Department of Homeland Security: Ongoing Challenges in Creating an Effective Acquisition Organization
Published: 2007-06-07T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2006, the Department of Homeland Security (DHS) obligated $15.6 billion to support its broad and complex acquisition portfolio. Since it was tasked with integrating 22 separate federal agencies and organizations into one cabinet-level department, DHS has been working to create an integrated acquisition organization while addressing its ongoing mission requirements and responding to natural disasters and other emergencies. Due to the enormity of this challenge, GAO designated the establishment of the department and its transformation as high-risk in January 2003. This testimony discusses DHS's (1) challenges to creating an integrated acquisition function; (2) investment review process; and (3) reliance on contracting for critical needs. This testimony is based primarily on prior GAO reports and testimonies.
section_title: What GAO Found
paragraphs: The structure of DHS's acquisition function creates ambiguity about who is accountable for acquisition decisions because it depends on a system of dual accountability and collaboration between the Chief Procurement Officer (CPO) and the component heads. Further, a common theme in GAO's work on acquisition management has been DHS's struggle to provide adequate support for its mission components and resources for departmentwide oversight. In 2006, DHS reported significant progress in staffing for the components and the CPO, though much work remained to fill the positions. In addition, DHS has established an acquisition oversight program, designed to provide the CPO comprehensive insight into each component's acquisition programs and disseminate successful acquisition management approaches departmentwide. However, GAO continues to be concerned that the CPO may not have sufficient authority to effectively oversee the department's acquisitions. In 2003, DHS put in place an investment review process to help protect its major complex investments. In 2005, GAO reported that this process adopted many acquisition best practices that, if applied consistently, could help increase the chances for successful outcomes. However, GAO noted that incorporating additional program reviews and knowledge deliverables into the process could better position DHS to make well-informed decisions. Concerns have been raised about how the investment review process has been used to oversee its largest acquisitions, and DHS plans to revise the process. DHS has contracted extensively for a broad range of services and complex acquisitions. The growing complexity of contracting for technically difficult and sophisticated services increases challenges in terms of setting appropriate requirements and effectively monitoring contractor performance. However, DHS has been challenged to provide the appropriate level of oversight and management attention to its contracting for services and major systems.

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss the Department of  Homeland Security’s (DHS) acquisition organization. As you know, DHS is  the result of one of the biggest mergers in the U.S. government and, as  such, involves a variety of transformational efforts, one of which is to  design and implement the necessary management structure and processes  for acquiring goods and services. DHS ‘s acquisition needs range from  increasingly sophisticated screening equipment for air passenger security  to upgrading the Coast Guard’s offshore fleet of surface and air assets. In  fiscal year 2006, the department reported that it obligated $15.6 billion for  goods and services to support its broad and complex acquisition portfolio.  DHS has been working to develop an integrated acquisition organization  while addressing its ongoing mission requirements and responding to  emergencies, including Gulf Coast recovery from Hurricane Katrina, which  caused more damage than any other natural disaster in the history of the  United States. Due to the enormity of challenges facing the department— and concern that failure to effectively address DHS’s management and  program challenges would seriously compromise our homeland security— we designated the establishment of the department and its transformation  as high-risk.
My testimony today focuses on accountability and management of DHS  acquisitions. Specifically, the department’s (1) challenges in creating an  integrated acquisition function; (2) need for improvements in its  investment review process; and (3) reliance on contracting for critical  services. This statement is based primarily on GAO reports and  testimonies performed in accordance with generally accepted government  auditing standards.
subsections: section_title: DHS Faces Challenges in Establishing an Integrated Acquisition Function
paragraphs: The structure of DHS’s acquisition function creates ambiguity about who  is accountable for acquisition decisions. A common theme in our work on  DHS’s acquisition management has been the department’s struggle from  the outset to provide adequate support for its mission components and  resources for departmentwide oversight. Of the 22 components that  initially joined DHS from other agencies, 7 came with their own  procurement support. In January 2004, a year after the department was  created, an eighth office, the Office of Procurement Operations, was  created to provide support to a variety of DHS entities. To improve  oversight, in December 2005, CPO established a departmentwide  acquisition oversight program, designed to provide comprehensive insight  into each component’s acquisitions and disseminate successful acquisition  management approaches throughout DHS.
subsections: section_title: Acquisition Function Is Not Integrated
paragraphs: DHS has set a goal of integrating the acquisition function more broadly  across the department. Prior GAO work has shown that to implement  acquisition effectively across a large federal organization requires an  integrated structure with standardized policies and processes, the  appropriate placement of the acquisition function within the department,  leadership that fosters good acquisition practices, and a general  framework that delineates the key phases along the path for a major  acquisition. An effective acquisition organization has in place  knowledgeable personnel who work together to meet cost, quality, and  timeliness goals while adhering to guidelines and standards for federal  acquisition. DHS, however, relies on dual accountability and collaboration  between the CPO and the heads of DHS’s components.
The October 2004 management directive for its acquisition line of  business—the department’s principal guidance for leading, governing,  integrating, and managing the acquisition function—allows managers from  each component organization to commit resources to training,  development, and certification of acquisition professionals. It also  highlights the CPO’s broad authority, including management,  administration, and oversight of departmentwide acquisition. However, we  have reported that the directive may not achieve its goal of creating an  integrated acquisition organization because it creates unclear working  relationships between the CPO and the heads of DHS components. For  example, some of the duties delegated to the CPO have also been given to  the heads of DHS’s components, such as recruiting and selecting key  acquisition officials at the components, and providing appropriate  resources to support the CPO’s initiatives. Accountability for acquisitions  is further complicated because, according to DHS, the Coast Guard and  Secret Service were exempted from its acquisition management directive  because of DHS’s interpretation of the Homeland Security Act. We have  questioned this exemption, and recently CPO officials have told us that  they are working to revise the directive to make it clear that the Coast  Guard and Secret Service are not exempt. Furthermore, for major  investments—those exceeding $50 million—accountability, visibility, and  oversight is shared among the CPO, the Chief Financial Officer, the Chief  Information Officer, and other senior management. Recently, the DHS  Inspector General’s 2007 semiannual report stated an integrated  acquisition system still does not exist, but noted that that the atmosphere  for collaboration between DHS and its component agencies on acquisition  matters has improved.
section_title: Efforts to Address Acquisition Workforce Staffing
paragraphs: In addition, our work and the work of the DHS Inspector General has  found acquisition workforce challenges across the department. In 2005, we  reported on disparities in the staffing levels and workload among the  component procurement offices. We recommended that DHS conduct a  departmentwide assessment of the number of contracting staff, and if a  workload imbalance were to be found, take steps to correct it by  realigning resources. In 2006, DHS reported significant progress in  providing staff for the component contracting offices, though much work  remained to fill the positions with qualified, trained acquisition  professionals. DHS has established a goal of aligning procurement staffing  levels with contract spending at its various components by the last quarter  of fiscal year 2009.
Staffing of the CPO Office also has been a concern, but recent progress  has been made. According to CPO officials, their small staff faces the  competing demands of providing acquisition support for urgent needs at  the component level and conducting oversight. For example, CPO staff  assisted the Federal Emergency Management Agency in contracting for  the response to Gulf Coast hurricanes Katrina and Rita. As a result, they  needed to focus their efforts on procurement execution rather than  oversight. In 2005, we recommended that the Secretary of Homeland  Security provide the CPO with sufficient resources to effectively oversee  the department’s acquisitions. In 2006, we reported that the Secretary had  supported an increase of 25 positions for the CPO to improve acquisition  management and oversight. DHS stated that these additional personnel  will significantly contribute to continuing improvement in the DHS  acquisition and contracting enterprise. To follow-up on some of these  efforts, we plan to conduct additional work on DHS acquisition workforce  issues in the near future.
section_title: CPO Has Established an Acquisition Oversight Program
paragraphs: Our prior work has shown that in a highly functioning acquisition  organization, the CPO is in a position to oversee compliance by  implementing strong oversight mechanisms. Accordingly, in December  2005, the CPO established a departmentwide acquisition oversight  program, designed to provide comprehensive insight into each  component’s acquisition programs and disseminate successful acquisition  management approaches throughout DHS. The program is based in part   on elements essential to an effective, efficient, and accountable acquisition  process: organizational alignment and leadership, policies and processes,  financial accountability, acquisition workforce, and knowledge  management and information systems. The program includes four  recurring reviews, as shown in table 1.
In September 2006, we reported that the CPO’s limited staff resources had  delayed the oversight program’s implementation, but the program is well  under way, and DHS plans to implement the full program in fiscal year  2007. Recently, the CPO has made progress in increasing staff to  authorized levels, and as part of the department’s fiscal year 2008  appropriation request, the CPO is seeking three additional staff, for a total  of 13 oversight positions for this program. We plan to report on the  program later this month.
While this program is a positive step, we have reported that the CPO lacks  the authority needed to ensure the department’s components comply with  its procurement policies and procedures such as the acquisition oversight  program. We reported in September 2006 that the CPO’s ability to  effectively oversee the department’s acquisitions and manage risks is  limited, and we continue to believe that the CPO’s lack of authority to  achieve the department’s acquisition goals is of concern.
section_title: DHS Investment Review Process Needs Improvement
paragraphs: In 2003, DHS put in place an investment review process to help protect its  major, complex investments. The investment review process is intended to  reduce risk associated with these investments and increase the chances  for successful outcomes in terms of cost, schedule, and performance. In  March 2005, we reported that in establishing this process, DHS has  adopted a number of acquisition best practices that, if applied  consistently, could help increase the chance for successful outcomes.  However, we noted that incorporating additional program reviews and  knowledge deliverables into the process could better position DHS to  make well-informed decisions on its major, complex investments.
Specifically, we noted that the process did not include two critical  management reviews that would help ensure that (1) resources match  customer needs prior to beginning a major acquisition and (2) program  designs perform as expected before moving to production. We also noted  that the review process did not fully address how program managers are to  conduct effective contractor tracking and oversight. The investment  review process is still under revision, and the department’s performance  and accountability report for fiscal year 2006 stated that DHS will  incorporate changes to the process by the first quarter of fiscal year 2008.
Our best practices work shows that successful investments reduce risk by  ensuring that high levels of knowledge are achieved at these key points of  development. We have found that investments that were not reviewed at  the appropriate points faced problems—such as redesign—that resulted in  cost increases and schedule delays. Concerns have been raised about the  effectiveness of the review process for large investments at DHS. For  example, in November 2006, the DHS Inspector General reported on the  Customs and Border Protection’s Secure Border Initiative program, noting  that the department’s existing investment oversight processes were  sidelined in the urgent pursuit of SBInet’s aggressive schedule. The  department’s investment review board and joint requirements council  provide for deliberative processes to obtain the counsel of functional  stakeholders. However, the DHS Inspector General reported that for  SBInet, these prescribed processes were bypassed and key decisions  about the scope of the program and the acquisition strategy were made  without rigorous review and analysis or transparency. The department has  since announced plans to complete these reviews to ensure the program is  on the right track.
section_title: DHS Reliance on Contracting For Critical Services Requires Enhanced Management Attention
paragraphs: To quickly get the department up and running and to obtain necessary  expertise, DHS has relied extensively on other agencies’ and its own  contracts for a broad range of mission-related services and complex  acquisitions. Governmentwide, increasing reliance on contractors has  been a longstanding concern. Recently, in 2006, government, industry and  academic participants in a GAO forum on federal acquisition challenges  and opportunities noted that many agencies rely extensively on  contractors to carry out their basic missions. The growing complexity of  contracting for technically difficult and sophisticated services increases  challenges in terms of setting appropriate requirements and effectively  monitoring contractor performance. With the increased reliance on  contractors comes the need for an appropriate level of oversight and  management attention to its contracting for services and major systems.
subsections: section_title: Interagency Contracting Needs to be Carefully Managed
paragraphs: Our work to date has found that DHS faces challenges in managing  services acquisitions through interagency contracting—a process by which  agencies can use another agency’s contracting services or existing  contracts often for a fee. In 2005, DHS spent over $6.5 billion on  interagency contracts. We found that DHS did not systematically monitor  or assess its use of interagency contracts to determine whether this  method provides good outcomes for the department.
Although interagency contracts can provide the advantages of timeliness  and efficiency, use of these types of vehicles can also pose risks if they are  not properly managed. GAO designated management of interagency  contracting a governmentwide high risk area in 2005. A number of factors  can make these types of contracts high risk, including their use by some  agencies that have limited expertise with this contracting method and their  contribution to a much more complex procurement environment in which  accountability has not always been clearly established. In an interagency  contracting arrangement, both the agency that holds and the agency that  makes purchases against the contract share responsibility for properly  managing the use of the contract. However, these shared responsibilities  often have not been well defined. As a result, our work and that of some  agency inspectors general has found cases in which interagency  contracting has not been well managed to ensure that the government is  getting good value.
section_title: Use of System Integrator Poses Management Challenges
paragraphs: Government agencies, including DHS components, have turned to a  systems integrator in situations such as when they believe they do not  have the in-house capability to design, develop, and manage complex  acquisitions. This arrangement creates an inherent risk, as the contractor  is given more discretion to make certain program decisions. Along with  this greater discretion comes the need for more government oversight and  an even greater need to develop well-defined outcomes at the outset. Our  reviews of the Coast Guard’s Deepwater program have found that the  Coast Guard had not effectively managed the program or overseen the  system integrator. Specifically, we expressed concerns and made a  number of recommendations to improve the program in three areas:  program management, contractor accountability, and cost control through  competition. While the Coast Guard took some actions in response to  some of our concerns, they have recently announced a series of additional  steps to address problems with the Deepwater program, including taking  on more program management responsibilities from the systems  integrator.
section_title: Enhanced Oversight Required for Service Contracts
paragraphs: We also have ongoing work reviewing other aspects of DHS acquisition  management. For example, we are reviewing DHS’s contracts that closely  support inherently governmental functions and the level of oversight given  to these contracts. Federal procurement regulation and policy contain  special requirements for overseeing service contracts that have the  potential for influencing the authority, accountability, and responsibilities  of government officials. Agencies are required to provide greater scrutiny  of these service contracts and an enhanced degree of management  oversight, which includes assigning a sufficient number of qualified  government employees to provide oversight, to better ensure that  contractors do not perform inherently governmental functions. The risks  associated with contracting for services that closely support the  performance of inherently governmental functions are longstanding  governmentwide concerns. We are also reviewing oversight issues related  to DHS’s use of performance-based services acquisitions. If this acquisition  method is not appropriately planned and structured, there is an increased  risk that the government may receive products or services that are over  cost estimates, delivered late, and of unacceptable quality.
section_title: Conclusion
paragraphs: Since DHS was established in 2003, it has been challenged to integrate 22  separate federal agencies and organizations with multiple missions, values,  and cultures into one cabinet-level department. Due to the complexity of  its organization, DHS is likely to continue to face challenges in integrating  the acquisition functions of its components and overseeing their  acquisitions—particularly those involving large and complex investments.  Given the size of DHS and the scope of its acquisitions, we are continuing  to assess the department’s acquisition oversight process and procedures in  ongoing work.
Mr. Chairman, this concludes my statement. I would be happy to respond  to any questions you or other members of the subcommittee may have at  this time.
subsections: section_title: Contacts and Acknowledgments
paragraphs: For further information regarding this testimony, please contact John  Hutton at (202) 512-4841 or huttonj@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on the  last page of this product. Other individuals making key contributions to  this testimony were Amelia Shachoy, Assistant Director; Tatiana Winger;  William Russell; Heddi Nieuwsma; Karen Sloan; and Sylvia Schatz.
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