Defense Contract Management Agency: Amid Ongoing Efforts to Rebuild Capacity, Several Factors Present Challenges in Meeting Its Missions
Published: 2011-11-03T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Defense Contract Management Agency (DCMA) provides contract administration services for DOD buying activities. Its contract management offices (CMO) work with defense contractors to help ensure that goods and services are delivered on time, at projected cost, and that they meet performance requirements. DCMA also supports combatant commanders during contingency operations. As DCMA recovers from years of significant downsizing, GAO was asked to (1) assess how the agency is positioning itself to meet its missions, (2) determine the extent to which contingency missions affect its oversight domestically, and (3) identify other factors that may affect its domestic missions going forward. GAO reviewed regulations, policies, and guidance, analyzed the status of contractor business systems for 17 defense contractors, and interviewed a wide range of DCMA officials.
section_title: What GAO Found
paragraphs: After undergoing significant shifts in its workforce, structure, and policies and procedures over the past 10 years, DCMA has taken steps to rebuild its capacity. As the workforce declined, the agency experienced significant erosion of expertise in some areas, such as the cost and pricing function, such that it could not fulfill all of its oversight functions. A shift to a substantially decentralized, customer-oriented approach in the mid-2000s, intended to mitigate the impact of this workforce imbalance, resulted in unintended consequences such as inefficiencies in how work was done at the CMOs. DCMA has since begun to rebuild workforce expertise and has instituted new, centralized policies and procedures. The agency expects to reach about 13,400 total civilian staff by 2015--a 43 percent increase from about 9,300 staff in 2008. DCMA's military workforce has generally ranged between 500 and 600 in recent years. A growing number of DCMA's new employees have been hired using the Defense Acquisition Workforce Development Fund. To help gauge progress in meeting its missions, the agency uses performance indicators for contractor supplier base issues and DCMA processes, workload, and resources. Agency staff deployed on contingency missions are small in number--272-- when compared with the number of total DCMA employees, but several DCMA officials told GAO that deployments have a constraining impact on the agency's domestic mission. CMO officials identified examples of how their operations have been affected by deployments, such as delays in conducting timely quality assurance, audits of contractor processes, and contract close-out activities. The impact of deployments depends on the type of deployment or on certain features of the CMO; the timing of military leaders' deployments; and multiple or extended deployments of civilian volunteers. DCMA has noted support for the warfighter is a high priority for the agency, but has taken steps to mitigate the impact of deployments, such as lengthening deployment time frames to reduce their frequency. To minimize the impact of civilian deployments, DCMA established a position for a corps of personnel to support the contingency mission. Several factors may affect DCMA's ability to meet its missions going forward. One significant source of external risk stems from DCMA's reliance on the Defense Contract Audit Agency (DCAA) to conduct audits of certain contractor business systems. Business systems--such as accounting and estimating systems--are the government's first line of defense against fraud, waste, and abuse. Because of its own workforce struggles, DCAA has lagged in completing a number of such audits and is currently focusing on other high priority areas. GAO found, however, that DCMA contracting officers maintained their determination of many contractor business systems as adequate despite the fact that the systems had not been audited in a number of years--in many cases well beyond the time frames outlined in DCAA guidance.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD work with DCMA and DCAA to identify and execute options to assist in audits of contractor business systems. GAO also recommends that DCMA clarify for CMOs the agency's plans to continue funding existing workforce positions and that it identify ways to accurately reflect the status of contractor business systems, such as changing the status to unassessed when audits are delayed. DOD concurred with the first two recommendations. DOD partially concurred with the remaining recommendation but discussed several planned actions which, if implemented, should improve the transparency of system assessments.

section_title: Letter
paragraphs: The Department of Defense (DOD) obligates far more government dollars  than any other agency—more than $360 billion under contracts for  products and services in 2010. After contracts are awarded, the Defense  Contract Management Agency (DCMA) is responsible for providing  contract administration services for DOD buying activities, working  directly with defense contractors to help ensure that goods and services  are delivered on time, at projected cost, and that they meet performance  requirements. In addition, as a designated combat support agency,  DCMA is tasked with providing contract administration and support to  combatant commanders during contingency operations. To help execute  its mission, DCMA has staff in Contract Management Offices (CMO)  located at or near contractor facilities, in the agency’s domestic and  international locations. DCMA is currently in a state of transition,  recovering from years of workforce downsizing that raised serious  concerns about its ability to effectively meet its missions.
Given the multiple responsibilities of DCMA, you asked us to (1) assess  how DCMA is positioning itself to meet its missions; (2) determine the  extent to which contingency missions have impacted DCMA’s ability to  provide oversight and surveillance domestically; and (3) identify other  factors that may affect its capability to conduct oversight and surveillance  domestically going forward.
To conduct our work, we reviewed the Federal Acquisition Regulation  (FAR) and the Defense Federal Acquisition Regulation Supplement  (DFARS), DOD policies, DCMA guidance, workforce information,  information on contingency deployments, and prior reports concerning  DCMA, including our prior work as well as the reports of the Commission  on Wartime Contracting in Iraq and Afghanistan. We interviewed DCMA  officials at headquarters and selected DCMA Centers (e.g., the Combat  Support Center and the Cost and Pricing Center). We visited DCMA’s  three domestic regional commands and 14 of the 40 primary CMOs  located across the country. Our nonprobability sample of CMOs was  selected based on a number of factors, including geographic location and  CMO workload. Within each of the geographic and plant-based CMOs,  we selected a nonprobability sample of one or two DOD weapons system  programs to gather more detailed information. Programs with large dollar  values were selected, and other factors included ensuring that a range of  DOD’s military services and contractors were represented. For each of  these programs, we reviewed DCMA oversight documentation and  interviewed members of DCMA’s Program Support Teams. We also  collected information related to the status of contractor business systems  for each of the selected DOD programs and interviewed the DCMA  administrative contracting officer (ACO) responsible for oversight of those  business systems. For some selected programs, we interviewed DOD  program office officials and/or contractor representatives to gain their  insights on DCMA oversight and surveillance. We also interviewed senior  officials at the Defense Contract Audit Agency (DCAA) to develop a better  understanding of issues related to contractor business system and pricing  audits. See appendix I for additional details on our scope and  methodology.
We conducted this performance audit from October 2010 to November  2011 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: DCMA has undergone an evolutionary process to become the agency it is  today. In 1990, DOD decided to consolidate and streamline contract  administration services, which, at the time, were performed by the  Defense Logistics Agency (DLA) as well as each of the military services.  DOD made this change to achieve several benefits, including savings to  the government through decreased overhead costs and increased  efficiencies that would allow the elimination of thousands of DOD contract  administration positions. As a result of these decisions, in 1990 the  Defense Contract Management Command was formed as a command  under DLA, with the responsibility of performing contract administration  services that had previously been performed by DLA and the military  services. In 2000, this command became DCMA, an independent agency  no longer under the umbrella of DLA. As of June 2011, DCMA had  approximately 10,900 staff, including roughly 10,400 civilians and 500  military.
The FAR identifies 71 functions for which a contract administration office  (such as DCMA) is generally responsible, including activities such as  issuing contract modifications, reviewing and approving contractors’  requests for payments, performing production and engineering  surveillance, ensuring contractor compliance with contractual quality  assurance requirements, and maintaining surveillance of flight  operations. A wide range of employees within DCMA perform these  responsibilities, including ACOs, engineers, property administrators,  quality assurance representatives, and government flight representatives.   Government flight representatives, among other things, are responsible  for approval of contractor test flights, procedures, and crew members,  and for ensuring contractor compliance with DCMA guidance on  contractor flight and ground operations.
DCMA is assigned administrative oversight of a contract when delegated  that authority by the procuring contracting office. Procuring contracting  officers, who are responsible for awarding contracts, generally make the  decision whether to retain some or all areas of contract administration or  to delegate that authority to DCMA. When DCMA is delegated contract  administration responsibilities for major programs, a memorandum of  agreement is established between the program office that is buying the  products or services and the CMOs.
subsections: section_title: DCMA and DCAA Roles Regarding Contractor Business Systems
paragraphs: DCMA also relies on DCAA in executing some of its contract oversight  responsibilities. For example, DCMA contracting officers can use DCAA  audits to assist in determining whether a contractor’s business systems  are adequate, although audit opinions can also be rendered by a licensed  certified public accountant or persons working for a licensed certified  public accounting firm or a government auditing organization. DOD has  recently defined contractor business systems to include six systems, as  shown in table 1.
Whether or not a business system is determined adequate can affect the  contracts between the government and the contractor. For example, cost- reimbursement contracts are to be used only when the contractor’s  accounting system has been deemed adequate for determining costs  applicable to the contract. If a contractor does not have an approved  purchasing system, it is required to get the consent of the contracting  officer before entering into certain subcontracts, for example, cost- reimbursement subcontracts, and fixed-price subcontracts over certain  thresholds.
The DCMA contracting officer is ultimately responsible for determining  whether a contractor business system is acceptable. If the determination  is made that a business system contains significant deficiencies, the  contracting officer can withhold contract payments. The percentage of the  withholds may be reduced if a contractor submits an acceptable  corrective action plan and the contracting officer determines, in  consultation with an auditor, such as DCAA, for example, that the  contractor is effectively implementing the plan. Recently, there have been  concerns about the overlap of responsibilities between DCMA and DCAA  in areas such as contractor business systems, proposal audits and  findings, and forward pricing rate agreements. The Office of the Under  Secretary of Defense for Acquisition, Technology, and Logistics (AT&L),  has worked with both DCMA and DCAA, and has recently issued new  policies and spearheaded changes to the DFARS to help clarify the roles  of the two agencies.
section_title: DCMA’s Domestic and Contingency Support Operations
paragraphs: Operationally, DCMA performs its contract administration mission in two  environments—(1) based out of its contract management offices and (2)  in the contingency environment. As an agency, DCMA reports to the  Under Secretary of Defense for AT&L, but for the purpose of its  contingency contract administration responsibilities, DCMA also has an  indirect line of reporting to the Chairman of the Joint Chiefs of Staff.
CMOs are located domestically and internationally and are geographic  based, plant-based, or specialized. Geographic CMOs provide oversight  of contractors located within a specific geographic area, whereas plant- based CMOs are located within a specific contractor’s plant and oversight  is focused on that contractor and location. Specialized CMOs provide  oversight of contracts focused on a specific type of product, such as  aircraft propulsion, or aircraft overhaul, maintenance, modification, and  repair. CMOs’ leadership can be either military or civilian.
DCMA provides contract administration services and support to  combatant commanders during contingency operations. In 2000, when  DCMA became an independent agency, it was also established as a  combat support agency for DOD. As such, one of DCMA’s major roles is  to deploy alongside warfighters to provide contingency contract  administration services (CCAS). DCMA’s Combat Support Center  manages DCMA’s CCAS support requirements. As the liaison between  DCMA, the Joint Chiefs of Staff, and combatant commands, the Center  develops and administers contingency policies for the agency and, in  particular, manages CCAS deployments. Based on requirements from the  CCAS commanders, the Center supervises the process of selecting,  training, and deploying qualified DCMA candidates. The types and  lengths of deployments are shown in table 2.
Our past work and that of others have identified concerns with DCMA’s  oversight in the contingency setting, but have also noted some positive  outcomes. For example, over the past decade, we, the DOD Inspector  General, and others expressed concerns that DCMA was not adequately  staffed to provide sufficient oversight in contingency settings. Other  contingency-setting issues included a lack of sufficient training for  deployed staff and DCMA’s inability to determine its resource  requirements. However, we also found that DCMA’s oversight in Iraq  produced good results, reporting in 2004 for example that DCMA  contracting officers had eliminated unnecessary airfield services and  identified equipment and materials that could be reused to reduce  contract costs. Further, in 2008 we found that DCMA had made  progress in increasing its oversight personnel in Iraq.
section_title: DCMA Is Positioning Itself to Meet Its Missions by Strengthening Its Workforce, Policies, and Procedures
paragraphs: DCMA has undergone significant shifts in its workforce, organizational  structure, and policies and procedures over the past 10 years. After its  formation in the early 1990s, DCMA’s workforce numbers declined and  there was significant erosion of some areas of expertise, such as the cost  and pricing function. Ultimately, the workforce became so out of balance  with workload after 2000 that the organization could not fulfill all of its  oversight functions. A shift to a substantially decentralized, customer- oriented approach was intended to mitigate the impact of this workforce  imbalance, but resulted in a number of unintended consequences, such  as inefficiencies in how work was done at the CMOs. In light of recent,  significant workforce growth, DCMA is rebuilding its expertise in areas  that had been bereft, instituting new, centralized policies and procedures  and developing agency-wide performance indicators intended to gauge  how well the agency is meeting its missions.
subsections: section_title: DCMA Is Rebuilding Its Workforce after Significant Erosion of Numbers and Skill Sets
paragraphs: DCMA officials told us that by 2004, the agency faced significant strains  on its workforce, brought on by staffing and budget reductions that had  been occurring since the agency’s formation. Senior DCMA officials said  the workforce downsizing made sense for much of the 1990s because  there were efficiencies to be gained when DOD consolidated its contract  administration services into one agency and because DCMA’s workload  was also decreasing for much of the decade. By the early 2000s,  however, while DCMA’s total workforce numbers continued to decline, its  workload—measured in obligations the government has incurred but not  yet paid, also known as unliquidated obligations—started to increase.
From a low point of about 9,300 in 2008, DCMA has been increasing the  size of its workforce. The agency has steadily increased its numbers  since that time and expects to reach about 13,400 total civilian staff by  2015—about a 43 percent increase from its size in 2008. Figure 1 depicts  the fluctuations in DCMA’s workforce from 1993 to 2015.
Figure 2 depicts the fluctuations in DCMA’s workload in terms of its  unliquidated obligation balance from 1990 to 2015, including the growth  over the past decade.
To build and support its workforce, DCMA is using several sources of  funding. Based on DCMA’s data, about 78 percent of the civilian  workforce is currently funded through operations and maintenance (O&M)  funds, but a growing number of new employees are hired using funds  authorized in Section 852 of the National Defense Authorization Act for  Fiscal Year 2008, called the Defense Acquisition Workforce Development  Fund. For example, in fiscal year 2011 DCMA reported it hired 1,221  new employees under this authority, a substantial increase from 166 hired  in fiscal year 2009. These new employees include 3-year interns as well  as journeymen, described by DCMA officials as individuals with extensive  experience in a certain business area.
Two particular areas of emphasis in terms of building workforce numbers  have been quality assurance and contracting (which includes cost and  price analysis). As of December 2010, more than half of DCMA’s civilian  workforce was employed in one of these two areas. Trends in these  particular skill sets from 2005 through 2010 are depicted in figure 3.
Further, from 2011 to 2016, DCMA estimates that these two job  categories will continue to be the areas where the agency will experience  the most growth in the number of positions.
While DCMA is hiring many new people to fill out its workforce, it is also  facing a large percentage of retirement-eligible employees. As of the end  of fiscal year 2010, about 24 percent of the DCMA workforce was eligible  to retire, and an additional 28 percent qualified for early retirement  incentives. The large number of retirement eligible employees makes  DCMA vulnerable to the loss of valuable technical expertise and  organizational knowledge. In part, DCMA plans to mitigate this risk  through aggressive recruiting and knowledge management activities,  such as bringing back retired annuitants to help raise the skill levels of the  newer employees.
Building workforce skills and expertise is just as important as increasing  numbers of employees. In addition to its precipitous drop in workforce  numbers, DCMA had experienced an atrophying of some key skill sets. At  the CMO level, one way DCMA is looking to build expertise of its new  employees is by changing the workforce structure. Specifically, CMO staff  are organized in one of three functional areas: contracting, engineering,  or quality assurance. Previously, CMOs were organized in multifunctional  teams, with employees from different disciplines (e.g., an ACO, a quality  assurance representative, an engineer, etc.) on one team and  responsible for overseeing a certain number of contracts. With the new  alignment, quality assurance representatives, for example, report to a  quality team lead, and this team lead reports to a CMO level quality  director. Senior DCMA officials view this change as important for new  employees’ skills, as they will be able to learn from supervisors with  expertise in the same area.
Following are some examples of how DCMA is rebuilding certain skill sets:  A particular area of focus for DCMA is re-building its cost and pricing  expertise, which had been depleted over time. For example, by the late  1990s DCMA was routinely combining the duties of its contract cost/price  analyst positions with the duties of its contracting specialists; and at that  time, the agency had lost the majority of its contract cost/price analysts.  Loss of this skill set, according to DCMA, meant that many of its pricing- related contract administration responsibilities, such as negotiating forward  pricing rate agreements and establishing final indirect cost rates and billing  rates, were no longer performed to the same level of discipline and  consistency as in prior years. As a result, DCMA reported that DOD’s  acquisitions were subjected to unacceptable levels of cost risks. In one  recent example, a DCMA official told us about a case where an ACO,  lacking support from contract cost/price analysts had, for simplicity,  incorrectly blended a contractor’s overhead rates rather than deriving  separate rates for different areas (e.g., general and administrative, and  manufacturing).
DCMA has taken several steps to rebuild its cost and pricing capabilities:  In 2009, DCMA created the Cost and Pricing Center, with a mission of  developing and sustaining the agency’s expertise in pricing. DCMA  officials said the center has helped to hire contract cost/price analysts  for the CMOs. It also develops and conducts training for the growing  DCMA contract cost/price analyst workforce.    Over the last 2 years, DCMA reports that it has hired 279 new contract  cost/price analysts and cost monitors, extensively using the Defense  Acquisition Workforce Development Fund to do so. Currently, DCMA  employs a total of about 400 contract cost/price analysts and cost  monitors.
Since 2008, DCMA has also concentrated on rebuilding its earned-value  management (EVM) expertise through workforce increases and extensive  training. DCMA has increased its workforce for its EVM Center, which  was established in fiscal year 2000. Officials told us the workforce has  grown from 5 or 6 in 2000 to 46 people in 2011, with plans to fill an  additional 12 vacancies. In addition to its other responsibilities (such as  overseeing the process for ensuring a contractor’s EVM system is  validated), center officials provide guidance and direction to EVM  specialists located at the CMOs and develop EVM policy in coordination  with the CMOs.
Approximately 500 industrial specialists, located in the CMOs, are  responsible for determining whether contractors have the manpower,  machinery, materials, and methods to meet contract requirements;  overseeing contractors’ manufacturing processes to track progress in  meeting contractual delivery dates; and notifying buying commands if the  contractor might not meet those dates. There had been a substantial  decline in the number of industrial specialists at the agency, but the number  has started to grow again. While senior DCMA officials would like industrial  specialists to spend more time “on the shop floor” at contractor facilities to  gain an understanding of the root causes of scheduling delays, we found  that they were not consistently doing so at the CMOs we visited. Several of  the industrial specialists we spoke with primarily remain at their  workstations monitoring contractor production schedules electronically,  checking the accuracy of data entered into DCMA’s contracts database, or  assisting as needed with technical reviews of contractor proposals. Senior  officials acknowledged that the focus of industrial specialists over time has  shifted away from some of their more important tasks, such as performing  on-site surveillance of contractor facilities. Workforce changes within  DCMA have contributed to this shift. For example, DCMA procurement  technicians traditionally performed routine administrative functions such as  entering and maintaining contract data, but this role has been understaffed,  resulting in more senior personnel, such as industrial specialists,  performing such functions. DCMA is currently taking steps to rebuild the  industrial specialist function by hiring more personnel, developing a new  manufacturing and production policy, and upgrading training.
DCMA has identified ongoing concerns with its ability to effectively carry  out its quality assurance responsibilities because of workforce size and  capability shortfalls, increasing the risk to the warfighter and the  taxpayers. For example, DCMA reported an increase in customer  complaints in the form of reported quality deficiencies in products. To  address the issues related to its quality assurance capabilities, DCMA  reports it is, for example, defining certification training for its quality  assurance personnel. DCMA also reports it is moving towards  standardizing position descriptions as a way to establish consistent  expectations for its quality assurance workforce.
section_title: DCMA Is Shifting Back to Centralized Procedures After Customer-Oriented, Decentralized Approach Yielded Unintended Consequences
paragraphs: By the mid 2000s, when according to senior officials, DCMA did not have  the workforce to fulfill its mission, it undertook a shift in its operations in  an attempt to focus on the areas of most importance to its customers— the DOD program offices. This approach included a CMO re-alignment to  mirror the organization of DOD program offices and a heavily  decentralized approach to DCMA’s policies and procedures. In the fall of  2005, DCMA re-aligned its CMOs under four product-oriented divisions:  aeronautical, space and missiles, ground vehicles and munitions, and  naval systems. In addition to providing a structure more in line with its  DOD customers, the alignment was intended to improve the technical  expertise of DCMA staff in these particular product areas.
At the same time, DCMA implemented what it called performance-based  management, wherein CMOs gauged their success based on metrics  reflecting their contributions to outcomes of importance to their  customers. In fact, the memorandums of agreement between CMOs and  the DOD program offices were designed to hold the CMOs accountable to  the program office for such things as reducing the number of functional  defects of a product or ensuring that a component was delivered on time.  For example, a 2008 memorandum of agreement with a program office  purchasing heavy payload tactical trucks was designed to hold the CMO  accountable for reducing the number of functional defects on the vehicles.  In another example, a CMO committed to a variety of customer outcome  performance standards with its Air Force customer that was purchasing  unmanned aerial vehicles, including zero-defect products and timely  product and shipment delivery. According to DCMA officials, thousands of  metrics flourished at this time, which some officials noted were too many.
DCMA also embarked on a substantially decentralized approach to its  policies and procedures, again with the intent of becoming more  customer-focused. As a key example, DCMA rescinded its compliance  and procedures manual for the agency’s required contract management  functions—known as the “DCMA One Book.” Contents of the manual that  were still deemed required—reportedly a small portion—became a DCMA  instruction, and the rest was considered to be guidance and not  mandatory for CMOs to follow. The intent of the change was to allow  more flexibility for the CMOs to modify existing processes and explore  new ones to better support their own customers’ expected outcomes and  objectives. However, officials from some CMOs we visited said the loss of  the “DCMA One Book” resulted in loss of consistent agency guidance and  procedures, with one official characterizing this situation as a “free for all.”
Ironically, this focus on providing CMOs the flexibility to meet their  customers’ needs as well as the absence of specific guidance and  procedures resulted, according to DCMA officials, in a level of confusion  among their program office customers. Other unintended consequences  included concerns on the part of DCMA that it had shifted too far toward  focusing on the customer. Relatedly, the decentralized nature of DCMA  guidance led each product division to develop and execute its own  policies and provided CMOs the leeway to develop additional policies and  procedures to respond to their own customers’ needs. This led to  inconsistent oversight and surveillance activities among CMOs. Another  unintended consequence was inefficiencies in how CMOs operated. For  example, CMOs in close proximity but under different product divisions  sometimes did not share resources or expertise and thus did not leverage  their workforces to help meet workload surge requirements.
To address these unintended consequences and in light of its new and  growing workforce, in 2009 DCMA undertook a number of changes to its  organization, procedures, and policies. Rather than being aligned under  the four DOD product areas, the 40 CMOs are now aligned under three  regional commands, as shown in figure 4.
According to DCMA, while the product-division alignment allowed for a  strong customer focus, going back to a regional alignment has permitted  more efficiencies among the CMOs by facilitating consistent execution of  policy and tools throughout each region.
DCMA is also updating and developing centralized instructions and  procedures to help regain consistency among the CMOs and to help  ensure the agency meets all of its contract administration responsibilities.  Since 2009, DCMA has issued more than 40 instructions and over 100  modifications or revisions to instructions. For example, in November  2010, DCMA revised in its entirety its Major Program Support Instruction.  The purpose of major program support is to provide DCMA customers  and internal management with timely analysis and insight to prevent  and/or resolve a program’s cost, schedule, or performance problems, and  the instruction provides guidance on how DCMA will accomplish these  objectives. DCMA has also updated three EVMS instructions since  November 2010, and its quality assurance policy implementation includes  22 new instructions issued since March 2009. While some CMO staff told  us the plethora of new, centralized guidance and instructions can be  overwhelming at times, several also indicated they were pleased to be  moving away from the prior, decentralized model where they were largely  left to their own devices.
section_title: DCMA Is Developing Performance Indicators to Measure Progress and Using Other Strategies to Optimize Its Workforce Balance
paragraphs: In 2009, DCMA also began to shift from a focus on customer-based  metrics to using performance indicators intended to gauge how well the  agency is meeting its missions. The agency currently has 122 indicators  in place, addressing contractor supplier-base issues and DCMA  processes, workload, and resources. DCMA officials noted that these  indicators are reviewed for trends and to help identify root causes of any  problems. For example, DCMA officials explained that the performance  indicator related to contract closeouts showed a marked decline in timely  closeouts over the last few years, indicating a major problem. Further  analysis showed a severe resourcing problem in the two CMOs  responsible for nearly half of all contract closeouts. DCMA identified a  need for greater training on contract closeouts; after implementing a  training program, the indicators revealed that the timeliness of contract  closeouts had improved. In some cases, DCMA is looking to improve  performance indicators to ensure they are motivating performance in the  way the agency intends. For example, a primary performance indicator for  industrial specialists involves prediction of schedule delays, which  according to a DCMA official, encourages industrial specialists to track  schedules from “behind their computers,” rather than to be on the shop  floor, where DCMA senior officials would like them to spend their time.  Senior DCMA officials acknowledged that they are still in the process of  reassessing the indicators. Additionally, DCMA is evaluating which  indicators need to be reviewed at the headquarters level.
DCMA also takes steps to identify and rectify workforce imbalances  through its workload allocation processes. The headquarters directorate  holds regular workload and resourcing sessions with each regional  command and the CMOs under its purview to evaluate CMO workload  requirements. DCMA officials expect these sessions to be important for  making resource allocation decisions across the CMOs. In addition,  headquarters officials had conducted resource reviews to identify the  positions, by job series, required at each CMO based on current and  future workloads and on the CMOs’ performance. However, because of  fiscal year 2011 funding constraints, the resource reviews have been put  on hold.
section_title: DCMA Uses Various Approaches to Address Impact of Contingency Deployments on Domestic Operations
paragraphs: While the overall requirement for support of contingency operations has  increased fourfold over the past 5 years and the portion of that increase  shouldered by DCMA staff has more than tripled from 2007, the number  of DCMA staff deployed remains relatively small compared to the size of  the agency workforce. CMO officials told us it is difficult to isolate the  impact of CCAS deployments on overall CMO performance from other  resource constraints DCMA faces. Nevertheless, the officials identified a  number of ways deployments impact domestic operations— including  some instances of work being delayed or not completed—and identified a  variety of approaches they use to manage workload given the  deployments. A number of CMO leaders deploy, in part because a high  proportion of them are military, and these deployments can have a  significant impact on the operations of a CMO. Also, DCMA civilians may  deploy multiple times, and CMO officials report they had little notice to  plan for these deployments. To minimize the impact of civilian  deployments, DCMA has established a position for a corps of 250  personnel hired specifically to support the contingency mission, but  CMOs report management challenges with using these resources.
subsections: section_title: Proportion of DCMA’s Deployed Workforce is Small, but Has Increased Substantially over the Last 5 Years
paragraphs: Based on requirements agreed to by the Joint Chiefs of Staff, combatant  commands, and DCMA, the DCMA CCAS mission in Iraq, Afghanistan,  and Kuwait currently requires an in-theater presence of 450 personnel.  This number represents more than a fourfold increase from the July 2007  deployment number of 83 and includes a recent, 80-person increase for  an enhanced presence in Afghanistan as well as support for the  Department of State following the expected withdrawal of troops in Iraq in  December 2011. From 2001 through 2008, DCMA had a small, clearly  defined role administering the Army’s Logistics Civil Augmentation  Program support contracts. Then in 2007, an independent commission  recommended significantly expanding DCMA’s in-theater role. The  Commission’s report concluded that the Army’s workforce was  inadequately staffed, trained, or structured for handling contract  management in Iraq and Afghanistan, and as a result, the Army  reassigned contract administration to DCMA for contracts involving  delivery of supplies and services in these two countries.
As of July 2011, DCMA was deploying 272 of its own people— approximately 2.5 percent of the workforce—with the balance of the 450  total CCAS requirement filled with contractors and DOD military service  personnel. The portion of the current CCAS requirement shouldered by  DCMA staff, when compared to 2007, has more than tripled. Figure 5  shows the upward trend in CCAS deployments over the past 5 years and  the types of personnel deployed.
16The conclusions from the Commission on Army Acquisition and Program Management  in Expeditionary Operations were instrumental in reaffirming the role of DCMA in the  execution and oversight of all contracts in support of contingency operations.  Subsequently, however, a DOD task force proposed transferring the majority of CCAS  responsibility to the military services by 2013. According to a DOD review team, some  CCAS participants are of the opinion that the military services do not possess, nor can  they master, necessary core competencies to assume CCAS responsibility by that time.
In terms of the type of work these personnel are performing in-theater,  nearly three-quarters of the required contingency positions are in the areas  of contracting and quality assurance. Further, the need for these two areas  of expertise in-theater has grown dramatically from 2007 to 2011, with the  requirements for contracting positions increasing from 20 to 144, and the  requirements for quality assurance increasing from 20 to 182.
section_title: In Light of Overall Resource Constraints, CMO Officials Identified Ways Deployments Affect Their Domestic Operations and Workload
paragraphs: Several of the CMOs we visited report that it is difficult to isolate the  impact of CCAS deployments on overall CMO performance from other  resource constraints DCMA faces. DCMA conducted an analysis of the  relationship between other agency performance indicators (e.g.,  percentage of contract closeouts completed and percentage of completed  quality surveillance plans) and CMOs with high proportions of CCAS  hours in fiscal year 2010, but this analysis showed no discernable  correlation between high CCAS hours and CMO mission performance.  While DCMA is working to develop performance indicators to assess the  future impact of CCAS on the agency’s domestic mission, these  indicators are not yet fully implemented.
Nevertheless, several DCMA officials we interviewed believe that CCAS  deployments have a definite, constraining impact on the agency’s  domestic mission, and CMO officials identified specific examples of how  their operations are affected by deployments. They cited delays in quality  assurance response times, for example, and noted that audits of a  contractor’s processes and contract closeout activities have been delayed  or not done. The officials provided numerous other examples, including:  In the contracting area, at one CMO, contract receipt and review and  funds cancellations were delayed when a key person deployed. The  CMO officials affirmed that activities were still performed, but took  longer than usual to complete or the quality of the work was lower  than customary.
In the quality area, a DCMA internal review team found that since  quality assurance representatives must focus first on conducting  necessary inspections, other functions—such as completing  documentation, reviewing low or medium risk processes, and  performing data analysis—were suffering.
CMO officials identified a number of ways they manage the workload  when someone deploys, such as adjusting workloads of the remaining  staff, granting overtime and compensatory time, and implementing  staggered work shifts. They also reported backfilling positions with  temporary hires, seeking temporary promotions for CMO staff, bringing  back retired annuitants or reservists, or hiring permanent replacements.  In some cases, CMO officials said they had temporarily assigned staff to  other locations.
CMOs commonly use a risk-based approach to ensure that what they  view as the highest priority or most critical work is completed first. For  example, a team leader might focus on getting the mission work done but  may not have time to mentor staff. Officials in one of the regional  commands said they have to take care that tasks such as inspection of  items critical to safety and mandatory government inspections are  performed first. Lower priority items often will be deferred, such as  contract audit follow-up and contract closeout. In another instance, when  an Industrial Specialist volunteered to deploy, CMO officials were able to  come to agreement with the customer that schedule surveillance could be  conducted less frequently, because the contractor typically made  deliveries ahead of schedule.
CMOs we visited noted that the impact of CCAS deployments on CMOs  varies based on the type of deployment (civilian volunteer or EE),  deployment of CMO leadership, and rates of deployment at the CMO.
CMO officials told us they often cannot plan for civilian volunteer  deployments because of short notice of the impending deployment  (usually issued by the Combat Support Center 60-90 days in advance),  which creates challenges in backfilling the position. In addition, once  selected, the volunteer’s time available to the CMO before deployment  can be curtailed by more than a month because of requirements for  training, medical checks, and other pre-deployment activities. The impact  on CMO workload is magnified when civilian volunteers extend their  deployments—which happens frequently—or deploy multiple times. For  example, in 2010, 55 civilian volunteers requested an extension of their  deployment, and only 4 were denied.
CMOs we visited reported different challenges in relation to EE  personnel. First, some said that EEs spend so little time at their CMO  that they cannot be used effectively. The EE workforce, during its initial 3- year commitment, deployed for 6 to 9 months, and then returned to a  home CMO for 6 to 9 months before deploying again. In one situation, a  CMO commander placed an EE in an ACO position, but lost that person  when he was denied a request to defer deployment, highlighting the  challenges of using EEs in key positions or assigning them significant  levels of responsibility. Second, CMO commanders noted that they have  little say in the selection and deployment of EEs; some CMOs have a  relatively high concentration of EEs—about 6 percent of the CMO’s  workforce in two cases. According to senior leadership, DCMA now  realizes it needs to improve its management of the EE placement process  and has begun targeted hiring in areas where there may be a large  untapped skill-base of potential EEs. Third, officials said they had  unanticipated challenges as a result of the temporary promotions  provided to deploying EE personnel. These temporary promotions were  used as one of several means to incentivize potential hires, at a time  when DCMA needed to quickly increase numbers to meet expanding  requirements. However, DCMA officials reported that when these staff  returned to their home CMO, they had adjusted to the higher salary and  the associated work, but often, corresponding higher-level positions were  not available at the CMO. DCMA officials stated that temporary  promotions for EEs have been discontinued, noting the temporary  promotions were not cost effective and that the CMO work did not always  justify the higher grade.
Deployments can have an especially significant impact when they involve  a CMO’s leadership. A number of CMO leaders deploy, in part, because  a high proportion of them are military. Specifically, according to senior  DCMA officials, nearly half of its CMO heads and deputies at domestic  CMOs are military, and all O-5 military commanders stationed with DCMA  in the United States are scheduled to deploy for one year sometime within  their 3-year tour with DCMA. Officials at several CMOs commented that  losing leadership is difficult and challenging, resulting in deputies taking  on the role of CMO leader, with other personnel then being detailed or  temporarily promoted to Acting Deputy. Deployment of commanders in  the middle of their tours can be particularly difficult, according to another  CMO official, because a commander often requires 2 to 3 continuous  years in a leadership position to implement new initiatives, and an  interruption can result in loss of momentum for change and  improvements. While DCMA endeavors to have senior military personnel  complete their deployments as close to the beginning of their DCMA tours  as they can—ideally leaving them back at the CMO for a 2-year period at  the tour’s end for the sake of continuity—some senior officers  nevertheless deploy in the middle of their tours, resulting in interruptions  and a lack of continuity within the CMO. As an example, CCAS  deployments had a considerable impact with respect to leadership at one  CMO. Deployment of the commander in 2010 resulted in turnover of the  commander’s position five times in the following 16 months, during which  time a series of replacements was appointed for a variety of performance  and operational reasons. According to CMO officials, instability in the  leadership at this office contributed to morale and performance shortfalls  that were exacerbated by significant growth in new program requirements  and significant contractor quality issues at that site. Overcoming these  issues required extensive temporary duty costs to split a commander  between two sites and personal sacrifice and hardship for the entire  leadership team.
Some CMOs have higher rates of deployment than others, which leads to a  disproportionate impact of deployments. According to DCMA data, CMOs’  hours dedicated to CCAS in fiscal year 2010 ranged from 10.2 percent of  total workforce hours to 0.6 percent. For example, in the last 2 years, a  total of 55 people— or about 11 percent of the total workforce—deployed  from one CMO, of which 37 were civilian volunteers. In contrast, officials at  another CMO reported that only 4 of their 202 employees were deployed in  the last 2 years. Reasons why some CMOs have higher rates of deployed  personnel vary. It can be due to high concentrations of EE personnel at a  CMO, a high proportion of military personnel, or large numbers of  motivated civilians with skills that are in high demand in contingency  situations, such as contracting or quality assurance. CMO officials also told  us that deployments disproportionately impact some of their suboffices with  small numbers of staff or in remote areas. For example, officials at one  CMO told us a suboffice had 2 of 10 quality assurance staff deployed  simultaneously. To fill the gap, personnel from the CMO had to drive to the  suboffice—a distance of over 400 miles. Officials said that the level of  quality assurance suffered, being limited to only the minimum required  inspections. In reaction, some DOD program offices sent their own  technical people to assist in this work; in other cases shipments were  delayed. DCMA senior officials told us that they are trying to support CMOs  that may be hit harder than others by considering delays or waivers for  CCAS assignments if needed—but these situations have to be balanced  against the high priority of the CCAS mission.
DCMA has taken steps to mitigate the impact of deployments on  individual CMOs. For example, it allows individuals to request deployment  waivers, but few requests are made. From the start of 2010, through June  of 2011, DCMA employees submitted 21 waiver requests. While 19 of  these requests were approved, most (14) were because of medical or  family emergencies or significant personal hardship; 5 were granted  because of a significant mission impact to the CMO organization. Officials  say that a high bar is set for granting waivers because of the CCAS  mission, and that supporting the warfighter has a very high priority at  DCMA. The agency has also lengthened deployment time frames to  reduce their frequency. Military deployments have been increased from 6  months to 9 months, and EE deployments are in the process of being  extended from 179 days to 12 months. DCMA has also begun a CCAS  track for third-year DCMA interns, intended to help meet increasing CCAS  deployment requirements by enlarging the base of eligible civilian  volunteers.
section_title: A Number of Factors May Affect DCMA’s Ability to Conduct Oversight and Surveillance Activities
paragraphs: In addition to the impact of contingency deployments, other factors  present risks to DCMA’s ability to execute its domestic oversight and  surveillance mission. A key external risk to DCMA’s ability to effectively  carry out its responsibility to determine the adequacy of defense  contractor business systems comes from delays in obtaining audits from  DCAA. We also found that DCMA contracting officers maintained their  determination of many contractor business systems as adequate despite  the fact that the systems had not been audited by DCAA in a number of  years—in many cases well beyond the time frames outlined in DCAA  guidance. Another potential risk for DCMA is a recent DOD policy change  that increased the dollar threshold at which DCAA will conduct certain  audits; as a result, DCMA’s own pricing workload will increase. In  addition, DCMA must manage two sources of internal risk. First, some  CMOs are uncertain how newly hired personnel using the Defense  Acquisition Workforce Development Fund, and EEs hired under Overseas  Contingency Operations funds, affect CMOs’ authorized staffing levels  and funding. Second, the agency faces a potential increased workload in  oversight and surveillance of key suppliers as defense subcontracting  grows.
subsections: section_title: DCMA Maintains Adequacy Determination for Contractor Business Systems Even When DCAA Audits Are Outdated
paragraphs: Contractor business systems and internal controls are the first line of  defense against waste, fraud, and abuse on government contracts, and  so the government is at greater risk of overpaying contractors if possible  deficiencies exist in the systems. A role of some DCMA ACOs is to  determine the acceptability or adequacy of business systems for  contractors under their purview. While DCMA has additional resources  to support assessment of purchasing systems, EVMS, and property  management systems, one method it relies on to arrive at status  determinations for contractors’ accounting, estimating, and material  management and accounting systems is the DCAA audits of each  system. DCAA policy establishes guidelines for how often contractor  business system audits should take place, as shown in table 3.
We examined the status of these three business systems for the 17  defense contractors responsible for programs included in this review, as  provided by the cognizant ACO. We found a substantial number of  systems that had not been audited within the DCAA time frames; 12 of  the contractors had at least one system without a current and timely  audit. For example, as of May 31, 2011, 10 contractors had not had an  overall accounting system audit within the last 4 years, and 9 had not had  an estimating system audit within the last 3 years. In one case, a  contractor which has increased its government business more than  sevenfold since 2000 has not had an overall accounting system audit  since 1998, despite the ACO requesting that DCAA perform such an  audit. Further, one estimating system audit and two MMAS audits have  never been conducted because, according to DCAA and DCMA officials,  DCAA has not had the resources available to perform them. For  contractors where an audit was conducted, figure 6 illustrates the date of  the last audits of the three business systems, relative to DCAA’s  guidelines.
When an audit of a system becomes outdated, we found that the  cognizant ACOs generally maintain their prior status determination even if  it was made several years in the past. For example, the ACOs still termed  as “adequate” or “approved” all 10 of the defense contractor accounting  systems that have not been audited in the last 4 years—including the  accounting system that has not been audited since 1998. And ACOs  considered all but two of the estimating systems that have not been  audited in the last 3 years “adequate,” “approved,” or “acceptable.” Some  ACOs also told us that, when audits are outdated, a program office may  need to rely on DCMA and DCAA’s more informal assessment of a  business system’s status. Officials with one DOD program office told us  that while they were aware of the time that had passed since the last  audit of business systems for the prime contractor, they continue to rely  on the expertise of DCMA and DCAA to identify problems with the  systems and oversee resolution.
Some ACOs expressed concern that they did not have more up-to-date  information with which to determine the status of the business systems,  especially if they knew that a contractor had undergone significant  change, such as rapid growth. Many expressed frustration at the lack of  timely DCAA audit support and identified it as a significant impediment to  their ability to assess the status of contractor business systems,  particularly accounting and estimating systems. Further, most noted that  their DCAA counterparts were unable to provide clear and firm time  frames for when the next audits would take place. In some cases, ACOs  reported that expected audits planned by DCAA for a given fiscal year  were not completed, so were moved back to the next year or canceled.  When business systems are not audited in a timely manner, the  government is at increased risk of paying for unallowable and  unreasonable costs, as a contractor’s cost structure or accounting  procedures may change over time.
The Director of DCAA acknowledged that the agency has been behind on  business system audits and that these audits had not been a top priority  for fiscal years 2010 or 2011. He stated that DCAA has been focusing on  addressing other priorities identified as higher risk with its limited  workforce, such as support for overseas contingency operations  contracts, reviewing contractors’ forward pricing rates prior to contract  award, and incurred cost audits. A DCAA official stated that compared to  the resources expended, forward pricing rate audits have the greatest  return to the taxpayer. DCAA officials noted that they were still assessing  which business system audits need to take place and that the agency has  to balance this requirement with its other current priorities. They added  that they have recently launched a pilot program to conduct corporate- level business system audits for major defense contractors, aimed at  improved coordination of DCAA audits and resources. DCAA officials told  us that for fiscal years 2011 and 2012, this pilot primarily involves  overseas contingency operations contractors, but also includes one other  major defense contractor. In addition, DCAA plans to build its workforce,  expecting to hire approximately 250 more auditors by the end of fiscal  year 2011. Our recent work confirmed the challenges DCAA is facing in  terms of its workforce and workload. In September 2011, we reported  that while DCAA’s workforce grew by 16 percent from fiscal years 2000 to  2011, DOD research and procurement spending (an indicator of DCAA’s  workload) increased by 87 percent. As a result, auditors have prioritized  time-sensitive activities such as audits to support new awards. Further, in  that report we found that DCAA’s initiatives to address contractor  business systems will take several years.
Officials from the Office of the Secretary of Defense recognize the  importance of contractor business systems and have taken some steps  designed to improve their quality and transparency, but gaps in their  approaches remain. For example, DCMA officials told us that DOD  officials directed them to increase visibility into the status of business  systems by developing a data repository for this information for use  across the department. DCMA officials explained that this database,  launched in March 2011, is intended to provide DOD buying commands  and DCMA personnel more timely and accessible information on the  status of defense contractors’ corporate and division level business  systems. While ACOs can document dates of the last business system  audits in this database, because the system requires attaching  documentation of the status of business systems rather than entering that  information into a database, the system is not set up to allow DCMA  officials visibility across all defense contractors to understand the full  extent and impact of audit timeliness problems. In May 2011, DOD also  issued an interim rule containing changes to the DFARS that clarified the  department’s definition of contractor business systems, delineated the  roles of DCMA and DCAA with regard to systems oversight, and put in  place processes for withholding payments from contractors with business  system deficiencies.
Our findings are consistent with recent issues raised by others about the  timeliness of contractor business system audits. The House of  Representatives Committee on Armed Services expressed concern in  May 2011 over DCAA’s personnel shortfalls and audit delays and the  impact these might have on competition in DOD contracting. In  September 2009, the Commission on Wartime Contracting in Iraq and  Afghanistan also noted the challenge of determining the real-time status  of contractor business systems because of staffing shortages at DCAA  that reduce the timeliness of audits.
section_title: Changes in Audit Thresholds at DCAA Will Increase Pricing Workload for DCMA
paragraphs: DCMA personnel will face greater responsibilities as a result of a recent  policy change spearheaded by the Office of the Under Secretary of  Defense for AT&L, aimed at freeing up DCAA resources to prioritize high- risk audit work. This change came in response to recommendations made  by oversight organizations and guidance from AT&L to ensure that  DCAA’s audit effort focuses on areas with greatest risk to the taxpayer  and that it align workload requirements with available resources. Effective  September 17, 2010, and in response to a change to guidance for  defense acquisition regulations, DCAA generally no longer performs  audits on contractor cost-type proposals below $100 million or on fixed- price proposals below $10 million. As a result of this change, most pricing  requests below these dollar thresholds will now be referred to DCMA.  Although the new policy was developed in consultation with senior DCMA  leadership, we found that in some instances, CMO officials were  surprised by the change and expressed concern about implications for  their workload.
DCMA headquarters officials have conducted some analysis of how much  work the agency might take on as a result of the threshold change. Based  on data provided by DCAA and assumptions about how much work may  be retained by either DCAA or DOD buying activities, DCMA estimates  that it will receive approximately 1,250 additional pricing requests on  contractor proposals in fiscal year 2011. DCMA officials told us that the  agency plans to rely on newly hired contract cost/price analysts at the  CMOs to shoulder this workload, even as they are undergoing a  significant amount of training to achieve their necessary certifications.
section_title: DCMA Faces Internal Sources of Potential Risk That May Affect Its Overall Efforts
paragraphs: DCMA’s ability to conduct oversight and surveillance domestically may  also be affected by how the agency responds to internal sources of risk.  Our work identified two areas of potential internal risk for DCMA going  forward: first, uncertainty among some CMO officials about the status of  funding sources for new CMO personnel, and second, provision of  adequate oversight of key suppliers in light of growing defense  subcontracting.
Some CMO officials are uncertain how newly hired personnel using the  Defense Acquisition Workforce Development Fund, and EEs hired under  Overseas Contingency Operations funds, affect their authorized staffing  levels and funding. In building its workforce, DCMA has made increasing  use of the Defense Acquisition Workforce Development Fund for  journeymen employees and entry-level interns. DCMA leadership noted  that the agency is requesting increased O&M funding to convert these  positions in the future. Some CMO leaders told us, however, they were  not sure that they would have enough O&M-funded positions available to  be able to retain the journeymen and interns they had originally hired  using the new funding source. CMO leaders told us they were monitoring  attrition to make sure they have spaces for conversions, if needed. DCMA  leadership explained that decisions about funding sources for personnel  take place at the agency headquarters level, rather than at the CMO  level, and as a result, the mix of funding sources for a particular CMO  may change over time but should not affect the number of positions at the  CMO. Going forward, DCMA will continue to face the issue of ensuring  adequate O&M funds to cover these positions.
We also found some confusion about the source of funding for the EE  personnel. According to DCMA headquarters officials, EE personnel are  generally hired using Overseas Contingency Operations funds managed  in a separate pool at headquarters. Because of this arrangement, EE  personnel do not count against authorized CMO funding or manning  levels—they are over and above those levels. Nevertheless, some CMOs  and one of the regional commands we visited expressed concern that  EEs take away staffing and/or dollars from the CMOs. For example, at the  regional command we were told that EEs are paid out of O&M funds  when they are working at the CMOs, but when deployed, they are  compensated from another independent pot of money. Headquarters  officials surmised that when the EE program was first initiated in 2008,  O&M and Overseas Contingency Operations funds were mixed together  for a short while and that there may be some lingering confusion as a  result.
In its fiscal year 2010-2015 strategic human capital plan, DCMA identified  internal communication as a weakness, and its employees have noted  that they get incomplete and mixed messages because of inconsistent  flows of information from the top to lower levels of the agency. DCMA  officials cite the agency’s shift to a functional structure as a method for  simplifying communication up and down the chain of command.
Our previous work has noted that prime contractors are subcontracting  more work on the production of weapon systems, while concentrating  their own efforts instead on systems integration. Based on some  estimates, 60 to 70 percent of work on defense contracts is now done by  subcontractors, with some industries aiming to outsource up to 80 percent  of the work. We have also identified parts quality problems in DOD  systems that were, among other issues, directly attributed to a lack of  effective supplier management, with the costs borne by the government.
Per DCMA policy, CMOs responsible for monitoring the prime contractor’s  activities should exercise oversight and surveillance of those primes’  subcontractors through delegations to the CMOs responsible for those  subcontractors. The amount of delegated workload varies across CMOs.  DCMA leadership generally did not express concern about the amount of  delegated work or its potential growth. However, leadership has noted the  need for improved data to provide visibility into the supply chain so that  DCMA can receive and communicate to customers earlier warnings that a  subcontractor’s delivery might be late. For example, a contractor may be  a prime contractor on one program, and a subcontractor on another. A  senior DCMA official told us that better data about performance on the  prime contract could provide DCMA with insight into potential delays or  other issues that may affect the program on which the contractor has a  subcontract. From the customer’s perspective, several program office  officials noted that DCMA surveillance across key suppliers was of value  to them.
DCMA has acknowledged the need to address supply chain risks that  may affect program cost and schedule, such as poor supply chain  management by prime contractors that are subcontracting, by defining  where those risks lie and influencing prime contractor oversight in those  areas. To support these activities, DCMA plans to increase the size and  quality of its supply management specialist workforce, including provision  of training and certification and creation of development plans for supply  management professionals. DCMA is also placing more supply  management specialists at the CMOs and has tasked one of its divisions  with providing policies, training, and tools to the supply chain  management workforce. In addition, DCMA’s Industrial Analysis Center’s  mission is to provide insight into the ability of the supplier base to support  DOD programs.
section_title: Conclusions
paragraphs: Recovering from years of a seriously eroded workforce that left the  agency unable to fulfill all of its missions has posed a significant  management challenge for DCMA. It has taken several key steps— including reorganizing the agency, strengthening its guidance and  procedures, and rebuilding areas of expertise—aimed at putting the  agency on the path to successfully meeting its missions going forward.  The issues we have raised regarding the impact of contingency  deployments on DCMA and its responsibilities domestically can be  expected to continue, as the agency’s contingency role is not expected to  diminish in the near future. DCMA leadership is largely aware of the  challenges in this regard and has indicated that steps will be taken to  mitigate, to the extent possible, the impact on domestic CMOs.
At the broader DOD level, the recent change to defense regulations is a  positive step toward achieving better visibility into contractor business  systems. However, because we found consistent delays in the audit time  frames for the business systems that require support from DCAA, higher- level attention is needed to mitigate the risk to the government of  outdated business system audits. DCAA, because of workforce  challenges of its own, is not at present able to fulfill its business system  audit responsibilities and is not likely to be in a position to do so in the  near term given its other priorities. Thus, the department needs to  consider alternative methods to accomplish these critical audits in a  timelier manner. Other factors we identified, however, are largely in  DCMA’s control and can be addressed in the shorter term. In particular,  DCMA’s practice of considering contractor business systems adequate  even when they have not been audited or reviewed in a number of years  may put taxpayer funds at risk by suggesting a system is sound when that  may not in fact be the case. And the uncertainty on the part of CMO  leaders about sustained funding for their new hires brought in under the  Defense Acquisition Workforce Development Fund and the source of  funding for EE personnel suggests that clearer communication is  warranted.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Defense work with DCMA and  DCAA to identify and execute options, such as hiring external auditors, to  assist in conducting audits of contractor business systems as an interim  step until DCAA can build its workforce enough to fulfill this responsibility.
We recommend that the Director of the DCMA take the following two  actions:  Identify ways to accurately and transparently reflect the current status  of business systems, such as changing the status of a system to  “unassessed” when a system has not been audited within DCAA’s  time frames.    Clarify for the CMOs the specific plans for how O&M funding is to be  provided to enable CMOs to continue supporting new hires brought in  under the Defense Acquisition Workforce Development Fund and how  EE personnel are funded when working at domestic CMOs, given the  confusion regarding this issue.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided us with written comments on a draft of this report. DOD  agreed with two of our recommendations and partially agreed with one.   DOD’s written response is reprinted in appendix II.
Regarding our recommendation that the department consider alternative  approaches to audits of contractor business systems, DOD agreed to  consider alternative approaches but did not elaborate with any planned  actions or time frames. DOD also agreed with our recommendation that  DCMA clarify for the CMOs how O&M funding is to be provided to enable  them to continue supporting new hires brought in under the Defense  Acquisition Workforce Development Fund, as well as how EE personnel  are funded when working at CMOs. The response explained that DCMA  has O&M funding and full-time equivalents in its fiscal year 2012-2015  fiscal guidance for the conversions and noted that DCMA is pursuing  funding for future year conversions. It also clarified that EE personnel  under the current 3-year program are funded by Overseas Contingency  Operations funds wherever they are working, including at domestic  CMOs.  Given the confusion we found on these issues, we believe it is  important that the Director of DCMA regularly share this funding  information with the CMOs.
DOD partially agreed with our recommendation that the Director of DCMA  identify ways to accurately and transparently reflect the current status of  contractor business systems. The response outlined steps DCMA is  planning to take, including issuing a new policy on contractor business  system requirements and updating the agency’s existing data repository,  to include adding data fields, to supplement current information. DOD  expressed concern that automatically changing the status of a previously  “approved” system to “not assessed” solely because status  determinations had not occurred within the specified time frames may  adversely impact the department’s procurement process. The intent of  our recommendation was not that all outdated business system  assessments be automatically or retroactively changed to “unassessed.”  Rather, we intended that DCMA determine how a more accurate status  could be conveyed. The actions DOD has outlined, if implemented,  should provide greater transparency and visibility into the status of the  business system assessments.
We are sending copies of this report to the Secretary of Defense,  interested congressional committees, and other interested parties. This  report will also be available at no charge on GAO’s Web site at  http://www.gao.gov.
If you or your staff have any questions concerning this report, please  contact me at (202) 512-4841 or by e-mail at huttonj@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 are  listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to (1) assess how the Defense Contract  Management Agency (DCMA) is positioning itself to meet its missions; (2)  determine the extent to which contingency missions have impacted  DCMA’s ability to provide oversight and surveillance domestically; and (3)  identify other factors that may affect its capability to conduct oversight  and surveillance domestically going forward.
To conduct our work for each objective, we reviewed key documents,  such as relevant sections of the Federal Acquisition Regulation (FAR)  (e.g., FAR Part 42.3, Contract Administration Office Functions) and the  Defense Federal Acquisition Regulation Supplement (DFARS), (e.g.,  DFARS 242.3 – Contract Administration Office Functions). We also  reviewed DOD policies, such as the Office of the Under Secretary of  Defense for Acquisition, Technology, and Logistics memorandums on  Better Buying Power. We reviewed DCMA documentation, such as  agency guidance and instructions; historical documentation related to  DCMA’s organizational structure; workforce data (e.g., the number of  DCMA staff in different job series); and information on contingency  deployments (e.g., total requirements, documentation on the types of  deployment, and waiver and extension requests). We reviewed Defense  Contract Audit Agency (DCAA) documentation such as relevant sections  of the DCAA Contract Audit Manual and audits related to contractor  business systems. We also reviewed prior reports concerning DCMA,  including our prior work as well as reports of the Commission on Wartime  Contracting in Iraq and Afghanistan and others.
Further, we interviewed DCMA officials at headquarters as well as some  DCMA centers and divisions, including the Combat Support Center; the  Cost and Pricing Center; the Industrial Analysis Center; the  Manufacturing Engineering/Supply Chain Predictability Division; and  others. To learn more about DCMA processes and procedures, we  interviewed DCMA headquarters officials about agencywide initiatives  such as performance indicators and resource reviews. We also  interviewed senior officials at DCMA’s three domestic regional  commands, and interviewed the heads of the Contract Management  Offices (CMO) at 14 out of the 40 primary CMOs located across the  country. We selected this nonprobability sample of CMOs based on a  number of factors, including geographic location, obtaining a mix of CMO  types (plant-based, geographic, and specialized), percentage of CMO  hours spent on contingency contract administration services, and total  contract dollar value at the CMO. The findings from the CMOs we visited  are not generalizable to the population of all DCMA CMOs.
Within the geographic and plant-based CMOs, we selected a  nonprobability sample of one or two DOD weapons system programs (19  in total) to gather more detailed information about how DCMA provided  support. The findings from these programs are not generalizable to all  programs, but were chosen to ensure that programs with large dollar  values were selected, and to ensure representation of a range of DOD  military services and contractors. For each program, we reviewed DCMA  oversight documentation such as surveillance plans and memorandums  of agreement between DCMA and the program offices. We also  interviewed members of DCMA’s Program Support Teams for each  selected program, including program integrators, administrative  contracting officers, quality assurance representatives, engineers,  industrial specialists, and others. To develop a more in-depth  understanding of how DCMA provides oversight, we toured seven  contractor facilities in relation to CMOs we visited. We also collected  information on the status of contractor business systems related to each  of the selected DOD programs and interviewed the DCMA administrative  contracting officer responsible for oversight of those business systems.  To gain their insights on DCMA oversight and surveillance, we also  interviewed officials from eight DOD program offices and representatives  from nine contractors, which we selected by taking into account factors  such as obtaining the perspectives of a range of military services and  contractors. To develop an understanding of DCAA’s perspective on  issues related to DCMA and DCAA, particularly oversight of contractor  business systems and changes in DCAA’s thresholds for conducting  pricing-related audits, we also interviewed senior officials at DCAA.
We conducted this performance audit from October 2010 to November  2011 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Michele Mackin, Assistant  Director; Janet McKelvey; Robert Bullock; Virginia Chanley; John Krump;  Suzanne Sterling; Roxanna Sun; and Peter Zwanzig made key  contributions to this report.