Defense Contracted Services: DOD Needs to Reassess Key Leadership Roles and Clarify Policies for Requirements Review Boards
Published: 2017-08-31T00:00:00

Fast Facts:
In fiscal year 2016, DOD spent about $150 billion on service contracts—about half of its total contract spending—covering services such as program management, engineering, and IT support.
As part of DOD's latest effort to better manage service contracts, DOD established new leadership roles for service acquisitions throughout the agency. However, we found that officials in these new positions considered their new roles as secondary, did not fulfill certain responsibilities, and had little effect on how DOD manages services.
We recommended that DOD reassess the roles, responsibilities, and organizational placement of the new positions.

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2016, DOD obligated about $150 billion, or just over half of its total contract spending, on contracted services. In January 2016, DOD issued an instruction on services that identified three key leadership positions, and clarified their roles and responsibilities, and called for Services Requirements Review Boards to holistically approve service requirements above $10 million.
The House Armed Services Committee report accompanying the National Defense Authorization Act for Fiscal Year 2015 included a provision for GAO to report on DOD's acquisition of contracted services. This report assesses implementation of (1) key services acquisitions leadership positions and (2) Services Requirements Review Boards.
GAO reviewed the roles and responsibilities of the three key leadership positions identified in DOD's January 2016 instruction. GAO also selected three military commands with large fiscal year 2015 contracted services obligations based on analysis of federal procurement spending; reviewed Review Board implementation for the selected commands; and interviewed responsible DOD, military department, and command officials.
section_title: What GAO Found
paragraphs: The Department of Defense (DOD) has not fully implemented the three key leadership positions—functional domain experts (FDE), component level leads (CLL), and senior services managers (SSM)—that were identified in DOD's January 2016 instruction and which were to enable DOD to more strategically manage service acquisitions (see table).
Defense Procurement and Acquisition Policy officials noted that the officials appointed to be FDEs had multiple responsibilities, and considered their FDE roles as secondary. Additionally, CLLs largely existed in name only. Consequently, FDEs and CLLs had a minimal effect on how DOD manages services. GAO also found that SSMs—who are responsible for implementing the January 2016 instruction within their military departments—were unsure about the value of FDEs and CLLs and how these positions should influence decisions made by the commands. Moreover, the SSMs GAO interviewed cited cultural barriers to implementing the hierarchical, portfolio-management approach to service acquisition envisioned in DOD's January 2016 instruction, in part because each military department has traditionally taken a decentralized approach to managing services. Defense Procurement and Acquisition Policy officials responsible for services were aware of these challenges and have begun efforts to revise the January 2016 instruction, in part to further clarify position authorities and responsibilities. Federal internal control standards state that management should establish an organizational structure, assign responsibilities, and delegate authorities to achieve its objectives.
Services Requirements Review Boards were intended to prioritize and approve services in a comprehensive portfolio-based manner in order to achieve efficiencies, but the military commands GAO reviewed did not do so. Instead, commands largely leveraged existing contract review boards that occurred throughout the year and focused on approving individual contracts. As a result, the Services Requirements Review Boards at these commands had minimal effect on supporting trade-off decisions within and across service portfolios or capturing efficiencies that could inform the command's programming and budgeting decisions. Federal internal control standards call for management to identify, analyze, and respond to risks related to achieving defined objectives. Until DOD clarifies the purpose and timing of the Services Requirements Review Boards process, DOD components will not achieve the expected benefits as anticipated in the January 2016 instruction.
section_title: What GAO Recommends
paragraphs: GAO recommends that DOD reassess the roles, responsibilities, authorities, and organizational placement of the three key leadership positions; and clarify policies concerning the purpose and timing of the Review Board process. DOD concurred with the recommendations.

section_title: Letter
paragraphs: In fiscal year 2016, the Department of Defense (DOD) obligated about  $150 billion on contracted services, or just over half of DOD’s total  contract spending. Contractors perform a wide array of services, such as  supporting DOD weapons programs, maintaining defense facilities, and  providing information technology. Given an uncertain budget  environment, determining whether to contract for such services,  eliminating duplicative or unnecessary services, and effectively managing  and overseeing contractors is vital to DOD achieving its missions. While  some improvements have been made, DOD has faced long-standing  challenges in effectively managing services. For example, DOD Contract  Management has been on GAO’s high-risk report list for almost 25 years  as an area in need of improvement, with service acquisition being  identified as a key issue since 2001. DOD has set a goal of improving its  management and oversight of services through efforts like the Better  Buying Power initiatives and by categorizing and managing service  acquisitions by portfolio groups, such as knowledge-based services.
DOD issued an instruction in January 2016 as part of its larger efforts to  improve the processes by which it acquires contracted services. This  instruction, in part, articulated a hierarchical approach in which senior  officials within the Office of the Secretary of Defense (OSD), termed  functional domain experts (FDE), would be responsible for one or more  portfolios of similar services and for providing strategic oversight of  services within their portfolios. In turn, the FDEs would be supported by  component level leads (CLL) within each of the military departments and  defense agencies to actively oversee the life-cycle process of service  acquisitions. Further, these positions were intended to coordinate with senior services managers (SSM), who are responsible for the planning,  strategic sourcing, execution and management of services within their  specific military department or defense component. For the purposes of  this report, we collectively refer to FDEs, CLLs, and SSMs as key  leadership positions for service acquisitions. DOD’s January 2016  instruction also required Services Requirements Review Boards (SRRB)  to be conducted at the command or unit level within each military  department or defense component, to ensure that requirements are  reviewed, validated and approved so as to help prioritize requirements  and identify efficiencies. SRRBs can also help determine whether a  requirement should be met by contractors or performed by government  personnel.
The House Armed Services Committee report accompanying the National  Defense Authorization Act for Fiscal Year 2015 included a provision for us  to report on DOD’s acquisition of contracted services. This report  assesses DOD and the military departments’ implementation of selected  provisions of DOD’s January 2016 instruction, in particular (1) key  leadership positions and responsibilities, and (2) Services Requirements  Review Boards.
To assess DOD’s implementation of the three key leadership positions  and their responsibilities, we reviewed relevant statutes, DOD’s January  2016 instruction, DOD and military department policies, memorandums,  and written responses that describe the roles and responsibilities for the  FDE, CLL, and SSM positions. We focused our review on the  Departments of Air Force, Army, and Navy. In addition to the military  departments, DOD’s January 2016 instruction calls for other defense  components (e.g., defense agencies and OSD) to implement SSM  positions and SRRBs to the extent appropriate. This report focuses on the  implementation of SSMs and SRRBs within the military departments  because they represented about 74 percent of DOD’s total obligations on  contracted services in fiscal year 2015. We interviewed the SSM at each  of the three military departments and officials in Defense Procurement  and Acquisition Policy—Services Acquisition (DPAP-SA), who are  responsible for implementation of the January 2016 instruction and the  FDE positions. We spoke to DPAP-SA and military department officials  about the challenges of implementing these positions.
To assess the military departments’ implementation of SRRBs, we used  Federal Procurement Data System-Next Generation (FPDS-NG) data to  select one major command within each military department with large  fiscal year 2015 obligations for contracted services, which was the latest  year available when we initiated our review. We identified groups of like  services, known as service portfolios, that were required in the January  2016 instruction. We used fiscal year 2016 data from FPDS-NG to  calculate each military department’s and selected commands’ obligations  by service portfolio, such as logistics management services. We then  compared differences between military department and command  obligations by each service portfolio. We performed electronic testing for  errors in accuracy and completeness and reviewed related  documentation, and we found that the FPDS-NG data were sufficiently  reliable for the purpose of identifying DOD’s spending on contracted  services by military departments and their major commands. Based on  these data, we selected the Air Force Materiel Command, Army Materiel  Command, and Naval Air Systems Command as the focus for our review.   At each of the three military departments and the selected major  commands, we interviewed acquisition and/or contracting officials,  reviewed applicable SRRB policies and procedures, and to the extent  available, data on the number, timing, and outcomes from SRRBs held at  the selected major commands between 2015 and 2016, as well as  services health assessments. The results of our findings are not  generalizable to all of DOD military departments and military commands  but provide insight into acquisition of services by DOD.
We conducted this performance audit from February 2016 to August 2017  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: DOD has traditionally approached the acquisition of services differently  than the acquisition of products, focusing its attention, policies, and  procedures on managing major weapon systems, which it typically does  by using the cost of the weapon system as a proxy for risk. For example,  DOD classifies its acquisition programs, including research and  development efforts related to weapon systems, in categories based upon  estimated dollar value or designation as a special interest. The largest  programs generally fall under the responsibility of the Under Secretary of  Defense for Acquisition, Technology, and Logistics (USD(AT&L)), while  less complex and risky programs are overseen by the service or  component acquisition executive. As of December 2015, DOD managed  78 major defense acquisition programs on which it planned to invest  $1.46 trillion over the life of these programs. These 78 programs will  require just over one quarter of all DOD’s development and procurement  funding over the next 5 years.
Conversely, we previously reported that DOD’s approach to buying  services is largely fragmented and uncoordinated, as responsibility for  acquiring services is spread among individual military commands,  weapon system program offices, or functional units on military  installations, with little visibility or control at the DOD or military  department level. DOD’s January 2016 instruction reiterates that the  acquisition of contracted services is a command responsibility. As such,  the instruction notes that unit, organization, and installation commanders  are responsible for the appropriate, efficient, and effective acquisition of  contracted services by their organizations. Services differ from products  in several aspects and can offer challenges when attempting to define  requirements, establishing measurable and performance-based  outcomes, and assessing contractor performance. For example, it can  easily take over 10 years to define requirements and develop a product  like a weapon system before it can be delivered for field use. Individual  service acquisitions generally proceed through requirements, solution,  and delivery more rapidly. Further, delivery of services generally begins  immediately or very shortly after the contract is finalized.
Over the past 15 years, Congress and DOD have identified actions  intended to improve, among other things, service acquisition planning,  tracking, and oversight (see figure 1).
Since 2013, DOD took several additional actions to help improve the  acquisition and management of services. For example, in April 2013, the  USD(AT&L) appointed the Principal Deputy Under Secretary of Defense  for Acquisition, Technology, and Logistics, as the Senior DOD Manager  for Services Acquisition. Subsequently, in May 2013, DPAP established a  Services Acquisition directorate, which is responsible for DOD-level  oversight of services as part of its responsibilities; DPAP-SA was the  principal author of DOD’s January 2016 instruction. DPAP-SA also leads  the Services Acquisition Functional Integrated Product Team, which  creates services-acquisition training and tools and provides a forum to  share best practices and lessons learned. The Services Acquisition  Functional Integrated Product Team is comprised of representatives from  DPAP-SA, the Defense Acquisition University, and SSMs, and others  from the military departments and defense agencies.
The January 2016 instruction calls for the strategic management of the  acquisitions of contracted services. The instruction establishes policy,  assigns responsibilities, provides direction for the acquisition of  contracted services, and establishes and implements a hierarchical  management structure for the acquisition of contracted services, including  service categories, thresholds and decision authorities, and an SRRB  framework. The instruction identifies three key leadership positions,  FDEs, CLLs, and SSMs to strategically manage and oversee services.
These actions were driven by evidence that DOD was increasingly reliant  on contracted services, including complex services such as engineering  support, and was obligating more of its contracting dollars on services  than it was on products. As we noted in February 2016, DOD’s  obligations in fiscal year 2014 on its three largest services—knowledge- based, research and development, and facility-related services were  more than double the amount DOD obligated for aircraft, land vehicles,  and ships, the three largest product categories DOD acquired.
subsections: section_title: Prior GAO Work
paragraphs: GAO has issued a series of reports that assessed leading commercial  practices and DOD’s efforts to improve how it acquires contracted  services. In our January 2002 report on commercial practices, for  example, we reported that leading companies had examined alternative  ways to manage their service spending to stay competitive, respond to  market and stockholder pressures, and deal with economic downturns in  key overseas markets. In looking at their service acquisitions, these  companies discovered that they did not have a good grasp of how much  was actually being spent and where these dollars were going. These  companies also found that responsibility for acquiring services resided  largely with individual business units or functions—such as finance,  human resources, manufacturing, engineering, or maintenance—which  hindered efforts to coordinate purchases across the company. The  companies realized that they lacked the tools needed to make sure that  the services they purchased met their business needs at the best overall  value. We reported that such challenges were similar to those being  experienced by DOD at the time—responsibility for acquiring services  was spread among individual military commands, weapon system  program offices, or functional units on military bases, with little visibility or  control at the DOD or military department level over these acquisitions.
The companies we reviewed instituted a series of structural, process, and  role changes aimed at moving away from a fragmented acquisition  process to a more efficient and effective enterprise-wide process. For  example, they often established or expanded the role of corporate  procurement organizations to help business managers acquire key  services and made extensive use of cross-functional teams to help the  companies better identify service needs, select providers, and manage  contractor performance. Some companies found that, in establishing new  procurement processes, they needed to overcome resistance from  individual business units reluctant to share decision-making responsibility  and to involve staff that traditionally did not communicate with each other.  To do so, the companies found they needed to have sustained  commitment from their senior leadership; to clearly communicate the  rationale, goals, and expected results from the reengineering efforts; and  to measure whether the changes were having their intended effects. We  concluded that the strategic approach taken by the leading firms we  reviewed could serve as a general framework to guide DOD’s service  contracting initiatives.
We noted, however, that DOD might find that a “one-size-fits-all”  approach would not work for all services and that it would need to tailor its  approach to meet its specific needs and requirements. DOD officials  acknowledged that some services were acquired department-wide, while  other services (such as ship support and maintenance) were unique to  specific commands, units, or geographic locations. DOD officials agreed  that they would need, as a first step, to obtain and analyze data on DOD’s  service spending to identify and prioritize specific services where a more  coordinated acquisition approach may be appropriate.
Since that January 2002 report, we have issued several reports that  examined DOD’s efforts to implement a management structure and  address other issues affecting service acquisitions, as illustrated by the  following examples:  In September 2003, we reported that while DOD and the military  departments each had a management structure in place for reviewing  individual service acquisitions valued at $500 million or more, that  approach did not provide a department-wide assessment of how  spending for services could be more effective.
In November 2006, we reported that DOD’s approach to managing  service acquisitions tended to be reactive and had not fully addressed  the key factors for success at either the strategic or transactional  level. At the strategic level, DOD had not set the direction or vision for  what it needed, determined how to go about meeting those needs,  captured the knowledge to enable more informed decisions, or  assessed the resources it had to ensure department-wide goals and  objectives were achieved.
In June 2013, we reported that USD(AT&L) and military department  leadership had demonstrated a commitment to improving  management of service acquisition, but that they faced challenges in  developing goals and metrics to assess outcomes due to limitations  with corroborating data between their contracting and financial data  systems. We recommended that DOD establish baseline data,  specific goals for improving service acquisitions, and associated  metrics to assess its progress. DOD concurred with the three  recommendations.
Most recently, in our February 2016 report, we found, among other  things, that DOD program offices we reviewed generally maintained  data on current and estimated future spending needs for contracted  service requirements, but did not identify spending needs beyond the  budget year, since there was no requirement to do so. This limited  DOD’s leadership insight into future spending on contracted services.  We recommended that the Secretaries of the Army, Navy, and Air  Force revise their programming guidance to collect information on  how contracted services will be used to meet requirements beyond  the budget year. We also recommended that the Secretary of Defense  establish a mechanism, such as a working group, to ensure the  military departments’ efforts to integrate services into the  programming process and to develop forecasts on service contract  spending provided the department with consistent data. DOD partially  concurred with both recommendations but did not indicate any  planned actions to implement the recommendations.
section_title: Limited Implementation of Key Leadership Positions Impedes Effective Strategic Management of Service Acquisitions
paragraphs: DOD has not fully implemented the three key leadership positions— FDEs, CLLs, and SSMs—that were identified in DOD’s January 2016  instruction and which were to enable DOD to more strategically manage  service acquisitions. DPAP-SA officials noted that the officials appointed  to be FDEs had multiple responsibilities, and considered their FDE roles  as secondary. Additionally, CLLs largely existed in name only.  Consequently, FDEs and CLLs have had a minimal effect on how DOD  manages services. More importantly, we found that SSMs were unsure  about the value of FDEs and CLLs and how these positions were to  influence decisions made by the commands. In particular, SSM officials  cited cultural barriers to implementing the hierarchical approach to service  acquisition envisioned in DOD’s January 2016 instruction, in part because  each military department has traditionally taken a decentralized approach  to managing services. Our analysis of DOD fiscal year 2016 service  contract obligations found that DOD could improve the management of  services by better targeting individual military commands that were  responsible for awarding the majority of their department’s contract  obligations for service portfolios. DPAP-SA officials responsible for  services were aware of the implementation challenges and have efforts  underway to revise the January 2016 instruction, in part to further clarify  position authorities and responsibilities.
subsections: section_title: Lack of Priority Hindered DOD’s Ability to Strategically Manage Service Acquisitions through the Use of FDEs and CLLs
paragraphs: We found that FDEs and CLLs have not been effective in improving  DOD’s ability to strategically manage service acquisitions. DOD’s January  2016 instruction formalized a hierarchical approach to more strategically  manage service acquisitions by portfolio within both OSD—through the  use of FDEs—and the components—through the use of CLLs.  Specifically, the January 2016 instruction stated that portfolio  management enables a framework for strategic oversight by OSD,  coupled with decentralized execution by the DOD components to improve  the transparency of requirements across DOD, reduce redundant  business arrangements, and increase awareness of alternatives. These  positions, which were initially established in 2013 as part of the Better  Buying Power initiative, were assigned a broad range of responsibilities  and were to coordinate their efforts with the military departments’ SSMs,  who are responsible for strategic planning, sourcing, execution, and  management of services within each military department (see table 1).
Rather than creating new positions within OSD or the military  departments to fill these leadership positions, DOD added services  acquisitions-related responsibilities to existing positions. For example,  see table 2 for the existing positions held by FDEs.
DPAP-SA officials explained that the appointment of senior OSD officials  was intended to give the positions the necessary visibility to carry out  their responsibilities to provide strategic portfolio leadership to achieve  greater efficiencies and reduce costs in services acquisition. DPAP-SA  officials acknowledged, however, that implementation of the FDE  positions has been beset by challenges. The senior OSD officials already  had broad departmental management responsibilities and were assigned  additional FDE responsibilities that were not within their control. For  example, FDEs were tasked with forecasting and budgeting services  requirements and developing policies to help prioritize requirements. In  this regard, as noted in the DOD January 2016 instruction, the  responsibilities for establishing and budgeting for service acquisitions are  the responsibility of officials within the military commands and  installations performed under DOD’s Planning, Programming, Budgeting,  and Execution process. Neither DOD’s October 2013 letter that  appointed the FDEs, nor DOD’s January 2016 instruction provided  specific guidance on how to accomplish these responsibilities.
These senior OSD officials also considered their FDE responsibilities as  secondary, other duties as assigned and in some cases were assigned  multiple portfolios. For example, the Principal Deputy Assistant Secretary  of Defense for Logistics and Materiel Readiness—who served as the FDE  for three portfolios that comprised $22.9 billion in obligations in fiscal year  2015—has as his primary duty to serve as the principal advisor to the  USD(AT&L) in the oversight of logistics policies, practices, operations,  and efficiencies. Similarly, the Deputy Director for DPAP-SA—who is  responsible for the technical and programmatic evaluation and functional  oversight of all aspects of DOD service acquisitions—was named FDE for  two out of six knowledge based services portfolio categories, identified in  table 2. DPAP-SA officials told us that given their other responsibilities,  FDEs devoted only minimal time to fulfilling their FDE responsibilities.
Similarly, we found that the CLLs were generally appointed by the military  departments, but were not actively engaged in the strategic management  of specific services portfolios, as called for in the January 2016  instruction. For example, Air Force officials said that a previous effort to  implement a CLL-like position had been unsuccessfully tried in the past  and therefore they were reluctant to establish new CLL positions. Army  officials identified staff to serve as CLLs, but acknowledged that the CLLs  were not active because it was not a management priority. Navy SSM  officials established Portfolio Managers within the SSM’s office to carry  out CLL responsibilities, but these positions had not actively managed  services at the Navy’s major commands. As a result, CLLs had a minimal  effect on how DOD strategically manages and oversees services.
section_title: Senior Services Managers Cited Cultural Barriers and Challenges to Strategically Managing Services
paragraphs: Similar to the approach taken to create FDEs and CLLs, each of the three  military departments created SSMs by appointing senior officials within  their respective acquisition or contract policy offices (see table 3).
However, SSMs identified challenges, including the lack of responsibility  for developing or approving requirements or related funding requests and  difficulties in identifying data or metrics to support strategic management  in executing their SSM responsibilities. Further, while SSMs recognize the  need to further improve management of services in their respective  military departments, they were not convinced that a hierarchical,  portfolio-based approach outlined in the January 2016 instruction would  achieve the intended benefits. The three SSMs we interviewed were  unsure about the value of FDEs and CLLs and how these positions were  to influence decisions made by the commands. Further, SSM officials  noted cultural barriers to implementation, in that commanders are  reluctant to give up responsibilities on determining how and which  services are needed to meet their missions. In addition, the January 2016  instruction underscores that the execution of services is a commander’s  responsibility. For example, each of the SSMs told us that commanders  are responsible for fulfilling services requirements needed to accomplish  missions within their allocated resources.
Consistent with this perspective, SSMs have not implement a  hierarchical, portfolio-based approach to services within their  departments. The January 2016 instruction requires SSMs to strategically  manage each service portfolio group with CLLs as appropriate to develop  metrics, best practices, and data to achieve effective execution of the  service contract requirements within each portfolio. SSMs told us,  however, that they viewed their appropriate role as helping commands  improve existing processes to better acquire and manage services. For  example, each SSM conducts an annual services health assessment at  each command to provide a qualitative picture of programs’ processes  and management. For example, at the Air Force in 2015, each command  was asked to self-assess six qualitative performance areas, such as  program management and fiscal responsibility. In turn, SSMs are to use  this and other information to influence and educate the service acquisition  community through working groups, training, and sharing best practices.
section_title: Services Acquisition Data Highlight Opportunities for DOD to Better Target Management of Services
paragraphs: DPAP-SA officials acknowledged that implementation of the hierarchical  approach envisioned in the January 2016 instruction is not working as  intended, in part because the approach does not fully address concerns  that a more top-down approach to service acquisitions may adversely  affect the commanders’ ability to meet their missions. In that regard, our  analysis of DOD fiscal year 2016 service contract obligations found that  depending on the organization’s structure and mission, specific  commands within the military departments award the majority of contract  obligations for particular portfolios of services (see table 4).
For example, the Army Materiel Command and Air Force Materiel  Command obligated almost all of their respective military department’s  dollars for logistics management and equipment-related service contracts.  Conversely, the Naval Air Systems Command was responsible for a  much smaller percentage of obligations for these and other services.  Other Navy commands had the vast majority of service contract  obligations for particular portfolios. For example, the Naval Facilities  Engineering Command obligated 84 percent of the Navy’s dollars for  facility-related service contracts in fiscal year 2016.
section_title: DOD Has Efforts Underway to Update the January 2016 Instruction
paragraphs: In February 2017, DPAP-SA held an initial meeting with the key  stakeholders in the services management structure—for example, FDEs  and SSMs—to discuss revising the instruction. This effort includes  providing clearer definitions of terms such as service acquisition, revising  service acquisition category review thresholds, and determining whether  FDEs are needed in light of federal category management efforts.  Federal internal control standards state that management should  establish an organizational structure, assign responsibilities, and delegate  authorities to achieve its objectives. That structure should allow the  organization to plan, execute, control, and assesses progress toward  achieving its objectives. Further, management should periodically review  its reviews policies, procedures, and related control activities for  continued relevance and effectiveness in achieving the organization’s  objectives, and if there is a significant change in its process, management  should review the process in a timely manner after the change to  determine that control activities are designed and implemented  appropriately. DOD’s ongoing effort to revise the January 2016 instruction  provides the department the opportunity to reassess whether the  hierarchical approach currently in place would, if fully implemented and  resourced, enable the department to achieve its goal of strategically  managing service acquisitions, or conversely, if an approach that focuses  on strategically managing services at the military department or command  level may fare better.
section_title: SRRB Implementation at the Military Departments Has Had a Minimal Effect on Strategic Management of Service Requirements
paragraphs: DOD’s January 2016 instruction formalized the requirement to hold  SRRBs to validate, prioritize, and approve service requirements from a  holistic viewpoint—an approach that comprehensively considers service  requirements within and across portfolios. We found, however, that the  three military commands we reviewed did not implement SRRBs that  approved service requirements from a holistic perspective, but instead  leveraged their existing contract review boards, which focus their efforts  on assuring proposed contract solicitations and awards are in compliance  with federal acquisition regulations and DOD guidance. As a result,  SRRBs had a minimal effect on supporting trade-off decisions in the  service portfolios or assessing opportunities for efficiencies and  eliminating duplicative requirements.
The January 2016 instruction requires DOD organizations and  components to establish a process for senior leaders to review, prioritize,  validate, and approve each service requirement with a value of $10  million or greater. DOD guidance for implementing the instruction notes  that an SRRB is a structured process that, among other things, is to  inform, assess, and support trade-off decisions by senior leaders  regarding service requirements cost, schedule, and performance for  the acquisition of services;  identify opportunities for efficiencies, such as realignment of  requirements to better align to mission, identification and elimination  of duplicative capabilities, and identification of strategic sourcing  capabilities; be holistic and requirement-focused rather than contract-focused; have an outcome of a prioritized list of both funded and non-funded  existing and anticipated requirements; be established and managed by and held at the requiring command or  organizational unit because that is where the requirement owner and  funding is located; be held at least annually, but may be held more often as determined  by the requiring organization; and have validated a service requirement before approval of an acquisition  strategy.
According to the Deputy Director of DPAP-SA, the SRRB process is  intended to provide senior leaders more visibility over contracted services  and requirements, and to provide opportunities to collect data and assess  lessons learned and best practices from contracting, not only at individual  level command levels but across the military departments and DOD.  However, the instruction did not specify when boards should occur or how  the results of the SRRBs would be captured or used to inform  programming and budget decisions. Further, the instruction required  commands to ensure, prior to contract award, that more tactical  contracting elements were considered, such as workforce needs and the  sufficiency of market research. The instruction also provided the military  departments with flexibility in how they achieved these objectives.
As a result, military department SSMs noted rather than creating a new  SRRB process, they leveraged existing processes for reviewing and  approving proposed service contract actions to meet the intent of the  January 2016 instruction. For example, pursuant to Air Force Instruction  63-138, the Air Force Materiel Command utilized its Requirements  Approval Document and database as its SRRB process. Air Force  officials noted that they have used this process since 2008. Similarly,  pursuant to Army Regulation 70-13, the Army Materiel Command used its  Service Requirements Review Board or SR2B—established in 2010—as  its SRRB process, while the Naval Air Systems Command used its  Workload and Force Planning process—established in 2004—as its  SRRB process. The Navy’s approval process is governed by its 2012  SRRB guidance.
While each of the processes varied in certain regards, these processes  are designed to ensure  requirements for individual services acquisitions have been validated;  sufficient funding is available for the proposed action; appropriate acquisition planning and market research have been  the proposed solicitation and proposal evaluation criteria are  consistent.
Consequently, we found that the commands’ SRRB processes we  reviewed did not holistically assess requirements within specific service  portfolios as outlined in the January 2016 instruction. Further, since  command SRRB processes were centered on approving individual  contract actions, we found that SRRBs were held throughout the year and  did not identify or document resulting savings or other efficiencies. As a  result, SRRBs at the three commands we reviewed had a minimal effect  on supporting trade-off decisions in the service portfolios or assessing  opportunities for efficiencies and eliminating duplicative requirements that  could inform the command’s program objective memorandum (POM)  submissions.
In contrast, we recently reported that non-military department DOD  organizations, in accordance with the instruction, conducted SRRBs that  holistically assessed service requirements which led to the identification  of hundreds of millions of dollars in cost savings for the period fiscal years  2017-2019 and were incorporated in the department’s fiscal year 2018 to  2022 POM. These organizations included the Defense Logistics Agency  and the Defense Threat Reduction Agency, among others. To accomplish  these savings, the Deputy Chief Management Officer (DCMO) convened  SRRBs that required each of the defense agencies and components they  reviewed to identify service contracts by portfolio from a holistic  perspective and make trade-off decisions based on risk assessment,  timelines, and requirements that could be reduced or eliminated to  generate efficiencies. In turn, a Senior Review Panel composed of DCMO  (chair), the Principal Deputy Under Secretary of Defense for Acquisition,  Technology, and Logistics, and Principal Staff Assistants approved the  proposed savings or directed alternative reductions.
Some military departments are exploring options to expand the role of  SRRBs in the future to integrate service contract requirements into their  POM process to allow them to better identify or forecast service contracts  spending and trends. For example, the Army SSM noted that the Army  plans to direct all Army commands to identify all service requirements and  their associated contracts in the fiscal year 2018-2022 POM, and that this  effort is intended to improve insight into future service contact  requirements and to better control spending on service contracts. DPAP- SA and SSM officials also told us that the SRRB process would be more  effective if it were better aligned with the POM, but DPAP-SA have not yet  decided whether to include this element as part of the instruction update.
Federal internal control standards call for agency management to identify,  analyze, and respond to risks related to achieving defined objectives.  Our work found that DOD and military department officials did not  implement a portfolio-based approach when conducting SRRBs and  given that the SRRB were held throughout the year, it was unclear  whether efficiencies were achieved or how the SRRB process helped  inform command POM submissions. In February 2016, we recommended  that military departments integrate services into the programming process  and update programming guidance to collect budget information on how  contracted services will be used to meet requirements. Similarly, moving  the SRRB to align with the POM process could help the military  departments better identify, prioritize, and validate service requirements  to support programming and budget decisions. Until DOD clarifies the  purpose and timing of the SRRB process, DOD components may not be  achieving the expected benefits of DOD’s SRRB process.
section_title: Conclusions
paragraphs: DOD’s experience in implementing the January 2016 instruction  highlights a number of deeply embedded institutional challenges that  must be overcome before DOD can achieve a more strategic and  portfolio-based approach to managing services. The January 2016  instruction sought to balance the benefits of a more hierarchical and  strategic approach, such as identifying efficiencies and developing useful  metrics tailored to portfolios through FDEs and CLLs, while retaining the  ability of commanders to meet mission needs. This effort, simply stated,  has not been successful. In practice, FDE and CLL positions generally  have not produced tangible results or benefits and SSMs have  questioned their overall value. Moreover, this concept has faced strong  cultural resistance, as it required a change to DOD’s traditional  decentralized approach to managing services. As DOD works to update  the instruction, it has an opportunity to either reaffirm and empower FDEs  and CLLs and then hold them accountable for results, or more broadly  reassess and rethink how best to tailor its approach to services. Our past  work cautioned that a top-down, one-size-fits-all approach may not work.  Our current analysis shows that certain commands already manage or  award the majority of a particular service and are more closely aligned to  the commanders that are responsible for executing the mission. In turn,  this raises the question as to whether they would be in a better position to  strategically manage specific service portfolios. Complementing this  approach would be to provide clarity on the purpose and timing of the  SRRBs to help commanders make better trade-off and resource  decisions and inform DOD’s programming and budget processes. Until  DOD takes action to address the implementation challenges with the  FDEs, CLLs, and SSMs, and clarifies the purpose and timing of SRRBs,  its efforts to better manage service acquisitions will not be realized.
section_title: Recommendations for Executive Action
paragraphs: To help foster strategic decision making and improvements in the  acquisition of services, we recommend that the Under Secretary of  Defense for Acquisition, Technology, and Logistics take the following two  actions as part of its effort to update the January 2016 instruction:
Reassess the roles, responsibilities, authorities, and organizational  placement of key leadership positions, including functional domain  experts, senior services managers, and component level leads; and
Clarify the purpose and timing of the SRRB process to better align it  with DOD’s programming and budgeting processes.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD for review and comment. In its  written comments, reproduced in appendix I, DOD concurred with our two  recommendations.
Regarding our first recommendation, DOD concurred with the need to  reassess key leadership positions roles and responsibilities. DOD  indicated that an internal review of the January 2016 instruction found  that portfolio oversight of services through FDEs was not providing the  desired benefits, and as such, DOD is considering alternatives.  Regarding our second recommendation that DOD clarify the purpose and  timing of the SRRB process, DOD concurred, noting that lessons learned  from implementation of SRRBs in non-military department organizations  showed benefits. DOD stated that a rewrite of the January 2016  instruction will include additional clarifying policy.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense; the Secretaries of the Air Force,  Army, and Navy; and the Under Secretary of Defense for Acquisition,  Technology, and Logistics. In addition the report is available at no charge  on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or DinapoliT@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix II.
section_title: Appendix I: Comments from the Department of Defense
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, W. William Russell (Assistant  Director), Joe E. Hunter (Analyst in Charge), Stephanie Gustafson, Julia  Kennon, Jonathan Munetz, Claudia A. Rodriguez, Sylvia Schatz, and  Roxanna T. Sun made significant contributions to this review.