Department of Homeland Security: Improved Assessment and Oversight Needed to Manage Risk of Contracting for Selected Services
Published: 2007-09-17T00:00:00

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--program management and support, engineering and technical, other professional, and other management support. While contracting for such services can help DHS meet its needs, there is risk associated with contractors closely supporting inherently governmental functions--functions that should be performed only by government employees. This report (1) describes the contracted services, (2) identifies potential risk and the extent to which DHS considered risk when deciding to contract for these services, and (3) assesses DHS's approach to managing and overseeing these services. GAO analyzed 117 judgmentally selected statements of work and 9 cases in detail for contracts awarded in fiscal year 2005 by the Coast Guard, the Office of Procurement Operations (OPO), and the Transportation Security Administration (TSA).
section_title: What GAO Found
paragraphs: More than half of the 117 statements of work that GAO reviewed provided for reorganization and planning activities, policy development, and acquisition support--services that closely support the performance of inherently governmental functions. Other such services supporting a broad range of programs and operations at Coast Guard, OPO, and TSA included budget preparation, regulation development, and employee relations. Decisions to contract for professional and management support services were driven by the need for staff and expertise to get programs and operations up and running. However, for the nine cases we reviewed, program officials did not assess the risk that government decisions may be influenced by, rather than independent from, contractor judgments. These cases included services that have the potential to increase this risk. For example, contractors directly supported DHS missions and performed on an ongoing basis work comparable to that of government employees. Most of the nine contracts also lacked detail or covered a wide range of services. Conditions such as these need to be carefully monitored to ensure the government does not lose control over and accountability for mission-related decisions. DHS has not explored ways to manage the risk of these contractor services, such as through total workforce deployment across the organization. The level of oversight DHS provided did not always ensure accountability for decisions or the ability to judge whether the contractor was performing as required. Federal acquisition policy requires enhanced oversight of contracts for services that can affect government decision making, policy development, or program management. While contracting officers and program officials acknowledged their professional and management support services contracts closely supported inherently governmental functions, they did not see a need for increased oversight. Insufficient oversight increases the potential for a loss of management control and the ability to ensure intended outcomes are achieved.

section_title: Letter
paragraphs: In fiscal year 2006, the Department of Homeland Security (DHS) obligated  $15.7 billion for the procurement of goods and services, making it the  third largest department in terms of procurement spending in the federal  government. Of this amount, DHS obligated over $5 billion on contracts  for services categorized as professional and management support, such as  strategic planning, human resources development, and acquisition  support.
While there are benefits to using contractors to perform services for the  government—such as increased flexibility in fulfilling immediate needs— GAO and others have raised concerns about the federal government’s  increasing reliance on contractor services. Of key concern is the risk  associated with contractors providing services that closely support  inherently governmental functions: the loss of government control over  and accountability for mission-related policy and program decisions.  Federal guidance requires agencies to assess this risk and provide  oversight accordingly.
Given the dollars obligated for professional and management support  services contracts and the associated risk, you asked us to review DHS’s  use of contracts for services that closely support inherently governmental  functions. Specifically, you asked us to (1) describe the types of services  DHS requested through these contracts, (2) identify potential risk in these  contracts and the extent to which DHS considered risk when deciding to  use these contracts, and (3) assess DHS’s approach to managing and  overseeing contracts for these types of services.
To conduct our work, we reviewed applicable federal procurement  policies and data from the Federal Procurement Data System-Next  Generation (FPDS-NG) for fiscal year 2005, the most recent year for which  complete data were available at the time we began our review. To identify  services that closely support inherently governmental functions, we  reviewed federal acquisition guidance that describes these functions and  FPDS-NG service codes. We selected the four professional and  management support services for which DHS obligated the most dollars in  fiscal year 2005—program management and support services, engineering  and technical services, other professional services, and other management  support services. Because FPDS-NG does not provide definitions for  service codes, to better understand the services provided, we judgmentally  selected 125 contract statements of work for the four types of professional  and management support services. We selected contracts and orders  awarded by DHS components, excluding the Federal Emergency  Management Agency (FEMA) that had obligated the most on these  services at the time we began our review—the Coast Guard, the Office of  Procurement Operations (OPO), and the Transportation Security  Administration (TSA). From our selected statements of work, we received  and reviewed 117 statements and judgmentally selected and conducted a  more detailed review of 9 cases from the three components. These cases  totaled over $82.1 million, ranging in value from $1.3 million to   $42.4 million, and represented a variety of services that closely support  inherently governmental functions. For the 9 cases, we reviewed contract  files and interviewed contracting officers, program officials, and  contractors. In addition, we interviewed staff from the Office of  Management and Budget’s (OMB) Office of Federal Procurement Policy  (OFPP), the component heads of contracting activity at OPO and TSA, and  the Chief of the Office of Procurement Policy at the Coast Guard.  Appendix I provides more information on our scope and methodology. We  conducted our review between April 2006 and August 2007 in accordance  with generally accepted government auditing standards.
subsections: section_title: Background
paragraphs: Governmentwide, spending on services contracts has grown substantially  over the past several years. At DHS, in fiscal year 2005 services accounted  for $7.9 billion, or 67 percent, of total procurement obligations, with $1.2  billion obligated for four types of professional and management support  services: program management and support, engineering and technical,  other professional, and other management support (see fig. 1). More than  two-thirds of DHS’s obligations for these services ($805 million) were to  support the Coast Guard, OPO, and TSA.
The services federal agencies buy are organized under more than  300 codes in FPDS-NG and range from basic services, such as custodial  and landscaping, to more complex professional and management support  services, which may closely support the performance of inherently  governmental functions. 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, 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. This may result in decisions that are  not in the best interest of the government, and may increase vulnerability  to waste, fraud, or abuse. The FAR provides 19 examples of services and  actions that may approach the category of inherently governmental  because of the nature of the function, the manner in which the contractor  performs the contracted services, or the manner in which the government  administers contractor performance. Table 1 provides examples of these  services and their relative risk of influencing government decision making.
FAR and OFPP guidance address contracting for services that closely  support the performance of inherently governmental functions, including  professional and management support services, due to their potential for  influencing the authority, accountability, and responsibilities of  government officials. In particular, the guidance states 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. Such services include advisory and  assistance, which includes expert advice, opinions, and other types of  consulting services. The guidance requires agencies to provide greater  scrutiny of these services 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.
The potential for the loss of government management control associated  with contracting for services that closely support the performance of  inherently governmental functions or that should be performed by  government employees is a long-standing governmentwide concern. For  example, in 1981, GAO found that contractors’ level of involvement in  management functions at the Departments of Energy (DOE) and Defense  (DOD) was so extensive that the agencies’ ability to develop options other  than those proposed by the contractors was limited. A decade later, in  1991, GAO reported that DOE had contracted extensively for support in  planning, managing, and carrying out its work because it lacked sufficient  resources to perform the work itself. We noted that while support service  contracts are appropriate for fulfilling specialized needs or needs of a  short-term or intermittent nature, the contracts we reviewed at DOE were  not justified on these bases. In that same year, GAO reported that three  agencies—DOE, the Environmental Protection Agency, and the National  Aeronautics and Space Administration—may have relinquished  government control and relied on contractors to administer some  functions that may have been governmental in nature.
More recently, government, industry, and academic participants in GAO’s  2006 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. The panel also  noted that contracts for professional services are often performed with  close contact between the federal government and contractor employees,  which approaches the line between personal and nonpersonal services.  Personal services are prohibited by the FAR, unless specifically  authorized, and are indicated when the government exercises relatively  continuous supervision and control over the contractor. Both the panel  and GAO acquisition forum participants noted the large growth in  contracting for complex and sophisticated services has increased attention  to the appropriate use of contractors.
section_title: DHS Contracts for Selected Services Covered a 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. In most cases, the services  provided—such as policy development, reorganization and planning  activities, and acquisition support—closely supported the performance of  inherently governmental functions. Contractor involvement in the nine  cases we reviewed in detail ranged from providing two to three  supplemental personnel to staffing an entire office.
Of the $805 million obligated by the Coast Guard, OPO, and TSA in fiscal  year 2005 to procure four types of professional and management support  services, more than one-half of the obligations was for engineering and  technical services—most of which was contracted by the Coast Guard and  OPO. Figure 2 provides a breakdown of contracting dollars for the four  selected professional and management support services by the three DHS  components.
Some of the 117 statements of work we reviewed were for services that  did not closely support inherently governmental functions. These included  a TSA contract for employee parking services at airports and a Coast  Guard contract to maintain historic human resource records and perform  data entry. However, most of the selected statements of work we reviewed  did request reorganization and planning activities, acquisition support, and  policy development—services that closely supported inherently  governmental functions. Of the 117 statements of work that we reviewed,  71 included a total of 122 services that fell into these three categories— with reorganization and planning activities requested most often. For  example, the Coast Guard obligated $500,000 for a contractor to provide  services for the Nationwide Automatic Identification System to identify  and monitor vessels approaching or navigating in U.S. waters. The services  included advising and providing recommendations on strategies for  project planning, risk management, and measuring the performance and  progress of the system. Additionally, the tasks included assisting with the  development of earned value management reviews, life-cycle cost  estimates, and cost-benefit analyses. In another 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.
Because contract statements of work can be broad, or contain  requirements that the contractor may not ultimately perform, we  conducted a more detailed review of nine cases to verify the work  performed. In these nine cases, we found that contractors provided a  broad array of services to sustain a range of programs and administrative  operations, with the categories of reorganization and planning, policy  development, and acquisition support requested most often. For example,  $2.1 million in orders supporting the Coast Guard’s fleet modernization  effort—the Integrated Deepwater System—included modeling and  simulation services to analyze the operational performance and  effectiveness of various fleet scenarios for program planning. A  $42.4 million OPO order for professional, technical, and administrative  services for multiple offices in DHS’s Information Analysis and  Infrastructure Protection Directorate included tasks to assist in  developing policies, budget formulation, and defining information  technology requirements. Specifically, contractor personnel provided  general acquisition advice and support to the Information Analysis and  Infrastructure Protection business office, which included the management,  execution, process improvement, and status reporting of procurement  requests. For another office, the contractor provided an analysis of  intelligence threats. 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.
The extent of contractor involvement in the nine case studies varied from  providing two to three supplemental personnel to staffing an entire office,  and in most cases contractor staff performed services on-site at DHS  facilities. Figure 3 shows the type and range of services provided in the  nine case studies and the location of contractor performance.
section_title: DHS Did Not Consider Risk when Deciding to Contract for Selected Services
paragraphs: A lack of staff and expertise to get programs and operations up and  running drove decisions to contract for professional and management  support services. While program officials generally acknowledged that  these 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. In the nine cases we reviewed, we found contractors providing  services integral to an agency’s mission and comparable to those provided  by government employees, and contracts with broadly defined  requirements. These conditions need to be carefully monitored to ensure  the government does not lose control over and accountability for mission  related decisions. DHS has not explored ways to manage the risk of  contracting for these services such as determining the right mix of  government-performed and contractor-performed services or assessing  total workforce deployment across the department. DHS’s human capital  strategic plan notes the department has identified core mission critical  occupations and plans to reduce skill gaps in core and key competencies.  However, it is unclear how this will be achieved and whether it will inform  the department’s use of contractors for services that closely support  inherently governmental functions.
subsections: section_title: DHS Contracting Decisions Were Largely Driven by a Lack of Staff and Expertise and Immediacy of Need
paragraphs: The reasons most often cited by program officials for contracting for  services was the need for employees—to start up a new program or  administrative operation, provide specific expertise, or meet immediate  mission needs. When DHS was established in 2003, it was charged with  developing strategies, programs, and projects to meet a new mission while  facing skill gaps in core and key competencies. For example, at TSA—a  component built from the ground up—according to program officials, the  lack of federal staff to provide acquisition support led to hiring contractors  for its Secure Flight program. Federal staff limitations was also a reason  for TSA’s contract for employee relations support services. Many TSA,  DHS human capital, and Information Analysis and Infrastructure  Protection program officials 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. In another case, in prior work we found that when OPO was  established, the office had only seven staff to serve more than   20 organizations. Since that time, OPO has expanded and adjusted the  use of contractors for specific functions, such as acquisition support.
In the case of TSA, 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. In another case, 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. Similarly, the Coast  Guard, a more established agency, lacked the personnel needed to address  new requirements for its competitive sourcing program. According to  Coast Guard program officials, only one federal employee was in place  when the new requirements were established. An acquisition plan for  modeling and simulation services in support of the Coast Guard’s  Integrated Deepwater System cited the need for technological expertise as  one of the reasons for hiring contractors. According to program officials,  contracting for such technological capabilities is routine at the Coast  Guard.
Several officials also described a perception of a management preference  for contracting. For example, an OPO contracting officer said  governmentwide strategies to use contractors influenced program  decisions to award services contracts. TSA program and senior officials  also said decisions to contract were in keeping with a conscious decision  to build a lean organization. For example, in prior work, we found that  TSA contracted extensively to manage human resource needs, develop  and manufacture screening equipment, and provide the information  technology systems it uses to manage day-to-day operations. In fact, such  service contracts represented about 48 percent of TSA’s fiscal year 2003  budget.
section_title: Selected Cases May Have Been at Risk of Contractors Influencing Government Decisions
paragraphs: To 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 actions when contracting for  services that closely support inherently governmental functions.   Distinguishing roles and responsibilities of contractors and government  employees and carefully defining requirements for contractor services  become especially important when contracting for professional and  management support services since contractors often work closely with  government employees to provide these services. To manage risk,  participants in GAO’s acquisition forum stated that agencies need to  determine the right mix of government-performed and contractor- performed work in particular settings, and that planning for contracting  outcomes and measurable results is a critical element in managing a  multisector workforce of government employees and contractors. The  nine cases we reviewed provided examples of contractors performing  services integral to an agency’s mission and comparable to those  performed by government employees, contractors providing ongoing  support, and broadly defined contract requirements—conditions that need  to be carefully monitored to ensure the government does not lose control  over and accountability for mission-related decisions.
subsections: section_title: Contractor Services Integral to DHS’s Mission and Comparable to Work Performed by Government Employees
paragraphs: In seven of the nine cases, contractors provided services that were integral  to DHS’s mission or comparable to work performed by government  employees. For example:    A contractor directly supported DHS efforts to hire federal employees,  including signing offer letters.
The contractor for the component’s employee relations office provided  advice to supervisors on cases, a function also performed by federal  employees in that office.
A contractor provided acquisition advice and support to the  Information Analysis and Infrastructure Protection Directorate  business office, working alongside federal employees and performing  the same tasks.
In some of these cases officials said contractors were used to fill staff  shortages. We also found that government employees may have supervised  contractor employees. For example, one contractor performed mission- related budget, program management, and acquisition services and was  located at government operations centers to provide opportunities for  direct review of the contractor’s activities. This type of close supervision  of contractor personnel may constitute personal services—a contracting  arrangement that is prohibited by the FAR, unless specifically authorized.
section_title: Ongoing Contractor Support
paragraphs: In all nine cases, the contractor provided services that lasted for more  than 1 year. Given the risk of contracting for selected services, it is  appropriate to periodically reexamine who—private companies or federal  employees—should perform certain services. However, in five of the nine  cases, the original justification for contracting—to quickly establish a new  office or function—had changed, but the components extended or  recompeted services without considering this change. For example:
To establish a competitive sourcing program, the Coast Guard hired a  contractor to provide budget, policy, acquisition support, and  reorganization and planning for more than 5 years. These services have  been extended through August 2009.
OPO established a temporary “bridge” arrangement without  competition to avoid disruption of critical support including budget,  policy, and intelligence services. Although this arrangement was  intended to be temporary, the order was modified 20 times and  extended for almost 18 months. Subsequently, these services were  competed and awarded to the original contractor under six separate  contracts. DHS provided information stating that five of the six  contracts expire by the end of September 2007. However, as of August  2007 DHS had yet to provide a plan for carrying out these services in  the future.
In another OPO case, a contractor was hired to develop a strategic  plan for the US-VISIT program. While the task was completed in less  than a year, the contractor continued to provide related services in two  subsequent orders.
Continuing to contract for these types of services is particularly risky  since the initial contracting decisions did not include an assessment of  risk.
section_title: Broadly Defined Requirements
paragraphs: Describing in detail the work to be performed under a contract helps to  minimize the risk of paying too much for services provided, acquiring  services that do not meet needs, or entering too quickly into sensitive  arrangements. Well-defined contract requirements can also help minimize  the risk of contractors performing inherently governmental functions.  Defining requirements is a part of the acquisition planning process and  prior GAO work has emphasized the importance of clearly defined  requirements to obtain the right outcome.
Broadly defined requirements were also apparent in the 117 statements of  work that we reviewed. For example, at TSA we found multiple statements  of work requesting a similar set of services—including acquisition and  strategic planning, contingency planning, program oversight, and  government cost estimating—in support of different program offices.
In six of our nine case studies, the requirements as written in the  statements of work were often broadly defined. In four cases, the  statements of work lacked specific details about activities that closely  support inherently governmental functions. For example, the initial  statement of work for a $7.9 million OPO order for human resources  support broadly stated that the contractor would rank candidates for DHS  positions. Without specifying how the contractor was to perform this task,  it was unclear how OPO would hold the contractor accountable for  outcomes. The later contract specified how the contractor was to rank  candidates, including the criteria, processes, and policies to be used. In the  other two cases, the statements of work included an indiscriminate mix of  services.
A $7.9 million TSA contract included program management support  activities, including professional and technical advice, strategic  planning, performance monitoring, conference support, briefing  preparation, project documentation, technical research and analysis,  and stakeholder relations. Some of these activities fit the description of  advisory and assistance services.
Similarly, a single $42.4 million OPO order included 58 tasks to provide  a diverse range of services throughout the Information Analysis and  Infrastructure Protection Directorate in support of over 15 program  offices and 10 separate directoratewide administrative efforts. Services  included providing strategic communications planning expertise and  representing the directorate as a member of the DHS-wide Homeland  Security Operations Center, providing intelligence analysis for  Immigration and Customs Enforcement and Customs and Border  Protection, supporting administrative functions such as acquisition  planning and human capital management, and defining information  technology requirements for the directorate. Other services included  helping respond to congressional and Freedom of Information Act  requests and preparing budget justification documents and related  briefing materials.
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, one statement of work for a $1.7 million Coast  Guard order included advisory and assistance services. However, program  officials said the contractor never provided these services. Another Coast  Guard statement of work for a $1.3 million order initially included  developing policy, conducting cost-benefit analyses, and conducting  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 Generally Did Not Address Risk when Contracting for Selected Services
paragraphs: 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. However, none assessed whether these contracts  could result in the loss of control over and accountability for mission- related decisions. DHS has not explored ways to address the risk of  contracting for these services such as determining the right mix of  government performed or contractor performed services or assessing total  workforce deployment across the department.
Federal acquisition guidance highlights the risk inherent in service  contracting—particularly those for professional and management  support—and federal internal control standards require assessment of  risks. Internal control standards provide a framework to identify and  address areas at greatest risk of mismanagement, waste, fraud, and  abuse. 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 and  establishing effective internal management controls to ensure agency staff  are aware of this risk consistent with the OFPP guidance. While DHS  acquisition planning guidance requires identification of such acquisition  risks as cost, schedule, and performance, or political or organizational  factors, it does not address the specific risk of services that closely  support the performance of inherently governmental functions. Prior  GAO work has found that cost, schedule, and performance—common  measures for products or major systems—may not be the most effective  measures for assessing services.
DHS’s human capital strategic plan notes the department has identified  core mission critical occupations and plans to reduce skill gaps in core  and key competencies. However, prior GAO work found that DHS had not  provided details on the specific human capital resources needed to  achieve its long-term strategic goals. Human capital planning strategies  should be linked to current and future human capital needs, including the  total workforce of federal employees and contractors; its deployment  across the organization; and the knowledge, skills, and abilities needed by  agencies. Deployment includes the flexible use of the workforce, such as  putting the right employees in the right roles according to their skills, and  relying on staff drawn from various organizational components and  functions and using “just-in-time” or “virtual” teams to focus the right  talent on specific tasks. We have also 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: Management of Contracts for Selected Services May Not Have Been Sufficient to Mitigate Risk
paragraphs: None of the program officials and contracting officers we spoke with were  aware of the federal acquisition policy requirement for enhanced oversight  of contracts for services that closely support the performance of  inherently governmental functions. Further, few believed that their  professional and management support service contracts required an  enhanced level of scrutiny. For the nine cases we reviewed, the level of  oversight DHS provided did not always ensure accountability for  decisions—as called for in federal guidance—or the ability to judge  whether contractors were performing as required. DHS’s Chief  Procurement Officer and Inspector General each have ongoing efforts to  improve procurement oversight. These efforts have the potential to  include reviews of contracting for services that closely support the  performance of inherently governmental functions.
subsections: section_title: Officials Did Not Provide Required Oversight of Contracts for Selected Services
paragraphs: The FAR and OFPP require agencies to provide enhanced oversight of  contracts for services that closely support the performance of inherently  governmental functions to ensure these services do not compromise the  independence of government decision making. DHS contracting officers  and program officials from our nine case studies were unaware of these  oversight policies. While these officials acknowledged the professional  and management support services provided under these contracts closely  supported the performance of inherently governmental functions, most did  not believe enhanced oversight of the contracts was warranted.
According to DHS contracting officers and program officials, cost,  complexity, and visibility are risk factors that trigger the need for  enhanced oversight. Neither these officials nor DHS acquisition planning  guidance cite services that closely support the performance of inherently  governmental functions as a risk factor. In five of the nine cases we  reviewed, contract documents outlined routine oversight responsibilities  for the Contracting Officer’s Technical Representative (COTR) but did not  address the need for enhanced oversight as a result of the type of service.  Prior GAO work has found that because services involve a wide range of  activities, management and oversight of service acquisitions may need to  be tailored to the specific circumstances, including developing different  measures of quality or performance.
In four of the case studies, contracting officers and program officials  believed their experience and training enabled them to determine whether  or not enhanced oversight was needed. However, none of the training  policies and documents we reviewed—including DHS’s directive for COTR  certification and the Defense Acquisition University’s training  curriculum—alerted COTRs to federal policy requiring enhanced oversight  for contracts that closely support inherently governmental functions or to  the risk of such contracts.
section_title: Control and Accountability Were Limited
paragraphs: Federal acquisition guidance requires agencies to retain control over and  remain accountable for decisions that may be based, in part, on a  contractor’s performance and work products. This includes making sound  judgments on requirements, costs, and contractor performance. 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. However, we found cases in which the components lacked  the capacity to oversee contractor performance due to limited expertise  and workload demands (see table 2). These deficiencies may have resulted  in a lack of control over and accountability for decisions.
Prior GAO work has shown similar examples of oversight deficiencies that  can contribute to poor outcomes. For example, in work examining  contracts undertaken in support of response and recovery efforts for  Hurricanes Katrina and Rita, we found that the number of monitoring staff  available at DHS was not always sufficient or effectively deployed to  provide oversight. Similarly, in work at DOD, we have found cases of  insufficient numbers of trained contracting oversight personnel, and cases  in which personnel were not provided enough time to complete  surveillance tasks, in part due to limited staffing.
Establishing measurable outcomes for services contracts and assessing  contractor performance are necessary to ensure control and  accountability. DHS components were limited in their ability to assess  contractor performance 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.  However, none of the related oversight plans and contract documents we  reviewed contained specific measures for assessing contractors’  performance of these services.
section_title: DHS Is Implementing Oversight Initiatives
paragraphs: DHS’s Chief Procurement Officer and the Inspector General each have  ongoing efforts to assess DHS contract management. The Chief  Procurement Officer is in the process of implementing an acquisition  oversight program, which is intended to assess (1) compliance with  federal acquisition guidance, (2) contract administration, and (3) business  judgment. This program was designed with flexibility to address specific  procurement issues, as necessary, and is based on a series of reviews at  the component level. For example, the on-site review incorporates  assessments of individual procurement actions. These reviews have  potential to include contracting for services that closely support inherently  governmental functions.
The Inspector General also has recently increased its procurement  oversight (see app. III). Common themes and risks emerged from this  work, primarily the dominant influence of expediency, poorly defined  requirements, and inadequate oversight that contributed to ineffective or  inefficient results and increased costs. Inspector General reviews also  noted that many DHS procurement offices reported that their lack of  staffing prevents proper procurement planning and severely limits their  ability to monitor contractor performance and conduct effective contract  administration. While these findings have broad application to services,  OFPP Policy Letter 93-1 encourages the Inspectors General to also  conduct vulnerability assessments of services contracting—which would  include services that closely support inherently governmental functions— to ensure compliance with related guidance.
section_title: Conclusions
paragraphs: When DHS was established in 2003, 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.  With limited staffing options, the department relied on contractors to  perform mission-related services that closely support the performance of  inherently governmental functions. However, the tasks assigned to  contractors were not always clearly defined up front, and the breadth and  depth of contractor involvement were extensive in some cases. Four years  later, the department continues to rely heavily on contractors to fulfill its  mission with little emphasis on assessing the risk and ensuring  management control and accountability. Given its use of contractors to  provide selected services, it is critical for DHS to strategically address  workforce deployment and determine the appropriate role of contractors  in meeting its mission. Until the department emplaces the staff and  expertise needed to oversee selected services, it will continue to risk  transferring government responsibility to contractors.
section_title: Recommendations for Executive Action
paragraphs: To improve the department’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 recommend  that the Secretary of Homeland Security implement the following five  actions:    establish strategic-level guidance for determining the appropriate mix  of government and contractor employees to meet mission needs;    assess the risk of selected contractor services as part of the acquisition  planning process, and modify existing acquisition guidance and training  to address when to use and how to oversee those services in  accordance with federal acquisition policy;    define contract requirements to clearly describe roles, responsibilities,  and limitations of selected contractor services as part of the acquisition  planning process;    assess program office staff and expertise necessary to provide  sufficient oversight of selected contractor services; and  review contracts for selected services as part of the acquisition  oversight program.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to OMB and DHS for review and  comment. In written comments, DHS generally concurred with our  recommendations and provided information on what action would be  taken to address them. The department’s comments are reprinted in  appendix IV. OMB did not comment on the findings or conclusions of   this report.
DHS concurred with three of our recommendations, and partially  concurred with the other two. Regarding the first recommendation, to  establish strategic guidance for determining the appropriate mix of  government and contractor employees, DHS agreed and stated that its  Chief Human Capital and Chief Procurement Officers plan to initiate  staffing studies and recommend the number and skill sets of federal  employees required to successfully manage its long-term projects and  programs. We agree that such action should provide the basis for  developing a strategic approach to managing the risk of contracting for  selected services.
DHS partially concurred with our recommendation to assess the risk of  selected contractor services as part of the acquisition planning process  and to modify existing acquisition guidance and training accordingly. DHS  agreed that its training for contracting officers and contracting officer’s  technical representatives should include the guidance in OFPP Policy  Letter 93-1. DHS stated the Chief Procurement Officer plans to emphasize  this requirement to the component Heads of Contracting Activity and to  department contracting personnel and to coordinate with the Defense  Acquisition University to ensure that guidance is also included in its  training. However, DHS stated that its Acquisition Planning Guide  already provides for the assessment of risk. Our review of the acquisition  planning guidance found that it addresses risk factors such as cost,  schedule, and performance, but it does not address the specific risk of  services that closely support the performance of inherently governmental  functions. As we note in our report, these types of services carry  additional risk that should be considered when making contracting  decisions.
Concerning the third recommendation, to define contract requirements to  clearly describe roles, responsibilities, and limitations of selected  contractor services, DHS concurred and anticipated that the risk of  contracting for selected services will be appropriately addressed more  often in the future. However, DHS did not specify related initiatives.  Because developing well-defined requirements can be challenging but is  essential for obtaining the right outcome, we believe this effort will require  sustained attention from DHS.
DHS also concurred with our fourth recommendation, to assess the  program office staff and expertise necessary to provide sufficient  oversight of selected contractor services. DHS stated that this process has  already begun at TSA and that it plans to proceed on a larger-scale  initiative as part of its overall human capital planning.
With respect to our recommendation that DHS review selected services  contracts as part of the acquisition oversight program, DHS agreed that  these types of services require special assessment, but stated that the  Chief Procurement Officer will direct a special investigation on selected  issues as needed rather than as part of the routine acquisition oversight  reviews. We did not intend that the formal oversight plan be modified.  Rather, we recognize that the acquisition oversight 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 to ensure proper oversight.
As agreed with your offices, unless you publicly announce the contents of  this report, we plan no further distribution for 30 days from the report  date. At that time, we will send copies of this report to the Secretary of  Homeland Security, the Director of the Office of Management and Budget,  and other interested congressional committees. We will also make copies  available to others upon request. In addition, this report will be available  at no charge on the GAO Web site at http://www.gao.gov.
If you have questions about this report or need additional information,  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 report. Other staff making key contributions to this  report were Amelia Shachoy, Assistant Director; Katherine Trimble;  Jennifer Dougherty; Cardell Johnson; Matthew Saradjian; David Schilling;  Karen Sloan; Julia Kennon; Alison Martin; Noah Bleicher; and   Kenneth Patton.
section_title: Appendix I: Scope and Methodology
paragraphs: To describe the types of services the Department of Homeland Security  (DHS) requested through these contracts, we compiled information from  the Federal Procurement Data System-Next Generation (FPDS-NG) on  procurement spending at DHS and its components for fiscal years 2005  and 2006. To supplement our review of information from FPDS-NG, we  reviewed 117 statements of work and conducted more detailed reviews of  nine cases from fiscal year 2005—the year for which the most complete  data were available at the time we began our review. For the  117 statements of work, we used federal acquisition guidance on services  that closely support the performance of inherently governmental functions  as criteria to describe the types of services DHS requested. Within those  services, we selected three broad categories for more detailed review— reorganization and planning activities, policy development, and acquisition  support.
To identify potential risk and the extent to which DHS considered risk  when deciding to use contracts for selected professional and management  support services that closely support the performance of inherently  governmental functions, and to assess DHS’s management and oversight of  contracts for these types of services, we conducted a detailed review of  nine case studies—three at each component. For each case study, we  reviewed contract documentation, including available acquisition plans,  oversight plans, and records, and interviewed procurement and program  officials at the three components about the decision to use contractors  and contractor oversight, including any processes and guidance used. We  interviewed contractors for seven of the nine cases about their working  relationship with the component offices, the work performed, and the  oversight provided by the component. For the other two cases, we  requested interviews, but the contractors were not available. We also  spoke with the heads of contracting activity at the Office of Procurement  Operations (OPO) and the Transportation Security Administration (TSA),  the Chief of the Office of Procurement Policy at the Coast Guard, and staff  at the Office of Management and Budget’s (OMB) Office of Federal  Procurement Policy (OFPP).
subsections: section_title: Selection of Services and Contracts
paragraphs: To develop criteria for services that closely support the performance of  inherently governmental functions, we reviewed Federal Acquisition  Regulation (FAR) subpart 7.5 on inherently governmental functions and  FAR section 37.114 on special acquisition requirements, and the Office of  Management and Budget’s Office of Federal Procurement Policy Letter   93-1 on management oversight of service contracts.
To select services to review, a GAO contracting officer reviewed the  FPDS-NG Product and Service Codes Manual and identified over  30 services considered to closely support the performance of inherently  governmental functions across the following categories: research and  development; special studies and analyses; professional, administrative,  and management support services; and education and training. To confirm  the selection, we then compared each of the services to federal acquisition  guidance that describes inherently governmental functions and services  approaching inherently governmental functions. On the basis of this  review, we gathered and analyzed data from the FPDS-NG on DHS’s fiscal  year 2005 obligations for 29 services. Sixteen of the 29 services fell into the  professional, administrative, and management support services category.  From this category, we selected the 4 services for which DHS obligated  the most in fiscal year 2005—program management and support services,  engineering and technical services, other professional services, and other  management support services. We reviewed these criteria with DHS  acquisition policy and oversight officials, focusing on the link between the  4 selected services and federal acquisition guidance. Finally, we selected  the three DHS components, excluding the Federal Emergency  Management Agency (FEMA), that had obligated the most for those  services at the time we began our review—the Coast Guard, OPO,   and TSA.
To select contracts to review, we compiled data from FPDS-NG on all  fiscal year 2005 contract actions as of the time we began our review for the  4 services at the three components. Using the brief contract description  available through FPDS-NG, we used FAR guidance to identify services  that closely support the performance of inherently governmental functions  to select a total of 125 statements of work for the 4 services: 42 from Coast  Guard, 43 from OPO, and 40 from TSA (see table 3).
Of the 125 requested, we received 117 statements of work within the   11-week time period we allowed. In some cases, DHS was unable to locate  files or FPDS-NG entries were unclear or incorrect. Using the more  detailed description of services included in the 117 statements of work, we  again used FAR guidance to identify services that appeared to closely  support the performance of inherently governmental functions to select  three contracts from each component on which to perform a total of nine  case studies. The nine cases we reviewed in detail represented the 4 types  of professional and management support services and ranged in value  from $1.3 million to $42.4 million. Table 4 provides details on the case  study selection process and the cases reviewed.
We conducted our review between April 2006 and August 2007 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: Examples of Inherently Governmental and Approaching Inherently Governmental Functions
paragraphs: Federal Acquisition Regulation 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  5 and 6 below.
section_title: Appendix III: Department of Homeland Security Inspector General Oversight
paragraphs: GAO designated DHS as a high-risk organization in 2003 due to the serious  implications for our national security that result from the management  challenges and program risks associated with implementing and  transforming the department from 22 agencies. In addition, the DHS  Inspector General has identified major management challenges facing the  department, which are updated annually as required by the Reports  Consolidation Act of 2000.
Acquisition and contract management are included as a management  challenge identified by the Inspector General. Other management  challenges identified by the Inspector General include catastrophic  disaster response and recovery including FEMA activities and grants  management; financial management; information technology management,  including the National Asset Database to coordinate infrastructure  protection activity; border security; transportation security; and trade  operations and security mainly through the work of customs and border  protection.
The Inspector General provided oversight coverage of DHS and the  identified management challenges during fiscal years 2005 and 2006  through audits, inspections, memos, management reports, and  investigations. The Inspector General issued 106 reports during fiscal year  2005 and closed 639 investigations. In fiscal year 2006 the Inspector  General issued 133 reports and closed 507 investigations. As a result, the  Inspector General reported over $271.7 million in questioned costs,  unsupported costs, and better use of funds, and over $157 million in  recoveries, fines, and restitutions resulting from investigations over the   2-year period.
On August 29, 2005, Hurricane Katrina hit the Gulf Coast states, causing  catastrophic damage to the region, and by September 2005, Congress had  passed legislation that provided approximately $63 billion for disaster  relief, the bulk of which went to the Federal Emergency Management  Agency. Consequently, the DHS Inspector General issued a significant  number of reports that addressed FEMA operations and grantees (see   fig. 4).
The DHS Inspector General increased the number of reports related to  contract and acquisition management from 3 in fiscal year 2005 to 32 in  fiscal year 2006 (see fig. 4). These reports ranged from audits of specific  contracts to overall acquisition management by DHS. For example, the  Inspector General reviewed individual contracts for disaster recovery from  Hurricane Katrina, including debris removal, and also provided a review of  the weaknesses in the procurement and program management operations  throughout DHS. In addition to the DHS Inspector General’s reports, the  Defense Contract Audit Agency increased the number of DHS contract  audits from 83 reports to 121 reports over the same fiscal years.
section_title: Appendix IV: Comments from the Department of Homeland Security