Contract Management: Further Action Needed to Improve Veterans Affairs Acquisition Function
Published: 2005-10-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Veterans Affairs (VA) is among the largest federal acquisition agencies, spending $7.3 billion on product and service acquisitions in 2004 alone. Recent reports by VA and other organizations identified weaknesses in the agency's acquisition function that could result in excess costs to the taxpayer. One report by the Naval Supply Systems Command (NAVSUP) made 24 recommendations to improve VA's acquisition function. VA has accepted these recommendations. GAO was asked to review the progress VA has made in implementing the key NAVSUP recommendations. GAO identified 7 of the 24 recommendations as key, based primarily on its professional judgment and prior experience.
section_title: What GAO Found
paragraphs: Progress made by the Department of Veterans Affairs in implementing the key recommendations from the NAVSUP report has been limited. In fact, a year after the report was issued, VA has not completed actions on any of the seven key recommendations GAO identified. While VA agrees implementation of the key recommendations is necessary, the steps it has taken range from no action to partial action. No action has been taken on three key recommendations: to develop a long-term improvement plan, adequate management metrics, and a supplement to the agency's strategic plan. No more than partial action has been taken on four others: establishment of a contract review board for reviewing files at key milestones along with improvement of postaward contract management, customer relationships, and employee morale. A lack of permanent leadership in key positions has contributed to the lack of further progress in revising acquisition policies, procedures, and management and oversight practices, according to VA officials. For example, two key VA acquisitions management positions were unfilled--one for 15 months and the other for 25 months. In addition, VA has neither set time frames for completing actions on the NAVSUP recommendations nor established a method to measure progress. Until VA establishes a process for completing action on the NAVSUP recommendations, the benefits of the study may not be fully realized.

section_title: Letter
paragraphs: The Department of Veterans Affairs (VA) operates one of the largest health  care systems in the world and is among the largest acquisition agencies in  the federal government. In fiscal year 2004 alone, VA spent $7.3 billion  acquiring the products and services needed to carry out its mission on  behalf of the nation’s veterans. Recently, reports by entities within VA as  well as outside organizations have identified various weaknesses in the  agency’s acquisition function that could affect the successful  accomplishment of its mission or result in higher than necessary costs to  the taxpayer. Among these reports is one prepared by the Naval Supply  Systems Command (NAVSUP), a Navy acquisition organization VA had  requested to assess its acquisition function. The NAVSUP report identified  a wide range of areas needing VA management attention and made   24 recommendations, which VA agrees should be implemented.
Given the importance of acquisition to VA’s mission, you asked us to  review the progress VA has made in implementing the key  recommendations in the NAVSUP report. In selecting 7 key  recommendations from among the 24 in the report, we relied primarily on  our professional judgment and the experience gained from previous  reviews of acquisition issues at various federal agencies. We also  considered the importance the NAVSUP report and VA officials assigned  to the specific recommendations. We chose recommendations that, if  implemented successfully, are likely to have the broadest and most  significant impact on VA’s operations. Appendix I lists the   24 recommendations of the NAVSUP report, starting with the   7 recommendations we identified as key. To determine the status of the  seven key recommendations, we met with acquisition officials at VA’s  Office of Acquisition and Materiel Management (OA&MM) and with  officials at VA’s Office of Inspector General (IG) who are responsible for  audits of contracting practices. We also reviewed relevant agency  documents. We did not independently assess the state of the acquisition  function at VA. We conducted our review from March to August 2005 in  accordance with generally accepted government auditing standards. A  more detailed discussion of our scope and methodology is in appendix II.
subsections: section_title: Background
paragraphs: The Office of Acquisition and Materiel Management is the principal office  within VA headquarters responsible for supporting the agency’s programs.  The OA&MM includes an Office of Acquisitions that, among other things,  provides acquisition planning and support, helps develop statements of  work, offers expertise in the areas of information technology and software  acquisition, develops and implements acquisition policy, conducts  business reviews, and issues warrants for contracting personnel. As of  June 2005, the Office of Acquisitions was managing contracts valued at  over $18 billion, including option years.
In recent years, reports have cited inadequacies in the contracting  practices at VA’s Office of Acquisitions and also have identified actions  needed to improve them. In fiscal year 2001, the VA IG issued a report that  expressed significant concerns about the effectiveness of VA’s acquisition  system. As a result, the Secretary of Veterans Affairs established, in June  2001, a Procurement Reform Task Force to review VA’s procurement  system. The task force’s May 2002 report set five major goals that it  believed would improve VA’s acquisition system: (1) leverage purchasing  power, (2) standardize commodities, (3) obtain and improve  comprehensive information, (4) improve organizational effectiveness, and  (5) ensure a sufficient and talented workforce.
Issues related to organizational and workforce effectiveness were at the  center of the difficulties VA experienced implementing its Core Financial  and Logistics System (CoreFLS). The VA IG and an independent  consultant issued reports on CoreFLS in August 2004 and June 2004,  respectively, and both noted that VA did not do an adequate job of  managing and monitoring the CoreFLS contract and did not protect the  interests of the government. Ultimately, the contract was canceled after  VA had spent nearly $250 million over 5 years.
In response to deficiencies noted in the CoreFLS reports, VA sought help  to improve the quality, effectiveness, and efficiency of its acquisition  function by requesting that NAVSUP perform an independent assessment  of the Acquisition Operations Service (AOS).  NAVSUP looked at three  elements of the contracting process: management of the contracting  function; contract planning and related functions; and special interest  items such as information technology procurements, use of the federal  supply schedule, and postaward contract management. In a September  2004 report, NAVSUP identified problems in all three elements.
section_title: Progress Limited in Implementing Key NAVSUP Recommendations
paragraphs: While VA agrees with the NAVSUP report’s recommendations, limited  progress has been made in implementing the seven key recommendations  of the report. VA officials indicate that factors contributing to this limited  progress include the absence of key personnel, a high turnover rate, and a  heavy contracting workload. We found that VA has neither established  schedules for completing action on the recommendations nor established  a method to measure its progress. Until VA establishes well-defined  procedures for completing action on the NAVSUP recommendations, the  benefits of this study may not be fully realized.
subsections: section_title: Range of Actions on Recommendations
paragraphs: The status of the seven key recommendations we identified is summarized  in Table 1:  Action taken by VA on the seven key recommendations in the NAVSUP  report has varied from no action, to initial steps, to more advanced efforts  in specific areas.
Long-term improvement plan. NAVSUP recommended that AOS  develop a long-term approach to address improvements needed in key  areas. VA acknowledges that establishing a long-term improvement plan is  necessary to maintain its focus on the actions that will result in desired  organizational and cultural changes. During the course of our review,  however, we found that no action has been taken to develop a long-term  improvement plan with established milestones for specific actions.
Adequate management metrics. NAVSUP recommended that AOS  develop metrics to effectively monitor VA’s agencywide acquisition and  procurement processes, resource needs, and employee productivity  because it found it that AOS was not receiving information needed to  oversee the contracting function. VA officials agree that they need to have  the ability to continuously and actively monitor acquisitions from the pre- award to contract closeout stages to identify problem areas and trends. VA  officials acknowledge that, without adequate metrics, its managers are  unable to oversee operations and make long-term decisions about their  organizations; customers cannot review the status of their requirements  without direct contact with contracting officers; and contracting officers  are hampered in their ability to view their current workload or quickly  assess deadlines. During our review, VA officials stated that they intend to  use a balanced scorecard approach for organizational metrics in the  future.  However, no steps had been taken to establish specific metrics at  the time we completed our review.
Strategic planning. NAVSUP recommended that AOS develop a  supplement to the OA&MM strategic plan that includes operational-level  goals to provide employees with a better understanding of their roles and  how they contribute to the agency’s strategic goals, objectives, and  performance measures. VA officials indicated that progress on the  strategic plan had been delayed because it will rely heavily on  management metrics that will be identified as part of the effort to develop  a balanced scorecard. With the right metrics in place, VA officials believe  they will be in a much better position to supplement the strategic plan. VA  had not revised the strategic plan by the time we finished our review.
Process to review contract files at key acquisition milestones.
NAVSUP recommended that AOS establish a contract review board to  improve management of the agency’s contract function. NAVSUP believed  that a contracting review board composed of senior contracting officers  would provide a mechanism to effectively review contracting actions at  key acquisition milestones and provide needed overall management. To  enhance these reviews, VA has prepared draft standard operating  procedures on how contract files should be organized and documented.  Final approval is pending. VA officials indicated, however, that no  decisions have been made about how or when they will institute a contract  review board as part of the agency’s procurement policies and processes.
Postaward contract management. NAVSUP recommended that the AOS  contracting officers pay more attention to postaward contract  management by developing a contract administration plan, participating in  postaward reviews, conducting contracting officer technical  representative reviews, and improving postaward file documentation. We  found that VA has taken some action to address postaward contract  management. For example, AOS is training a majority of its contracting  specialists on the electronic contract management system. VA officials  indicated that the electronic contract management system will help  improve its postaward contract management capability.  The electronic  contract management system is a pilot effort that VA expects to be  operational in early 2006. Also, final approval for a draft standard  operating procedure for documenting significant postaward actions is  pending.
Customer relationships. NAVSUP reported that VA’s ability to relate to  its customers is at a low point and recommended VA take action to  improve customer relations. Some mechanisms VA officials agreed are  needed to improve customer relations include requiring that program  reviews include both the customer and contracting personnel, greater use  and marketing of the existing customer guide to customers and  contracting communities, the establishment of a customer feedback  mechanism such as satisfaction surveys, placing a customer section on the  World Wide Web, and engaging in strategic acquisition planning with  customer personnel. We noted that VA is taking some of the actions  recommended by NAVSUP. For example, VA has established biweekly  meetings with major customer groups, created customer-focused teams to  work on specific projects, and nearly completed efforts to issue a  comprehensive customer guide. Pending are efforts to include customers  in the AOS review process and to develop a customer section on the web  site.
Employee morale. The NAVSUP report said that VA employee morale is  at a low point and is having an impact on employee productivity. NAVSUP  said that AOS needs to respond to its employee morale issue by addressing  specific employee concerns related to workload distribution, strategic and  acquisition planning, communication, and complaint resolution. VA has  taken several actions related to employee morale. Workload distribution  issues have been addressed by developing a workload and spreadsheet  tracking system and removing restrictions on work schedules for  employees at ranks of GS-15 and below. Strategic planning actions  completed include the development of mission and vision statements by a  cross section of VA personnel and collective involvement in approval of  organizational restructuring efforts. Communication and complaint  resolution issues are being resolved by facilitating a meeting between AOS  management and employees to air concerns. Partially completed actions  include the development of new employee training module, including a  comprehensive new employee orientation package. According to VA, new  employee training includes the dissemination of draft standard operating  procedures. VA is also in the process of developing an employee survey to  measure overall employee satisfaction.
section_title: Factors Contributing to Limited Progress
paragraphs: Discussions with VA officials indicate that the agency believes its limited  progress has largely been due to the absence of permanent leadership and  insufficient staffing levels. Officials told us that the recommendations will  be implemented once key officials are in place. For example, positions for  two key VA acquisition managers—Associate Deputy Assistant Secretary  for Acquisitions and the Director for AOS—were unfilled for about 25  months and 15 months, respectively. But during the course of our review  these positions were filled.
As of August 25, 2005, AOS has still not selected permanent personnel for  17 of its 62 positions. This includes two other key management positions— the Deputy Director of Field Operations and the Deputy Director for VA  Central Office Operations, both filled by people in an acting role.  Supervisory leadership has also suffered as a consequence of  understaffing, VA officials said. Four of the eight supervisory contract  specialist positions are filled by people in an acting role. Critical  nonsupervisory positions also have remained unfilled, with 11 contract  specialists’ positions vacant. The absence of contract specialists has  largely been caused by a high turnover rate. According to VA officials, the  high turnover rate can be attributed to a heavy contracting workload, as  well as the other factors identified in the NAVSUP report.
When asked, the VA officials we spoke with could not provide specific  time frames for completing actions on the recommendations or a method  to measure progress. We believe the lack of an implementation plan with  time frames and milestones, as well as a way to measure progress,  contributed to VA’s limited progress in implementing the key NAVSUP  recommendations.
section_title: Conclusions
paragraphs: The seven key NAVSUP recommendations we identified have not been  fully implemented. While some progress is being made, progress is lacking  in those areas that we believe are critical to an efficient and effective  acquisition process. If key recommendations for improvement are not  adequately addressed, VA has no assurance that billions of its Office of  Acquisitions contract dollars will be managed in an efficient and effective  manner, or that it can protect the government’s interest in providing  veterans with high-quality products, services, and expertise in a timely  fashion at a reasonable price.
While personnel-related factors have contributed to VA’s lack of progress,  the absence of schedules for completion of actions and of metrics that  could be used to determine agency progress is also an important factor.  Current VA officials, even those in an acting capacity, can identify  timetables for completing action on key NAVSUP recommendations and  establish a means to determine progress. Without these elements of an  action plan, the benefits envisioned by the study may not be fully realized.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Veterans Affairs direct the Deputy  Assistant Secretary for Acquisition and Materiel Management to  identify specific time frames and milestones for completing actions on the  key NAVSUP recommendations, and   establish a method to measure progress in implementing the  recommendations.
section_title: Agency Comments
paragraphs: In commenting on a draft of this report, the Deputy Secretary of Veterans  Affairs agreed with our conclusions and concurred with our  recommendations.  VA’s written comments are included in appendix III.
We will send copies of this report to the Honorable R. James Nicholson,  Secretary of Veterans Affairs; appropriate congressional committees; and  other interested parties.  We will also provide copies to others on request.   In addition, the report will be available at no charge on the GAO Web site  at http://www.gao.gov.
If you have any questions concerning this report, please contact me at  (202) 512-4841 or by e-mail at woodsw@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this report.  Key contributors to this report were   Blake Ainsworth, Penny Berrier, William Bricking, Myra Watts Butler,  Christina Cromley, Lisa Simon, Shannon Simpson, and Bob Swierczek.
section_title: Appendix I: NAVSUP’s Report Recommendations
paragraphs: In September 2004, the Naval Supply System Command (NAVSUP) issued  a report, Procurement Performance Management Assessment Program  on its review of the Department of Veterans Affairs, Office of Acquisition  and Materiel Management, Acquisition Operations Service. The 24  recommendations contained in the NAVSUP report are listed in table 2  below. The first seven recommendations listed are the key  recommendations we identified.
section_title: Appendix II: Scope and Methodology
paragraphs: To select the key recommendations from those identified in the NAVSUP  September 2004 report, we focused on recommendations that, if  successfully implemented, are likely to have the broadest and most  significant impact on the Department of Veterans Affairs’ (VA) operations.  We chose recommendations that are crosscutting in nature. Accordingly,  in many instances recommendations we did not identify as being key are  nevertheless, we believe, covered to some extent by one or more of the  key recommendations. In making our selections, we relied primarily on  our professional judgment and the experience gained over many years in  reviews of acquisition management issues governmentwide. In particular,  we relied on the observations and guidance captured in a draft of a GAO  report entitled Framework for Assessing the Acquisition Function at  Federal Agencies. With this insight, we determined that 7 of the 24  NAVSUP recommendations were key.
To identify the progress VA has made in implementing these seven key  NAVSUP recommendations, we met with acquisition officials at VA’s  Office of Acquisition and Materiel Management (OA&MM). We also  reviewed documents intended to demonstrate the status of VA’s actions.
In order to attain a broader view of VA acquisition issues, we identified  and reviewed other VA and independent reports issued prior to the  NAVSUP report. This included VA’s Procurement Reform Task Force (May  2002) report, which recommended ways to improve procurement practices  across VA, and reports by the VA Inspector General (August 2004) and  Carnegie Mellon (June 2004) that noted contract management problems on  a VA contract for the Core Financial and Logistics System (CoreFLS). We  reviewed past and current policies, procedures, and internal controls  associated with VA acquisition processes. We obtained statistics from  OA&MM on the authorized size of the VA Acquisitions Operations Service  (AOS) contracting workforce and positions that still need to be filled. We  obtained data from the Federal Procurement Data System on what VA  spent during fiscal year 2004 for products and services. Further, we  obtained data from VA on the amount of contract dollars being managed  by VA’s Office of Acquisitions as of June 2005. We did not conduct an  independent assessment of the state of the acquisition function at VA.
We conducted our work from March to August 2005 in accordance with  generally accepted government auditing standards.
section_title: Appendix III: Comments from the Department Of Veterans Affairs