Satellite Communications: Strategic Approach Needed for DOD's Procurement of Commercial Satellite Bandwidth
Published: 2003-12-10T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In recent years, the Department of Defense (DOD) has come to rely more heavily on commercial satellite communications to plan and support operations and move toward a network-centric warfare environment. DOD acquires commercial satellite bandwidth services to support a variety of critical missions such as surveillance performed by unmanned aerial vehicles. GAO was asked to assess (1) whether DOD's process for acquiring these services is fair to vendors and providers, (2) whether the process meets users' needs, and (3) whether spending on these services is managed effectively and efficiently.
section_title: What GAO Found
paragraphs: DOD has for many years augmented its internally owned and operated satellite communications capability by leasing commercial fixed satellite bandwidth services primarily through the Defense Information Systems Agency (DISA) and its Defense Information Technology Contracting Organization (DITCO). DISA does not acquire commercial bandwidth directly from satellite service providers. Instead, it procures bandwidth through several competitively selected vendors, which, in turn, compete work among individual service providers. GAO found that the process for acquiring commercial satellite bandwidth is fair to DOD's vendors and their subcontractors, which are the ultimate commercial satellite bandwidth service providers. However, some major DOD users of commercial satellite bandwidth services are dissatisfied with DISA's process. They view the process as being too lengthy, particularly for time-critical military operations, and they believe that the cost is too high. They also indicated that the contracts resulting from the process are often too inflexible. As a result, some users are bypassing the DISA process, either by formally obtaining a waiver or by procuring services without a waiver. In fiscal year 2002, nearly 20 percent of DOD's reported spending on satellite bandwidth services occurred outside the process, and one DOD official stated that the true percentage is probably much higher. By allowing users to bypass the DISA waiver process, DOD is hampering its ability to ensure that its communications networks are interoperable and to minimize redundancies. Further, DOD does not know exactly how much it is spending on commercial satellite bandwidth services, nor does it know much about its service providers or whether customer needs are really being satisfied. Without this knowledge, DOD cannot take steps to leverage its buying power, even though it is the largest customer for commercial satellite bandwidth. Moreover, neither DOD nor DISA is making a concerted effort to collect forecasts of bandwidth needs from users and ensure those needs can be met by the commercial sector. These are also important steps toward optimizing DOD's spending. If DISA is to remain as DOD's primary agent to acquire satellite bandwidth, then it must implement a more strategic management approach--one that ensures that services can be acquired in a fair, timely, and cost-effective way that meets users' needs. Doing so will be a considerable challenge, however, given the current environment and potential resistance within DISA and from its users. Commitment is needed from senior leaders within DISA and DOD to overcome challenges associated with implementing a strategic approach.

section_title: Letter
paragraphs: The Department of Defense (DOD) relies on a vast network of ground and  space-based systems to meet its telecommunications needs—both for  military and business operations. Over the past 12 years, DOD has  experienced a ten-fold increase in the demand for telecommunication  bandwidth from satellites to support the war-fighting combatant  commands, the military services, and defense agencies, and some experts  predict another fivefold or sixfold jump in demand by 2010. Currently,  DOD-owned and -operated satellites cannot satisfy all of DOD’s  telecommunication requirements, and both DOD and other sources project  sizeable shortfalls in bandwidth capacity needed by the year 2010. As a  result, DOD has been leasing bandwidth on commercial satellites to  support a variety of critical missions such as surveillance being performed  by unmanned aerial vehicles and communications between commanders  and field units.
Given the importance of DOD’s growing demand for commercial  fixed satellite service bandwidth, you requested that we assess the  effectiveness of its process for acquiring this service—specifically  (1) whether the process is fair to vendors and providers, (2) whether the  process meets user needs, and (3) whether spending is managed  effectively and efficiently.
subsections: section_title: Background
paragraphs: DOD has for many years augmented its internally owned and operated  satellite communications capability by leasing additional external  telecommunications capacity on commercially owned and operated  satellites. Demand has been increasing in recent years, as the military has  come to rely more heavily on commercial satellite communications to plan  and support operations and move toward a network-centric warfare  environment. According to industry sources, DOD’s current estimated  $300-400 million spending on such services has made it the satellite  communications industry’s biggest customer.
DOD leases commercial satellite bandwidth services primarily through  DISA and its Defense Information Technology Contracting Organization  (DITCO). DISA does not acquire commercial bandwidth directly from  satellite service providers. Instead it procures bandwidth through several  competitively selected vendors, which in turn compete work among  individual bandwidth service providers.
There are two primary contract structures through which DISA procures  bandwidth through these vendors. The first is known as the Managed  Transponder Contract (MTC). It was competitively awarded in 1995 to  one vendor, and served as the primary acquisition vehicle for several  years. The second is an indefinite-delivery, indefinite-quantity (IDIQ)  multiple-award contract structure known as the Defense Information  Systems Network Satellite Transmission Services-Global (DSTS-G)  contracts. They were awarded competitively in February 2001, after users  found the MTC contract to be inflexible, too costly, and limited in terms of  the breadth of services it could provide. Awards were made to three small  business vendors that acquire bandwidth for DISA from the ultimate  service providers. Recently, DISA has been relying more on this second  contract structure. The agency placed 48 orders for bandwidth under the  DSTS-G contracts through June 2003 versus only 5 new orders under the  MTC contract from March 2000 through June 2003.
DISA’s vendors obtain satellite services from a commercial satellite  industry market segment that has been growing at a high rate. The  commercial satellite industry is a global industry that includes many  foreign-owned businesses as well as partnerships between U.S. and  foreign corporations. Table 1 lists major global and regional satellite  bandwidth providers. While there are 10 companies listed, only 6 of them  have provided needed bandwidth through the DISA acquisition process  during recent years.
The acquisition process that DISA uses to determine user requirements  and acquire bandwidth is similar to the process it uses to acquire other  telecommunications services for its customers. Generally, the process  begins with users identifying a need and contacting DISA to fulfill that  need. Technical experts within DISA assist users in engineering a potential  solution. Other offices within DISA decide how the service should be  procured and prepare a request for the vendors to propose solutions. Once  DISA has determined which contract structure to use and has asked for  proposed solutions, an evaluation team within DISA reviews the proposals  and awards a task order or delivery order under the winning vendor’s  contract. Figure 1 and table 2 further detail this process.
If circumstances dictate, users can request a waiver through DOD’s  Global Information Grid (GIG) Waiver Panel to use an alternative  network and alternative acquisition process instead of the DISA process.  A business case must be made for the requested waiver and there must  be plans outlined to migrate the outlying network back under the  telecommunications infrastructure and to bring the resulting contract  under the control of DITCO. After a waiver is approved, the user’s  procurement organization takes steps to procure the bandwidth.
section_title: DOD’s Process Is Fair to Both Vendors and Service Providers
paragraphs: DOD’s process through DISA for acquiring commercial fixed satellite  service bandwidth is fair to both its vendors and their subcontractors,  which are the ultimate commercial satellite bandwidth providers. The  majority of bandwidth orders in recent years have been made under the  DSTS-G contracts, where competition exists at both the vendor and  service provider levels. Only five orders have been placed under the MTC  contract, which by its nature is not as competitive as the DSTS-G contract,  since it was designed to obtain service through one vendor.
The Federal Acquisition Regulation (FAR), as supplemented by DOD and  DISA, requires DITCO to provide a fair opportunity to the three DSTS-G  vendors at the prime contract level. Generally, this entails    writing broad, needs-based requirements able to be satisfied by multiple  vendors rather than only one;    providing notice and opportunity to be considered to each of the vendors;    giving notice of the evaluation criteria to be used to select a winning    evaluating proposals, conducting discussions, and awarding delivery  orders or task orders in accordance with the evaluation criteria stated.
We analyzed 48 task orders that were awarded under the DSTS-G contract  from its inception in February 2001 through June 2003 to determine  whether these criteria were generally followed.
subsections: section_title: DSTS-G Vendors Had Fair Opportunity to Win Task Orders
paragraphs: We found that the acquisition process employed by DISA and DITCO  generally met FAR criteria, as supplemented, and was fair to competing  vendors under the DSTS-G contracts. Though we found some orders  awarded under exceptions established in FAR, the rationale for these  exceptions was documented in each task order file.
The common set of technical questions that users are required to answer  when submitting their bandwidth requests helps not only to document  their technical environment but also to preclude writing an overly narrow  or restrictive requirement. While a few valid user situations demanded a  repeat solution or narrowed the range of possible solutions, they did not  unduly impair the vendors’ fair opportunity to compete.
Of the 48 task orders for bandwidth, 41 were competed among the  three vendors; six were renewals of previously competed task orders;  and only one was sole-source, awarded without vendor competition.  Documentation justifying the one sole-source action was included in the  task order file, as required.
The distribution of task order awards among the three vendors is  illustrated in table 3. The table shows the number and percentage of the  48 task orders awarded to each of the three vendors under their respective  DSTS-G contracts along with the associated dollar values and percentages.
The evaluation criteria DISA used to select a winning vendor were  contained in each inquiry that was competed. Evaluation of the proposals,  discussions, and the award of task orders complied with the stated  evaluation and selection criteria.
DISA used the following two selection frameworks to evaluate proposals:    DISA awarded 18 of the 41 competitive task orders worth $54,255,114  under a source selection process called “best value,” using a cost/technical  trade-off process. Under this approach, the selection official trades off  cost and non-cost factors, identified in the inquiry, in determining award  decisions. In some cases, greater weight may be placed on a contractor’s  technical approach resulting in the selection of what may not be the  lowest priced proposal.
DISA awarded the remaining 23 competitive task orders worth $78,645,239  under the “lowest price technically acceptable” framework. Under this  approach, the technical solution proposals are all evaluated by DISA’s  Commercial Satellite Communications Branch and its supporting  contractor and placed in either a “technically sufficient” category or “not  technically sufficient” category. The winner is that proposal in the  “technically sufficient” category with the lowest total evaluated cost.
While both evaluation methods are common under FAR procurements,  best value with tradeoffs is more suitable where the risk of potential  substandard performance does not leave room for errors or service  degradation. Either method of evaluation requires a high level of technical  expertise to effectively evaluate proposed solutions.
subsections: section_title: DSTS-G Subcontractors Have Also Had Ample and Fair Chances to Team with Vendors
paragraphs: At the subcontract level where the FAR criteria regarding fair opportunity  generally do not apply to the business arrangements among commercial  companies, we also found that commercial satellite service providers have  had ample and fair chances to team with the three DSTS-G vendors to  create solutions and to compete for and win subcontracts. All three  vendors stated that they are motivated by competition to find technically  sufficient and low-cost solutions to DOD’s needs and to involve all feasible  service providers in doing so. Further, the vendors are also required by a  FAR clause in their DISA contracts to select their subcontractors on a  competitive basis. To determine which service providers are potentially  capable of fulfilling a given DISA requirement, the vendors told us they  consider many factors, such as  location of satellites,  “look angle” at the desired location,    power,    bandwidth,    age and condition of satellites,    available capacity on satellites, and    other factors, such as meeting schedule, acceptance of government terms  and conditions, business relationships, and prices.
Our analysis showed that six different service providers have won  subcontracts from one or more of the DSTS-G vendors. Each vendor has  won task orders using at least four of the six providers, although more  than 70 percent of the wins have been with just two providers. The  distribution of task order awards to vendors and the service providers  with which they teamed for each of the 48 task orders is illustrated in  table 4.
Another indicator of participation among service providers and access to  the DSTS-G vendors is the opportunity to propose a solution for a DISA  requirement. We determined that there were 211 bandwidth solutions  proposed to DISA for the 48 task orders, or approximately 4.4 per task  order. Removing the seven instances where there was only one proposed  solution (because they were renewals of previously competed  requirements or sole-source), the average number of proposed solutions  per competitive task order was 4.9, with a range from 2 to 15. Moreover,  there were several additional potential teaming proposals considered by at  least one of the vendors, but not ultimately submitted to DISA. Table 5  illustrates the teaming arrangements in the 211 proposed solutions.
We noted that the top two service providers in terms of proposals  submitted, labeled B and C in table 5, had more than 70 percent of the total  proposals submitted. According to the vendors, this was because those  two providers had large numbers of satellites located in the areas of  interest to DOD over the past 2 years, were willing to offer multiple  solutions, and had low prices for bandwidth. Some service providers did  not always see DOD as a preferred customer, did not always have  available capacity in the required areas, or declined to propose because  they knew they did not have the best coverage or prices. All six of the  service providers that won subcontracts had very similar percentages of  winning proposals, all between 21 and 28 percent.
Despite the involvement of a number of competitors at the subcontractor  level in the DISA acquisition process, we found several occasions where  DISA directed and justified the use of a specific service provider. This  occurred in 15 of the 41 competitive DSTS-G task orders. In all 15 of those  cases, however, the acquisition team had adequate justifications in files to  explain the need for directing that subcontract. Specifically, in 11 of the  justifications, users or DISA technical staff determined that only one  particular satellite could adequately satisfy certain technical parameters  contained in the requirement. In three cases, customers explained that any  deviation from the existing satellite provider could cause an interruption  of service and could potentially cause loss of life. In the remaining case,  both justifications applied. These requirements were submitted by  responsible officials in the combatant commands or military services and  concurred in by the DISA provisioners, the DISA Commercial Satellite  Communications Branch engineers, and the DITCO contracting officer.  Directed subcontracts were justified for three different service providers,  with none getting a disproportionately large share.
section_title: MTC Contract Is the Result of an Earlier Competition
paragraphs: The MTC contract was structured to award delivery orders to one vendor,  thus competition, after the initial competition to select a vendor, has  been limited. From March 2000 to June 2003, DISA awarded only five  new delivery orders for bandwidth under the MTC contract. All were  awarded directly to the incumbent contractor that had previously won a  competition among four companies in 1995 to manage this contract for  up to 10 years. These five new orders totaled $17.8 million. There was also  limited competition at the subcontract level. Three orders were awarded  directly to service providers without competition. The remaining two  orders were competed between two providers.
section_title: Some Major Users Are Dissatisfied with DISA Process for Acquiring Commercial Satellite Bandwidth Services
paragraphs: Some major users of commercial satellite bandwidth services are  dissatisfied with the DISA process. In particular, they view the process  as being too lengthy and costly. They also believe that the process  results in contracts that are often too inflexible. As a result, some users  have bypassed the process, either by formally requesting a waiver or by  procuring services without a waiver. For fiscal year 2002, we determined  that, at a minimum, nearly 20 percent of DOD’s reported spending on  services occurred outside the process, and one DOD official stated that the  true percentage is probably much higher.
subsections: section_title: Users Do Not Believe Process Meets Their Needs
paragraphs: According to some major users, DISA’s process takes too long to meet  their needs, particularly for time-critical operations. Our analysis showed  that on average from submittal of a request for service to the award of a  task order under the DSTS-G contract took 79 days—more than a month  longer than the average of 42 to 45 days advertised by DISA. Moreover, as  table 6 shows, only 18 of the 48 task orders we reviewed were awarded in  less than a month. In addition, only 29 were awarded within the DISA  advertised time frame of 45 days.
Further, users told us they have to spend additional time before a Request  for Service is submitted to DISA to seek out and determine all of the  technical information required in that document, and there is also  additional time between the task order award and the subcontract award  to the winning service provider and for the set up or preparation before  the start of the service. For example, under the DSTS-G contracts, the  vendors have up to 30 days to provide required service in normal  circumstances, or 5 days in emergencies. According to DISA, when users  are not familiar with RFS development or satellite services, DISA spends  substantial amounts of time educating users on requirement development,  the acquisition process, and available satellite services. Timelines can also  be extended for other reasons, according to DISA, including instances  where customer equipment is not on hand when the service is available.  Therefore, the actual time to fully satisfy a customer’s request from  realization of the need to initiation of the service is even longer than the  mean 79-day paperwork flow time.
By contrast, users told us that the time to receive bandwidth services  outside the DISA process was considerably shorter. In one U. S. Army  example, the user was able to acquire satellite bandwidth needed to  operate a multimedia communications system during Operation  Enduring Freedom in Afghanistan within a few weeks. In another  example, a U.S. Navy office was able to acquire service to support its  commercial wideband satellite program in less than a month after  receiving the GIG waiver approval. It was critical that the Navy acquire  this service quickly as it was notified that one of its leased satellites would  fail within 30 days.
Users also reported that estimated prices they received under the DISA  process were sometimes significantly higher than those that would be  paid directly to a commercial company for the same or similar services.  For example, the Army was able to acquire satellite services for the  communications system supporting Operation Enduring Freedom for  about $34,700 a month. DISA had quoted a price estimate earlier at  $139,000 a month. When the Army later found it needed to install another  ground terminal for this system, it acquired services for about $240,000,  whereas DISA’s initial price estimate was $579,000. In another example, in  acquiring service to support its commercial wideband satellite program, a  U.S. Navy office found that the monthly price for the service it could  acquire outside the DISA process ranged from $30,000 to $90,000 a month  less than the initial DISA estimate. Over the 5 years projected for the task  order, the savings on bandwidth was nearly $4.6 million. These projected  savings, while not always calculated on a strict “apples-to-apples” basis,  were nevertheless deemed significant enough that the GIG Waiver Panel  used them when deciding to grant waivers to these organizations to buy  outside the DISA process.
The current pricing structure of the DISA acquisition process can result in  users being charged from 9 to 12 percent more than the bandwidth cost  from the service provider. Part of this added cost is due to profit and  overhead charges that DISA vendors add on to bandwidth cost. This can  total between 1 and 4 percent of the price of the service and is kept low  because of the competition among vendors to win each task order.
Another part of the added costs is attributable to surcharges that DISA  adds to prices in order to recoup their costs for tasks they perform in  acquiring the service. The surcharges—6 percent of the total price from  the vendor for DISA’s Commercial Satellite Communications Branch’s  efforts and another 2 percent for DITCO’s efforts—are a normal practice  for DISA and other DOD activities that operate under the Defense Working  Capital Fund, which is designed to ensure that defense activities that carry  out business operations for others can recover their costs—neither  making a profit nor incurring a loss in the course of their work. If  users acquired the service themselves, they may well incur similar  administrative costs, but those costs would not be as visible to them as  when receiving an itemized bill from DISA for services. However, they  would not normally have to pay extra for an intermediary agent when  procuring services directly from industry.
Some portion of the user-reported projected savings may be attributable  to high initial estimates provided by DISA based on outdated pricing  proposals of vendors’ contract line item prices. While DISA stated that  users were advised that the actual prices might be significantly lower,  users still had to commit their budget in the amount of the original  estimate. Use of this high initial estimate has been a long-standing flaw in  the DISA acquisition process that DISA has only recently taken steps to  correct. However, DISA’s solution to this problem—asking the vendors to  produce more detailed and more realistic original price estimates—will  likely result in more days added to an already lengthy process.
Another reason for the difference between DISA’s estimates and industry  quotes may be that DISA’s estimates are based on features in its contracts  with vendors that may call for a different level of services or equipment  than required. For example, in one U.S. Army case, the bandwidth  acquired to operate its communications network was less than the  minimum bandwidth capacity that satellite providers were required to  provide under the DSTS-G contract.
In addition, users told us that the DISA process results in contract terms  that are often too inflexible. Some of the features that are common in  commercial contracts for satellite services are not in the contracts  awarded through the DISA process. For example, DISA’s contracts for  commercial bandwidth, according to the three DSTS-G vendors, do not  contain the common commercial clause, “Portability of Services,” or  anything comparable. This clause would typically allow a user to transfer  the remaining time from one satellite, in an area no longer requiring  coverage, to another satellite, where service is now required, at no  additional cost. Industry representatives cited this clause as an example of  flexibility that commercial customers have sought, as a best practice, but  DOD has not.
Further, DOD users often do not have the ability to change or cancel  requirements, if necessary, without continuing to pay for the original  ones. For example, while DISA’s contracts with vendors contain the  “Termination for Convenience” clause, which should allow the  government to terminate service that is no longer needed and to stop  incurring costs for the unused portion, vendors’ contracts with service  providers do not have this clause. In fact, the contracts that vendors have  with the service providers reflect an industry practice that holds the  vendors responsible for the remainder of the noncancelable lease,  regardless of whether the government terminates the vendors’ contract.  Therefore, any remaining lease costs would be paid to the service provider  by the vendor and then submitted as part of the vendor’s termination  settlement proposal to DOD, which would then bear some or all of these  costs as agreed to in the negotiated termination settlement.
section_title: Some Users Are Bypassing the DISA Process to Get Timely, More Flexible, and Less Costly Services
paragraphs: Some users are bypassing the DISA acquisition process to acquire  commercial bandwidth through alternative processes, either by formally  requesting a waiver from the DISA process or by improperly procuring  services without a waiver. We identified 10 instances where bandwidth  was procured through an alternative process. In four of these, waiver  requests were submitted and approved in advance of the procurement  action, as called for in DOD policy. In the remaining six instances,  however, users had independently procured bandwidth without  processing waivers, inconsistent with DOD policy.
We were initially given access to information on the four procurement  actions with approved waivers and on three of the actions that had  occurred without waivers. These latter three procurements had been  brought to the attention of the Chairman of the GIG Waiver Panel, who  then made the offending organizations process “after-the-fact” waivers.  While we were interviewing user organization representatives on these, we  uncovered three additional procurement actions that should have had  waivers processed, but had not. We turned this information over to the  Chairman of the GIG Waiver Panel, who will determine whether “after-the- fact” waivers are also to be processed for these cases. Representatives of  the offices that had bypassed the DISA process and used an alternative  acquisition process to acquire needed bandwidth indicated in interviews  and in briefing documents that they had been able to achieve faster  procurements, often resulting in more flexible contract instruments, and at  lower (sometimes significantly lower) prices.
According to DOD officials, users throughout DOD have been  independently acquiring bandwidth, without an approved waiver, for  years. One knowledgeable DISA official estimated that, if all the services  and DOD entities had accurately reported their fixed satellite service  bandwidth usage costs for fiscal year 2002, the total would likely have  been $200 million higher than the amount actually reported, nearly  doubling the reported amount of $221.7 million. As it was, we determined  that, at a minimum, $42.4 million, or nearly 20 percent of the $221.7 million  self-reported dollars spent, was spent outside the DISA process.
section_title: Lack of Strategic Approach to Managing Services Diminished DOD’s Ability to Optimize Spending
paragraphs: Our past work has identified specific practices that can be employed to  manage services from a more strategic perspective, thereby enabling an  organization like DOD to leverage its buying power and achieve significant  savings. These include establishing a central agent or manager for  acquiring services, gaining visibility over spending, and revising business  processes to enable the organization to leverage its buying power. While  there are challenges to implementing this process, DOD has recognized its  importance and called on agencies to embrace a strategic approach for  acquiring services. Even though DISA is supposed to serve as a central  manager for the acquisition of satellite bandwidth services, it is not  following a strategic approach. Little attention is paid to collecting or  addressing customer complaints, business processes are inefficient, and  oversight is limited. Moreover, neither DOD nor DISA is making a  concerted effort to collect forecasts of bandwidth needs from users,  ensure those needs can be met by the commercial sector, and take steps  needed to leverage its buying power with commercial providers.
subsections: section_title: Strategic Approach Is Paramount to Optimizing Acquisitions of Services
paragraphs: Our previous work has found that leading organizations have adopted  practices and activities that enabled them to acquire services in a more  strategic manner and in turn achieve dramatic cost reductions and service  improvements. Faced with an increased dependence on services, growing  market pressures, and an economic downturn, the companies we studied  examined their service spending and found that they did not have a good  grasp of how much was actually being spent and where these dollars were  going. These companies found that responsibility for acquiring services  resided largely with individual business units or functions, hindering  efforts to coordinate purchases across the company. They also came to  realize that they lacked the tools needed to make sure that the services  they purchased met their business needs at the best overall value.
To turn this situation around, these companies reengineered their  approaches to buying services. This began with taking a hard look at  how much they were spending on services and from whom. By arming  themselves with this knowledge, the companies could identify  opportunities to leverage their buying power, reduce costs, and better  manage their suppliers. The companies also instituted a series of  structural, process, and role changes aimed at moving away from a  fragmented acquisition process to a more efficient and effective  enterprisewide process. For example, the companies we studied often  established or expanded the role of corporate procurement organizations  to help business managers acquire key services and made extensive use of  crossfunctional teams to help the companies better identify service needs,  select providers, and manage contractor performance. These companies  also developed information systems to enable them to track their spending  and better match their needs with potential providers. They also  implemented performance measures to track their progress and make  further enhancements to their processes wherever needed. Taking a  strategic approach clearly paid off, as companies found that they could  save millions of dollars and improve the quality of services received by  instituting these changes.
section_title: DOD Process Is Hampered by Oversight and Management Weaknesses
paragraphs: DOD’s current process for acquiring commercial satellite bandwidth is not  strategic. While DISA is supposed to serve as a centralized acquisition  function, some users are, in effect, allowed to bypass the process, and  there is little visibility over what is actually being spent on commercial  satellite bandwidth services.
For example, DOD has a formal waiver process—the GIG waiver  process—in place to ensure that any acquisition made outside the DISA  process is justified and that the service being procured is not duplicative  of other existing services, preserves interoperability, and meets network  control requirements. But the waiver process, at least until recently, has  not been enforced. This past year, officials who manage this process  recognized the problem and are now requiring users that already  bypassed the process to obtain waivers after-the-fact. According to DOD  officials, some users have been acquiring services outside the DISA  process for years.
In addition, other DOD organizations responsible for overseeing the DISA  process—including the Assistant Secretary of Defense for Networks and  Information Integration and the Office of the Chairman of the Joint Chiefs  of Staff—have not been enforcing requirements for reporting, nor have  they developed, nor required DISA to develop, performance metrics that  could be used to assess user satisfaction, timeliness, and other factors that  would give them a better sense of whether the process is efficient and  effective. DOD directives since at least 1998 have required that DISA  prepare a use and associated cost report on commercial bandwidth. DISA  only recently submitted its first report. Further, no acquisition process  measures exist at the oversight level, and DISA itself has not yet developed  performance metrics to measure customer satisfaction. Officials indicated  that preliminary data have been collected from customers, but there was  no evidence of their being used to improve any parts of the process.
Moreover, neither DOD nor DISA has developed a complete picture of  what is being spent on bandwidth—the cornerstone to identifying what  can be done to improve the process and to leverage DOD’s buying power.  Our analysis indicated that the information contained in the fiscal year  2002 report on users and costs is incomplete, inaccurate, lacks proper  identification of users, and contains costs associated with fiscal year 2003,  impairing its reliability. Figure 2 highlights examples of our findings.  Moreover, the self-reported user information that DISA collected did not  reflect many purchases that were made outside of the DISA process. A  1998 DOD Inspector General report also found that DOD could not  determine the total leased satellite communications bandwidth used  among component commands or the total costs associated with obtaining  that capacity.
DOD also does not routinely maintain information on its ultimate  providers of bandwidth services. While DOD maintains summary totals  for task orders awarded to its three DSTS-G vendors, these data do not  provide detailed information such as which actual bandwidth service  providers competed the most, or least, or which ones were actually  providing the most or next most service in terms of numbers of  procurements or dollars to DOD.
subsections: section_title: Steps Have Not Been Taken to Leverage Buying Power
paragraphs: Even though DOD is the largest buyer of bandwidth in the commercial  market, neither DOD nor DISA has taken steps essential to fully leveraging  that buying power and to ensuring that future needs can be met by the  commercial sector. There are options based on common commercial  practices that are available to DOD for doing so, such as requesting most  favored customer status with providers or maximizing business volume  discounts. Table 7 discusses several of these options and their possible  application to DOD’s current practices in more detail.
While these options would position DISA to achieve cost savings, they  require DISA to be able to project its future requirements and to be more  proactive in dealing with its vendors. This is not being done. Instead,  bandwidth is usually purchased on the “spot market” on an as-needed  basis—when it is most expensive compared to longer duration leases.  With few exceptions, individual small requirements are not aggregated by  DISA to take advantage of DOD’s potential leverage in acquiring  bandwidth in larger and less expensive quantities. According to DISA,  users often decline opportunities to aggregate their requirements with  other users. Two providers we interviewed indicated that they would be  willing to develop creative solutions for consolidated requirements but  would need to know in advance about future requirements to do so  effectively.
Several DOD and industry officials told us that DOD could benefit if  bandwidth were acquired through a program office with central funding  authority for that bandwidth. In this situation, it would be necessary for  users to submit their plans and forecasts of requirements to the central  program office. Currently, users have their own bandwidth funding and  generally do not forward forecasts of requirements to DISA. If all user  requirements were submitted to this single program office, it would then  be able to aggregate bandwidth requirements in order to leverage buying  power. In addition, some of these officials indicated that such a program  office could allow increased visibility and control over DOD-wide  bandwidth acquisitions.
section_title: Adopting a Strategic Approach Will Be Challenging
paragraphs: Longer-term changes to the DISA process that are necessary to implement  more strategic management processes—including establishing better  visibility over spending, revamping business processes, strengthening  technical expertise within the agency, and securing a commitment from  senior leadership—will be challenging to implement. DOD is aware of  these challenges and has begun to study its processes.
We found that leading organizations that applied a strategic approach to  their purchases of services often spent months piecing together data from  various financial and management information systems and examining  individual orders just to get a rough idea of what they were spending  on services. The companies found it was necessary to develop new  information systems that could provide them with reliable spending data  in a timely fashion. The task of gaining accurate visibility over spending  will be equally, if not more, difficult for DOD given the lack of information  systems available to provide spending data and the magnitude and breadth  of spending involved with commercial satellite bandwidth services.
Companies we studied also found that in establishing new procurement  processes, they needed to overcome resistance from individual business  units reluctant to share decision-making responsibility and to involve staff  that traditionally did not communicate with each other. While DISA will  likely face similar resistance within the agency, we believe it will also need  to overcome resistance from users that manage their own operations and  maintenance funds and have long been dissatisfied with the DISA process.  Another challenge for DISA is obtaining the expertise needed to review  complex technically sophisticated solutions proposed by vendors.  Industry representatives and some vendors believe that DISA currently  lacks the appropriate level of expertise.
Lastly, the companies we studied found that they needed to have sustained  commitment from their senior leadership; to clearly communicate the  rationale, goals, and expected results from reengineering efforts; and to  measure whether the changes were having their intended effects. We  believe similar commitment will need to be secured not only from DISA  leadership, but also from leaders within DOD and the user communities.
DOD has recognized many of these challenges and is in the process of  awarding a contract for a study to determine if it should change its  approach to identifying, acquiring, and managing commercial satellite  services. According to a DOD official, DOD has also initiated a study that  will address ways to arrange for multiyear leasing and bulk discounts  based on projected customer requirements.
section_title: Conclusions
paragraphs: DOD recognizes it has an increasing need to supplement its own satellite  bandwidth capacity with capacity from the commercial sector. But it does  not have a firm idea on how much bandwidth it will require in the short or  long term or whether the private sector can even continue to support its  requirements. Moreover, though it has become the largest consumer of  satellite bandwidth, it still buys its bandwidth on an as-needed basis,  thereby missing significant opportunities to leverage its buying power and  to achieve considerable savings as a result. Moreover, by allowing users to  bypass the DISA waiver process, DOD is hampering its ability to ensure  that its communications networks are interoperable and to minimize  redundancies. If DISA is to remain as DOD’s primary agent to acquire  satellite bandwidth, then it must implement a more strategic management  approach—not only one that continues to ensure that acquisitions are  processed fairly, but also one that ensures services can be acquired in a  timely and cost-effective way that meets users’ needs. Doing so will be a  considerable challenge, however, given the current environment and  potential resistance within DISA and from its users. Commitment is  needed from senior leaders within DISA and DOD to overcome challenges  associated with implementing a strategic approach.
section_title: Recommendations for Executive Action
paragraphs: To strengthen DOD’s ability to obtain commercial bandwidth effectively  and efficiently, we recommend that the Secretary of Defense direct the  Assistant Secretary of Defense for Networks and Information Integration  to develop, in coordination with the Joint Staff and the Director of DISA,  a strategic management framework for improving the acquisition of  commercial bandwidth. Specifically, this framework should include  provisions for  inventorying current and potential users of commercial bandwidth  to determine their existing and long-term requirements;   identifying and exploiting opportunities to consolidate the bandwidth  requirements of combatant commanders, the military services, and  defense agencies;    adopting, when appropriate, commonly used commercial practices, such  as conducting spend analyses and negotiating pricing discounts based on  overall DOD volume, to strengthen DOD’s position in acquiring bandwidth;  and  improving the current funding structure by considering new funding  approaches, such as centralized funding of commercial bandwidth, and  seeking legislative authority for multiyear procurements.
To ensure the successful implementation of this strategic management  framework and to better leverage DOD’s buying power and increase  user satisfaction, we recommend that the Secretary of Defense direct  the Assistant Secretary of Defense for Networks and Information  Integration to    develop performance metrics to assess user satisfaction with the  timeliness, flexibility, quality, and cost in acquiring commercial satellite  services;    strengthen DOD’s capacity to provide accurate and complete analyses of  commercial bandwidth requirements, spending, and the capabilities of  commercial satellite providers by enhancing core internal technical  expertise and information systems; and    assess, and implement as needed, changes to the key elements of the  existing acquisition process—including requirements generation, solution  development and evaluation, and contract vehicles—to facilitate a more  strategic approach to bandwidth acquisition.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD, in commenting on a draft of this report, generally concurred  with our findings, conclusions, and recommendations. Specifically, DOD  concurred with four of our recommendations and partially concurred with  the remaining three recommendations.
DOD concurred that a strategic management framework for improving  the acquisition of commercial bandwidth be developed to include  inventorying current and potential users to determine their current  and future needs, and adopting, where appropriate, commonly used  commercial acquisition practices. It also concurred in developing  performance metrics to assess user satisfaction with its process and in  assessing and changing its process to facilitate a more strategic approach  to commercial bandwidth acquisition.
DOD partially concurred with our recommendations addressing  consolidating user requirements, improving the current funding structure,  and enhancing core internal technical expertise and information systems.  In its comments DOD indicated it had initiated a review of its current  approach to determine if process changes were necessary and is waiting to  decide whether or how to act on these three issues until after the review is  complete. While we agree it is important to review these issues, we also  believe that actions, along the lines of our recommendations, will be  necessary in order to develop a strategic framework to acquire  commercial satellite bandwidth more efficiently and effectively.
DOD also provided informal technical comments, which we incorporated  as appropriate.
section_title: Scope and Methodology
paragraphs: To determine whether DOD’s process for acquiring fixed satellite services  is fair and meets the needs of DOD users, we met with officials from DOD  component organizations involved in procurement of these services,  including officials from agency contracting offices, DISA, Assistant  Secretary of Defense for Networks and Information Integration, and Joint  Staff. We also interviewed the four DOD vendors (Lockheed Martin Global  Telecommunications; Arrowhead Global Solutions, Inc.; Artel, Inc.; and  Spacelink International, L.L.C.) that procure the needed bandwidth from  industry, and officials from three commercial service providers, which are  major suppliers of commercial bandwidth to DOD. We obtained available  DISA data on all contractual actions awarded since enactment of the  Open-market Reorganization for the Betterment of International  Telecommunications (ORBIT) Act in March 2000, the beginning date  given to us by our congressional requestors. We reviewed contract  file documentation, as well as applicable sections of the FAR, as  supplemented, and DOD policies and procedures, to determine the extent  to which competition was obtained for each delivery or task order  included in the universe under either the MTC or the DSTS-G contracts.  For those orders not awarded competitively, we reviewed task order files  to obtain sole-source or directed subcontractor justifications. We obtained  details on all GIG waiver requests for fixed satellite service commercial  bandwidth procurements processed since enactment of ORBIT. To  determine the elapsed calendar days required to award the 48 DSTS-G task  orders, we reviewed task order files to extract pertinent dates. For 11 of  the task orders where we were unable to obtain the start date, we imputed  the start date (request for service) based on 37 task orders for which we  had actual start dates.
To determine what DOD does to oversee spending on fixed satellite  services and ensure cost-effective results, we reviewed policies and  procedures DOD uses and interviewed DOD officials on oversight  practices. We obtained and analyzed cost data reported by combatant  commands, military services, and defense agencies. We reviewed task  and delivery order documentation, including applicable modifications  and amendments, awarded under the MTC and DSTS-G contracts since  enactment of the ORBIT Act. We analyzed the current DSTS-G contract  to identify the terms, conditions, and benefits available to large volume  customers and compared our results to the reported practices of private  sector buyers purchasing similar bandwidth capacity. We reviewed  available contracts for bandwidth from U.S. Army and U.S. Navy sources,  and we analyzed reported cost data to see if they included satellite  bandwidth capacity obtained through sources outside of the DISA process.
We conducted our review from February to October 2003 in accordance  with generally accepted government auditing standards.
We are sending copies of this report to other interested congressional  committees; the Secretary of Defense; the Deputy Secretary of Defense;  the Secretaries of the Army, Navy, and Air Force; the Under Secretary of  Defense (Acquisition, Technology, and Logistics); the Under Secretary of  Defense (Comptroller); and the Director of the Defense Information  Systems Agency. We will also provide copies to others on request. In  addition, the report will be available at no charge on the GAO Web site  at http://www.gao.gov.
If you have any questions regarding this report, please call me at  (202) 512-4841 or John Needham at (202) 512-5274. Other major  contributors to this report are Gary L. Delaney, John D. Heere,  Oscar Mardis, Marie P. Ahearn, and Gary Middleton.
section_title: Appendix I: Comments from the Department of Defense