Department of Homeland Security: Progress and Continuing Concerns with Acquisition Management
Published: 2008-09-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Since it was created in 2003, the Department of Homeland Security (DHS) has obligated billions of dollars annually to meet its expansive homeland security mission. The department's acquisitions support complex and critical trade, transportation, border security, and information technology investments. In fiscal year 2007, DHS spent over $12 billion on procurements to meet this mission including spending for complex services and major investments. Prior GAO work has found that while DHS has made some initial progress in developing its acquisition function since 2003, acquisition planning and oversight for procurement and major acquisitions need improvement. This testimony discusses GAO's findings in these areas and is based on GAO's body of work on acquisition management issues.
section_title: What GAO Found
paragraphs: Recognizing the need to improve its acquisition outcomes, DHS has taken some steps to integrate disparate acquisition processes and systems that the component organizations brought with them when the department was formed. However, we have reported that more needs to be done to develop clear and transparent policies and processes for all acquisitions, and to develop an acquisition workforce to implement and monitor acquisitions. With regard to acquisition planning, DHS did not assess the risk of hiring contractors to perform management and professional support services that have the potential to increase the risk that government decisions may be influenced by, rather than independent from, contractor judgments. Planning for services procured through interagency and performance-based contracting methods was also lacking. For example, DHS did not always consider alternatives to ensure good value when selecting among interagency contracts. Shortcomings in DHS's use of a performance-based approach for complex acquisitions included a lack of well-defined requirements, a complete set of measurable performance standards, or both, at the time of contract award or the start of work. Contracts for several investments we reviewed experienced cost overruns, schedule delays, or less than expected performance. Acquisition oversight also has consistently been identified as needing improvement. While the Chief Procurement Officer (CPO) has recently implemented a departmentwide oversight program, evaluations of the outcomes of acquisition methods and contracted services have not yet been conducted. Further, the CPO continues to face challenges in maintaining the staffing levels needed to fully implement the oversight program, and CPO authority to ensure that components comply with the procurement oversight plan remains unclear.

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss the Department of  Homeland Security’s (DHS) progress and areas for improvement in  managing acquisitions. Over the past several years, as DHS has been  developing its acquisition function, it has spent billions of procurement  dollars annually to meet its expansive homeland security mission. The  department’s acquisition portfolio is broad and complex, supporting  critical trade, transportation, border security, and information technology  investments. In fiscal year 2006, more than 80 percent of DHS’s  procurement spending was for services, which can be more complex and  require different approaches to acquire than purchases of goods. Our prior  work has found that appropriate planning, structuring, and monitoring of  acquisitions is critical to ensuring the services provided meet the  government’s needs. The growing complexity of contracting for  technically difficult and sophisticated services increases the challenges of  setting appropriate requirements and effectively overseeing contractor  performance. At the same time, other factors, such as pressure to get  programs up and running, and technological challenges have impacted  DHS’s ability to achieve good acquisition outcomes.
My statement today is drawn from our body of work on DHS’s acquisition  management. I will discuss DHS’s progress and areas for improvement in  developing its acquisition function and DHS’s acquisition planning and  oversight. Specifically, I will highlight relevant findings from our work on  contractors hired to perform management and professional support  services, and the use of selected procurement methods, such as  interagency contracting and performance-based acquisitions. We  conducted these performance audits in accordance with generally  accepted government auditing standards. Those standards require that we  plan and perform the audit to obtain sufficient, appropriate evidence to  provide a reasonable basis for our findings and conclusions based on our  audit objectives. We believe that the evidence obtained provides a  reasonable basis for our findings and conclusions based on our audit  objectives.
subsections: section_title: Background
paragraphs: DHS has some of the most extensive acquisition needs within the federal  government. In fiscal year 2007, DHS obligated about $12 billion to acquire  goods and services ranging from the basic goods and services federal  agencies purchase, such as information technology equipment and  support, to more complex and unique acquisitions, such as airport security  systems and Coast Guard ships.
DHS and its component agencies have faced a number of challenges  related to procuring services and major system acquisitions. When DHS  was formed in 2003, it was responsible for integrating 22 agencies with  disparate missions. Of these, only seven came with their own procurement  offices, only some of which had also managed complex acquisitions such  as the Coast Guard’s Deepwater program or TSA’s airport screening  programs.
While the Homeland Security Acquisition Manual and the Federal  Acquisition Regulation (FAR) do not distinguish between the terms  acquisition and procurement, DHS officials have noted that  procurement—the actual transaction to acquire goods and services—is  only one element of acquisition. The term acquisition can include the  development of operational and life-cycle requirements, such as  formulating concepts of operations, developing sound business strategies,  exercising prudent financial management, assessing trade-offs, and  managing program risks.
section_title: DHS Has Made Some Progress in Acquisition Management
paragraphs: We have identified three key performance areas for acquisition  management: assessing and organizing acquisition functions to meet  agency needs; developing clear and transparent policies and processes for  all acquisitions; developing an acquisition workforce to implement and  monitor acquisitions. Our prior work has shown that these are among the  key elements of an efficient, effective, and accountable acquisition  function. We testified in April 2008 that, despite its initial positive  acquisition management efforts, several challenges remained. The  following summarizes each of these three areas:    Assessing and organizing the acquisition function: Since it was  created in 2003, DHS has recognized the need to improve acquisition  outcomes, and has taken some steps to organize and assess the acquisition  function. DHS has worked to integrate the disparate acquisition processes  and systems that the component organizations brought with them when  the department was created. To help assess acquisition management, in  2005 the Department developed an oversight program. This program  incorporates DHS policy, internal controls, and elements of an effective  acquisition function. This program has been partially implemented and  monitors component-level performance through four recurring reviews:  self-assessments; operational status; on-site; and acquisition planning.  However, DHS has not yet accomplished its goal of integrating the  acquisition function across the department. For example, the structure of  DHS’s acquisition function creates ambiguity about who is accountable for  acquisition decisions because it depends on a system of dual  accountability and cooperation and collaboration between the CPO and  the component heads. DHS officials stated in June 2007 that that they were  in the process of modifying the lines of business management directive to  clarify the CPO’s authority; however, this directive has yet to be approved.
Developing clear and transparent polices and processes: DHS had  made some progress in this area but has generally not developed clear and  transparent policies and processes for all acquisitions. Specifically, DHS  put into place an investment review process in 2003 that adopts many  acquisition best practices to help the department reduce risk and increase  the chances for successful investment in terms of cost, schedule, and  performance. However, in 2005, we found that the process did not include  critical management reviews. Further, our work has identified concerns  with the implementation of the investment review process. In 2007, we  reported that DHS had not fully implemented key practices of its  investment review process to control projects. For example, we reported  that DHS executives may not have the information they need to determine  whether information technology investments are meeting expectations,  which may increase the risk that underperforming projects are not  identified and corrected in a timely manner. We have ongoing work on the  implementation of DHS’s investment review process scheduled to be  released later this year.
Developing an acquisition workforce to implement and monitor  acquisitions: DHS has taken initial steps needed to develop an acquisition  workforce. In 2006, DHS reported significant progress in providing staff  for the component contracting offices, though much work remained to fill  the positions with qualified, trained acquisition professionals. DHS has  also taken a positive step by authorizing additional staff for the CPO to  provide staff for procurement oversight, program management and cost  analysis functions. We have ongoing work on DHS’s acquisition workforce  scheduled to be released later this year.
section_title: Planning for Procurement and Major Acquisitions Need Improvement
paragraphs: Our work on both services contracting and major investments has  consistently identified the need for improved acquisition planning to better  ensure taxpayer dollars are spent prudently. Acquisitions must be  appropriately planned and structured to minimize the risk of the  government receiving services that are over cost estimates, delivered late,  and of unacceptable quality. Specifically, we have emphasized the  importance of clearly defined requirements to achieving desired results,  and measurable performance standards to ensuring control and  accountability. Too often, our work on federal acquisitions has reported  that unrealistic, inadequate, or frequently changing requirements have left  the government vulnerable to wasted taxpayer dollars. For services  closely supporting inherently governmental functions, we found that DHS  did not use risk assessment in its plans to hire contractors to provide these  services. For services procured through methods such as interagency and  performance-based contracting, we found acquisition planning was  lacking. For major systems, acquisition planning includes establishing  well-defined requirements and ensuring appropriate resources, such as  adequate staffing and expertise, are in place to manage the investments;  yet we have consistently found that these key elements are not in place.
subsections: section_title: Inadequate Procurement Planning
paragraphs: While there are benefits to using contractors to perform services for the  government—such as increased flexibility in fulfilling immediate needs— we and others have raised concerns about the federal government’s  increased reliance on contractor services. Of key concern is the risk  associated with a contractor providing services that closely support  inherently governmental functions: the loss of government control over  and accountability for mission-related policy and program decisions.  Professional and management support services, including program  management and support services such as acquisition support, budget  preparation, intelligence services, and policy development, closely support  inherently governmental functions. To help ensure that the government  does not lose control over and accountability for such decisions,  longstanding 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. This type of risk assessment is  also part of the acquisition planning process. While DHS program officials  generally acknowledged that their professional and management support  services contracts closely supported inherently governmental functions,  they did not assess the risk of contractors providing these services. The  nine cases we reviewed in detail provided examples of cases in which  contractors provided services integral to and comparable to those  provided by government employees; contractors provided ongoing  support; and contract requirements were broadly defined. These  conditions need to be carefully monitored to help ensure the government  does not lose control over and accountability for mission related  decisions. To improve DHS’s ability to manage the risk of selected services  that closely support inherently governmental functions, as well as  government control over and accountability for decisions, we  recommended that DHS establish strategic-level guidance on and routinely  assess the risk of using contractors for selected services and more clearly  define contract requirements.
DHS’s use of interagency contracting—a process by which one agency  uses another agency’s contracts and contracting services—is another area  we have identified acquisition planning was lacking. While interagency  contracting offers the benefits of efficiency and convenience, in January  2005, we noted shortcomings and designated the management of  interagency contracting as a governmentwide high-risk area. Our work on  DHS’s use of interagency contracting showed that the department did not  always select interagency contracts based on planning and analysis and  instead made decisions based on the benefits of speed and convenience.  We found that DHS conducted limited evaluation of contracting  alternatives to ensure good value when selecting among interagency  contracts. While interagency contacting is often chosen because it requires  less planning than establishing a new contract, evaluating the selection of  an interagency contract is important because not all interagency contracts  provide good value when considering both timeliness and total cost.  Although DHS guidance has required planning and analysis of alternatives  for all acquisitions since July 2005, we found that it was not conducted for  the four cases in our review for which it was required. To improve the  management of interagency contracting, we recommended that DHS  develop consistent, comprehensive guidance and training and establish  criteria to consider in selecting an interagency contract.
section_title: Major Investments Using a Performance-Based Approach
paragraphs: To help improve service acquisition outcomes, federal procurement policy  calls for agencies to use a performance-based approach to the maximum  extent practicable. This approach includes: a performance work statement  that describes outcome oriented requirements, measurable performance  standards, and quality assurance surveillance. In using a performance- based approach, the FAR requires contract outcomes or requirements to  be well-defined, that is, providing clear descriptions of results to be  achieved. Our prior reviews of complex DHS investments using a  performance-based approach point to a number of shortcomings. For  example, in June 2007, we reported that a performance-based contract for  a DHS financial management system, eMerge2, lacked clear and complete  requirements, which led to schedule delays and unacceptable contractor  performance. Ultimately, the program was terminated after a $52 million  investment. The DHS Inspector General has also indicated numerous  opportunities for DHS to make better use of sound practices, such as well- defined requirements.
Consistent with these findings, our 2008 report on performance-based  acquisitions, for which we reviewed contracts for eight major investments  at Coast Guard, CBP, and TSA, found that contracts for investments that  did not have well-defined requirements, or a complete set of measurable  performance standards, or both, at the time of contract award or the start  of work experienced cost overruns, schedule delays, or did not otherwise  meet performance expectations. In contrast, service contracts for  investments that had well-defined requirements linked to measurable  standards performed within budget meeting the standards in all cases  where contractors had begun work. For example, TSA’s Screening  Partnership Program improved its contracted services at the San  Francisco International Airport to incorporate well-defined requirements  linked to clearly measurable performance standards and delivered  services within budget. To improve the outcomes of performance-based  acquisitions, we recommended that DHS improve acquisition planning for  requirements for major complex investments to ensure they are well- defined, and develop consistently measurable performance standards  linked to those requirements. Following are examples of complex  investments with contracts that did not have well-defined requirements or  complete measurable performance standards and did not meet cost,  schedule, or performance expectations.
Contracts for systems development for two CBP major investments—  Automated Commercial Environment (ACE) and Secure Border Initiative  (SBInet)—lacked both well-defined requirements and measurable  performance standards prior to the start of work and both experienced  poor outcomes. The first, for DHS’s ACE Task Order 23 project—a trade  software modernization effort—was originally estimated to cost $52.7  million over a period of approximately 17 months. However, the program  lacked stable requirements at contract award and, therefore, could not  establish measurable performance standards and valid cost or schedule  baselines for assessing contractor performance. Software requirements  were added after contract award, contributing to a project cost increase of  approximately $21.1 million, or 40 percent, over the original estimate.  Because some portions of the work were delayed to better define  requirements, the project is not expected to be completed until January  2011—over three years later than originally planned.
The second, Project 28 for systems development for CBP’s SBInet—a  project to help secure a section of the United States-Mexico border using a  surveillance system—did not meet expected outcomes due to a lack of  both well-defined requirements and measurable performance standards.  CBP awarded the Project 28 contract planned as SBInet’s proof of concept  and the first increment of the fielded SBInet system before the overall  SBInet operational requirements and system specifications were finalized.  More than 3 months after Project 28 was awarded, DHS’s Inspector  General reported that CBP had not properly defined SBInet’s operational  requirements and needed to do so quickly to avoid rework of the  contractor’s systems engineering. We found that several performance  standards were not clearly defined to isolate the contractor’s performance  from that of CBP employees, making it difficult to determine whether any  problems were due to the contractor’s system design, CBP employees, or  both. As a result, it was not clear how CBP intended to measure  compliance with the Project 28 standard for probability of detecting  persons attempting to illegally cross the border. Although it did not fully  meet user needs and its design will not be used as a basis for future SBInet  development, DHS fully accepted the project after an 8-month delay.In  addition, DHS officials have stated that much of the Project 28 system will  be replaced by new equipment and software. However, Project 28 is just  one part of the entire Secure Border Initiative, and our recent work has  noted that requirements and testing processes for the initiative have not  been effectively managed, and important aspects of the program remain in  flux.
Additionally, our work has found that the Coast Guard’s Deepwater  Program, ongoing since the late 1990s, is intended to replace or modernize  15 major classes of Coast Guard assets. In March 2007, we reported that  the Coast Guard’s Deepwater contract had requirements that were set at  unrealistic levels and were frequently changed. For some of the  Deepwater assets, this resulted in cost escalation, schedule delays, and  reduced contractor accountability over a period of many years of  producing poor results such as ships that experienced serious structural  defects. In light of these serious performance and management problems,  Coast Guard leadership has changed its approach to this acquisition. It  has taken over the lead role in systems integration, which was formerly  held by a contractor. Formerly, the contractor had significant program  management responsibilities, such as contractual responsibility for  drafting task orders and managing the system integration of Deepwater as  a whole. Coast Guard project managers and technical experts now hold  the greater balance of management responsibility and accountability for  program outcomes. Coast Guard officials have begun to hold competitions  for Deepwater assets outside of the lead system integrator contract, and  cost and schedule information is now captured at a level that has resulted  in improved visibility, such as the ability to track and report cost breaches  for assets. The Coast Guard has also begun to follow a disciplined project  management framework, requiring documentation and approval of  decisions at key points in a program’s life cycle. However, like other  federal agencies, the Coast Guard has faced challenges in building an  adequate government workforce and is relying on support contractors in  key positions, such as cost estimators and contract specialists.
section_title: Oversight Consistently Identified as Needing Improvement
paragraphs: Our work on contractors performing services closely supporting  inherently governmental functions found that DHS program officials and  contracting officers were not aware of federal requirements for enhanced  oversight for these types of services. Both the FAR and the Office of  Management and Budget’s Office of Federal Procurement Policy (OFPP)  policy state that when contracting for these types of services a sufficient  number of qualified government employees assigned to plan and oversee  these contractor activities is needed to maintain control and  accountability. For the nine cases we reviewed, the level of oversight  provided did not always help ensure accountability for decisions or the  ability to judge whether contractors were performing as required. We  found cases in which the DHS components lacked the capacity to oversee  contractor performance due to limited expertise and workload demands.  DHS components were also limited in their ability to assess contactor  performance in a way that addressed the risk of contracting for services  that closely support inherently governmental functions. Assessing  contractor performance requires a plan that outlines how services will be  delivered and establishes measurable outcomes. However, none of the  oversight plans and contract documents we reviewed contained specific  measures for assessing contractor performance of selected services. To  address this deficiency, we recommended that DHS assess the ability of its  workforce to provide sufficient oversight when using these types of  contracted services.
Limited oversight also is due in part to insufficient data to monitor  acquisitions. Our work on procurement methods, such as interagency  contracting and performance-based acquisition, has found that DHS does  not systematically monitor its use of these contracts to assess whether  these methods are being properly managed, or to assess costs, benefits, or  other outcomes of these acquisition methods. With regard to interagency  contracting, we found that DHS was not able to readily provide data on the  amounts spent through different types of contracts or on the fees paid to  other agencies for the use of their contracting services or vehicles. This  lack of information means that DHS cannot assess whether the  department could achieve savings through using another type of  contracting vehicle. We similarly found that DHS did not have reliable data  on performance-based acquisitions to facilitate required reporting,  informed decisions, and analysis of acquisition outcomes. For example,  our review of contracts at the Coast Guard, CBP, Immigration and  Customs Enforcement (ICE), and TSA showed that, about 51 percent of  the 138 contracts we identified in FPDS-NG as performance-based had  none of the required performance-based elements: a performance work  statement, measurable performance standards, and a method of assessing  contractor performance against performance standards. The unreliability  of these data makes it difficult for DHS to be able to accurately report on  governmentwide performance targets for performance-based acquisitions.  We have recommended that DHS work to improve the quality of FPDS-NG  data so that DHS can more accurately identify and assess the quality of the  use and outcomes of various procurement methods.
Inaccurate federal procurement data is not unique to DHS and is a long- standing governmentwide concern. Our prior work and the work of the  General Services Administration’s Inspector General have identified issues  with the accuracy and completeness of FPDS and FPDS-NG data, and  OMB has stressed the importance of submitting timely and accurate  procurement data to FPDS-NG. The Acquisition Advisory Panel has also  raised concerns about the accuracy of FPDS-NG data. These  circumstances illustrate the magnitude of the challenge DHS faces in  developing timely and accurate data to monitor acquisitions.
To improve procurement oversight, the CPO established and has  implemented a departmentwide program to provide comprehensive insight  into each component’s programs and disseminate successful management  techniques throughout DHS. This program, which is based on a series of  component-level reviews, was designed with the flexibility to address  specific procurement issues. As such, it could be used to address areas  such as performance-based acquisitions, interagency contracting, and the  appropriate use of contractors providing services closely supporting  inherently governmental functions. Some of the four key oversight reviews  have begun under this program, but management assessments, or  evaluation of the outcomes of acquisition methods and contracted  services, have not been conducted. Our work has found that the CPO  continues to face challenges in maintaining the staffing levels needed to  fully implement the oversight program, and CPO authority to ensure that  components comply with the procurement oversight plan remains unclear.
section_title: Conclusion
paragraphs: Improving acquisition outcomes has been an ongoing challenge since DHS  was established in 2003. Our work has consistently noted that sound  acquisition planning, including clearly defining requirements, and ensuring  adequate oversight are hallmarks of successful service acquisitions. A  sufficient acquisition workforce is also key to properly managing  acquisitions. Our body of work has also included many recommendations  to the Secretary of Homeland Security to take actions aimed at improving  acquisition management, planning, and oversight. While DHS has generally  concurred with our recommendations, the department has not always  stated how the underlying causes of the deficiencies we have identified  will be addressed. Until the department takes needed action to address  these causes, it will continue to be challenged to make the best use of its  acquisition dollars.
Mr. Chairman, this concludes my prepared statement. I would be happy to  respond to any questions that you or other members of the subcommittee  may have at this time.
section_title: Contacts and Acknowledgments
paragraphs: For further information about this statement, please contact me at (202)  512-4841 or huttonj@gao.gov. Contact points for GAO’s Offices of  Congressional Relations and Public Affairs are listed on the last page of  this product. Key contributors to this statement were Amelia Shachoy,  Assistant Director; Ann Marie Udale, Karen Sloan and Kenneth Patton.
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