Homeland Security: Further Action Needed to Promote Successful Use of Special DHS Acquisition Authority
Published: 2004-12-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Homeland Security Act of 2002 authorized the Department of Homeland Security (DHS) to establish a pilot program for the use of acquisition agreements known as "other transactions." Because they are exempt from many of the requirements that apply to government contracts, other transactions can be useful in acquiring cutting-edge technologies from entities that traditionally have declined to do business with the government. The act requires GAO to report to Congress on the use of other transactions by DHS. To fulfill this obligation, GAO (1) determined if DHS has developed policies and established a workforce to manage other transactions effectively and (2) evaluated how effectively DHS has used its other transactions authority to attract nontraditional government contractors.
section_title: What GAO Found
paragraphs: The Department of Homeland Security has issued policy and is developing a workforce to implement its other transactions authority, but the department's policies need further development and its contracting workforce needs strengthening to promote the successful use of the authority in the future. Soon after it was established, DHS issued other transactions solicitations using some commonly accepted acquisition practices and knowledge-based acquisition principles. Subsequently, the department issued a management directive and drafted guidance for using other transactions, loosely modeled on the practices of the Department of Defense (DOD), one of several other agencies with other transactions authority and the one with the most experience with using these agreements. Unlike DOD, however, DHS has not specified in its policies or guidance when its contracting staff should consider the use of independent audits to help ensure, for example, that payments to contractors are accurate. Similarly, DHS has not established training requirements to aid staff in understanding and leveraging the benefits of other transactions. The DHS contracting workforce is limited in size and capacity, which could impede the department's ability to manage a potential increase in its other transactions workload. DHS is taking steps to enhance the capacity of its contracting workforce. The DHS Science and Technology Directorate included nontraditional government contractors in its first two other transactions projects. The Directorate engaged in extensive outreach efforts, such as conducting briefings on its mission and research needs to industry and academic institutions and using a number of Web-based tools to publicize its solicitations. But DHS has not yet developed mechanisms to capture and assess the knowledge gained about the use of other transactions. As a result, DHS may not be able to leverage information from current projects for use in future solicitations that use other transactions.

section_title: Letter
paragraphs: Protecting the nation against terrorism by researching, developing, testing,  and deploying cutting-edge technologies is a key mission of the new  Department of Homeland Security (DHS). The Homeland Security Act of  2002 gave the Secretary of Homeland Security the authority to establish a  5-year pilot program using special acquisition authority, known as “other  transactions,” to carry out research and development (R&D) and  prototype projects. Other transactions are agreements other than  government contracts, grants, and cooperative agreements. Other  transactions are exempt from the Federal Acquisition Regulation (FAR),  the government’s Cost Accounting Standards, and various federal  statutes, and therefore can be customized to meet an agency’s project  requirements. Because fewer government-unique requirements apply,  other transactions can be useful in attracting private-sector entities that  traditionally have not done business with the government.
Section 831(b) of the Homeland Security Act requires that we report to the  House Committee on Government Reform and the Senate Committee on  Governmental Affairs on the use of other transactions by DHS. Based on  discussions with your staff, we (1) determined whether DHS has  developed policies and established a workforce to effectively manage the  use of other transactions, and (2) evaluated how effectively DHS has used  its other transactions authority to attract nontraditional government  contractors.
subsections: section_title: Scope and Methodology
paragraphs: To determine whether DHS has developed policies and established a  workforce to use other transactions, we analyzed DHS’s organization, and  policy and draft guidance for using these authorities. We interviewed DHS  contracting officials and representatives from the DOD agencies that DHS  has used for contracting support, officials in its S&T Directorate, and  contractors to whom it made initial other transactions awards. We  collected and reviewed other transactions agreement documents for DHS’s  Countermeasures for Man-Portable Air Defense System (Counter- MANPADS) and Chemical and Biological Countermeasures (Chem-Bio)  projects, the only two projects with other transactions awards as of the  time of our review. We also reviewed other S&T Directorate solicitations  that could result in other transactions agreements, but which had not yet  resulted in awards as of the completion of our audit work. We analyzed  information obtained from our interviews and file reviews using criteria  that we found are generally important to federal acquisitions, namely,  planning, reviews and approvals, market knowledge, and monitoring of  contractor performance. We derived these criteria from our prior reports  on other transactions and knowledge-based acquisition principles, DOD’s  policies for other transactions, and selected parts of the FAR.
To determine how effectively DHS used its other transactions authority to  attract nontraditional government contractors, we analyzed DHS’s  reported results from using these authorities in the Counter-MANPADS  and Chem-Bio programs. We also reviewed other DHS acquisitions that  could result in other transactions awards but for which DHS had not yet  made awards. DHS relies on contractors to self-certify their status as a  nontraditional government contractors during agreement negotiation. In  analyzing the reported results from DHS’s other transactions awards, we  did not independently verify a contractor’s reported status as a  nontraditional contractor. We also compared DHS’s practices to attract  nontraditional government contractors against policies and practices used  by DOD. In addition, we interviewed DHS contracting and project  management officials, contractors that DHS made other transactions  awards to, and representatives from the commercial research and  development and technology communities to gain their perspectives on  DHS’s use of other transactions to attract nontraditional government  contractors.
We performed our review from February through October 2004 in  accordance with generally accepted government auditing standards.
section_title: Background
paragraphs: The acquisition function plays a critical role in helping federal agencies  fulfill their missions. DHS is expected to spend billions of dollars annually  to acquire a broad range of products, technologies, and services from  private-sector entities. Other transactions authority is one of the  acquisition tools—in addition to standard FAR contracts, grants, and  cooperative agreements—available to DHS to help support its mission.  Other transactions were created to enhance the federal government’s  ability to acquire cutting-edge science and technology. They help agencies  accomplish this, in part, through attracting nontraditional contractors  from the private sector and other areas that typically have stayed away  from pursuing government contracts. There are two types of other  transactions authorities—(1) research and (2) prototype. Other  transactions for research are used to perform basic, applied, or advanced  research. Other transactions for prototypes are used to carry out projects  to develop  prototypes used to evaluate the technical or manufacturing  feasibility of a particular technology, process, or system. A single S&T  program could result in multiple awards using other transactions.
Because they are exempt from certain statutes, other transactions permit  considerable latitude by agencies and contractors in negotiating  agreement terms. For example, other transactions allow the federal  government flexibility in negotiating intellectual property and data rights,  which stipulate whether the government or the contractor will own the  rights to technology developed under the other transactions agreement.  Table 1 shows the statutes that DHS has determined are generally  inapplicable to its other transactions agreements.
Because other transactions agreements do not have a standard structure  based on regulatory guidelines, they can be challenging to create and  administer. Experts on other transactions and industry officials who have  used these procurement arrangements told us that other transactions  agreement terms are significantly different from FAR contracts and more  closely resemble procurement agreements between private-sector firms.  According to DHS, the unique nature of other transactions agreements  means that federal government acquisition staff who work with other  transactions agreements should have experience in planning and  conducting research and development acquisitions, strong business  acumen, and sound judgment to enable them to operate in a relatively  unstructured business environment.
DHS views the use of other transactions as key to attracting nontraditional  government contractors—typically high-technology firms that do not work  with the government—that can offer solutions to meet agency needs. As  defined by the Homeland Security Act, a nontraditional government  contractor is a business unit that has not, for at least a period of 1 year  prior to the date of entering into or performing an other transactions  agreement, entered into or performed     any contract subject to full coverage under the cost accounting standards    any contract in excess of $500,000 to carry out prototype projects or to  perform basic, applied, or advanced research projects for a federal agency  that is subject to compliance with the FAR.
The S&T Directorate of DHS supports the agency’s mission by serving as  its primary research and development arm. According to a senior DHS  Chief Procurement Office official, the S&T Directorate currently is the  only DHS organization using the other transactions authority provided in  the Homeland Security Act. As of September 2004, other transactions  agreements accounted for about $125 million (18 percent) of the S&T  Directorate’s fiscal year 2004 total acquisition activity of $715.5 million.  The S&T Directorate’s fiscal year 2004 total acquisition activity is depicted  in figure 1.
section_title: DHS Placed Initial Priority on Project Implementation while Developing Other Transactions Policy and Acquisition Workforce
paragraphs: After DHS was established in 2003, the department rapidly established the  S&T Directorate, which issued several solicitations using other  transactions authority. These solicitations used some commonly accepted  acquisition practices and knowledge-based acquisition principles. DHS  issued a management directive, drafted guidance, and recruited additional  program and contracting staff, which now provide a foundation for using  other transactions authority; however, refinements in these policies and  attention to workforce issues are needed to promote success in the  department’s future use of other transactions. DHS’s policy guidance does  not specify when audit requirements should be included in its other  transactions agreements to help ensure, for example, that payments to  contractors are accurate. Also, the department’s guidance does not  address training requirements for its contracting and program staff to  ensure that staff understand and leverage the use of other transactions. In  addition, the limited size and capacity of DHS’s internal contracting  workforce to conduct other transactions may hamper DHS’s goal to  internally manage its increasing number of mission programs that could  use its other transactions authority.
subsections: section_title: DHS Simultaneously Established Its Science and Technology Organization and Implemented Projects
paragraphs: DHS was directed by Congress and the executive branch to quickly initiate  and execute R&D projects to help strengthen homeland security. The S&T  Directorate at DHS was largely established to centralize the federal  government’s homeland security R&D efforts, a function that was not the  responsibility of any of DHS’s legacy agencies. Figure 2 depicts the  Directorate’s four offices and their functions. The S&T Directorate  initiated various projects to address homeland security concerns,  including two prototype projects using other transactions authority.  Initiating and executing these first projects took priority over establishing  the Directorate’s operating procedures. The S&T Directorate’s need to  rapidly initiate and execute projects forced a reliance on other federal  agencies’ acquisition offices to award and administer its project  agreements. (HSARPA) (SED)
The S&T Directorate hired program managers and staff with R&D  expertise from other government agencies and the private sector to  manage its other transactions authority and other acquisitions. These  initial hires included several former Defense Advanced Research Projects  Agency (DARPA) officials experienced in R&D and other transactions  authority acquisitions. In the absence of DHS policies and procedures for  other transactions, the S&T Directorate relied on these key officials and  other staff with R&D expertise in their former organizations to implement  its early projects. These experienced staff helped train DHS program and  contracting staff in other transactions and supervised and managed the  acquisition process. For example, one official drafted a model other  transactions agreement and guided program managers and contracting  officers through the other transactions process. In addition to these  officials, the S&T Directorate obtained portfolio and program managers  from other government agencies and federal laboratories to act in key  programmatic positions in their areas of expertise. Some of these portfolio  and program managers serve on detail from their home agency. The S&T  Directorate’s workforce strategy is to have its program and technical staff  serve term appointments, most of which will not be longer than 4 years, in  order to promote the influx of leading-edge science and technology skills  to DHS.
DHS’s planning and budget documents identified the need to develop  countermeasures and detection systems against chemical-biological  (Chem-Bio) and radiological-nuclear attacks. Under one area of the Chem- Bio project, being implemented by the S&T Directorate using other  transactions, DHS is developing mobile laboratories to be rapidly deployed  in the field to detect and analyze chemical warfare agents and toxic  industrial chemicals in the environment. Figure 3 depicts a mobile  laboratory being developed for DHS.
The S&T Directorate also initiated projects to address homeland security  needs identified by Congress and the executive branch. One such project  is aimed at protecting commercial aircraft against possible terrorist use of  shoulder-fired missiles, sometimes referred to as man-portable air defense  systems (MANPADS). The Counter-MANPADS other transaction project is  a multiyear development and demonstration program that will produce  prototype systems to be used on commercial aircraft to defend against  shoulder-fired missiles. An illustration of a proposed Counter-MANPADs  technology being considered by DHS is depicted in figure 4.
section_title: Other Transactions Projects Used a Variety of Acquisition Techniques
paragraphs: The S&T Directorate and Office of the Chief Procurement Officer (CPO)  used Federal Acquisition Regulation principles as a framework for other  transactions solicitations. The Directorate also utilized additional  acquisition tools commonly used by DARPA and other agencies, such as    broad agency announcements (BAA) to serve as general announcements  of the Directorate’s research interest, including general principles for  selecting proposals, and soliciting the participation of all offerors capable  of satisfying the S&T Directorate’s needs;    a white paper process under which firms submit to S&T brief synopses of  the main concepts of a proposal introducing technology innovations or  solutions; and    payable milestone evaluations under which the S&T Directorate’s  managers measure the progress of its projects at key points before making  payments to contractors.
The S&T Directorate modeled its acquisition process after DARPA’s to  solicit proposals from as many industry sources as possible to meet its  research needs and hosted technical workshops and bidders conferences  for its early solicitations to help convey its technical needs to industry. An  overview of the S&T Directorate’s generally used acquisition process for  other transactions is in figure 5.
The Homeland Security Advanced Research Projects Agency (HSARPA)  and Office of Systems Engineering and Development (SED) hosted  technical workshops prior to publishing some of their early solicitations to  obtain information from the industry on what technical requirements were  feasible to include in the solicitation. Following the issuance of the  solicitations, HSARPA and SED held bidder’s conferences to answer  industry questions about the solicitations.
The S&T Directorate used a white paper review stage in its early  solicitations, including solicitations for the Counter-MANPADS and Chem- Bio programs. According to DHS’s Chem-Bio solicitation, the use of the  white paper approach allows DHS to provide firms with feedback on their  proposed technologies without the firms having to incur the expense and  time of writing complete proposals. For the Chem-Bio project, HSARPA  received over 500 white papers from industry. S&T officials told us they  provided each contractor that submitted a white paper for this project  with feedback, giving the agency’s views on the merits of the proposed  technology. HSARPA officials told us that the white paper process helps  ensure that the office gets the best proposals and represents an  inexpensive way for nontraditional firms to pursue business with DHS.
To rapidly execute its projects, including other transactions agreements,  the S&T Directorate used other federal agencies to award and administer  its contracts to fill DHS’s contracting workforce gaps. DHS has  interagency agreements with these agencies for their contracting services.  For example, HSARPA is using the U.S. Army Medical Research  Acquisition Activity, based in Ft. Detrick, Maryland, which performs  acquisition services for the Army, to award other transactions instruments  in support of its Chem-Bio project. In addition, DHS is using a contractor  who is an expert in other transactions and R&D procurement to help draft  its other transactions policy guidance and also provide assistance to  administer several of its other transactions projects.
section_title: Process for Other Transactions Uses Some Knowledge-Based Approaches
paragraphs: The S&T Directorate incorporated some knowledge-based acquisition  approaches throughout its acquisition process for using its other  transaction authorities. We previously reported that an agency’s use of a  knowledge-based acquisition model is key to delivering products on time  and within budget. By using a knowledge-based approach, an agency can  be reasonably certain about the progress of its project at critical junctures  during development, which helps to ensure that a project does not go  forward before the agency is sure that the project is meeting its needs.  For example, some of the knowledge-based approaches being used by the  S&T Directorate and CPO to manage their Counter-MANPADS and Chem- Bio other transaction projects are as follows:    Integrated Product Teams (IPTs). Using IPTs to bring together in a  single organization the different functions needed to ensure a project’s  success is a knowledge-based acquisition best practice. The S&T  Directorate formed IPTs that combine the expertise of representatives  from each of its four offices to analyze customer requirements and make  planning and budget decisions for the portfolio.
Contractor Payable Milestone Evaluations. The S&T Directorate’s  program managers measure the progress of its projects at key points  before making payments to contractors. These milestones are usually  associated with contractors satisfying certain performance criteria— commonly referred to as “exit criteria.” Examples of SED’s four payable  milestones for Phase I and six payable milestones for Phase II of the  Counter-MANPADS project are shown in figure 6.
Design Reviews. HSARPA and SED program managers also use design  review decision points to ensure the contractor’s product development is  meeting program expectations and to determine if the product is ready to  proceed to the next stage of development. (See figure 6 for the design  review points in Phase I of the Counter-MANPADS project.)
section_title: Changes in Policies and Enhancement of Acquisition Workforce Could Help Sustain Long- Term Use of Other Transactions
paragraphs: In 2002 we identified key success factors for DHS to effectively create its  organization, including creating strong systems and controls for  acquisition and related business processes. The development of formal  policies and procedures for DHS’s authority to use other transactions is  guided by statute and DOD’s experiences and practices in using the other  transactions authority. DOD’s extensive experiences with and policies for  using other transactions provide a useful framework for the effective  management of projects using other transactions. For example, DOD uses  a guidebook for other transactions prototype projects, which provides  detailed policies and procedures in areas such as criteria for using other  transactions, acquisition planning, agreement execution, and reporting  requirements.
section_title: DHS Is Developing Its Other Transactions Authority Policies
paragraphs: In 2004 DHS prepared several policy and draft guidance documents, which  should help provide DHS with a structure for using its other transactions  authority. In October 2004, DHS issued an other transactions management  directive, which provides DHS’s policy for the use of other transactions for  research and for prototype projects. The policy is generally consistent  with DOD’s policy. The management directive prescribes the  responsibilities of key officials in using other transactions, such as the  DHS Under Secretary of Management and its Chief Procurement Officer.  Specifically, under the management directive, the CPO is responsible for  setting policy, conducting oversight, and approving the use of other  transactions authority for each project. The management directive also  provides general policies and requirements for the documentation of a  strategy for using other transactions and provides the purposes and  criteria for using research and prototype other transactions. DHS’s  explanation of the types of other transactions and criteria for their use, if  effectively implemented, should help promote its compliance with the  Homeland Security Act by helping to ensure that agency officials  adequately assess the utility of other acquisition vehicles—such as FAR  contracts, grants, or cooperative agreements, prior to using an other  transaction for research. The purposes and criteria for other transactions  use as stated by DHS are shown in table 2.
DHS is using a contractor experienced with other transactions to assist in  the preparation of a guidebook for using other transactions for prototype  projects. The draft guidebook, which is loosely based on the DOD guide on  other transactions for prototype projects, provides a broad framework for  DHS to plan and use other transactions. It covers topics such as  acquisition planning, market research, acquisition strategy, and  agreements analyses requirements. According to a DHS official, its draft  guidebook, when completed, is not to be part of the DHS official  management directive system.
In addition, the contractor drafted a lessons learned report on other  transactions to help DHS fully leverage the benefits and minimize any  problems associated with using other transactions. DHS’s draft lessons  learned report on other transactions summarizes lessons from various  sources, such as federal agencies and think tanks with other transactions  experience, on topics related to those discussed in the draft guidebook.  Figure 7 shows the development of DHS’s other transactions policy.
section_title: Other Transactions Policy Does Not Address Audit and Training Requirements
paragraphs: DHS’s management directive and draft guidebook for other transactions  does not yet specify roles, responsibilities, and requirements for agency  program and contracting officials in two key areas: audit and training.  Addressing these areas is important since, according to DHS officials, DHS  plans to issue solicitations that could result in other transactions use at an  increasing rate. S&T Directorate and CPO officials acknowledged the  importance of these areas and told us they intend to address them in the  future.
Audit requirements. While DHS’s management directive covers  Comptroller General access to contractor records under certain  conditions, the directive does not address audits by other entities or  specify other circumstances when audits of other transactions agreements  may be needed to protect the government’s interest. For example, audits  may be needed in certain other transactions agreements to help ensure  that payments to contractors are accurate. DOD’s policy for auditing  prototype other transactions projects, by contrast, provides more  complete guidance on audits of other transactions agreements. For  example, the DOD policy states that contracting officers should include  information on the frequency of audits, scope of audits, and the means by  which audits are to be performed. DOD’s policy also recognizes the  flexibility in negotiating other transactions agreements by allowing the  contracting officer, in certain circumstances, to waive the inclusion of  audit provisions if it would adversely affect the execution of the  agreement. DHS’s management directive, in contrast, does not address  these conditions. A DHS official told us that its contracting officers  negotiate specific auditing provisions in other transactions agreements  with contractors on a case-by-case basis.
Also, the DOD other transactions prototype projects policy has provisions  for its contracting officers to use the Defense Contract Audit Agency  (DCAA) or another independent auditor to audit other transactions  agreements. Although DHS has a Memorandum of Understanding with  DCAA to provide contract audit services, neither DHS’s other transactions  management directive nor its draft guidance contain information on the  specific conditions when contracting officers should use DCAA’s or  another independent auditor’s services.
Training requirements. DHS’s management directive requires other  transactions contracting officers to be senior warranted contracting  officers with a Level III acquisition certification and who possess a level  of experience, responsibility, business acumen, and judgment that enables  them to operate in this relatively unstructured business environment. This  staffing requirement for other transactions closely mirrors the contracting  workforce staffing qualification used by DOD. DHS’s management  directive also requires its contracting staff to possess a special contracting  officer certification, which can be achieved only after the staff have  received appropriate training in other transactions. However, DHS has not  yet developed a training program on other transactions for its contracting  officers or its program managers expected to work on other transactions  projects.
By not establishing other transactions training requirements and schedules  for its contracting and program staff to complete them, DHS may not be  equipping its staff to fully understand and leverage the benefits of other  transactions. We have previously reported on the importance of training  and reported that leading organizations usually prioritize key processes,  identify staff needing training, and establish requirements to ensure that  the appropriate staff are trained. Furthermore, because S&T’s technical  program personnel serve on details from other government agencies and  have varying levels of experience with other transactions, appropriate  training is key to help ensure that such staff uniformly and effectively use  other transactions. DHS’s draft lessons learned report on other  transactions states that it is critical to train contracting officers on aspects  such as (1) the flexibilities associated with other transactions to help  ensure the proper and optimal use of the authority, and (2) negotiating  intellectual property (IP) rights, which can vary from project to project.
section_title: Acquisition Workforce Capacity May Limit DHS’s Ability To Manage A Growing Future Other Transactions Workload
paragraphs: The S&T Directorate plans an increasing number of mission programs that  could use its other transactions authority, but DHS’s current contracting  workforce may not be sufficient to manage this workload. DHS has relied  on a small number of key S&T program personnel, who are experienced  other transactions practitioners, to develop or approve solicitations. In  fiscal year 2004, two of the S&T Directorate’s programs resulted in other  transactions awards—Counter-MANPADS and Chem-Bio. In fiscal year  2005, the S&T Directorate could award other transaction agreements for at  least eight additional programs, which could significantly increase its  contracting workload because some programs could include multiple  other transactions awards. (One S&T program could result in multiple  awards using other transactions, contracts, grants, or cooperative  agreements as the acquisition vehicle.) For example, S&T’s ongoing  Chem-Bio project has resulted in 17 other transactions awards as of  August 2, 2004. Figure 8 depicts the S&T Directorate’s project workload  that could involve other transactions and the corresponding CPO in-house  contracting support.
DHS is currently developing a plan to address contracting workforce  issues.  Senior DHS officials told us that their strategy is to generally have  in-house contracting staff award and administer all of the S&T  Directorate’s other transactions and R&D projects by fiscal year 2006.  Currently, CPO has dedicated six contracting staff—some of whom are  warranted contracting officers dedicated to conducting other  transactions—to support S&T acquisitions on a temporary basis. CPO and  S&T Directorate officials told us that they intend to increase this staff  support to 15 staff by the end of fiscal year 2005.
As cited in DOD policy and DHS’s guidance, acquisition staff that award  and administer other transactions need special skills and experience in  business, market acumen, and knowledge of intellectual property issues.  CPO and S&T Directorate officials told us that contracting officers with  these skills and experience are difficult to find in the current acquisition  workforce. In addition, they noted lengthy delays in DHS’s ability to  process needed security clearances for these staff, which caused some  contracting officer candidates to accept positions elsewhere. DHS’s  challenges in developing its acquisition workforce are similar to other  federal agencies’ experiences in managing attrition and retirements  affecting their acquisition workforces.
As a result, DHS will continue to rely on other agencies for contracting  support until the end of fiscal year 2006. For example, for its Chem-Bio  other transactions project, the S&T Directorate is using DOD’s U.S. Army  Medical Research Acquisition Activity for contracting support. According  to DHS’s S&T Directorate and CPO officials, the offices are in the process  of drafting a Memorandum of Understanding regarding the contracting  personnel that CPO will dedicate to support the S&T Directorate’s  projects.
section_title: DHS Included Nontraditional Government Contractors in Initial Projects, but Practices May Not Fully Leverage Market Capabilities
paragraphs: DHS included nontraditional government contractors in its two initial  other transactions projects. But DHS is not capturing knowledge learned  from these acquisitions that could be used to plan and execute future  projects. The S&T Directorate has conducted outreach to engage  nontraditional government contractors in its early projects, including  briefing industry associations, setting up a Web site to facilitate contractor  teaming, and conducting project-specific workshops. However, the S&T  Directorate does not systematically capture and use knowledge learned  from its acquisition activities for use by program staff.
subsections: section_title: Other Transactions Authority Facilitated Inclusion of Nontraditional Government Contractors in Early Awards
paragraphs: The S&T Directorate’s Counter-MANPADS and Chem-Bio projects  included nontraditional government contractors in all of the initial awards  at the prime and subcontractor levels. For example, in February 2004 DHS  made three Phase I awards for the Counter-MANPADS project to  contractor teams led by BAE Systems, Northrop Grumman, and United  Airlines (a nontraditional contractor). BAE Systems and Northrop- Grumman, which are traditional contractors, included nontraditional  contactors on their teams. Nontraditional government contractors serve  significant roles in the Counter-MANPADS and Chem-Bio projects, such as  leading the aircraft integration team incorporating the counter measure  technology with commercial aircraft in the Counter-MANPADS project.  Table 3 shows the composition of the Counter-MANPADS project  contractor teams.
An intent of Congress in granting other transactions authority to DHS was  to attract firms that traditionally have not worked with the federal  government. The use of other transactions may help attract high-tech  commercial firms that have shied away from doing business with the  government because of the requirements mandated by the laws and  regulations that apply to traditional procurement contracts. According to  DHS officials, early DHS other transactions award recipients, and industry  association officials, two primary barriers to nontraditional contractors  pursuing government contracts are:     Intellectual Property (IP) Rights. IP rights refer to access to  information or data used in the performance of work under a contract. We  previously reported on contractors’ reluctance to pursue government R&D  funding because the FAR’s IP provisions could give the government rights  to certain information and data, which could decrease their businesses’  competitive advantage. For example, a nontraditional contractor without  prior federal R&D contracting experience under the FAR who won one of  DHS’s early other transactions awards told us that the flexibility to  negotiate IP rights was critical to its participation because it allowed the  contractor to negotiate IP rights favorable to its company.
Cost Accounting Standards (CAS). CAS are the federal government’s  accounting requirements for the measurement, assignment, and allocation  of costs to contracts. According to contractors and procurement experts  outside the government that we interviewed, nontraditional firms  generally do not operate accounting systems in compliance with the  federal government’s CAS, and developing such systems can be cost  prohibitive. For example, a nontraditional contractor who won an initial  DHS other transactions award told us developing a CAS-compliant  accounting system would have required the establishment of a subsidiary  firm to perform its accounting functions.
section_title: Extensive Outreach Used to Attract Nontraditional Contractors
paragraphs: DHS’s Science and Technology Directorate used extensive outreach to  attract nontraditional contractors to participate in its projects. It briefed  industry groups, conducted project-specific workshops, and used Web  sites to publicize the agency’s needs. In the fall of 2003, shortly after the  S&T Directorate was established, its HSARPA sponsored separate 1-day  briefings to business and academia to help engage the private sector in  R&D to satisfy DHS’s needs. These sessions were designed to gather input  on best practices to optimize the solicitation, procurement, and program  execution aspects of its projects. For example, at these sessions DHS  officials presented information on its    organization and approach to program management, such as the roles and  responsibilities of agency officials and managers;  investment and research priorities;    available solicitation methods, such as requests for proposals, broad  agency announcements, and research announcements; and    possible procurement vehicles, including FAR contracts, grants,  cooperative agreements, and other transactions.
The S&T Directorate supplemented these sessions by conducting project- specific industry workshops and other outreach events. For example, in  October 2003, the S&T Directorate held an industry day session for its  Counter-MANPADS project. The session provided participants with  background on the project, the structure of the DHS organization that  would manage it, the program’s goals and schedule, and an overview of  other transactions for prototypes. DHS presented detailed information on  the nature and requirements of other transactions agreements, firms that  may qualify as a nontraditional contractor, and laws that would not apply  to other transactions. In addition, the S&T Directorate gave an overview of  the other transactions solicitation process to be used for the project,  which covered topics such as the white paper process, oral presentations,  and the proposed other transactions agreement. DHS attracted almost  200 participants to this event—approximately 85 percent of whom were  from industry.
Also, in September 2003, DHS held a bidders conference for its Chem-Bio  project where it described its technical requirements and the solicitation  process for this project. According to an agency official, the conference  gave DHS the opportunity to obtain input from the private sector on the  technical aspects of its solicitation and to answer participants’ questions  about the solicitation. Similarly, DHS held technical workshops for  projects that may result in other transactions awards, such as those  intended to counter threats from truck, suicide, and public transportation  bombs and to design cyber security systems.
DHS also created and used Web sites to publicize its activities and  procurement needs. For example, DHS created the “DHS—Open for  Business” site, which centralizes information on its contracts, grants, small  business opportunities, and R&D efforts. According to DHS, this site is  intended to complement governmentwide portals such as Federal  Business Opportunities, known as FedBizOpps. In addition, HSARPA  created a solicitation and teaming portal Web site to help attract firms  (www.hsarpabaa.com). On this site, HSARPA announces its current  project solicitations and offers a teaming portal where contractors can  learn about possible partners to bid on DHS work. This site also contains  links to other DHS programs to facilitate industry participation in its  projects, such as its Small Business Innovation Research program, which  DHS established in December 2003 to increase the participation of  innovative and creative small businesses in its R&D programs. Also, the  site has a mailing list function where contractors can register to receive  electronic e-mail notices of upcoming HSARPA solicitations.
We found that industry’s views vary on the effectiveness of DHS’s  outreach efforts. Some contractors and industry associations we  interviewed said these outreach efforts are having a positive impact on the  procurement process. For example, an industry association head in the  technology field told us that DHS’s use of Broad Agency Announcements  and other flexible solicitation methods to publicize its technology and  research needs may help to attract nontraditional contractors. Officials  from two technology associations told us commercial firms that  traditionally do not work with the federal government believe that  government officials have preconceived ideas of exactly what technology  they need and which contractors they want to work with. However, one of  the officials stated that DHS’s use of the BAA process demonstrates to  industry that the agency desires to hear all the possible technology  solutions that may meet its needs.
Other industry officials believed that DHS’s outreach actions could be  improved, for example, if DHS took additional actions to inform industry  that it has other transactions authority and developed a more user-friendly  process to attract broader interest in its projects. Representatives of a  large industry association we interviewed were not aware that DHS  possesses other transactions authority and said if this fact were more  widely known, it could increase industry’s interest in working with DHS.  In addition, representatives of some small companies told us that the fee  DHS charges to attend its outreach events could pose a barrier to  attending them. Also, several contractors we interviewed told us that  DHS’s teaming portal site is a good idea in concept but found it  cumbersome to maneuver in the automated system. However, two of the  nontraditional contractors we interviewed that received a DHS other  transactions award used this site to help identify industry partners for  their team.
section_title: Lack of Systematic Assessment of Acquisition Activities Involving Other Transactions Impairs Ability to Capture and Use Knowledge
paragraphs: The S&T Directorate’s capacity to build and sustain knowledge for use in  its future acquisitions involving other transactions is in the early stages of  development but the Directorate has not yet developed policies or  procedures to ensure that program and portfolio managers are capturing  and assessing critical information and knowledge gained from its  acquisition activities, including the use of other transactions, for use in  future projects.
Knowledge gained from prior other transactions acquisitions on issues  ranging from seeking nontraditional government contractors to assessing  project outcomes is key to planning future projects. A knowledge base of  important lessons learned from outreach to private-sector firms, the  acquisition process, and the design and execution of projects can facilitate  the work of program and acquisition staff in planning future acquisitions  using other transactions authority. DHS’s draft guidebook on other  transactions for prototypes acknowledges the importance of documenting  knowledge gained during the acquisition process for planning future other  transactions acquisitions. We have also reported on the benefits of  agencies using systematic methods to collect, verify, store, and  disseminate information for use by their current and future employees.  Our previous work has identified the importance of setting goals and  identifying performance indicators that will inform federal agencies of  whether they have achieved the performance they expected.  S&T  Directorate officials acknowledge the need to create a “corporate  memory” function to provide future staff with access to information and  knowledge obtained from its current projects and to incorporate such  knowledge into its training efforts.
The S&T Directorate’s workforce-staffing strategy necessitates that it have  a policy and procedure in place to capture employees’ knowledge. Under  its current workforce strategy, the S&T Directorate’s technical staff serves  regularly rotating term appointments that typically do not exceed 4 years.  This approach, according to S&T Directorate officials, is designed to  promote the influx of leading-edge science and technology skills to DHS.
S&T Directorate officials recognize that these rotations can place a burden  on its contracting staff that plan, conduct, and manage highly specialized  other transactions programs by having to continually guide new technical  staff on the workings of the process. However, these officials have told us  that there is no policy or process yet in place to ensure that the capturing  and sharing of such knowledge occur.
The S&T Directorate’s current practices for capturing knowledge gained  from its acquisition efforts vary. In establishing its structure the S&T  Directorate drew its technical staff from a variety of organizations, each of  which used different acquisition approaches. Consequently, portfolio  managers and program managers we spoke with did not consistently  capture knowledge acquired. In addition, the S&T Directorate’s efforts to  assess the effectiveness of its industry outreach activities involving the use  of other transactions authority are not rigorous enough to capture  information needed in planning future outreach. By not assessing its  activities, S&T cannot be assured that it is reaching the broadest base of  firms to provide technological solutions for the S&T Directorate’s needs.
Without policies and a supporting process to capture the experiences and  knowledge gained from its acquisition efforts, DHS may not capitalize on  lessons learned from its early use other transactions. Given the S&T  Directorate’s planned rotations of its key technical staff, building and  maintaining institutional knowledge are critical to ensuring that new S&T  Directorate staff have the ability to quickly learn about previous other  transactions acquisitions when designing future projects. For example, the  S&T Directorate invests funding and staff resources to advertise its  organization and projects to help attract firms but does not fully assess  the effectiveness of these activities for use in planning future projects.  Figure 9 depicts the S&T Directorate’s acquisition process and a possible  knowledge management function for collecting, storing, and sharing  information.
section_title: Conclusions
paragraphs: Recognizing the flexibility offered by other transactions authority to tap  nontraditional sources to meet its needs for new homeland security  technologies, DHS moved quickly to use this authority to build its science  and technology capabilities. In doing so it signaled its seriousness about  using other transactions authority to advance its strategic objectives.  However, to sustain its progress made to date DHS needs to take  additional actions, such as completing the necessary foundation of  policies and procedures, including guidance on audit provisions, and  ensuring that it has an adequately trained and staffed acquisition function.  Furthermore, given its strategy of using regularly rotating term  appointments in staffing its S&T programs, long-term success will depend  on the department’s ability to harness its institutional knowledge on other  transactions. DHS’s ability to identify, prioritize, and access the most  promising research and technologies in the future will depend, in part, on  its ability to capture and make accessible critical knowledge on the  agency’s use of other transactions authority to ensure that it is accessing  the broadest and most appropriate technologies in the marketplace. By  completing its foundation for using other transactions and creating a  means for capturing key knowledge and measuring performance, DHS will  be better prepared to capitalize on the full potential of the private sector to  provide the innovative technology it needs to secure the homeland.
section_title: Recommendations
paragraphs: To promote the efficient and effective use by DHS of its other transactions  authority to meet its mission needs, we have three recommendations for  the Secretary of Homeland Security. The Secretary should direct the  Under Secretary for Management and the Under Secretary for Science and  Technology to   establish guidance on when it is appropriate to include audit provisions in    develop a training program for DHS staff in the use of other transactions  to help ensure the appropriate use of this authority, and    capture knowledge obtained during the acquisition process for use in  planning and implementing future other transactions projects.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DHS for its review and comment.   DHS provided written comments generally agreeing with the facts and  conclusions expressed in the draft report. DHS agreed with our first two  recommendations and noted that it is already working to address them.   Regarding our recommendation that DHS capture knowledge obtained  during the acquisition process for use in planning and implementing future  projects that could use other transactions, DHS agreed with the utility of  retaining such historical information and “lessons learned” about its  procurement activities, acquisition planning, execution, and program  management activities.  DHS stated that while no formal system for  assembling such information is in place within the organization, this  information is being monitored.  However, DHS sought further clarity  about the types of information we recommend it retain and to what end it  is to be used.
Based on our review of DHS’s early use of its other transactions authority,  we believe that systematically capturing, analyzing, and making readily  available knowledge about using this authority is needed.  We recognize  that the S&T Directorate’s work and focus cuts across various technology  areas, which are continuously evolving, making each solicitation’s  requirements unique.  We also recognize and appreciate DHS’s concern  over the administrative aspects of collecting, maintaining, and monitoring  this information over time.  We believe, however, that DHS can build upon  its current informal system of monitoring acquisition information.   Specifically, we think DHS could collect and disseminate information on  what has worked and not worked in areas such as outreach efforts. This  information could be useful for future other transactions projects. For  example, if DHS wants to ensure that its outreach attracts firms who have  a recognized core competency desired by S&T, including nontraditional  government contractors, it may want to use forms of outreach that have  been used successfully in the past.  We believe this information could be  particularly important given the S&T Directorate’s workforce-staffing  strategies, under which its technical staff serves regularly rotating term  appointments.
DHS also provided technical revisions to our draft report, which we  incorporated as appropriate. The department’s comments are reprinted in  appendix I.
We are sending copies of this report to other interested congressional  committees; the Secretaries of Homeland Security and Defense; and the  Director, Office of Management and Budget. We also will make copies  available to others on request. This report will be available at no charge on  GAO’s Web site at http://www.gao.gov.
If you have any questions about this report, please contact me at   (202) 512-4841, or John K. Needham, Assistant Director, at (202) 512-5274.  Other major contributors to this report were Rachel Augustine, Eric  Fisher, Alison Heafitz, John Krump, Robert Swierczek, and Anthony J.  Wysocki.
section_title: Appendix I: Comments from the Department of Homeland Security
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