the Department. Communicating a common vision and

expectations across the Department, assigning responsibilities for these

expectations, establishing schedules, and resolving implementation issues

would help minimize program risk. An implementation plan and an

electronic commerce architecture can help do this as well as provide

criteria and a framework for reviewing and approving new initiatives.

Completing an implementation plan and an architecture requires a program

management organization with sufficient authority and a Department-wide

perspective. Currently, it is not clear whether the Joint Electronic

Commerce Program Office has the authority and is appropriately placed to

carry out these responsibilities. Strengthening the role of its program

management office and the office’s line of communication to the Chief

Information Officer would help in achieving the vision in its strategic plan.

The Department recently took steps to address this problem. However,

these steps may not be adequate. First, the program office appears to be

closely aligned with a Defense agency that is focused on acquisition and

inventory management functions. Thus, it may not have the perspective

and influence it needs to carry out an electronic commerce program across

all of the Department’s business areas. Second, the membership, role, and

authority of the proposed electronic commerce board of directors have not

been determined. Until these decisions are made, it is unclear to what

extent the board will help implement a Department-wide program.

The Department does not yet have the secure environment it is seeking to

safeguard and authenticate electronic commerce transactions. DOD has

recognized this and is moving forward on a Public Key Infrastructure

Program to help improve security. However, the public key infrastructure is

not a simple undertaking, and numerous technical issues still need to be

resolved. Until these issues are resolved, realistic program costs and

implementation dates will remain uncertain. Moreover, because security is
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crucial to all of the Department’s business processes, these uncertainties

have the potential to affect its overall electronic commerce program.

While DOD has grappled with these management issues, it is moving ahead

on a number of electronic commerce initiatives. These initiatives have

made or may bring improvements to aspects of various business processes,

but the Department has very few outcome-oriented performance measures

in place to help it assess their effectiveness. While output measures are

often necessary to track progress of the initiatives, outcome measures are

needed to determine if the initiatives have accomplished desired service

improvements or cost reduction goals. As DOD continues its efforts to

reform its business processes, DOD could better assess results of the

initiatives individually and collectively by increasing its emphasis on

outcome measures.

Recommendations To strengthen the Department’s electronic commerce program, we

recommend that the Secretary of Defense

• direct that the Chief Information Officer develop an implementation

plan that has a Department-wide focus, one that explicitly addresses the

strategic plan’s goals, objectives, and strategies;

• direct that the Chief Information Officer, in consultation with the

principal staff assistants, military services, and Defense agencies,

identify the approach and the schedule to be followed by all DOD

business areas to develop a Department-wide electronic commerce

architecture;

• provide the members of the proposed electronic commerce board of

directors with sufficient authority to see that electronic commerce

policies, plans, and architecture development are supported and

implemented across the Department as well as in their respective

services and agencies;

• ensure that the electronic commerce program office has clear lines of

authority and funding necessary to implement a Department-wide

program;

• ensure that realistic time frames and costs are established for carrying

out the tasks necessary to transition the Department’s personnel,

processes, and systems to the planned public key infrastructure to

enhance security;

• direct that all new electronic commerce initiatives sponsored by the

military services and Defense agencies support the Department’s

strategic goals and electronic commerce architecture; and
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• direct that both output- and outcome-oriented performance measures

are identified for all new and ongoing electronic commerce initiatives.

Agency Comments In commenting on a draft of this report, the Department agreed with all of

our findings and recommendations. It stated that it has actions under way

that respond to the report’s recommendations and that the Department’s

Chief Information Officer will ensure that the actions are implemented. The

Department also provided a number of technical comments, which we

incorporated into the report where appropriate. DOD’s comments in their

entirety are included in appendix IV.

With the following exceptions, the Department’s planned and ongoing

actions appear responsive to our recommendations. First, it is unclear to

what extent the Department plans to act on our recommendation that it

develop a DOD-wide implementation plan. DOD responded that it will

continue its current decentralized approach of allowing the military

services and agencies to develop their own implementation plans. The

response noted that some of these plans might be tied to the Department’s

strategic plan. It also stated that it anticipates identifying a framework for a

DOD implementation plan when it updates its strategic plan early next

year. We continue to believe that the Department needs an overall

implementation plan that addresses the goals, objectives, and strategies in

its strategic plan. Such an implementation plan is essential for focusing,

coordinating, and unifying the efforts of the services and agencies.

Second, it is both unclear and uncertain how and how quickly the

Department will act on our recommendation to identify a schedule for

developing a Department-wide electronic commerce architecture. DOD’s

response stated that the new electronic commerce board of directors’

initial architectural efforts will concentrate on presenting an electronic

commerce conceptual framework to use as a model for architecture

development. However, it is not clear if the board of directors will make

architecture development a high priority. Moreover, as we point out in the

report, the Department already has a prescribed framework and model for

architecture development. It needs to use these to move ahead

expeditiously and begin the first step of identifying the appropriate

business areas and analyzing their respective functional requirements.

Third, the Department agreed with our recommendation that its electronic

commerce program office needs the authority and funding necessary to

carry out its responsibilities. However, in its response, the Department
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stated that a program office may or may not be required. Consequently, it is

not clear how the Department will implement our recommendation.

Regardless of whether the electronic commerce program office remains

intact or is reorganized in some manner, we continue to believe that the

organization ultimately responsible for DOD’ electronic commerce

program needs to have sufficient authority, funding, and independence to

act from a DOD-wide perspective as it carries out its responsibilities.

We are sending copies of this report to the Honorable William S. Cohen,

Secretary of Defense; the Honorable Arthur Money, Assistant Secretary of

Defense (Command, Control, Communications, and Intelligence);

Lieutenant General Henry T. Glisson, Director, Defense Logistics Agency;

Lieutenant General David J. Kelley, Director, Defense Information Systems

Agency; Ms. Scottie Knott, Director, Joint Electronic Commerce Program

Office; the Honorable Jacob J. Lew, Director, Office of Management and

Budget; and interested congressional committees and members. We will

also make copies available to others upon request.

If you or your staff have any questions concerning this letter, please contact

me on (202) 512-8412. Other GAO contacts and staff acknowledgments are

identified in appendix V.

Sincerely yours,

David R. Warren, Director

Defense Management Issues
Page 28 GAO/NSIAD-00-108 Defense Management

Appendix I

Objectives, Scope, and Methodology ApApenednxidexiIs

Because of the challenges the Department of Defense (DOD) faces as it

seeks to implement Defense reform initiatives, the Subcommittee on

Military Readiness, House Committee on Armed Services, asked us to

review the Department’s progress in implementing the Defense Reform

Initiative. As part of the Subcommittee’s request, we were asked to review

DOD’s implementation of electronic commerce. This report discusses the

(1) implementation issues the Department needs to address to successfully

achieve the electronic environment it envisions and (2) implementation

status of selected electronic commerce initiatives.

To identify issues that the Department must address to successfully

implement electronic commerce, we met with senior management officials

from the Office of the Secretary of Defense, including the Chief

Information Officer and the Defense Reform Office. We also met with the

director and staff of the Joint Electronic Commerce Program Office and

representatives of the military services to discuss the strategy and

implementation approach for bringing electronic business operations to

the Department. We also reviewed Office of Management and Budget and

DOD policy memoranda and other guidance for developing a strategic plan,

an implementation plan, and an electronic commerce architecture. We also

reviewed DOD’s Electronic Business/Electronic Commerce Strategic Plan

and a draft of its implementation plan. We discussed the memoranda,

guidance, and draft implementation plan with Joint Electronic Commerce

Program Office officials responsible for developing the implementation

plan and architecture. Among other things, we asked senior officials about

and obtained documentation on DOD’s implementation plan and whether it

fully addressed the goals and objectives included in DOD’s strategic plan.

During discussions with representatives of the Defense Reform Office, we

identified and obtained documentation related to issues being addressed by

four subgroups working under the umbrella of the Electronic Commerce

Coalition Working Group. This group is being jointly sponsored by the

Defense Reform Office and the Association for Enterprise Integration. The

working subgroups are comprised of senior private sector and DOD

officials.

We also met with management officials from the Defense Information

Assurance Program Office, the Public Key Infrastructure Program

Management Office, and the Navy Smart Card office to discuss issues

involving security over DOD systems and networks and to obtain

documentation on these issues.
Appendix I

Objectives, Scope, and Methodology

Page 29 GAO/NSIAD-00-108 Defense Management

To assess the implementation status of key electronic commerce initiatives,

we obtained and reviewed tracking information and performance measures

maintained by the Defense Reform Office and the Joint Electronic

Commerce Program Office. We also met with military service and Defense

agency representatives responsible for overseeing and implementing

specific initiatives and obtained information about the progress and

problems associated with each initiative. While we did not conduct an indepth review of each initiative, we obtained and reviewed documentation

related to their goals, status, costs, and benefits. We also discussed their

progress in terms of meeting the implementation schedules called for in the

Defense Reform Initiative report and DOD planning and policy guidance.

During our work, we interviewed officials in the Office of the Secretary of

Defense, including representatives of the Under Secretary of Defense

(Acquisition, Technology, and Logistics), the Under Secretary of Defense

(Comptroller), the Assistant Secretary of Defense (Command, Control,

Communication, and Intelligence), and the Director of the Defense Reform

Office. We also interviewed officials in the Joint Electronic Commerce

Program Office located at Fort Belvoir, Virginia. We met with program

managers and other representatives responsible for the initiatives

discussed in this report, including the Defense Travel System, the Paperless

Contracting Integrated Product Team, and the Navy Smart Card Program

Management Office located in Arlington, Virginia; the Purchase Card Joint

Program Management Office located in Falls Church, Virginia; the Central

Contractor Registration System, the DOD Business Opportunities web site,

and the DOD electronic mall located at Fort Belvior, Virginia; the Public

Key Infrastructure Program Management Office located at Fort Meade,

Maryland; and the DOD Transportation Policy Directorate located in

Washington, D.C. We also conducted work at Army Headquarters, Air Force

Headquarters, and Navy Headquarters in Washington, D.C.; Defense

Finance and Accounting Service Headquarters, Arlington, Virginia; and

Defense Logistics Agency Headquarters, Fort Belvoir, Virginia. We also met

with representatives of the Association for Enterprise Integration located

in Arlington, Virginia. We performed our work from July 1999 through April

2000 in accordance with generally accepted government auditing

standards.
Page 30 GAO/NSIAD-00-108 Defense Management

Appendix II

Selected Electronic Commerce Initiatives ApendxiI

The Department has under way specific program initiatives related to the

concept of electronic commerce. As previously noted, most of the

initiatives have not been fully implemented and the extent to which they

will provide expected benefits is uncertain. The following provides

additional summary information on 10 initiatives.

Central Contractor

Registration

Before conducting business with DOD, contractors and vendors must be

registered in the Central Contractor Registration System, which was

created by DOD. The Central Contractor Registration System is a central

database, accessible over the Internet that contains procurement and

financial information about contractors and vendors that do business with

DOD. This Registration System supports the government’s efforts to

reengineer its acquisition processes.

Before the Central Contractor Registration System was developed,

contractors who wanted to do business with more than one DOD

organization were required to provide the same business information to

each and every organization. This paperwork redundancy created an

administrative burden for both the government and the contractor and was

also the source of errors and expense. The Administration’s emphasis on

acquisition reform, along with the Federal Acquisition Streamlining Act of

1994, provided the impetus for developing the system.

One aspect of the Department’s acquisition reform efforts is focused on

presenting a “single face to industry.” To help provide a single face to

industry, the Department identified a centralized electronic registration

process, which eventually became the Central Contractor Registration

System, as the single registration site for businesses that want to become

suppliers or trading partners with the Department. Development of the

Registration System began in 1995, as a program under the Deputy Under

Secretary of Defense for Acquisition Reform. At that time, the focus of

those developing the system was to work with contractors and vendors to

implement electronic data interchange capabilities. Later, its scope was

expanded to support the Debt Collection Improvement Act of 1996, which,

among other things, generally requires federal agencies to use electronic

funds transfer to pay contractors and vendors.

Program Status The Department implemented the Central Contractor Registration System

in two phases. The first phase, which was completed in June 1998, involved

entering contractors’ and vendors’ electronic funds transfer information
Appendix II

Selected Electronic Commerce Initiatives

Page 31 GAO/NSIAD-00-108 Defense Management

and tax identification numbers into the database. This information was

needed to enable the Defense Finance and Accounting Service to pay

contractors and vendors electronically. The second phase, which was

completed in September 1999, involved improving the technical

capabilities of the database and developing electronic connections to the

Department’s procurement and contracting systems. These new

connections have provided more efficient support to the Department’s

solicitation and contracting activities. In particular, they provide DOD

contracting officials with past performance information about contractors

and vendors. Now, with the two development phases complete, the system

is undergoing other improvements. These include building links to several

newer systems that support the acquisition process, such as the DOD

Business Opportunities web site, the DOD Electronic Mall, and the

Standard Procurement System.

The Registration System is becoming an integral part of the acquisition

process. Currently, contractors and vendors can register by using the

Internet, electronic data interchange transactions, and paper registration

forms. However, the vast majority of registrations occur over the Internet.

From December 1997 to March 2000, the number of contractors and

vendors that had registered grew from about 22,000 to about 163,000. In

December 1997, it took contractors and vendors about 30 days to have a

registration processed. In March 2000, the average processing time had

been reduced to about 2 days. The Registration System is also helping to

streamline DOD’s operations. Before awarding a contract, DOD

organizations can electronically access the system to verify that a

contractor or vendor is properly registered. Also, the Defense Finance and

Accounting Service receives daily updates from the system to support its

electronic funds transfer program. As of March 2000, the Registration

System program manager reported that about 85 percent of the electronic

fund transfer payments made by the Finance and Accounting Service for

contracts awarded by the military services and Defense agencies were

made using the information in the system. In addition, the Defense

Logistics Agency and the military services were receiving information from

the Registration System to update vendor information in their systems.

Costs and Benefits This Central Contractor Registration System program management office

does not have complete information on the development costs of the

system. It received about $9.2 million for fiscal years 1998 through 2000 to

implement the system; however, a portion of this funding has been and is

being used to sustain, rather than develop, the system. Although the
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benefits have not been quantified, the Registration System has improved

aspects of the acquisition and financial management processes for both

industry and DOD. According to the program manager, it has centralized

the registration procedures that contractors and vendors must follow,

significantly reduced the registration time, and provided ready access and

information to DOD organizations that have contracting and financial

management responsibilities.

Defense Travel System In September 1993, the National Performance Review called for an

overhaul of DOD’s temporary duty travel administration process. In

response, DOD created the Travel Reengineering Task Force to evaluate

the process. The Task Force concluded that the travel administration

process was fragmented, inefficient, and expensive and that it occasionally

impeded mission accomplishment. In December 1995, under the direction

of the Under Secretary of Defense (Comptroller) and the Under Secretary

of Defense (Acquisition and Technology), the Department began an

initiative, called the Defense Travel System, to reengineer the process. The

Defense Reform Initiative report called for the reengineered system to be

implemented throughout the Department by October 2000.

As planned, the Defense Travel System will be a paperless system designed

to handle all aspects of temporary duty travel for the approximately three

million DOD travelers. The travelers will be able to process all travel

arrangements—from requesting travel orders to making airline and hotel

reservations—by accessing the system through the Internet or software

available on personal computers or DOD networks. Travel orders and

payment vouchers will be submitted and approved electronically using

digital signatures. The Travel System is also supposed to perform

automated checks on travel requests to ensure that they conform to DOD

travel policies. Once a traveler completes his/her trip, he/she is supposed to

submit an electronic voucher for payment. After the payment is

electronically computed and approved, the system is supposed to be able

to split the payment between the traveler and the credit card company.

Payment and accounting data are supposed to be electronically exchanged

with DOD accounting and disbursing systems.

DOD’s acquisition strategy was to buy travel services, not a travel system.

Following this strategy, in May 1998, DOD competitively awarded a

contract to BDM International (a subsidiary of TRW International) to

develop the travel system that would provide the Department travel

services. Under the contract, TRW International is responsible for
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developing and testing the travel system. Before it can be implemented,

TRW International must resolve all problems identified during testing and

ensure that the system interfaces properly with external systems, such as

DOD accounting and disbursing systems and commercial reservation

systems. Once the system is operational, the Department will pay TRW

International for use of the system. The payments will include a one-time

registration fee for each user and a transaction fee each time a traveler uses

the system. A transaction is defined as travel authorization, travel

arrangements, and computation of entitlement. A traveler must complete

all parts of a transaction before DOD is obligated to pay the user fee. DOD

estimates that the transaction fee will be about $4.90 to $5.40. Based on

anticipated use, the contract was initially valued at $263.7 million for a

5-year period (1998-2002) with three 1-year options.

Program Status According to the Defense Reform Initiative report, DOD expected to begin

using the Defense Travel System in April 1998 and have it available

throughout the Department by October 2000. However, due to a number of

problems, it will not be implemented as planned. Once the problems are

resolved and the system is ready for use, DOD estimates that it will take

about 3 years to implement. Consequently, the Defense Travel System will

not be fully operational until sometime in 2003—about 2 years later than

expected.

The system’s problems, some of which do not yet have a solution, fall into

several categories. DOD has assigned each problem to one of five priority

categories, with priority one having the highest priority and so on. Priority

one and priority two problems must be resolved before the system can be

used. As of February 15, 2000, DOD had identified 83 priority one and two

problems. Of the 83 problems, 31 were being researched but did not have

solutions, 7 had temporary solutions (called workarounds), 32 had

proposed solutions that were ready to be tested, and 13 had solutions that

had not yet been implemented. As of mid-March 2000, a DOD

representative stated that the 31 problems without a solution had been

reduced to 20. The Travel System program office provided examples of

priority one and two problems. For example, one problem is that the Travel

System will pay a traveler without first having funds obligated to cover the

cost of the travel. Another problem is that, in some instances, the system

does not correctly process a travel order amendment and, as a result, the

system will not pay the traveler.
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Because the Department does not know when the Defense Travel System

will be operational, it decided to provide travelers with an interim travel

system—the Defense Travel System-Limited. On February 7, 2000, DOD

modified its contract with TRW International to include the purchase and

implementation of the Defense Travel System-Limited. This increased the

contract value by $6.8 million. The interim system is a commercial off-theshelf product. As an interim travel system, the Limited system is supposed

to provide some of the same features as the Defense Travel System,

including making travel arrangements, authorizing travel, and computing

entitlements. For the $6.8 million, TRW International will process up to

1 million travel transactions, provide 60 training classes, install the

software at 40 locations, and maintain the software for 1 year.

The Department made the Limited system available to the military services

and Defense agencies in April 2000. However, its use is not mandatory.

DOD military services and Defense agencies can choose to use the Limited

system or continue using the existing travel system called the Integrated

Automated Travel System. The Limited system, however, does not

electronically interface with other DOD systems, such as accounting,

budgeting, and disbursing systems. The services and agencies can choose

whether or not they want to develop these interfaces; if they choose to do

this, they will have to absorb the costs.

Costs and Benefits The Department estimated that the Defense Travel System would save

about $4.4 billion from fiscal years 1999 through 2011. The estimate was

based on an economic analysis that compared the current travel

administration process to the process to be used by the Defense Travel

System. The analysis was based on processing 4,687,271 travel vouchers

annually. It assumed that the Travel System would begin operating in fiscal

year 1999, would be fully implemented in fiscal year 2001, and would have a

10-year system life cycle. The economic analysis estimated the cost of

continuing with the current process would be about $11.7 billion, while the

cost of using the new system would be about $7.2 billion. Thus, savings

attributable to the Defense Travel System were estimated at $4.4 billion.

However, implementation delays are likely to reduce savings. As of

February 2000, DOD had obligated $13.6 million against the contract with

TRW International. This included the $6.8 million for the Limited system.
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DOD Business

Opportunities

DOD Business Opportunities is a World Wide Web site that was established

in 1998 to support the Department’s efforts to move to paperless

contracting. Referred to as “DODBusOpps.com,” the site provides a

starting point in the contracting process by providing vendors with

information about the goods and services that DOD organizations want to

buy. A vendor can conduct searches on the types of opportunities that are

available by viewing the solicitations and identifying whom to contact to

submit a bid. The site was established after DOD officials determined that

vendors had no single place to go to get this type of information.

Before DODBusOpps was developed, several DOD organizations had

established web sites to provide vendors with access to this information.

However, these sites had limitations. First, DOD officials found that several

did not capture all of the solicitations for their respective organizations.

Second, they found that a number of other organizations had no sites at all.

As a result, officials estimated that only about 40 percent of DOD’s total

solicitation volume was being posted on the Internet. And the information

that was being posted was scattered among a number of different sites,

making it difficult for vendors to identify the full range of opportunities in

DOD.

DOD decided to remedy this situation by developing a central, web-based

gateway. The task has involved making sure that information on DOD’s

solicitations was being captured electronically and posted to an Internet

site, either on an existing site or on a newly established one. It also entailed

building a centralized site that could receive information feeds from these

disparate sites to provide a DOD-wide index of the available information.

Program Status The DODBusOpps effort got under way in May 1998, and by November

1998, the first version went on the Web. Later, by February 1999, a search

engine was put in place to help users find information more easily. Now,

although changes continue to be made to the site, project officials consider

it to be well established. According to the project office, as of January 2000,

the site was posting 15,000 to 30,000 solicitations a month from 267 buying

locations worldwide, reflecting 85 percent of DOD’s total solicitation

volume. It was also experiencing an average of 860,000 inquiries or “hits” a

month from prospective vendors or contractors, with the average user

inquiry lasting about 8 minutes.
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When vendors conduct a search, DODBusOpps sifts through its index of

solicitations, produces a list of solicitations that correspond to the search

criteria used, and provides links to the actual sources of data. Moreover,

the site provides links to a limited number of DOD data repositories to

allow businesses to view the technical specifications on some of the

products being sought. And finally, it provides a link to the Central

Contractor Registration System, where all businesses must first register

before bidding on DOD contracts.

Now that the site has been established, DOD is trying to increase to 100

percent the portion of DOD solicitations available on the site. This task,

which the project office hopes to complete by July 2000, entails making

sure that information from a host of smaller organizations, which only

generate anywhere from 1 to 50 solicitations a year, is fed to DODBusOpps.

In addition, DOD plans to continue enhancing the site’s features. These

enhancements include better integrating DODBusOpps and the contractor

registration system to allow DOD to electronically alert already registered

businesses that solicitations are being issued for the goods and services

they provide. The enhancements also include increasing the number of

DOD organizations that can accept bids electronically and making

DODBusOpps the central point for receiving and disseminating the bids,

expanding the number of links to data repositories that contain technical

specifications on the products DOD organizations are seeking, and

ensuring that information available through DODBusOpps is also posted on

the Electronic Posting System, the federal government’s equivalent of the

DOD site.

Costs and Benefits Relative to other electronic commerce initiatives, DOD’s Business

Opportunities web site is a low-cost effort. As of February 2000, DOD had

spent about $1.25 million to construct and maintain the site. About one-fifth

of this cost is attributable to the site’s hardware and software needs, while

the rest reflects the cost of hiring contractors for the project team. DOD

expects to retain these contractors on the project through at least 2001

under a 1-year, $1.2 million contract signed in February 2000. As for

benefits, DOD has not tried to quantify what it stands to gain from

DODBusOpps. The Department, however, believes that shifting to

electronically based practices will improve efficiencies by allowing

information to be disseminated and responded to more quickly. These

practices are also expected to help reduce the administrative and clerical

burdens that have always accompanied the paper-bound solicitation and

bidding processes. In addition to process improvements, the Department
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believes DODBusOpps can help stimulate competition by making

solicitations more accessible to the general public.

DOD Electronic Mall The DOD Electronic Mall is an Internet site that DOD personnel can access

to order needed supplies either from the DOD supply system or directly

from vendors. Items include such things as military clothing, nuts and

bolts, and light bulbs. The idea is to provide personnel with a one-stop way

of shopping and comparing prices across a wide range of supply sources,

including internal DOD stocks and external commercial offerings.

Currently, Electronic Mall users can access the site, search for the specific

items they need, fill up a virtual shopping cart, and then pay for the items

using the government purchase card. The Mall’s target market consists of

so-called discretionary buyers, who buy items in small quantities outside of

the normal inventory-management mechanisms that logisticians and supply

officials use. Traditionally, these buyers have made purchases from a

variety of sources, including internal DOD stocks, local retailers, mailorder catalogs, and vendors’ individual web sites. Although the Electronic

Mall provides users a single point of entry, it is not a stand-alone database.

Rather, it utilizes a distributed network, which allows the various catalogs

to reside in separate databases but still be accessed through a single site or

point of entry. The originators of the catalogs, such as vendors, have to

maintain and update their own catalogs.

The Electronic Mall stems from DOD’s desire to make greater use of

Internet-based electronic shopping catalogs to help improve the purchasing

process. According to the 1997 Defense Reform Initiative report, such

catalogs could help “democratize” the acquisition process by giving greater

freedom to the people who actually need the items. DOD’s acquisition

personnel would pave the way by establishing broad purchasing

arrangements and negotiating favorable contract terms and prices with

vendors. Then, personnel could call the vendors’ electronic catalogs up on

their computer screens and make purchases against these standing

contracts using the government purchase card. According to the report,

this approach would allow personnel to avoid the traditional process of

going to their local procurement offices and initiating what can sometimes

be a complex contracting process. To move forward with the Mall, the

report called for DOD to allow for on-line payment with purchase cards by

July 1998 and to use purchase cards for all Mall purchases by January 1,

2000.
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Shortly after the Defense Reform Initiative report was issued, the Congress

directed that a Department-wide Electronic Mall be established to provide

a central gateway to these disparate catalogs. The Strom Thurmond

National Defense Authorization Act for Fiscal Year 1999 directed that this

gateway provide a single-view access and ordering capability for all DOD

catalogs. Establishing this Mall has involved determining what needs to be

done to integrate the existing catalogs into a single site, developing a crosscatalog browsing capability, and setting up the ordering and payment

mechanisms, among other tasks.

Program Status Although the Electronic Mall is available to DOD shoppers, it is not a

completed effort. Several pieces are still under development. First, despite

congressional direction to integrate the military services’ existing

electronic catalogs into the site, this has not been done. Second, the Mall

does not carry the range of items envisioned. Eventually, DOD wants to

have four “shopping corridors” on the Mall that would group items under

the categories of commodities, information technology, services, and

training. As of March 2000, only the commodities and information

technology corridors had been established, with most items falling under

the commodities’ corridor.

Electronic Mall sales continue to be lower than DOD officials would like,

with fiscal year 1999’s sales totaling $2 million.1 These sales figures are

particularly striking when compared to the Mall’s $4.26 billion estimated

target market for fiscal year 1999. Eighty-four percent of that estimated

market represents purchases made with the government purchase card,2

with the remainder reflecting purchases costing $2,500 or less that were

made with the traditional purchasing methods.

1 DOD has at times listed Electronic Mall sales for fiscal year 1999 at $51 million, but that

figure is misleading because it includes sales of clothing and textiles through the Defense

Logistics Agency’s Automated System for Cataloging and Ordering Textiles. Although DOD

personnel can access this system’s offerings through the Mall, the vast majority of purchases

are made outside of it; the Electronic Mall portion of this system’s sales are included in the

Mall’s $2 million sales figure.

2 The portion of the Electronic Mall target market that could be realized from the use of

purchase cards is not equal to total card purchases. A March 1999 cost-benefit analysis on

the Electronic Mall determined that about 84 percent of DOD credit-card purchases were

feasible through the Mall, so target market figures are calculated by taking 84 percent of

total purchase card purchases. For fiscal year 1999, the target market amounted to about

$3.7 billion, which is about 84 percent of the $4.6 billion purchase card total.
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Electronic Mall officials believe one of the keys to boosting its use is to

increase the number of commercial catalogs available on it. As of March

2000, the Mall carried only a small portion of commercial offerings—only

about 240,000 of the Mall’s 2.3 million items were available from

commercial catalogs; the rest were available from the Defense Logistics

Agency (DLA). Since DOD supply and logistics organizations have other

ordering mechanisms in place for these items, personnel often do not need

to go to the Mall to buy them, officials said. Increasing the number of

commercial offerings, however, has been difficult because, according to

Mall officials, the process for establishing the underlying contracts is

difficult and slow. Moreover, Mall officials believe vendors might be

reluctant to include their offerings on the Mall because it allows shoppers

to compare prices. Other DOD officials also believe that some vendors,

especially small businesses, are reluctant to participate because they do

not want to incur the costs of maintaining an Internet-based catalog and

meeting the Electronic Mall’s technological requirements.

The limited number of commercial offerings, however, is just one of several

factors affecting low use. Mall officials, as well as others, have found that

some military service policies have effectively discouraged its use. For

example, one military service organization instructed users to go to the

Mall only for commercial items, while another instructed its personnel not

to use the government credit card over the Internet. DOD officials said use

has also suffered because the Mall does not automatically feed accounting

and demand data to the organizations making the purchases, which acts as

a disincentive because organizations say they need this data to manage

their operations. And finally, DOD officials believe potential customers

have been discouraged because, in these officials’ opinions, the Mall is not

user friendly and is not powerful enough for effective cross-catalog

searches.

To help determine why the Electronic Mall use is low, officials have

recently begun pilot projects at several military service locations. The

pilots are supposed to (1) identify the types of commercial items needed at

these locations, (2) arrange to get electronic catalogs offering these items

onto the Mall, (3) determine if the additional catalogs are increasing its use,

and (4) identify the advantages and disadvantages of using the Mall.

Officials have not established completion dates for the pilots.

We have not examined the Electronic Mall in depth; however, the DOD

Inspector General’s Office issued a report on the Mall in December 1999.

The report cited several problems, including inadequate cross-catalog
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search capabilities, the lack of effective performance measures, and poor

up-front planning. The report further suggested that better planning, such

as assessing barriers to Mall use at the outset, could have headed off some

of its current problems. The joint program office, in its response to the

report, did not agree with all of its findings. The response stated that the

Mall’s implementation should not have been started with a long, up-front

planning process. It also noted that several of the problems had been

corrected.

Costs and Benefits Mall officials expect to spend $2.9 million in fiscal year 2000 on

development, operations, and maintenance. This figure is up from fiscal

year 1999’s budget of $2 million. Electronic Mall benefits have not been

quantified. However, DOD believes it can help streamline procurement

processes by reducing repetitive purchases of low-dollar value items and

their associated administrative burdens. Instead, items would be bought

through the Mall using the long-term contracts underlying the commercial

catalogs offered through the Mall. In addition, DOD believes the Mall can

reduce transaction costs by eliminating the traditional, labor-intensive

process of identifying sources of supply and shopping for the items needed.

And finally, officials believe that, if DOD can significantly increase the

number of vendors’ catalogs on the Mall, the expanded selection will

encourage greater competition, not only on price but also on services such

as delivery times, leading to savings and better service for the government.

Household Goods

Reengineering

DOD has long been concerned about the quality of service it provides

military personnel and their families when they relocate. It spends

approximately $3 billion annually to transport, store, and manage

household goods and unaccompanied baggage. According to the Defense

Reform Initiative report, DOD moves more household goods than any U.S.

corporation, yet its system gives its personnel some of the worst service in

the nation. The report stated that, of all DOD moves, 25 percent end with

damage claims, compared to 10 percent in the private sector. Also, best-inclass movers have customer satisfaction rates of 75 percent, while DOD’s

have rates of only 23 percent.

Because of these and other problems, DOD proposed, as early as 1994, to

improve the household goods moving process. The initiative received

additional impetus through a June 1997 management reform memorandum

and the November 1997 Defense Reform Initiative report. Both called for

streamlined and simplified policies and procedures for moving household
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goods. The primary goals of the initiative are to substantially improve the

quality of service that military personnel and their families receive from

DOD’s contracted movers; simplify the entire process, from arranging

moves to settling claims; and base the program on business processes

characteristic of world-class customers and suppliers. To the extent

practical, electronic commerce capabilities and commercially available

software are to be incorporated into the reengineered process. The Under

Secretary of Defense (Logistics) assigned the U.S. Transportation

Command overall responsibility for reengineering the household goods

process.

Program Status Since 1994, DOD has initiated a number of pilot programs to improve the

process for shipping household goods. The Military Traffic Management

Command (a subcommand of the Transportation Command), the Army,

and the Navy have initiated pilots. Some, such as the Army’s Hunter Pilot

Project, have been ongoing for several years.3 In February 1999, the

Department proposed a fourth pilot called the Full Service Moving Project.

DOD is attempting to bring a Department-wide focus to the reengineering

initiative. To do this, the Transportation Command will evaluate two of the

pilot tests—the Military Traffic Management Command’s pilot and the Full

Service Moving Project. The Traffic Management Command’s pilot involves

selecting carriers on the basis of performance and not merely price. The

Full Service Moving Project includes outsourcing the personal property

office function to a move manager. The Transportation Command plans to

evaluate the pilots to determine which pilot, or portions thereof, could

provide better long-term results. It plans to have the new process in place

sometime during 2002.

In 1999, we testified before the Subcommittee on Military Readiness,

Committee on Armed Services, House of Representatives, that improving

DOD’s personal property program has been a slow, complex process and

that before any type of conclusion about these efforts can be reached, DOD

must have accurate and credible data to determine the type and extent of

changes that should be made.4 To its credit, DOD is developing an

3 See Defense Transportation: The Army’s Hunter Pilot Project Is Inconclusive but Provides

Lessons Learned (GAO/NSIAD-99-219, June 23, 1999).

4 Defense Transportation: Efforts to Improve DOD’s Personal Property Program

(GAO/T-NSIAD-99-106, Mar. 18, 1999).
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evaluation plan to measure the performance of the pilots in relation to each

other and against the current in-house program. However, DOD is

experiencing some delays in developing the plan. Officials are trying to

resolve issues related to the format and questions to be included in

customer satisfaction surveys and how best to capture cost information.

It is unclear at this time to what extent the pilots will incorporate electronic

commerce capabilities. According to a representative of the Office of the

Secretary of Defense (Transportation), one of the pilots is expected to use

a commercial off-the-shelf software package, called PowerTrack, to bill and

pay for the moves and to provide visibility of costs. (PowerTrack is

discussed under the Transportation Reengineering initiative.)

Paperless Contracting DOD makes millions of purchases annually. While the majority of the

purchases, about 9 million transactions in fiscal year 1999, are under $2,500

and are made using purchase cards, several million purchases are made

using DOD’s contracting processes, which are carried out at over 900

locations around the world. Until recently, these contracting processes

remained inefficient and paperbound. Each military service and Defense

agency used different processes—nonstandard organizational structures,

systems, data formats, and operating procedures—to carry out its

respective contracting and contract administration processes. Moreover,

these processes were largely manual, paper intensive, redundant, and slow.

These conditions resulted in pervasive contract administration

inefficiencies, not the least of which were inaccurate accounting records

and payments.

DOD’s paperless contracting initiative is trying to improve this situation by

bringing more efficiency to the various contracting processes. Integral to

this improvement effort is eliminating paper from the process. The effort

began with a May 1997 Management Reform Memorandum that established

a target completion date of January 2000. The Defense Reform Initiative

reemphasized the DOD goal of making all aspects of its contracting process

for major weapons systems paper free by January 1, 2000. DOD established

a working-level integrated process team to monitor and report status on the

effort.

Program Status To achieve the paperless contracting goals, the process team has focused

on six generic components of the various contracting processes used by

the military services and Defense agencies. The six components are
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(1) identifying requirements, (2) issuing solicitations, (3) issuing contracts

and contract modifications, (4) accepting and processing receipts,

(5) accepting invoices and processing payments, and (6) closing out the

contract. Specific tasks that must be completed by the military services and

Defense agencies are associated with each component. Moreover, the

paperless contracting initiative is actually a number of technologies and

systems that must work together and share information electronically to

achieve paperless processing for the six components. For DOD to fully

realize its goals, several automated systems or electronic commerce

initiatives now under development need to be fully deployed. These include

the following systems, which will help standardize the procurement

process, electronically accept and process receipts and invoices,

electronically pay contractors, and provide the necessary security over

electronic transactions.

• The Standard Procurement System is expected to eliminate about 70

nonstandard procurement systems and bring improved business

practices to the overall procurement process.5

• The Defense Procurement Payment System is expected to become the

DOD standard procurement payment system; as planned, it will make

contract and vendor payments as well as grant entitlements.

• The Wide Area Workflow process, which relies on a number of already

available technologies and capabilities, is expected to allow the services

and agencies to electronically receive, accept, and share receiving

reports and invoices.

• The DOD public key infrastructure is expected to provide the digital

signature and data encryption capabilities that are needed to control

access to DOD systems and networks and authenticate electronic

transactions.

The Standard Procurement System has been partially implemented, but it is

not expected to be available to support major weapon system procurement

actions until sometime in 2003. The Defense Procurement Payment System,

the bill-paying system, will not be implemented until August 2002. The Wide

Area Workflow process has been partially implemented. Until these

systems and processes are fully deployed, DOD will continue to rely on

numerous existing systems to support paperless contracting processes. To

5 The scope of the Standard Procurement System extends beyond the paperless contracting

initiative. The success of the paperless contracting initiative depends on some but not all of

the capabilities included in the system.
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some extent, DOD can and has achieved its paperless contracting goals

without these systems. Nevertheless, the Department considers them

important for realizing its longer term goals of bringing additional

standardization, efficiencies, and security to its processes.

Besides depending on numerous system developments to be completed,

the paperless contracting initiative must address other issues. Foremost is

the Department-wide issue of how to implement a public key infrastructure

to control access to its systems and networks. Public key infrastructure

implementation includes the use of digital or electronic signatures to

ensure that authorizations and approvals, such as accepting goods and

making payments, are authentic. Not only must various technologies and

systems work together to provide a paperless contracting process, but

participants in the process—DOD organizations and vendors—must be

able to verify or authenticate transactions. Currently, DOD relies on user

identification codes—primarily passwords—to do this. In November 1999,

DOD decided to use smart cards (see discussion of smart cards on pp. 50-

51) to support its planned public key infrastructure. However, the

infrastructure implementation will probably not begin until late 2000.

Although it has made substantial progress, DOD did not achieve its goal of

having a completely paperless contracting process in place by January 1,

2000. The process team reported to the Deputy Secretary of Defense that,

by the end of 1999, about 78 percent of DOD’s contracting transactions

were being accomplished electronically. DOD senior managers have

recognized that it will likely be several years before paperless contracting

is fully realized because it will take time for key systems to be fully

deployed. Table 2 shows the progress DOD reported at the end of 1999.
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Table 2: Percent of Contracting Transactions Completed Electronically, as of December 1999

a

N/A=not applicable.

b

The Defense Finance and Accounting Service separates invoices and payments into separate

categories. As of December 1999, the Finance and Accounting Service received 49 percent of its

invoices and made 78 percent of its payments electronically.

Source: DOD Paperless Contracting Integrated Product Team.

Costs and Benefits DOD has not quantified the costs or expected benefits for the initiative.

According to DOD officials, costs are not being accumulated primarily

because the military services and Defense agencies have to fund the effort

from their respective budgets. Also, some system developments that

support the initiative, such as the Standard Procurement System and the

Defense Procurement Payment System, are formal programs and have their

own budgets. Moreover, because the paperless contracting initiative is not

being managed as a formal program, it is not subject to costing, budgeting,

and reporting requirements typical of large DOD programs.

DOD believes savings will be realized from the initiative. Although they

have not been quantified, they are expected to result from process

improvements associated with implementing new systems and

streamlining processes. The process improvements include eliminating

paper, redundant data input tasks, and inaccurate and duplicate payments

to contractors.

Prime Vendor Program DLA is implementing best commercial practices for acquiring and

distributing consumable-type supplies. These practices include the prime

Contract

requirements Solicitation

Awards/

modifications

Receipts/

acceptance

Invoice/

payment

Contract

closeout

DOD-wide 95 95 88 73 64 75

Air Force 68 90 56 48 N/A N/A

Army 79 87 90 0 N/A N/A

Navy 64 81 61 22 N/A N/A

DLA Supply 100 99 97 93 N/A N/A

DLA Contract

Administration

N/Aa N/A 49 52 N/A 92

Defense Finance

and Accounting

Service

75 N/A 75 57 49/78b 70
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vendor concept. This concept has helped DOD reduce its inventories and

improve the responsiveness of the logistics systems to DOD customers.

The prime vendor concept relies on private sector distribution capabilities

and electronic data processing capabilities to fulfill DOD customers’ needs.

Under the prime vendor concept, a portion of the inventory management

responsibilities is transferred to a single vendor, referred to as the prime

vendor. The prime vendor buys inventory from a variety of suppliers and

stores the inventory in commercial warehouses. DOD customers are able

to electronically order supplies directly from the prime vendor and pay for

them using a government purchase card. The prime vendor then ships the

order directly to the customer. With regard to advancing electronic

commerce practices and techniques, electronic ordering is the primary

practice employed by prime vendor arrangements. The electronic ordering

occurs over the Internet. The prime vendor contracts that are being

awarded require this capability.

The Defense Reform Initiative highlighted the need to increase the use of

prime vendors to manage parts, reduce government inventories, and

improve delivery times for all types of commodities managed by the

Defense Logistics Agency. In particular, it called for the Logistics Agency to

establish prime vendor contracts for one category of hardware items—

maintenance, repair, and operating materiel. Examples of these types of

supplies include lumber, paint, small tools, and electrical, plumbing, and

heating items. The military services are expected to work with the Defense

Logistics Agency to implement this initiative.

Program Status Most prime vendor contracts have been for consumable items that are

managed by DLA. Beginning in 1993, DLA has awarded numerous contracts

that cover the following supply categories: pharmaceutical, medical,

subsistence (food), food service equipment, clothing and textiles, wood

products, automotive, maintenance and repair, industrial gases, firefighting, marine lifesaving and diving, and metals. Overall, prime vendor

sales have increased. Sales reached about $1.8 billion for fiscal year 1999.

DLA’s most effective prime vendor efforts to date have been for medical

and food items. These efforts occurred from 1993-96; during this period, the

Agency began to emphasize this program and awarded a number of prime

vendor contracts. Since 1998, DLA has expanded its prime vendor program

to include contracts for hardware and clothing. However, these initiatives

have had only a limited impact on business operations. Hardware items

make up 95 percent of the consumable items managed by DLA but over
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90 percent of the estimated fiscal year 1999 sales in this category were not

covered by prime vendor arrangements.

In terms of maintenance, repair, and operating materiel, the Defense

Logistics Agency met the Defense Reform Initiative goal of establishing

prime vendor contracts that would be available to all major military

installations in the United States. However, these contracts have not been

widely used. Sales under these contracts represented less than 10 percent

of the $670 million spent on this materiel during fiscal year 1999.

Costs and Benefits The prime vendor program has demonstrated that it can provide benefits.

For example, the medical and food initiatives resulted in a reduction of

DOD inventory levels and related costs, and they improved service to

military customers. However, the overall potential benefits for the program

appear to be significant since the majority of DLA sales involve hardware

items and only a small portion of these items are being bought and

distributed under prime vendor arrangements.6

Purchase Card

Program

In fiscal year 1999, DOD made about 9 million purchases valued at $2,500 or

less (referred to as micropurchases) with purchase cards. Purchase cards

are commercial credit cards—either VISA or Master Cards—that are issued

to authorized DOD personnel to acquire and pay for supplies and services.

DOD implemented the card program to help streamline the acquisition

process. By using the card, DOD organizations can buy directly from

vendors and contractors, as well as government inventories, and avoid

processing requisitions and purchase orders through DOD procurement

offices. It is a less costly and more efficient purchasing alternative.

The emphasis on using purchase cards has grown over the last decade. The

cards were first introduced in the federal government in the early 1980s. In

1989, the General Services Administration awarded the first

governmentwide purchase card contract. In 1993, the National

Performance Review identified the purchase card as a major acquisition

reform and recommended that all federal agencies increase their use of the

card to cut the red tape normally associated with the federal procurement

6 See Defense Inventory: Opportunities Exist to Expand the Use of Defense Logistics Agency

Best Practices (GAO/NSIAD-00-30, Jan. 26, 2000).
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process. The Federal Acquisition Streamlining Act of 1994 established

$2,500 as the micropurchase threshold and eliminated certain procurement

restrictions for purchases within that threshold. In 1995, the Federal

Acquisition Regulation designated the purchase card as the preferred

method of payment for micropurchases. Later, the National Defense

Authorization Act for Fiscal Year 1998 required that at least 90 percent of

DOD’s micropurchases be made with the purchase card by October 1, 2000.

The Defense Reform Initiative report also called for DOD to increase the

use of the purchase card; however, it set a more ambitious goal of using the

card for at least 90 percent of its micropurchases by fiscal year 2000.

Program Status The Purchase Card Program transaction volume has grown significantly

over the last 5 years. It met the Defense Reform Initiative goal of using the

card for at least 90 percent of micropurchase transactions by fiscal year

2000. In fiscal year 1994, less than 1 million transactions were made with a

purchase card—this total represented only about 15 percent of DOD’s

micropurchases. In fiscal year 1998, the transaction volume grew to about

7.5 million. During fiscal year 1999, the transaction volume grew to about

9 million—this total represented just over 91 percent of micropurchases.

Table 3 shows the program status as of September 1999.

Table 3: Purchase Card Transactions by DOD Component (fiscal year 1999 totals)

Source: DOD Purchase Card Program office.

The Purchase Card Program has exceeded the Department’s reform goals,

but DOD is still addressing several issues associated with the card’s use.

First, DOD does not know what items and how many of each are being

bought with purchase cards. Inventory managers have expressed concern

about DOD not collecting this data. The managers believe the data are

Number of

cardholders

Number of

transactions Sales

Percentage of

micropurchases

DOD-wide 242,551 8,932,080 $4,596,122,124 91.6

Air Force 74,820 2,480,193 1,086,317,345 98.2

Army 108,425 3,637,817 1,756,841,043 97.6

Navy 49,068 2,356,379 1,405,865,002 96.7

Defense

Agencies

10,238 457,691 347,098,734 42.7
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needed so that the Department can buy or negotiate more efficiently and

plan for wartime scenarios. However, the program office stated that its

basic philosophy on this issue is that demand data should not be necessary

for purchase card items because they are primarily commercial items that

should be routinely available from commercial suppliers. Second, DOD

previously sought congressional support for legislation that would increase

the micropurchase threshold to $10,000. Increasing the threshold would

further reduce the volume of purchase transactions going through DOD’s

procurement processes. The Congress, however, did not take action on this

proposal. According to the Purchase Card Program manager, the Congress

was concerned about issues raised by labor representatives and small

businesses. As of May 2000, the Department had no plans to request an

increase to the micropurchase authority.

DOD is still seeking ways to improve or expand the program. According to

the program manager, DOD’s current emphasis is on using the card as a

payment vehicle for larger procurements where an underlying contract is in

place. Also, DOD has given its deployed forces overseas authority to use

the card for purchases up to $25,000. In addition, DOD is trying to improve

support for the program through better use of the Internet. For example,

according to the DOD Purchase Card Program manager, the contractors

included on the current General Services Administration purchase card

master contract were supposed to have the capability to establish new

accounts and issue new cards via Internet-based applications. This would

let account managers and cardholders review monthly statements and

dispute and/or question transactions over the Internet. These capabilities

were expected to further streamline aspects of administering the Purchase

Card Program. The contractors selected by DOD did not have this

capability when they were issued task orders to support the program. They

did, however, develop this capability by the end of fiscal year 1999. Another

important enhancement to the program involves the capability of DOD and

contractor systems to exchange data. Currently, contractor systems

supporting the DOD Purchase Card Program cannot electronically

exchange data with the Defense Finance and Accounting Service systems.

Consequently, the obligation of funds and the billing, paying, and

accounting processes are not as efficient as they could be. The program

office, in conjunction with the contractors, is testing this capability and

expects it to be in place by the end of 2000.

Costs and Benefits The Purchase Card Program has produced savings for DOD mainly because

it is a less costly and more efficient way for DOD organizations to buy
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needed goods and services directly from vendors. Moreover, the

Department expects the program to provide savings well into the future.

The purchase card eliminates the need to process purchase requests

through finance, supply, and procurement offices, thereby avoiding the

administrative and documentation requirements of the traditional

contracting processes. It also reduces the number of invoices that the

Defense Finance and Accounting Service must process for payment.

Together, these improvements reduce process time and personnel

requirements, thereby producing savings.

However, reliable DOD-wide savings estimates are not available for several

reasons. First, the military services and Defense agencies use different

procurement processes. As a result, the impact of purchase card use on

these processes varies by DOD component. Only the Army has a reliable

estimate of savings. According to an Army Audit Agency report, issued in

1996, each purchase card transaction saved the Army about $92 per

transaction in processing costs. Comparable data are not available for

other DOD components. Second, data that would show the impact on the

Defense Finance and Accounting Service’s payment process have not been

collected. For example, the number of nonpurchase card transactions

valued at $2,500 or less decreased from about 5 million in fiscal year 1994

to about 1.2 million in fiscal year 1998. This should have resulted in a

corresponding decrease in the number of invoices processed. However, the

Defense Finance and Accounting Service did not begin collecting the data

until October 1998. Nevertheless, the data that are available show that the

card program should be providing DOD with savings.

Smart Cards A smart card is a credit card-sized card with an integrated circuit chip that

allows the card to handle the functions of a computer. These functions

include the ability to store, update, and manipulate data, with capabilities

largely limited by the size of the chip’s memory. The memory in cards that

are currently available is still small so its applications are also limited.

Today, the cards are not widely used by the general public, but private

sector organizations are using them to support a variety of business

functions, including health care, financial services, and

telecommunications. Although their potential to change business practices

remains somewhat unclear, smart card advocates expect the private sector

and the government to find ways to use the cards to improve their business

processes.
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While all of the military services and the Defense Finance and Accounting

Service are using smart cards, the Navy is currently the federal

government’s largest smart card user, accounting for the majority of the

government’s estimated 200,000 cardholders. Uses include a so-called “man

overboard” application, in which shipboard personnel insert their cards

into card readers at central gathering points, or “mustering stations,”

during drills or actual emergencies. The resulting electronic head counts

eliminate the need for the slower and sometimes less accurate manual head

counts traditionally used. Other applications include using smart cards to

store selected information from individuals’ medical and dental records.

This practice helps reduce the volume of paper files traditionally used,

making it easier for personnel to carry their health histories with them, and

also eliminates redundant data entry requirements.

In November 1999, DOD decided to expand its use of the cards in two ways.

First, DOD plans to distribute smart cards to all personnel to serve as the

Department’s common access card and its public key infrastructure token.

As an access card, the smart card will be issued to all active duty military,

selected Reserve personnel, civilian employees, and eligible contractors

and used to control access to buildings and other restricted areas. It will

replace the Uniformed Services Identification Card and become the

standard identification card for civilian employees. As the public key

infrastructure token, the card will carry the mathematical codes, or “keys,”

that will enable DOD personnel to digitally sign and encrypt documents and

data, providing better security over information. DOD plans to have the

cards fully distributed and in use as access cards by the end of fiscal year

2002. Public key infrastructure capabilities will be phased in over the same

time period and beyond. Second, the Navy plans to continue implementing

various smart card applications. These efforts are being driven in part by

the fiscal year 2000 National Defense Authorization Act, which directed the

Navy to draw up plans to implement smart-card use in a naval region in

each of the Atlantic and Pacific Commands’ area of operations.7 The Navy,

7 This direction followed up a smart card mandate in the fiscal year 1999 Defense

Authorization Act, which directed the Navy to implement smart cards within at least one

carrier battle group, one carrier air wing, and one amphibious readiness group for both its

Atlantic and Pacific Fleets by June 30, 1999. In a June 29, 1999, letter to the Congress, the

Secretary of the Navy certified that the Department had completed this task. The Navy’s

smart card manager said this mandate served to accelerate Navy efforts to implement the

cards, which got under way in the mid-1990s. Also, although the Navy is by far DOD’s largest

smart card user, the other services have also been testing various smart cards applications.
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however, plans to go beyond these requirements and expand usage

Navy-wide.

Program Status With respect to DOD-wide efforts, the Department plans to begin issuing

smart cards on a large scale in fiscal year 2001. It is targeting an estimated

4 million people: all active duty, reserve, and National Guard military

personnel; civilian personnel; and contractors working on DOD systems.

DOD plans to issue cards to an estimated one-third of this population, or

about 1.3 million people, in 2001. The remaining portion is scheduled to

receive the cards in fiscal year 2002. In the meantime, through fiscal year

2000, the Department will concentrate on planning and development

issues, such as determining what information should be stored on the card

and preparing to mass issue the cards. It also plans to test the issue

processes and procedures.

The Department plans to distribute smart cards using the existing

infrastructure for issuing military identification cards. This infrastructure,

however, will need to be modified to accommodate the smart card

requirements. For example, DOD will need to equip the offices that will

issue the cards with the means to personalize the cards, such as by adding a

photograph of the cardholder and loading cardholder-specific data on the

card’s computer chip. In addition, the offices need to be equipped to

accommodate the public key infrastructure requirements, which involves

some reprogramming of existing systems that will be used to issue the

cards.

The Navy plans to begin its expansion efforts in April 2000. It will initially

target sites in the Atlantic and Pacific regions, which encompass an

estimated 530,000 Navy and Marine Corps personnel. Remaining locations

worldwide will then be phased in. The specific uses to be implemented fall

under 11 categories such as food service, personnel visibility, and property

accountability. Smart cards carry the data that support these 11 functions.

They have been tested and are already in use at various Navy locations.

Costs and Benefits DOD has budgeted about $78 million for smart card and common access

card implementation for fiscal years 2000 and 2001. For fiscal year 2000,

this includes $18.5 million for the Navy program and $13.1 million for the

common access card and public key infrastructure tokens. For fiscal year

2001, the amounts include $14.4 million and $31.9 million, respectively, for

these efforts. However, DOD officials involved with the smart card efforts
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expect these amounts to increase. They said many costs still need to be

determined or refined. For example, until the Navy begins negotiating with

installation commanders on what applications are to be used, it cannot

fully determine the cost of implementation. Moreover, the Department is

still developing smart card estimates for future years’ budgets. For

example, to accommodate the smart card’s use for the public key

infrastructure, DOD needs to install card readers on its computers to allow

the cards to interface with its systems. The Department is currently

evaluating potential costs for fiscal years 2002 and beyond and expects to

complete the evaluation in time for DOD’s next budget cycle.

As for benefits, the specific gains vary depending on how the cards are

used and are not always readily quantifiable, officials said. From an access

card standpoint, the smart cards will enable DOD personnel to use a single

card for building access and identification, compared to the multiple cards

personnel often have to use now. Moreover, DOD will eventually be able to

replace the different infrastructures used to issue the current cards with

the single smart card infrastructure, possibly freeing up resources for other

uses. The benefits of using smart cards for the public key infrastructure

token stem from the improved information security associated with digital

signature and encryption capabilities. And, according to Navy officials, the

Navy and the Marine Corps have already realized some business process

improvements, including reductions in administrative requirements and

improved data accuracy. DOD and Navy officials hope that, once smart

card capabilities are in place, advances in technology and more familiarity

with the cards will lead personnel to identify new ways to use the cards to

improve DOD operations.

Transportation

Reengineering

Numerous studies over many years have shown that DOD’s transportation

management organizational structure and its related processes are costly

and inefficient. In 1996, we reported that the fragmentation and duplication

inherent in this structure leads to higher transportation costs for Defense

customers.8 In response, the Department stated it would implement several

initiatives, including reengineering transportation financial processes. This

initiative began in July 1997.

8 Defense Transportation: Streamlining of the U.S. Transportation Command Is Needed

(GAO/NSIAD-96-60, Feb. 22, 1996).
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The objectives of the transportation reengineering initiative are to reduce

infrastructure costs, eliminate government-unique documentation, reduce

data requirements, improve data accuracy, increase the use of electronic

commerce, and employ best commercial practices. In March 1998, the

Deputy Secretary of Defense approved a reengineering concept and

implementation of prototypes for the four primary modes of DOD

transportation—airlift, sealift, surface, and express. Through the

prototypes, DOD evaluated the use of commercial transportation

documents in lieu of government-unique documents, purchase cards to pay

transportation bills, and a commercial software package called

PowerTrack to process bills and make payments. DOD also assessed the

ability of a third-party logistics provider to satisfy domestic freight

transportation requirements. In February 1999, as a result of the

prototypes, the Deputy Secretary of Defense directed the implementation

of the transportation reengineering initiative throughout DOD.

Program Status Thus far, DOD has taken several actions to implement the initiative. It has

begun (1) using commercial documentation instead of Government Bills of

Lading and military manifests, (2) using PowerTrack, and (3) developing a

prototype for outsourcing transportation management functions, including

paying carriers.

In the past, the Department has used the Government Bills of Lading and

military manifests to pay transportation bills. However, commercial

transportation documents are less data intensive and easier to use. By

switching from government-unique to commercial documentation, the

Department expects to eliminate 1.6 million documents annually. The use

of commercial documentation, along with PowerTrack, will reduce the

workload of the Defense Finance and Accounting Service and help

streamline the payment process.

The Department has begun using PowerTrack and plans to have it fully

implemented by December 2000. PowerTrack is designed to track

transportation transactions and pay transportation bills. It is an on-line

database accessible to DOD and its carriers via the Internet, Electronic

Data Interchange, and telephone. PowerTrack receives shipment

information and stores it in a central database, provides an auditable

record of transportation movement and payment transactions,

automatically reconciles bills, and provides on-line dispute resolution.

PowerTrack charges carriers a transaction fee ranging from 1 to 2 percent,

but in return carriers will have a faster and easier payment process. DOD’s
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goal is to pay carriers within 3 days of delivery. As of April 2000, the

Department had 153 sites and 177 carriers using PowerTrack and was

paying about 50 percent of its transportation bills with it.

Finally, in May 2000, the Department issued a Request for Proposals to pilot

test third-party logistics support. Proposals are due to DOD in July 2000,

and a contract is expected to be awarded after they are evaluated. Through

this contract, DOD plans to determine if third-party logistics practices and

capabilities can improve freight transportation within the continental

United States.

While DOD has made some progress in reforming its transportation

processes, some problems have surfaced with PowerTrack. These

problems involve Internet access, system security, and data reliability. For

example, DOD has been unable to implement PowerTrack at some

installations because they do not have the equipment or technical

infrastructure necessary for accessing the Internet. Also, it has not resolved

issues regarding the level of security needed to safeguard PowerTrack

against computer hackers. And finally, some DOD systems feed inaccurate

and unreliable data to PowerTrack, which will adversely affect

PowerTrack’s ability to automatically reconcile bills.

Costs and Benefits DOD estimates a total investment cost for its transportation reengineering

effort of $41.4 million for fiscal years 1997-2000. This estimate includes

$8.4 million for the pilot and prototype tests, $25 million for system

hardware and software modifications, $5.9 million for contractor support,

and $2.1 million for the program management office. DOD does not have to

pay for its use of PowerTrack; however, DOD carriers will have to pay a fee

ranging from 1 to 2 percent every time they use PowerTrack. This cost

could eventually be passed on to DOD in the form of increased freight

charges.

DOD believes that implementation of its transportation reengineering

effort will yield a minimum of about $11.2 million in savings annually. The

Department attributes about $8.4 million to a reduction in workload at the

Defense Finance and Accounting Service because it will process fewer

transactions as a result of the use of commercial documentation. In

addition, PowerTrack streamlines the payment infrastructure. DOD

expects carriers to be paid more quickly, the number of billing documents

to be reduced, and billing disputes to be resolved more efficiently. For

example, after delivery of a shipment, PowerTrack can automatically pay a
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carrier within 3 days if the carrier’s electronic bill matches the expected

service cost. Under the old system, carrier payment could take as long as 60

to 90 days. Further, PowerTrack enables DOD transportation managers to

verify receipt of the shipment prior to authorizing payment to the carrier.

This feature is a significant improvement over the current process.

DOD has not identified benefits related to outsourcing the transportation

management function. DOD officials told us that they will determine

benefits after the prototype is completed.
Page 57 GAO/NSIAD-00-108 Defense Management

Appendix III

DOD Electronic Business Strategic Goals,

Objectives, and Strategies ApendxiI

The following table identifies the goals, objectives, and strategies included

in DOD’s May 1999 Electronic Business/Electronic Commerce Strategic

Plan.

Table 4: Electronic Business Goals, Objectives, and Strategies

Goal 1

Achieve global flexibility, increased productivity, and a dynamic working environment through the application of

electronic business/electronic commerce.

Objective 1.1 Develop and implement collaborative electronic business/electronic commerce strategies that permit electronic

business/electronic commerce functions to achieve electronic interoperability within DOD and between DOD and its

federal agency and private sector business partners.

Strategy 1.1.1 Evaluate existing electronic business/electronic commerce initiatives and develop plans to achieve cross-functional and

cross-organizational integration.

Strategy 1.1.2 Establish an electronic business/electronic commerce senior advisory group under the DOD Chief Information Officer

Council.

Strategy 1.1.3 Develop and publish a DOD directive establishing departmental policy on electronic business/electronic commerce.

Strategy 1.1.4 Develop, publish, and integrate appropriate principal staff assistant, military service, and agency electronic

business/electronic commerce planning and implementation strategy documents.

Strategy 1.1.5 Establish electronic business/electronic commerce guidance in the Defense Planning Guidance and Program Objectives

Memorandum instructions and represent electronic business/electronic commerce resource needs in the Planning,

Programming, and Budgeting Systems processes.

Strategy 1.1.6 Establish an efficient, cost-effective, centralized oversight and management process for the DOD electronic

business/electronic commerce effort that supports strategic implementation and maximizes the use of scarce resources.

Strategy 1.1.7 Participate in federal and industry groups and consortia to ensure that DOD and its business partners are fully

interoperable using existing and emerging commercial standards and practices.

Objective 1.2 Use commercial applications and standards to maximize consistency, availability, and the exchange of electronic data.

Strategy 1.2.1 Establish a clearinghouse for tracking successful DOD and commercial electronic business/electronic commerce

solutions.

Strategy 1.2.2 Establish relationships with the commercial sector to accurately impart DOD business requirements and concerns so it

can better satisfy DOD needs.

Strategy 1.2.3 Broaden and formalize DOD participation in industry electronic business/electronic commerce-related standards efforts.

Strategy 1.2.4 Expedite implementation of commercial standards and adoption of commercial applications where appropriate.

Objective 1.3 Establish an infrastructure that allows the electronic business/electronic commerce systems of DOD and its business

partners to communicate, maximizing the use of commercial standards and communication systems.

Strategy 1.3.1 Provide an infrastructure that facilitates a seamless, secure, and reliable interface to the Department’s business partners.

Strategy 1.3.2 Provide for data accessibility from the single, consistent, best source of information.

Strategy 1.3.3 Use commercial standards for the electronic exchange of all data within DOD and between DOD and its business

partners.

Strategy 1.3.4 Foster industry partnerships to seek common approaches, to resolve obstacles to enabling interoperable business

operations, and to implement easier, simpler, and less costly solutions.
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Strategy 1.3.5 Provide increased use of the Internet and World Wide Web as a secure, reliable electronic business/electronic commerce

communications vehicle. Design a process for identifying, developing, and executing electronic business/electronic

commerce common user services.

Strategy 1.3.6 Establish mechanisms to consolidate and aggregate DOD electronic business/electronic commerce requirements to

better ensure commercial response to collective DOD needs.

Objective 1.4 Instill trust and confidence in electronic business/electronic commerce processes by establishing privacy and security

measures.

Strategy 1.4.1 Use a system for digital signature and public key infrastructure for electronic business/electronic commerce applications

to provide adequate identification, authentication, and integrity checks commensurate with business needs and security

requirements.

Strategy 1.4.2 Provide adequate protection to ensure confidentiality commensurate with data content.

Strategy 1.4.3 Provide for privacy and confidentiality of trading partners’ data.

Strategy 1.4.4 Employ risk management techniques to balance security costs with expected losses.

Goal 2 Achieve efficient and effective responses to changing environments by the rapid introduction of business

process improvements or reengineering and the exploitation of electronic business/electronic commerce

technologies.

Objective 2.1 Identify, evaluate, and adopt best business practices for their applicability to DOD electronic business operations.

Strategy 2.1.1 Establish a process to continually identify and benchmark electronic business/electronic commerce business practices of

the public and private sectors.

Strategy 2.1.2 Establish streamlined procedures for policy changes and budgetary reallocations to support adoption of reengineered

efforts.

Strategy 2.1.3 Champion electronic business/electronic commerce investments that support streamlined processes, fuel innovation, and

improve mission performance.

Strategy 2.1.4 Establish outreach mechanisms to share electronic business/electronic commerce solutions and techniques.

Strategy 2.1.5 Establish mechanisms to apply best business solutions and techniques when reengineering programs and processes.

Objective 2.2 Leverage business process reengineering activities to achieve streamlined processes prior to implementing electronic

business/electronic commerce technologies.

Strategy 2.2.1 Design, develop, and promote solutions that support paperless initiatives.

Strategy 2.2.2 Evaluate existing electronic business operations for migration to commercial applications, standards, and practices.

Strategy 2.2.3 Provide education and training on electronic business/electronic commerce technologies and opportunities to process

reengineering activities.

Objective 2.3 Maximize existing and emerging electronic business/electronic commerce technologies to achieve interoperability across

the enterprise.

Strategy 2.3.1 Promote Internet and World Wide Web-based commerce solutions.

Strategy 2.3.2 Base new electronic business operations on best industry practices and on commercial applications and standards.

Strategy 2.3.3 Seek industry partnerships in reengineering business processes using electronic business/electronic commerce

technologies.

Goal 3 Achieve cultural changes and shifts from current business practices through guidance and the attainment of

necessary skills for implementation of electronic business/electronic commerce.

Objective 3.1 Develop education programs that promote the use of electronic business/electronic commerce.

Strategy 3.1.1 Establish education programs that focus on best electronic business/electronic commerce practices, policies, principles,

and technologies.

(Continued From Previous Page)
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Objectives, and Strategies

Page 59 GAO/NSIAD-00-108 Defense Management

Note: The table identifies a total of 41 strategies that support DOD’s goals and objectives.

Source: DOD Electronic Business/Electronic Commerce Strategic Plan dated May 1999.

Strategy 3.1.2 Develop a recognition program for DOD activities that have established an aggressive and effective program for

implementing electronic business/electronic commerce.

Strategy 3.1.3 Evaluate and incorporate electronic business/electronic commerce training opportunities into Defense educational

institutions and schools.

Strategy 3.1.4 Actively seek to market DOD success stories and best practices in mainstream publications. Seek to garner industry

recognition and awards.

Objective 3.2 Establish a DOD-wide source for advice to aid in the implementation of electronic business/electronic commerce.

Strategy 3.2.1 Establish functional and technical consulting services for the application of electronic business/electronic commerce

concepts and technologies.

Strategy 3.2.2 Develop an on-line conveyance mechanism for electronic business/electronic commerce technical and functional advice.

Objective 3.3 Establish improved communications with industry and other federal agencies to better define and articulate DOD

requirements.

Strategy 3.3.1 Broaden and formalize DOD participation in industry electronic business/electronic commerce conferences and

symposia.

Strategy 3.3.2 Establish processes and procedures to promulgate electronic business/electronic commerce capabilities, successes, and

requirements across DOD and with trading partners.

Strategy 3.3.3 Establish an organization with the responsibility for coordinating public relations activities for all DOD electronic

business/electronic commerce activities.

(Continued From Previous Page)
Page 60 GAO/NSIAD-00-108 Defense Management

Appendix IV

Comments From the Department of Defense ApendxiIV
Appendix IV

Comments From the Department of Defense

Page 61 GAO/NSIAD-00-108 Defense Management
Appendix IV

Comments From the Department of Defense

Page 62 GAO/NSIAD-00-108 Defense Management
Appendix IV

Comments From the Department of Defense

Page 63 GAO/NSIAD-00-108 Defense Management
Page 64 GAO/NSIAD-00-108 Defense Management

Appendix V

GAO Contact and Staff Acknowledgments ApendxiV

GAO Contact Barry Holman (202) 512-8412

Acknowledgments In addition to the name above, James Hatcher, James Fuquay, Leticia Bates,

and Jeanne Willke made key contributions to this report.
Page 65 GAO/NSIAD-00-108 Defense Management

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