Defense Acquisitions: Actions Needed to Ensure Value for Service Contracts
Published: 2009-04-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2008, the Department of Defense (DOD) obligated over $200 billion on contracts for services, which accounted for more than half of its total contract obligations. Given the serious budget pressures facing the nation, it is critical that DOD obtain value when buying these services. Yet DOD does not always use sound practices when acquiring services, and the department lacks sufficient people with the right skills to support its acquisitions. Although DOD has ongoing efforts to improve its planning, execution, and oversight of service acquisitions, many concerns that prompted GAO to put DOD contract management on its high-risk list in 1992 remain. The committee asked GAO to address challenges facing DOD in measuring the value from and risks associated with its contracting for services. This testimony provides an overview of key concerns GAO cited in its previous reports. Specifically it focuses on (1) challenges DOD faces in following sound contract and contracting management practices and (2) recent actions DOD has taken to improve its management of service contracting. GAO has made numerous recommendations over the past decade aimed at improving DOD's management and oversight of service contracts, but it is not making any new recommendations in this testimony.
section_title: What GAO Found
paragraphs: DOD continues to face challenges in employing sound practices when contracting for and managing service contracts. The department has obtained services based on poorly defined requirements, used inappropriate business arrangements and types of contracts, and failed to adequately oversee and manage contractor performance. For example: (1) DOD sometimes authorized contractors to begin work before reaching a final agreement on the contract terms and conditions, including price. These arrangements, known as undefinitized contract actions, are used to meet urgent need or when the scope of the work is not clearly defined. In July 2007, GAO reported that DOD paid contractors nearly $221 million in questioned costs under one of these arrangements. (2) In fiscal year 2005, DOD obligated nearly $10 billion for professional, administrative, management support, and other services under time-and-materials contracts--contracts that are high risk for the government because they provide no profit incentive to the contractor for cost control or labor efficiency. As such, their use is supposed to be limited to cases where no other contract type is suitable and specific approvals are obtained. However, DOD frequently failed to provide such justification, and GAO's findings indicated the contracts were often used for expediency. (3) In a 2008 review, GAO found that incomplete contract files at some Army contracting offices hindered incoming contract administration personnel's assessments of contractors to make informed decisions related to award fees, which can run into the millions of dollars. These challenges expose DOD to unnecessary risk and may impede the department's efforts to manage the outcomes of its service contracts. For example, the absence of well-defined requirements complicates efforts to hold DOD and contractors accountable for poor acquisition outcomes. Use of inappropriate contract types, in addition to other factors, can result in DOD not obtaining the best value for its contract spending. Finally, failure to provide adequate oversight makes it difficult to identify and correct poor contractor performance in a timely manner. While DOD has taken some actions to respond to GAO's recommendations and congressional legislation, inconsistent implementation has hindered past DOD efforts to address these high-risk areas. To improve outcomes on the whole, DOD must ensure that these policy changes and others are consistently put into practice and reflected in decisions made on individual acquisitions. In addition, DOD needs to develop basic data about its service contracts to help inform how it contracts for services and its reliance on these contractors. GAO continues to assess DOD's efforts to implement a service acquisition management approach and the department's management and oversight of contractors supporting deployed forces.

section_title: Letter
paragraphs: We are pleased to be here today to discuss challenges the Department of  Defense (DOD) faces in ensuring that it gets value for the taxpayers’ dollar  and obtains quality contractor services in a cost-efficient and effective  manner. Many of these challenges are long-standing, but they have become  increasingly important as the department’s reliance on contractors for  services has grown in size and scope to the point that DOD officials have  acknowledged their inability to perform their mission without contract  support. These contracts provide a wide range of services that touch  almost all of the department’s activities, including health care, support to  intelligence activities, contracting support, and various professional,  management and administrative services, such as budget and program  management. In addition, service contracts provide a wide range of  support to our troops in Afghanistan and Iraq, including base support,  weapons and equipment maintenance, communication support,  interrogators, security, engineering support, and administrative support.
At issue is not whether the department should contract for services, for it  must. The issue rather is to what extent it should and how best to provide  oversight when it does. Numbers underscore the magnitude of the  oversight challenge. From fiscal years 2001 through 2008, DOD’s reported  obligations on contracts for services when measured in real terms  doubled—from roughly $92 billion to slightly over $200 billion. In fiscal  year 2008, this figure included more than $25 billion for services to support  Operations Enduring Freedom and Iraqi Freedom.
DOD’s increasing use of contractor-provided services results from  thousands of individual decisions and not from strategic, comprehensive  planning across the department. In other words, the volume and  composition of contracted services has not been a measured outcome. In  2006, we reported that DOD’s approach to managing services acquisition  tended to be reactive and had not fully addressed the key factors for  success at either a strategic or transactional level. The strategic level is  where the enterprise—DOD—sets a direction for what it needs, captures  knowledge to make informed management decisions, ensures that  departmentwide goals and objectives are achieved, and assesses the  resources it has to achieve desired outcomes. The strategic level sets the  context for the transactional level, where the focus is on making sound  decisions on individual service acquisitions using valid and well-defined  requirements, appropriate business arrangements, and adequate  management of contractor performance. Although DOD actions are  underway to improve the planning, execution, and oversight of services  acquisitions, remaining concerns with the department’s management and  use of service contracts are among the reasons why we continue to  include DOD’s contract management on our high-risk list.  To demonstrate  the longstanding nature of these problems, we first identified DOD  contract management as a high-risk issue in 1992.
Earlier this month we testified before this committee that significant  improvement in DOD’s acquisition of weapons systems is possible and that  the ability to measure knowledge, processes, and outcomes is critical to  achieving such improvements. DOD’s acquisition of services differs from  weapon system acquisitions, because contracted services are less  homogeneous, more numerous, and harder to measure, thus they pose  unique challenges when attempting to define requirements, establish  performance-based outcomes, and assess contractor performance. Our  statement today will focus on two areas: (1) the challenges DOD faces in  consistently following sound contracting and contract management  practices and (2) recent actions DOD has taken to improve its  management of services contracting. Our statement is based on work we  have completed over the past decade, which demonstrates ongoing  weaknesses in DOD’s management of service contracts.  Our work was  conducted in accordance with generally accepted government auditing  standards. We have made numerous recommendations to DOD to  improve its management and use of services contracts.
subsections: section_title: DOD Continues to Face Challenges in Employing Sound Practices When Contracting For and Managing Service Contracts
paragraphs: It is essential that DOD employ sound practices when using contractors to  support its missions or operations to ensure the department receives  value. This means clearly defining its requirements, using the appropriate  contract type, and properly overseeing contract administration. Our work,  however, has repeatedly identified problems with the practices DOD uses  to acquire services. Further, an overarching issue that impacts DOD’s  ability to properly manage its growing acquisition of services is having an  adequate workforce with the right skills and capabilities. Collectively,  these problems expose DOD to unnecessary risk and make it difficult for  the department to ensure that it is getting value for the dollars spent. Since  fiscal year 2001, DOD obligations for service contracts have doubled while  its acquisition workforce has remained relatively unchanged (see fig. 1).
subsections: section_title: Properly Defined Requirements are Essential to Obtaining Value
paragraphs: Properly defined requirements—whether at the DOD-wide level or the  contract level—are a prerequisite to obtaining value for the department. At  the DOD-wide level the department should have an understanding of what  it needs to contract for and why. However, we have frequently noted that  the department continues to be challenged to understand how reliant it is  on contractors and has yet to clearly determine what services it should  obtain from contracts and what services should be provided by the  military or DOD civilian employees. Furthermore, DOD lacks basic data  about its service contracts that could help it determine how it contracts  for services and how reliant it is on contractors. For example, at this time,  the department does not have complete and accurate information on the  number of services contracts in use, the services being provided by those  contracts, the number of contractors providing those services, and the  number and types of contracts awarded.
Once DOD determines what services contractors should provide, both the  contractor and the government need to have a clear sense of what the  contractor is required to do under the contract. Poorly defined or changing  requirements have contributed to increased costs, as well as services that  did not meet the department’s needs. The absence of well-defined  requirements and clearly understood objectives complicates efforts to  hold DOD and contractors accountable for poor acquisition outcomes. For  example:    DOD sometimes authorizes contractors to begin work before reaching a  final agreement on the contract terms and conditions, including price.  These types of contract actions, known as undefinitized contract actions,  are used to meet urgent needs or when the scope of the work is not clearly  defined. In July 2007, we reported that, DOD contracting officials were  more likely to pay costs questioned by Defense Contract Audit Agency  (DCAA) auditors if the contractor had incurred these costs before  reaching agreement with DOD on the work’s scope and price.  In fact,  DOD decided to pay the contractor nearly all of the $221 million in  questioned costs after making a determination based on additional  information. The lack of timely negotiations contributed significantly to  DOD’s decision—all 10 task orders were negotiated more than 180 days  after the work commenced. The negotiation delays were in part caused by  changing requirements, funding challenges, and inadequate contractor  proposals.
In both July 2004 and September 2006 we reported that a disagreement  between a contractor and DCAA on how to bill for services to feed  soldiers in Iraq resulted in at least $171 million in questioned costs that  DOD did not pay. The disagreement regarded whether the government  should be billed on the camp populations specified in the statement of  work or on the actual head count. A clearer statement of work, coupled  with better DOD oversight of the contract, could have prevented the  disagreement and mitigated the government’s risk of paying for more  services than needed. Negotiations between the contractor and DOD  resulted in a settlement whereby $36 million would not be paid to the  contractor.
On the other hand, requirements that provide DOD with a greater level of  service or performance than required can undermine the department’s  efforts to ensure value. For example:  In December 2008, we issued a report on performance based logistics,  which is defined by DOD as the purchase of performance outcomes (such  as the availability of functioning weapon systems) through long-term  support arrangements rather than the purchase of individual elements of  support—such as parts, repairs, and engineering support. In that report,  we noted for eight of the performance based logistics arrangements we  reviewed, the contractors significantly exceeded some of the contractual  performance requirements. We further noted that since the government is  paying for this excess performance, the performance based logistics  arrangement, as structured, may not provide the best value to the  government. For example, since 2002, the average annual operational  readiness for the Tube-launched, Optically-tracked, Wire-guided missile –  Improved Target Acquisition System has not been below 99 percent, and  the system’s operational readiness has averaged 100 percent since 2004.  According to a program official, the Army’s readiness standard for this  system is 90 percent. Despite the Army’s standard, it continued to include  a performance incentive that encouraged higher levels of performance  when negotiating a follow-on performance based logistics contract in  2007. The performance incentive includes payment of an award fee that  encourages operational readiness rates from 91 to 100 percent, with the  highest award fee paid for 100 percent average operational readiness.
section_title: Selected Contract Type and Business Arrangements Not Always Appropriate
paragraphs: When contracting for services, DOD has a number of choices regarding the  contracting arrangements to use. Selecting the appropriate type is  important because cost reimbursable contracts may increase the  government’s cost risk whereas firm-fixed price arrangements transfer  some of that cost risk to the contractor.  While use of the appropriate  contract type is important, it is not the sole factor in a successful  acquisition outcome—as noted in this statement, good requirements and  oversight of contractor performance are also important. We have found  that DOD did not always use the contracting arrangements that would  result in the best value to the government. For example:  In January 2008, we that reported the cost-plus-fixed fee provisions of a  task order issued by the Army to repair equipment for use in Iraq and  Afghanistan required the Army to pay the contractor to fix equipment  rejected by Army inspectors for failing to meet the quality standard  established in the task order. Under the cost-plus-fixed fee maintenance  provisions in the task order, the contractor was reimbursed for all  maintenance labor hours incurred, including labor hours associated with  maintenance performed after the equipment failed to meet the Army’s  maintenance standards. This resulted in additional cost to the government.  Our analysis of Army data between May 2005 and May 2007 showed that  the contractor worked about 188,000 hours to repair equipment after the  first failed Army inspection at an approximate cost to the government of  $4.2 million.
In June 2007, we found numerous issues with DOD’s use of time-and- materials contracts. DOD reported that it obligated nearly $10 billion  under time-and-materials contracts in fiscal year 2005, acquiring, among  other services, professional, administrative, and management support  services. Some specific examples of the services DOD acquired included  subject matter experts in the intelligence field and systems engineering  support. These time-and-materials contracts are appropriate when specific  circumstances justify the risks, but our findings indicate that they are  often used as a default for a variety of reasons—ease, speed, and flexibility  when requirements or funding are uncertain. According to DOD, time-and- materials contracts are considered high risk for the government because  they provide no positive profit incentive to the contractor for cost control  or labor efficiency and their use is supposed to be limited to cases where  no other contract type is suitable. We found, however, that DOD  underreported its use of time-and-materials contracts, frequently did not  justify why such contracts were the only contract type suitable for the  procurement, and inconsistently monitored these contracts.
In 2007, we also reported that DOD needed to improve its management  and oversight of undefinitized contract actions (UCAs), under which DOD  can authorize contractors to begin work and incur costs before reaching a  final agreement on contract terms and conditions, including price. The  contractor has little incentive to control costs during this period, creating  a potential for wasted taxpayer dollars. DOD’s use of some UCAs could  have been avoided with better acquisition planning. In addition, DOD  frequently did not definitize the UCAs within the required time frames  thereby increasing the cost risk to the government.  Further, its  contracting officers were not documenting the basis for the profit or fee  negotiated, as required. As such, we called on DOD to strengthen  management controls and oversight of UCAs to reduce the risk of paying  unnecessary costs.
In July 2004, we reported that the Air Force had used the Air Force  Contract Augmentation Program contract to supply commodities for its  heavy construction squadrons because it did not deploy with enough  contracting and finance personnel to buy materials quickly or in large  quantities. In many instances, the contractor provided a service for the  customer, such as equipment maintenance, in addition to the procurement  of the supplies. In other cases, however, the contractor simply bought the  supplies and delivered them to the customer. In July 2004 we noted that  the contract allowed for an award fee of up to 6 percent for these  commodity supply task orders. While contractually permitted, the use of a  cost-plus-award-fee contract as a supply contract may not be cost- effective. In these instances, the government reimburses the contractors’  costs and pays an award fee that may be higher than warranted given the  contractors’ low level of risk when performing such tasks. Air Force  officials recognized that the use of a cost-plus-award-fee contract to buy  commodities may not be cost-effective. Under the current contract,  commodities may be obtained using firm-fixed-price task orders, cost-plus  award-fee task orders, or cost-plus-fixed-fee task orders.
section_title: Inadequate Oversight of Contractor Performance
paragraphs: We reported on numerous occasions that DOD did not adequately manage  and assess contractor performance to ensure that its business  arrangements were properly executed. Managing and assessing post-award  performance entails various activities to ensure that the delivery of  services meets the terms of the contract and requires adequate  surveillance resources, proper incentives, and a capable workforce for  overseeing contracting activities. If surveillance is not conducted, is  insufficient, or not well documented, DOD is at risk of being unable to  identify and correct poor contractor performance in a timely manner. For  example:    Our 2008 review of six Army services contracts or task orders found that  contract oversight was inadequate in three of the contracts we reviewed  because of a lack of trained oversight and management personnel. For  example, in the contracting office that managed two of the contracts we  reviewed, 6 of 18 oversight positions were vacant. One of the vacant  positions was the performance evaluation specialist responsible for  managing the Army’s quality assurance program for two multi-million  dollar contracts and training other quality assurance personnel. Other  vacant positions included three contract specialists responsible for, among  other tasks, reviewing monthly contractor invoices. As a result of these  vacancies, the contracting officer’s representative was reviewing  contractor invoices to ensure that expenses charged by the contractor  were valid, a responsibility for which he said he was not trained. We also  reported that contract oversight personnel for the Army’s linguist contract  were unable to judge the performance of the contractor employees  because they were generally unable to speak the languages of the  contractor employees they were responsible for overseeing.
DOD has, over the last several years, emphasized the use of performance  based logistics arrangements, in part, to reduce the cost of supporting  weapon systems. However, in December 2008, we reported that although  DOD guidance recommends that cost data be captured for performance  based logistics contracts to aid in future negotiations, we found program  offices generally did not receive detailed cost data and only knew the  overall amounts paid for support. For example, for the 21 fixed-price  arrangements in our sample, only two program offices obtained contractor  support cost data reports. We also reported that, in seven out of eight  programs we reviewed where follow-on, fixed-price performance based  logistics contracts had been negotiated, expected cost reductions either  did not materialize or could not be determined.
In our September 2008 review of services contracts supporting  contingency operations, we reported the Army’s oversight of some of the  contracts was inadequate in part because contracting offices were not  maintaining complete contract files documenting contract administration  and oversight actions taken, in accordance with DOD policy and  guidance. As a result, incoming contract administration personnel did not  know whether the contractors were meeting their contract requirements  effectively and efficiently and therefore were limited in their ability to  make informed decisions related to award fees, which can run into the  millions of dollars.
In December 2006, we reported that DOD did not have sufficient numbers  of contract oversight personnel at deployed locations, which limits its  ability to obtain reasonable assurance that contractors are meeting  contract requirements efficiently and effectively. For example, an Army  official acknowledged that the Army struggled to find the capacity and  expertise to provide the contracting support needed in Iraq. Similarly, an  official with the LOGCAP Program Office told us that the office did not  prepare to hire additional budget analysts and legal personnel in  anticipation of an increased use of LOGCAP services due to Operation  Iraqi Freedom. According to the official, had adequate staffing been in  place early, the Army could have realized substantial savings through more  effective reviews of the increasing volume of LOGCAP requirements. A  Defense Contract Management Agency official responsible for overseeing  the LOGCAP contractor’s performance at 27 locations noted that he was  unable to visit all of those locations during his 6-month tour to determine  the extent to which the contractor was meeting the contract’s  requirements.
In December 2005, we reported that DOD, in using award fee contracts,  routinely engaged in practices that did not hold contractors accountable  for achieving desired acquisition outcomes. These practices included  evaluating contractors on award-fee criteria not directly related to key  acquisition outcomes; paying contractors a significant portion of the  available fee for what award-fee plans describe as “acceptable, average,  expected, good, or satisfactory” performance; and giving contractors at  least a second opportunity to earn initially unearned or deferred fees. As a  result, DOD had paid an estimated $8 billion in award fees on contracts in  our study population, regardless of whether acquisition outcomes fell  short, met, or exceeded DOD’s expectations. As such, we recommended  that DOD improve its use of fees by specifically tying them to acquisition  outcomes in all new award- and incentive-fee contracts, maximizing  contractors’ motivation to perform, and collecting data to evaluate the  effectiveness of fees.
In March 2005, we reported instances of insufficient surveillance on 26 of  90 DOD service contracts we reviewed. In each instance, at least one  measure to ensure adequate surveillance did not take place. These  measures include (1) training personnel in how to conduct surveillance,  (2) assigning personnel at or prior to contract award, (3) holding  personnel accountable for their surveillance duties, and (4) performing  and documenting surveillance throughout the period of the contract.
section_title: DOD has Taken Some Steps to Address Service Contract Management and Oversight Challenges
paragraphs: GAO’s body of work on contract management and the use of contractors  to support deployed forces have resulted in numerous recommendations  over the last several years. In addition, Congress has enacted legislation  requiring DOD to take specific actions to improve its management and  oversight of contracts. In response, DOD has issued guidance to address  contracting weaknesses and promote the use of sound business  arrangements. DOD has established a framework for reviewing major  services acquisitions, promulgated regulations to better manage its use of  contracting arrangements that can pose additional risks for the  government, including time-and-materials contracts and undefinitized  contracting actions, developed guidance on linking monetary incentives  for contractors to acquisition outcomes, and has efforts under way to  identify and improve the skills and capabilities of its workforce. These are  positive steps, but inconsistent implementation has hindered past DOD  efforts to address these high-risk areas. To improve outcomes on the  whole, DOD must ensure that these policy changes and others are  consistently put into practice and reflected in decisions made on  individual acquisitions.  We have ongoing work assessing DOD’s efforts to  implement a service acquisition management approach, including its  development of a structure for reviewing its major services acquisitions, as  well as its use of different types of contract arrangements.
Section 801 of the National Defense Authorization Act for Fiscal Year 2002  required DOD to establish a management structure for the procurement of  services, including developing a structure for reviewing individual service  transactions, holding accountable employees responsible for procuring  services, and collecting and analyzing service contract data.  In addition,  section 802 of the National Defense Authorization Act for Fiscal Year 2002  established a goal for DOD to use improved management practices to  achieve savings in expenditures for procurement of services.  In response  to this requirement, DOD and the military departments established a  service acquisition management structure, including processes at the  headquarters level for reviewing individual, high-dollar acquisitions.  The  National Defense Authorization Act for Fiscal Year 2006 further developed  the requirements for a management structure for the procurement of  contract services.  Among other things, the National Defense  Authorization Act for Fiscal Year 2006 required DOD’s management  structure to provide for the Under Secretary of Defense for Acquisition,  Technology and Logistics (USDAT&L) to:    establish contract services acquisition categories, based on dollar  thresholds, for the purpose of establishing the level of review, decision  authority, and applicable procedures identify the critical skills and competencies needed to carry out the  procurement of services.
The National Defense Authorization Act for Fiscal Year 2006 also required  the USDAT&L and senior acquisition management officials within the  military departments to ensure that competitive procedures and  performance-based contracting are used to the maximum extent  practicable.  In 2006, DOD updated its policies aimed at strengthening how  it plans, manages, and oversees services acquisition in response to the  legislation. Later, in December 2008, DOD incorporated its acquisition  review thresholds for major services acquisitions in DOD Instruction  5000.02, Operation of the Defense Acquisition System.
The National Defense Authorization Act for 2008 required DOD to take  additional actions to improve its visibility over the department’s reliance  on services contractors as well as its management and oversight of its  services acquisitions.
Section 807 required DOD to provide Congress an annual inventory of  contractor-provided services, to include information on the missions and  functions of the contractor, the number of full-time contractor employees  paid for performing the activity, and the organization whose requirements  are being met through contractor performance. In addition, this provision  required the military departments to review the inventory to identify  activities that should be considered for conversion to performance by  DOD civilian employees or to an acquisition approach that would be more  advantageous to DOD. The first inventory was to have been reported to  Congress not later than June 30, 2008. At this time however, only the Army  has begun the process to comply with this requirement. According to DOD  officials, the Air Force and Navy will issue their prototype inventories in  the third quarter of fiscal year 2009.
Section 808 required DOD to issue guidance and implementation  instructions for performing periodic independent management reviews of  contracts for services. In September 2008, DOD issued a policy  memorandum to implement these reviews, referred to as peer reviews.  Under DOD’s plan the Director, Defense Procurement, Acquisition Policy  and Strategic Sourcing would be responsible for implementing reviews of  acquisitions of services with an estimated maximum value of over $1  billion, while the DOD components would be responsible for reviews of  acquisitions under $1 billion. In February 2009, DOD revised its guidance  for how the review teams should conduct peer reviews to address pre-and- post-award review elements of the acquisition and the criteria that should  be used to conduct these reviews. According to DOD officials, this  guidance was developed as part of the agency’s response to some of the  issues identified in our DOD contact management high risk area. We  continue to monitor DOD’s implementation of these efforts.
In late 2008, DOD began an effort, directed by the Chairman of the Joint  Chiefs of Staff, to examine the department’s use of service contracts in  Iraq and Afghanistan. The purpose of this effort is to improve DOD’s  understanding of the range and depth of contractor capabilities necessary  to support the Joint Force. The study will address where DOD is most  reliant on contractor support, informing longer term force structure issues  such as the potential for increasing DOD’s military and civilian work force  in order to in-source services currently provided by contractors.
We have also made numerous recommendations over the past 10 years  aimed at improving DOD’s management and oversight of contractors  supporting deployed forces, including the need for (1) DOD-wide guidance  on how to manage contractors that support deployed forces, (2) improved  training for military commanders and contract oversight personnel, and  (3) a focal point within DOD dedicated to leading DOD’s efforts to improve  the management and oversight of contractors supporting deployed forces.
In addition, Section 854 of the National Defense Authorization Act for 2007  directed the Secretary of Defense in consultation with the Chairman of the  Joint Chiefs of Staff to develop joint policies for requirements definition,  contingency program management, and contingency contracting during  combat and post-conflict operations.  The National Defense  Authorization Act for Fiscal Year 2008 added a new requirement directing  that these joint policies provide for training of military personnel outside  the acquisition workforce who are expected to have acquisition  responsibilities including oversight of contracts or contractors during  combat operations, post-conflict operations and contingency operations.
As we reported in November 2008, while DOD has more to do in this area,  it is developing, revising, and finalizing new joint policies and guidance on  the department’s use of contractors to support deployed forces.  Examples include:  In October 2008, DOD finalized Joint Publication 4-10, Operational  Contract Support, which establishes doctrine for planning, conducting,  and assessing operational contract support integration and contractor  management functions in support of joint operations. The joint publication  provides standardized guidance and information related to integrating  operational contract support and contractor management.
DOD is revising DOD Instruction 3020.41, Program Management for the  Preparation and Execution of Acquisitions for Contingency Operations,  which strengthens the department’s joint policies and guidance on  program management, including the oversight of contractor personnel  supporting a contingency operation.
DOD has also taken steps to improve the training of military commanders  and contract oversight personnel. As we reported in November 2008, the  Deputy Secretary of Defense issued a policy memorandum in August 2008  directing the appointment of trained contracting officer’s representatives  prior to the award of contracts.  U.S. Joint Forces Command is  developing two training programs for non-acquisition personnel to provide  information necessary to operate effectively on contingency contracting  matters and work with contractors on the battlefield. In addition, the Army  has a number of training programs available that provide information on  contract management and oversight to operational field commanders and  their staffs. The Army is also providing similar training to units as they  prepare to deploy, and DOD, the Army, and the Marine Corps have begun  to incorporate contractors and contract operations in mission rehearsal  exercises.
In October 2006, the Deputy Under Secretary of Defense for Logistics and  Materiel Readiness established the office of the Assistant Deputy Under  Secretary of Defense (Program Support) to act as the focal point for  DOD’s efforts to improve the management and oversight of contractors  supporting deployed forces. This office has taken several steps to help  formalize and coordinate efforts to address issues related to contractor  support to deployed forces. For example, the office took a leading role in  establishing a community of practice for operational contract support— comprising subject matter experts from the Office of the Secretary of  Defense, the Joint Staff, and the services—that may be called upon to  work on a specific task or project. Additionally, the office helped establish  a Joint Policy Development General Officer Steering Committee to guide  the development of the Office of the Secretary of Defense, Joint Staff, and  service policy, doctrine, and procedures to adequately reflect situational  and legislative changes as they occur within operational contract support.
In addition, DOD has efforts under way to identify and improve the skills  and capabilities of its workforce. For example, in response to  recommendations from the Gansler Commission, the Army proposed  increasing its acquisition workforce by over 2,000 personnel. However, the  Army also acknowledged that this process will take at least 3 to 5 years to  complete. In addition, we continue to monitor DOD’s planned and  completed corrective actions to address our audit report  recommendations to improve its acquisition of services.
section_title: Concluding Observations
paragraphs: As the largest buyer of services in the federal government, and operating  in an environment where the nation’s large and growing deficits require  difficult resource decisions, DOD must maximize its return on investment  and provide the warfighter with needed capabilities at the best value for  the taxpayer.  DOD has recognized that it faces challenges with contract  management and the department has taken steps to address these  challenges, including those outlined in this testimony. These challenges  are daunting. While DOD’s recent initiatives may improve how the  department plans service acquisitions at a strategic level, these efforts will  not payoff unless DOD’s leadership can translate its vision into changes in  frontline practices. At this point, DOD does not know how well its services  acquisition processes are working and whether it is obtaining the services  it needs while protecting DOD’s and the taxpayer’s interests. While DOD  has generally agreed with our recommendations intended to improve  contract management, much remains to be done. For example:  In the near term, DOD must act forcefully to implement new procedures  and processes in a sustained, consistent, and effective manner across the  department. Doing so will require continued, sustained commitment by  senior DOD leadership to translate policy into practice and to hold  decision makers accountable.
At the same time, while the department and its components have taken or  plan to take actions to further address contract management challenges,  many of these actions, such as the Army’s efforts to increase its  acquisition workforce, will not be fully implemented for several years.  DOD will need to monitor such efforts to ensure that intended outcomes  are achieved.
At the departmentwide level, DOD has yet to conduct the type of  fundamental reexamination of its reliance on contractors that we called  for in 2008. Without understanding the depth and breadth of contractor  support, the department will be unable to determine if it has the  appropriate mix of military personnel, DOD civilians, and contractors. As a  result, DOD may not be totally aware of the risks it faces and will  therefore be unable to mitigate those risks in the most cost-effective and  efficient manner.
The implementation of existing and emerging policy, monitoring of the  department's actions, and the comprehensive assessment of what should  and should not be contracted for are not easy tasks, but they are essential  if DOD is to place itself in a better position to deliver goods and services to  the warfighters. Moreover, with an expected increase of forces in  Afghanistan, the urgency for action is heightened to help the department  avoid the same risks of fraud, waste, and abuse it has experienced using  contractors in support of Operation Iraqi Freedom.
Mr. Chairman and members of the committee, this concludes our  testimony. We would be happy to answer any questions you might have.
section_title: Contacts and Acknowledgments
paragraphs: For further information about this testimony, please contact John Hutton,  Director, Acquisition and Sourcing Management, on (202) 512-4841 or  huttonj@gao.gov or William Solis, Director, Defense Capabilities and  Management, on (202) 512-8365 or solisw@gao.gov.  Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this testimony.  Other key contributors to this testimony  include Carole Coffey, Timothy DiNapoli, Justin Jaynes, John Krump,  Christopher Mulkins, James A. Reynolds, Karen Thornton, Thomas  Twambly, and Anthony Wysocki.
section_title: Appendix I: Selected GAO Products
subsections: section_title: High-Risk Series
paragraphs: High-Risk Series: An Update. GAO-09-271. Washington, D.C.: January  2009.
section_title: Contract Management
paragraphs: Defense Contracting: Army Case Study Delineates Concerns with Use of  Contractors as Contract Specialists. GAO-08-360. Washington, D.C.:  March 26, 2008.
Defense Contract Management: DOD’s Lack of Adherence to Key  Contracting Principles on Iraq Oil Contract Put Government Interests at  Risk. GAO-07-839. Washington, D.C.: July 31, 2007.
Defense Contracting: Improved Insight and Controls Needed over DOD’s  Time-and-Materials Contracts. GAO-07-273. Washington, D.C.: June 29,  2007.
Defense Contracting: Use of Undefinitized Contract Actions Understated  and Definitization Time Frames Often Not Met. GAO-07-559.  Washington, D.C.: June 19, 2007.
Defense Acquisitions: Improved Management and Oversight Needed to  Better Control DOD’s Acquisition of Services. GAO-07-832T. Washington,  D.C.: May 10, 2007.
Defense Acquisitions: Tailored Approach Needed to Improve Service  Acquisition Outcomes. GAO-07-20. Washington, D.C.: November 9, 2006.
section_title: Operational Contract Support
paragraphs: Contract Management: DOD Developed Draft Guidance for Operational  Contract Support but Has Not Met All Legislative Requirements.  GAO-09-114R. Washington, D.C.: November 20, 2008.
Contingency Contracting: DOD, State, and USAID Contracts and  Contractor Personnel in Iraq and Afghanistan. GAO-09-19. Washington,  D.C.: October 1, 2008.
Military Operations: DOD Needs to Address Contract Oversight and  Quality Assurance Issues for Contracts Used to Support Contingency  Operations. GAO-08-1087. Washington, D.C: September 26, 2008.
Defense Management: DOD Needs to Reexamine Its Extensive Reliance  on Contractors and Continue to Improve Management and Oversight.  GAO-08-572T. Washington, D.C.: March 11, 2008.
Defense Logistics: The Army Needs to Implement an Effective  Management and Oversight Plan for the Equipment Maintenance  Contract in Kuwait. GAO-08-316R. Washington, D.C.: January 22, 2008.
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