Homeland Security: Challenges in Creating an Effective Acquisition Organization
Published: 2006-07-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Homeland Security (DHS) has some of the most extensive acquisition needs within the U.S. government. In fiscal year 2005, the department reported that it obligated almost $17.5 billion to acquire a wide range of goods and services. DHS's acquisition portfolio is broad and complex, including procurements for sophisticated screening equipment for air passenger security; technologies to secure the nation's borders; trailers to meet the housing needs of Hurricane Katrina victims; and the upgrading of the Coast Guard's offshore fleet of surface and air assets. This testimony summarizes GAO reports and testimonies, which have reported on various aspects of DHS acquisitions. It addresses (1) areas where DHS has been successful in promoting collaboration among its various organizations, and (2) challenges it still faces in integrating the acquisition function across the department; and (3) DHS' implementation of an effective review process for its major, complex investments. The information in this testimony is based on work that was completed in accordance with generally accepted government auditing standards.
section_title: What GAO Found
paragraphs: Since its establishment in March 2003, DHS has been faced with assembling 23 separate federal agencies and organizations with multiple missions and cultures into one department. This mammoth task involved a variety of transformational efforts, one of which is to design and implement the necessary management structure and processes for the acquisition of goods and services. We reported in March 2005 that DHS had opened communication among its acquisition organizations through its strategic sourcing and small business programs. With strategic sourcing, DHS' organizations quickly collaborated to leverage spending for various goods and services--such as office supplies, boats, energy, and weapons--without losing focus on small businesses, thus leveraging its buying power and increasing savings. Its small business program, whose reach is felt across DHS, is also off to a good start. Representatives have been designated in each DHS procurement office to ensure small businesses can compete effectively for the agency's contract dollars. We also reported that DHS' progress in creating a unified acquisition organization has been hampered by policy decisions that create ambiguity about who is accountable for acquisition decisions. To a great extent, we found that the various acquisition organizations within DHS were still operating in a disparate manner, with oversight of acquisition activities left primarily up to each individual organization. DHS continues to face challenges in integrating its acquisition organization. Specifically, dual accountability for acquisitions exists between the Chief Procurement Officer (CPO) and the heads of each DHS component; a policy decision has exempted the Coast Guard and Secret Service from the unified acquisition organization; the CPO has insufficient capacity for department-wide acquisition oversight; and staffing shortages have led the Office of Procurement Operations, which handles a large percentage of DHS's contracting activity, to rely extensively on outside agencies for contracting support--often for a fee. We found that this office lacked the internal controls to provide oversight of this interagency contracting activity. This last challenge has begun to be addressed with the hiring of additional contracting staff. Some of DHS's organizations have major, complex acquisition programs that are subject to a multi-tiered investment review process intended to help reduce risk and increase chances for successful outcomes in terms of cost, schedule, and performance. While the process includes many best practices, it does not include two critical management reviews, namely a review to help ensure that resources match customer needs and a review to determine whether a program's design performs as expected. Our prior reports on large DHS acquisition programs, such as the Transportation Security Administration's Secure Flight program and the Coast Guard's Deepwater program, highlight the need for improved oversight of contractors and adherence to a rigorous management review process.

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss the Department of  Homeland Security’s (DHS) acquisition organization. Since its  establishment in March 2003, DHS has been faced with assembling   23 separate federal agencies and organizations with multiple missions,  values, and cultures into one cabinet-level department. This mammoth  task—one of the biggest mergers ever to take place within the federal  government— involved a variety of transformational efforts, one of which  is to design and implement the necessary management structure and  processes for the acquisition of goods and services.
DHS has some of the most extensive acquisition needs within the U.S.  government. In fiscal year 2005, the department reported that it has  obligated almost $17.5 billion to acquire a wide range of goods and  services. The DHS acquisitions portfolio is broad and complex. For  example, it has purchased increasingly sophisticated screening equipment  for air passenger security; acquired technologies to secure the nation’s  borders; purchased trailers to meet the housing needs of Hurricane  Katrina victims; and is upgrading the Coast Guard’s offshore fleet of  surface and air assets. DHS has been working to integrate the many  acquisition processes and systems that the disparate agencies and  organizations brought with them while still addressing ongoing mission  requirements and emergency situations such as responding to Hurricane  Katrina. As you know, we designated the establishment of the department  and its transformation as high risk; we also pointed out that not  effectively addressing DHS’ management challenges and program risks  could have serious consequences for our national security.
Based on work done for this committee last year, today I would like to  discuss areas where DHS has been successful in promoting collaboration  among its various organizations and areas where it still faces challenges,  such as integrating and unifying the acquisition function across the  department. I will also discuss our assessment of the department’s  progress in implementing an effective review process for its major,  complex investments, highlighting some recent GAO work related to these  issues. This testimony is based on GAO reports and testimonies that were  done in accordance with generally accepted government auditing  standards.
subsections: section_title: Early Initiatives to Leverage Buying Power and Small Business Programs Fostered Collaboration Among DHS Organizations
paragraphs: In the three years since its creation, DHS realized some successes among  its various acquisition organizations in opening communication through its  strategic sourcing and small business programs. Both efforts have involved  every principal organization in DHS, along with strong involvement from  the CPO, and both have yielded positive results. DHS’ disparate acquisition  organizations quickly collaborated on leveraging spending for various  goods and services, without losing focus on small businesses. This use of  strategic sourcing—formulating purchasing strategies to meet  departmentwide requirements for specific commodities, such as office  supplies, boats, energy, and weapons—helped DHS leverage its buying  power, with savings expected to grow. At the time of our March 2005  review, DHS had reported approximately $14 million in savings across the  department. We also found that the small business program, whose reach  is felt across DHS, was off to a good start. In fiscal year 2004, DHS  reported that 35 percent of its prime contract dollars went to small  businesses, exceeding its goal of 23 percent. Representatives have been  designated in each DHS procurement office to help ensure that small  businesses have opportunities to compete for DHS’ contract dollars.
However, some officials responsible for carrying out strategic sourcing  initiatives have found it challenging to balance those duties with the  demands and responsibilities of their full-time positions within DHS.  Officials told us that strategic sourcing meetings and activities sometimes  stall because participants must shift attention to their full-time positions.  Our prior work on strategic sourcing shows that leading commercial  companies often establish full-time commodity managers to more  effectively manage commodities. Commodity managers help define  requirements with internal clients, negotiate with potential vendors, and  resolve performance or other issues arising after a contract is awarded  and can help maintain consistency, stability, and a long-term strategic  focus.
section_title: DHS Faces Key Challenges In Creating An Integrated Acquisition Organization
paragraphs: DHS continues to faces challenges in creating a unified, accountable  acquisition organization due to policies that create ambiguity as to  accountability for acquisition decisions, inadequate staffing to conduct  department-wide oversight, and heavy reliance on interagency contracting  in the Office of Procurement Operations, which is responsible for a large  portion of DHS’ contracting activity.
subsections: section_title: Policy Directive Relies on Dual Accountability and Exempts Coast Guard and Secret Service
paragraphs: Achieving a unified and integrated acquisition system is hampered because  an October 2004 policy directive relies on a system of dual accountability  between the CPO and the heads of the department’s principal  organizations.  Although the CPO has been delegated the responsibility to  manage, administer, and oversee all acquisition activity across DHS, in  practice, performance of these activities is spread throughout the  department, reducing accountability for acquisition decisions.
This system of dual accountability results in unclear working relationships  between the CPO and heads of DHS’ principal organizations. For example,  the policy leaves unclear how the CPO and the director of Immigration  and Customs Enforcement are to share responsibility for recruiting and  selecting key acquisition officials, preparing performance ratings for the  top manager of the contracting office, and providing appropriate resources  to support CPO initiatives.
The policy also leaves unclear what enforcement authority the CPO has to  ensure that initiatives are carried out because  heads of principal  organizations are only required to “consider” the allocation of resources to  meet procurement staffing levels in accordance with the CPO’s analysis.  Agreements had not been developed on how the resources to train,  develop, and certify acquisition professionals in the principal  organizations would be identified or funded.
While the October 2004 policy directive emphasizes the need for a unified,  integrated acquisition organization, achievement of this goal is further  hampered because the directive does not apply to the U.S. Coast Guard  and U.S. Secret Service. The Coast Guard is one of the largest  organizations within DHS, with obligations accounting for about $2.2  billion in fiscal year 2005, nearly 18 percent of the department’s total.  The  directive maintains that these two organizations are exempted from the  directive by statute.  We disagreed with this conclusion, as we are not  aware of any explicit statutory exemption that would prevent the  application of the DHS acquisition directive to either organization. We  raised the question of statutory exemption with the DHS General Counsel,  who shared our assessment concerning the explicit statutory exemptions.  He viewed the applicability of the management directive as a policy  matter.
section_title: Chief Procurement Officer’s Staffing for Oversight Is Insufficient
paragraphs: DHS’ goal of achieving a unified, integrated acquisition organization is in  part dependent on its ability to provide effective oversight of component  activities. We reported in March 2005 that the CPO lacked sufficient staff  to ensure compliance with DHS’ acquisition oversight regulations and  policies. To a great extent, the various acquisition organizations within the  department were still operating in a disparate manner, with oversight of  acquisition activities left primarily up to each individual organization.  In  December 2005, DHS implemented a department wide management  directive that establishes policies and procedures for acquisition oversight.  The CPO has issued guidance providing a framework for the oversight  program and, according to DHS officials, as of May 2006, five staff were  assigned to oversight responsibilities. We have ongoing work in this area  and will be reporting on the department’s progress in the near future.
The challenge DHS faces overseeing its various components’ contracting  activities is significant. For example, in May 2004 we reported that TSA  had not developed an acquisition infrastructure, including organization,  policies, people, and information that would facilitate successful  management and execution of its acquisition activities. The development  of those areas could help ensure that TSA acquires quality goods and  services at reasonable prices, and makes informed decisions about  acquisition strategy.
section_title: Office of Procurement Operations’ Heavy Use of Interagency Agreements
paragraphs: To support the DHS organizations that lacked their own procurement  support, the department created the Office of Procurement Operations. In  2005, we found that, because this office lacked sufficient contracting staff,  it had turned extensively to interagency contracting to fulfill its  responsibilities.  At the time of our review, we found that this office had  transferred almost 90 percent of its obligations to other federal agencies  through interagency agreements in fiscal year 2004. For example, DHS had  transferred $12 million to the Department of the Interior’s National  Business Center to obtain contractor operations and maintenance services  at the Plum Island Animal Disease Center. Interior charged DHS $62,000  for this assistance.
We found that the Office of Procurement Operations lacked adequate  internal controls to provide oversight of its interagency contracting  activity. For example, it did not track the fees it was paying to other  agencies for contracting assistance. Since our report was issued, the office  has added staff and somewhat reduced its reliance on interagency  contracting. Recently, DHS officials told us that the office has increased its  staffing level from 42 to 120 employees, with plans to hire additional staff.  As reported by DHS, the Office of Procurement Operations’ obligations  transferred to other agencies had decreased to 72 percent in fiscal year  2005.
section_title: Review Process for Major Investments, Despite Use of Best Practices, Was Inconsistent and Lacked Some Management Controls
paragraphs: To protect its major, complex investments, DHS has put in place a review  process that adopts many acquisition best practices—proven methods,  processes, techniques, and activities—to help the department reduce risk  and increase the chances for successful investment outcomes in terms of  cost, schedule, and performance. One best practice is a knowledge-based  approach to developing new products and technologies pioneered by  successful commercial companies, which emphasizes that program  managers need to provide sufficient knowledge about important aspects of  their programs at key points in the acquisition process, so senior leaders  are able to make well-informed investment decisions before an acquisition  moves forward.
While DHS’ framework includes key tenets of this approach, in March 2005  we reported that it did not require two critical management reviews. The  first would help ensure that resources match customer needs before any  funds are invested.  The second would help ensure that the design for the  product performs as expected prior to moving into production. We also  found that some critical information is not addressed in DHS’ investment  review policy or the guidance provided to program managers.  In other  cases, it is made optional.  For example, before a program is approved to  start, DHS policy requires program managers to identify an acquisition’s  key performance requirements and to have technical solutions in place.   This information is then used to form cost and schedule estimates for the  product’s development to ensure that a match exists between  requirements and resources. However, DHS policy does not establish cost  and schedule estimates for the acquisition based on knowledge from  preliminary designs.  Further, while DHS policy requires program  managers to identify and resolve critical operational issues before  proceeding to production, initial reviews—such as the system and  subsystem review—are not mandatory.
In addition, while the review process adopts other important acquisition  management practices, such as requiring program managers to submit  acquisition plans and project management plans, a key practice— contractor tracking and oversight—is not fully incorporated.  We have  cited the need for increased contractor tracking and oversight for several  large DHS programs.  While many of DHS’ major investments use  commercial, off-the-shelf products that do not require the same level of  review as a complex, developmental investment would, DHS is investing in  a number of major, complex systems, such as TSA’s Secure Flight program  and the Coast Guard’s Deepwater program, that incorporate new  technology.  Our work on these two systems highlights the need for  improved oversight of contractors and greater adherence to a best  practices approach to management review.  Two examples follow.
We reported in February 2006 that TSA, in developing and managing its  Secure Flight program, had not conducted critical activities in accordance  with best practices for large scale information technology programs.  Program officials stated that they used a rapid development method that  was intended to enable them to develop the program more quickly.  However, as a result of this approach, the development process has been  ad hoc, with project activities conducted out of sequence. TSA officials  have acknowledged that they have not followed a disciplined life cycle  approach in developing Secure Flight, and stated that they are currently  rebaselining the program to follow their standard systems development  life cycle process, including defining system requirements. TSA officials  also told us they are taking steps to strengthen contractor oversight for the  Secure Flight program. For example, the program is using one of TSA’s  support contractors to help track contractors’ progress in the areas of  cost, schedule, and performance and the number of TSA staff with  oversight responsibilities for Secure Flight contracts has been increased.  TSA reports it has identified contract management as a key risk factor  associated with the development and implementation of Secure Flight.
The Coast Guard’s ability to meet its responsibilities depends on the  capability of its deepwater fleet, which consists of aircraft and vessels of  various sizes and capabilities. In 2002, the Coast Guard began a major  acquisition program to replace or modernize these assets, known as the  Deepwater program.  Deepwater is currently estimated to cost $24 billion.  We have reported that the Coast Guard’s acquisition strategy of relying on  a prime contractor (“system integrator”) to identify and deliver the assets  needed carries substantial risks. We found that well into the contract’s  second year, key components for managing the program and overseeing  the system integrator’s performance had not been effectively  implemented. As we recently observed, the Coast Guard has made  progress in addressing our recommendations, but there are aspects of the  Deepwater program that will require continued attention. The program  continues to face a degree of underlying risk, in part because of the  unique, system-of-systems approach with the contractor acting as overall  integrator, and in part because it is so heavily tied to precise year-to year  funding requirements over the next two decades. Further, a project of this  magnitude will likely continue to experience other concerns and  challenges beyond those that have emerged so far. It will be important for  Coast Guard managers to carefully monitor contractor performance and to  continue addressing program management concerns as they arise.
In closing, I believe that DHS has taken strides toward putting in place an  acquisition organization that contains many promising elements.   However, the steps taken so far are not enough to ensure that the  department is effectively managing the acquisition of the multitude of  goods and services it needs to meet its mission.  More needs to be done to  fully integrate the department’s acquisition function, to pave the way for  the CPO’s responsibilities to be effectively carried out in a modern-day  acquisition organization, and to put in place the strong internal controls  needed to manage interagency contracting activity and large, complex  investments. DHS’ top leaders must continue to address these challenges  to ensure that the department is not at risk of continuing to exist with a  fragmented acquisition organization that provides stopgap, ad hoc  solutions. DHS and its components, while operating in a challenging  environment, must have in place sound acquisition plans and processes to  make and communicate good business decisions, as well as a capable  acquisition workforce to assure that the government receives good value  for the money spent.
Mr. Chairman, this concludes my statement. I would be happy to respond  to any questions you or other Members of the Committee may have at this  time. For further information regarding this testimony, please contact  Michael Sullivan at (202) 512-4841 or sullivanm@gao.gov.
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