Department of Homeland Security: Risk Assessment and Enhanced Oversight Needed to Manage Reliance on Contractors
Published: 2007-10-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2005, the Department of Homeland Security (DHS) obligated $1.2 billion to procure four types of professional and management support services. While contracting for such services can help DHS meet its needs, using contractors to provide services that closely support inherently governmental functions increases the risk of government decisions being influenced by, rather than independent from, contractor judgments. This testimony summarizes our September 2007 report to this Committee and others and focuses on (1) the types of professional and management support services DHS has contracted for and the circumstances that drove its contracting decisions, and (2) DHS's consideration and management of risk when contracting for such services. GAO analyzed 117 statements of work and 9 case studies in detail for selected contracts awarded in fiscal year 2005 by the Coast Guard, the Office of Procurement Operations, and the Transportation Security Administration.
section_title: What GAO Found
paragraphs: A broad range of program-related and administrative activities was performed under the four types of professional and management support services contracts we reviewed--program management and support, engineering and technical, other professional, and other management support. DHS decisions to contract for these types of services were largely driven by the need for staff and expertise to get programs and operations up and running. While DHS has identified core mission critical occupations and plans to reduce skill gaps in core and key competencies, it is unclear whether this will inform the department's use of contractors for services that closely support the performance of inherently governmental functions. Program officials generally acknowledged that their professional and management support services contracts closely supported the performance of inherently governmental functions, but they did not assess the risk that government decisions may be influenced by, rather than independent from, contractor judgments--as required by federal procurement guidance. In addition, none of the program officials and contracting officers we spoke with was aware of these requirements, and few believed that their professional and management support service contracts required enhanced oversight. Federal guidance also states that agency officials must retain control over and remain accountable for policy and program decisions. For the nine cases we reviewed, the level of oversight DHS provided did not always help ensure accountability for decisions or the ability to judge whether contractors were performing as required. DHS's Chief Procurement Officer is implementing an acquisition oversight program--designed to allow flexibility to address specific procurement issues--with potential to address this issue.

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss the Department of  Homeland Security’s (DHS) continued and increasing use of contractors  for professional and management support services. When DHS was  established over 4 years ago, it faced an enormous challenge to quickly set  up numerous offices and programs that would provide wide-ranging and  complex services critical to ensuring the nation’s security. To help address  this challenge, the department relied on contractors to perform many  mission-related services. For example, in fiscal year 2005 DHS obligated  $1.2 billion on four types of professional and management support  services that may closely support the performance of inherently  governmental functions: program management and support, engineering  and technical, other professional, and other management support. The use  of these types of services can increase the risk of contractors unduly  influencing the government’s control over programs and accountability for  actions, making them vulnerable to fraud, waste, and abuse. For this  reason, long-standing federal policy requires attention to this risk.
At your request, we reviewed DHS’s use of contracts for four selected  services that closely support inherently governmental functions to identify  the types of activities DHS requested through these contracts and the  associated risks. Our findings are discussed in detail in a report that we  are releasing today. My statement will focus on (1) the types of  professional and management support services for which DHS has  contracted and the circumstances that drove its contracting decisions, and  (2) DHS’s consideration and management of risk when contracting for  such services. Our findings are based on a review of 117 judgmentally  selected statements of work for professional and management support  services for the Coast Guard, the Office of Procurement Operations  (OPO), and the Transportation Security Administration (TSA) from fiscal  year 2005. We selected nine of the 117 statements as case studies and  examined them in detail.  These nine were spread among the three  components and represented a variety of services and dollar values among  the three components. We conducted our work in accordance with  generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: Inherently governmental functions require discretion in applying  government authority or value judgments in making decisions for the  government; as such, they should be performed by government  employees—not private contractors. The Federal Acquisition Regulation  (FAR) provides 20 examples of functions considered to be, or to be treated  as inherently governmental (see Appendix I), including    determining agency policy and priorities for budget requests,    directing and controlling intelligence operations,    approving contractual requirements, and    selecting individuals for government employment.
The closer contractor services come to supporting inherently  governmental functions, the greater the risk of their influencing the  government’s control over and accountability for decisions that may be  based, in part, on contractor work. Table 1 provides examples of the range  of services contractors provide to the federal government—from basic  activities, such as custodial and landscaping, to more complex  professional and management support services—and their relative risk of  influencing government decision making.
The potential for the loss of government management control and  accountability for decisions is a long-standing governmentwide concern.  For example, in 1981, we found that the level of contractor involvement in  management functions at the Departments of Energy and Defense was so  extensive that the agencies’ ability to develop options other than those  proposed by the contractors was limited. More recently, in 2006,  government, industry, and academic participants in GAO’s forum on  federal acquisition challenges and opportunities and the congressionally  mandated Acquisition Advisory Panel noted how an increasing reliance on  contractors to perform services for core government activities challenges  the capacity of federal officials to supervise and evaluate the performance  of these activities.
FAR and Office of Federal Procurement Policy (OFPP) guidance state that  services that tend to affect government decision-making, support or  influence policy development, or affect program management are  susceptible to abuse and require a greater level of scrutiny and an  enhanced degree of management oversight. This would include assigning a  sufficient number of qualified government employees to provide oversight  and to ensure that agency officials retain control over and remain  accountable for policy decisions that may be based in part on a  contractor’s performance and work products.
section_title: DHS Contracting Decisions For A Broad Range Of Activities Were Largely Driven By A Lack Of Staff And Expertise And Immediacy Of Need
paragraphs: A broad range of program-related and administrative activities was  performed under the professional and management support services  contracts we reviewed. DHS decisions to contract for these services were  largely driven by the need for staff and expertise to get programs and  operations up and running. While DHS has identified core mission-critical  occupations and plans to reduce skill gaps in core and key competencies,  it has not directly addressed the department’s use of contractors for  services that closely support the performance of inherently governmental  functions.
subsections: section_title: DHS Contracts for Selected Services Covered a Broad Range of Activities Closely Supporting Inherently Governmental Functions
paragraphs: A broad range of activities related to specific programs and administrative  operations was performed under the professional and management  support services contracts we reviewed. The categories of policy  development, reorganization and planning, and acquisition support were  among the most often requested in the 117 statements of work, as well as  in the nine case studies.
For example, TSA obligated $1.2 million to acquire contractor support  for its Acquisition and Program Management Support Division, which  included assisting with the development of acquisition plans and  hands-on assistance to program offices to prepare acquisition  documents.
A $7.9 million OPO human capital services order provided a full range  of personnel and staffing services to support DHS’s headquarters  offices, including writing position descriptions, signing official offer  letters, and meeting new employees at DHS headquarters for their first  day of work.
Contractor involvement in the nine case studies ranged from providing  two to three supplemental personnel to staffing an entire office. Figure 1  shows the type and range of services provided in the nine cases and the  location of contractor performance.
section_title: DHS Contracting Decisions Were Largely Driven by a Lack of Staff and Expertise and Immediacy of Need
paragraphs: Many of the program officials we spoke with said that contracting for  services was necessary because they were under pressure to get program  and administrative offices up and running quickly, and they did not have  enough time to hire staff with the right expertise through the federal hiring  process. For example:    According to officials at TSA, federal staff limitations was a reason for  procuring employee relations support services. Specifically, the agency  needed to immediately establish an employee relations office capable  of serving 60,000 newly hired airport screeners—an undertaking TSA  Office of Human Resources officials said would have taken several  years to accomplish if they hired qualified federal employees.
DHS human capital officials said there were only two staff to manage  human resources for approximately 800 employees, and it would have  taken 3 to 5 years to hire and train federal employees to provide the  necessary services.
In prior work, GAO has noted that agencies facing workforce challenges,  such as a lack of critical expertise, have used strategic human capital  planning to develop long-term strategies for acquiring, developing,  motivating, and retaining staff to achieve programmatic goals. While  DHS’s human capital strategic plan notes that the department has  identified core mission-critical occupations and seeks to reduce skill gaps  in core and key competencies, DHS has not determined the right mix of  government performed and contractor performed services or assessed  total workforce deployment across the Department to guide decisions on  contracting for selected services. We have noted the importance of  focusing greater attention on which types of functions and activities  should be contracted out and which ones should not, while considering  other reasons for using contractors, such as a limited number of federal  employees. DHS’s human capital plan is unclear as to how this could be  achieved and whether it will inform the Department’s use of contractors  for services that closely support the performance of inherently  governmental functions.
section_title: DHS Did Not Consider Risk Or Provide Enhanced Oversight When Contracting For Selected Services
paragraphs: While program officials generally acknowledged that their professional  and management support services contracts closely supported the  performance of inherently governmental functions, they did not assess the  risk that government decisions may be influenced by, rather than  independent from, contractor judgments—as required by federal  procurement policy. In addition, none of the program officials and  contracting officers we spoke with was aware of these requirements, and  few believed that their professional and management support service  contracts required enhanced oversight. Federal guidance also states that  agency officials must retain control over and remain accountable for  policy and program decisions. For the nine cases we reviewed, the level of  oversight DHS provided did not always help ensure accountability for  decisions or the ability to judge whether contractors were performing as  required; however, DHS’s Chief Procurement Officer is implementing an  acquisition oversight program with potential to address this issue.
subsections: section_title: Selected Cases May Have Been at Risk of Contractors Influencing Decisions
paragraphs: To help ensure the government does not lose control over and  accountability for mission-related decisions, long-standing federal  procurement policy requires attention to the risk that government  decisions may be influenced by, rather than independent from, contractor  judgments when contracting for services that closely support inherently  governmental functions. The nine cases we reviewed in detail provided  examples of conditions that we have found need to be carefully monitored  to help ensure the government does not lose control over and  accountability for mission-related decisions.
Contractors providing services integral to an agency’s mission and  comparable to those provided by government employees: In seven of  the nine cases, contractors provided such services. For example, one  contractor directly supported DHS efforts to hire federal employees,  including signing offer letters. In another case, a contractor provided  acquisition advice and support while working alongside federal  employees and performing the same tasks.
Contractors providing ongoing support: In each of the nine case  studies, the contractor provided services for more than 1 year. In some  of these cases, the original justification for contracting had changed,  but the components extended or recompeted services without  examining whether it would be more appropriate for federal employees  to perform the service. For example, OPO established a temporary  “bridge” arrangement without competition that was later modified 20  times, and extended for almost 18 months, to avoid disruption of  critical support including budget, policy, and intelligence services.  Subsequently, these services were competed and awarded to the  original contractor under six separate contracts.
Broadly defined requirements: In four of the case studies, the  statements of work lacked specific details about activities that closely  support inherently governmental functions. In addition, several  program officials noted that the statements of work did not accurately  reflect the program’s needs or the work the contractors actually  performed. For example, a Coast Guard statement of work for a $1.3  million order initially included services for policy development, cost- benefit analyses, and regulatory assessments, though program officials  told us the contractors provided only technical regulatory writing and  editing support. The statement of work was revised in a later contract  to better define requirements.
section_title: Officials Did Not Assess Risk or Provide Enhanced Oversight of Contracts for Selected Services as Required
paragraphs: Federal acquisition guidance highlights the risk inherent in services  contracting—particularly those for professional and management support  services—and federal internal control standards require assessment of  risks. OFPP staff we met with also emphasized the importance of  assessing the risk associated with contracting for services that closely  support the performance of inherently governmental functions. While  contracting officers and program officials for the nine case studies  generally acknowledged that their professional and management support  services contracts closely supported the performance of inherently  governmental functions, none assessed whether these contracts could  result in the loss of control over and accountability for mission-related  decisions. Furthermore, none were aware of federal requirements for  enhanced oversight of such contracts. Contracting officers and program  officials, as well as DHS acquisition planning guidance, did not cite  services that closely support the performance of inherently governmental  functions as a contracting risk and most did not believe enhanced  oversight of their contracts was warranted.
Current DHS initiatives may have the potential to address oversight when  contracting for services that closely support inherently governmental  functions. DHS’s Chief Procurement Officer is in the process of  implementing an acquisition oversight program that is intended to assess  contract administration, business judgment, and compliance with federal  acquisition guidance. This program was designed to allow flexibility to  address specific procurement issues and is based on a series of reviews at  the component level that could address selected services.
section_title: Control and Accountability Were Limited
paragraphs: Both the FAR and OFPP policy state that when contracting for services— particularly for professional and management support services that closely  support the performance of inherently governmental functions—a  sufficient number of qualified government employees assigned to plan and  oversee contractor activities is needed to maintain control and  accountability. While most contracting officers and program officials that  we spoke with held the opinion that the services they contracted for did  not require enhanced oversight, we found cases in which the components  lacked the capacity to oversee contractor performance due to limited  expertise and workload demands. For example:    One Contracting Officer’s Technical Representative (COTR) was  assigned to oversee 58 tasks, ranging from acquisition support to  intelligence analysis to budget formulation and planning, across  multiple offices and locations. Program and contracting officials noted  the resulting oversight was likely insufficient. To provide better  oversight for one of the follow-on contracts, the program official  assigned a new COTR to oversee just the intelligence work and  established monthly meetings between the COTR and the program  office. According to program officials, this change was made to ensure  that the contract deliverables and payments were in order, not to  address the inherent risk of the services performed.
Similarly, a DHS Human Capital Services COTR assigned to oversee an  extensive range of personnel and staffing services provided by the  contractor lacked technical expertise, which the program manager  believed affected the quality of oversight provided. To improve  oversight for the follow-on contract, the program manager assigned a  COTR with more human resources experience along with an employee  with human resources expertise to assist the COTR.
DHS components were also limited in their ability to assess contractor  performance, which is necessary to ensure control and accountability, in a  way that addressed the risk of contracting for professional and  management support services that closely support the performance of  inherently governmental functions. Assessing contractor performance  requires a plan that outlines how services will be delivered and establishes  measurable outcomes. However, none of the related oversight plans and  contract documents we reviewed contained specific measures for  assessing contractors’ performance of the selected services.
section_title: Conclusion and Recommendations
paragraphs: Until the department provides greater scrutiny and enhanced management  oversight of contracts for selected services—as required by federal  guidance—it will continue to risk transferring government responsibility  to contractors.  To improve the department’s ability to manage the risk  associated with contracting for services that closely support the  performance of inherently governmental functions and help ensure  government control and accountability, the report we are releasing today  recommends that the Secretary of Homeland Security take several actions.  These actions include establishing strategic-level guidance for determining  the appropriate mix of government and contractor employees, assessing  the risk of using contractors for selected services, more clearly defining  contract requirements, assessing the ability of the government workforce  to provide sufficient oversight when using selected services, and reviewing  contracts for selected services as part of the acquisition oversight  program.
DHS generally concurred with our recommendations and provided  information on what actions would be taken to address them. However,  DHS partially concurred with our recommendation to assess the risk of  selected services as part of the acquisition planning process and modify  existing guidance and training, noting that its acquisition planning  guidance already provides for the assessment of risk. Our review found  that this guidance does not address the specific risk of services that  closely support the performance of inherently governmental functions.  DHS also partially concurred with our recommendation to review selected  services contracts as part of the acquisition oversight program. DHS stated  that rather than reviewing selected services as part of the routine  acquisition oversight program, the Chief Procurement Officer will direct a  special investigation on selected issues as needed. We did not intend for  the formal oversight plan to be modified, rather we recognize that the  program was designed with flexibility to address specific procurement  issues as necessary. We leave it to the discretion of the Chief Procurement  Officer to determine how to implement the recommendation.
Mr. Chairman, this concludes my prepared statement. I would be happy to  respond to any questions you or other members of the committee may  have at this time.
section_title: Contacts And Acknowledgments
paragraphs: For further information regarding this testimony, please contact me at  (202) 512-4841 or (huttonj@gao.gov). Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this product. Staff making key contributions to this statement were  Amelia Shachoy, Assistant Director; Katherine Trimble; Jennifer  Dougherty; Karen Sloan; Julia Kennon; and Noah Bleicher.
section_title: Appendix I: Examples of Inherently Governmental and Approaching Inherently Governmental Functions
paragraphs: Federal Acquisition Regulation (FAR) section 7.503 provides examples of  inherently governmental functions and services or actions that are not  inherently governmental, but may approach being inherently governmental  functions based on the nature of the function, the manner in which the  contractor performs the contract, or the manner in which the government  administers contractor performance. These examples are listed in tables 1  and 2.