Federal Acquisitions and Contracting: Systemic Challenges Need Attention
Published: 2007-07-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2006, the federal government spent over $400 billion for a wide variety of goods and services, with the Department of Defense (DOD) being the largest purchaser. Given the large and growing structural deficit, the government must get the best return it can on its investment in goods and services. For decades, GAO has reported on a number of systemic challenges in agencies' acquisition of goods and services. These challenges are so significant and wide-ranging that GAO has designated four areas of contract management across the government to be high-risk. This testimony highlights four key acquisition challenges agencies face: (1) separating wants from needs, (2) establishing and supporting realistic program requirements, (3) using contractors in appropriate circumstances and contracts as a management tool, and (4) creating a capable workforce and holding it accountable.
section_title: What GAO Found
paragraphs: Given the current fiscal environment, agencies must separate wants from needs to ensure that programs provide the best return on investments. Our work has shown that some agencies budget and allocate resources incrementally, largely based on historical precedents, rather than conducting bottom-up reviews and allocating resources based on agencywide goals. We have also seen examples of agencies using fragmented decision-making processes for acquisition investments. Agency spending actions that would not otherwise be taken based on an objective value and risk assessment and considering available resources, work against good strategic planning. Such spending can circumvent careful planning and divert resources from more critical needs, and can serve to exacerbate our serious long-range fiscal imbalance. Agencies also need to translate their true needs into executable programs by setting realistic and stable requirements, acquiring requisite knowledge as acquisitions proceed through development, and funding programs adequately. However, agencies too often promise capabilities they cannot deliver and proceed to development without adequate knowledge. As a result, programs take significantly longer, cost more than planned, and deliver fewer quantities and different capabilities than promised. Even if more funding were provided, it would not be a solution because wants will usually exceed the funding available. No less important is the need to examine the appropriate circumstances for using contractors and address contract management challenges. Agencies continue to experience poor acquisition outcomes in buying goods and services in part because of challenges in setting contract requirements, using the appropriate contract with the right incentives, and ensuring sufficient oversight. Exacerbating these challenges is the evolving and enlarging role of contractors in performing functions previously carried out by government personnel. Further, while contract management challenges can jeopardize successful acquisition outcomes in normal times, they also take on heightened importance and significantly increase risks in the context of contingency operations such as Afghanistan, Iraq, or Hurricane Katrina. Finally, it is imperative that the federal government develop an accountable and capable workforce, because the workforce is ultimately responsible for strategic planning and management of individual programs and contracts. Yet much of the acquisition workforce's workload and complexity of responsibilities have been increasing without adequate attention to the workforce's size, skills and knowledge, and succession planning. Sustained high-level leadership is needed to set the right tone at the top in order to address acquisition challenges and ultimately, prevent fraud, waste, and abuse.

section_title: Letter
paragraphs: Thank you for inviting me here today to discuss systemic challenges facing  the federal government in its acquisition of goods and services. The U.S.  federal government is the single largest buyer in the world, obligating over  $400 billion in fiscal year 2006 for a wide variety of goods and services,  including complex projects that often involve unproven technologies.  While acquisitions are made throughout government, the majority of them  are concentrated in a few agencies, particularly the Department of  Defense (DOD)—as shown in figure 1.
Recently, I have been quite vocal about the large and growing long-range  structural deficits the federal government faces. These are driven primarily  by known demographic trends and rising health care costs. These  structural deficits will mean escalating and ultimately unsustainable  federal deficits and debt levels. Given this fiscal reality, it is imperative  that the federal government gets the best return it can on its investment in  goods and services; the American people have the right to expect no less.  Table 1 shows the size of the federal government’s total fiscal exposure,  how it has grown since the end of fiscal year 2000, and the burden it would  place on the American people.
However, our work extending back decades has demonstrated that  agencies face a number of systemic challenges in their acquisition of  goods and services. In examining our defense work, I have observed   15 systemic acquisition challenges facing DOD—which I have included in  appendix I. GAO’s work examining acquisitions in other federal agencies  indicates that they often face similar challenges. For example, not only  have we identified contract management as a high-risk area for DOD, but  also for the Department of Energy (DOE) and the National Aeronautics  and Space Administration (NASA). Further, interagency contracting—a  process in which one agency uses another agency’s contracts or  contracting services to acquire goods or services—was designated a high- risk area as well.
In my testimony today, I will highlight these acquisition challenges  categorized in four key areas:    separating wants from needs,    establishing and supporting realistic program requirements,    using contractors in appropriate circumstances and contracts as a    creating a capable workforce and holding it accountable.
Separating wants from needs in an affordable and sustainable fashion will  be critical to improving management within the current fiscal  environment. No less important is the need for clearly defining program  requirements and sticking with them while also using the appropriate  contract type with sufficient oversight. Contract management challenges  can jeopardize successful acquisition outcomes in normal times, but also  take on heightened importance and significantly increase risks in the  context of contingency operations such as Iraq, Afghanistan, or Hurricane  Katrina. A significant part of this challenge relates to the evolving and  enlarging role of contractors in acquisitions, particularly through the use  of service contracts—which accounted for nearly 60 percent of fiscal year  2006 government acquisition obligations. This raises the question of what  work should be performed by contractors versus government personnel.  This is a major issue that is of growing concern and is in need of serious  attention by both the executive branch and Congress. In addition, an  accountable and capable workforce underlies the federal government’s  ability to strategically plan and effectively manage individual programs  and contracts as the workforce includes the people needed to carry out  these functions, as well as the higher-level accountability needed to  address recurring and systemic problems. Tackling each of these systemic  challenges requires a fundamental and comprehensive re-examination of  the federal government’s overall approach to contracting: what we buy,  who we buy from, and how we buy it. We also need to target waste in  government spending. Government waste is growing and far exceeds the  cost of fraud and abuse. Several of my colleagues in the accountability  community and I have developed a definition of waste, which is contained  in appendix II.
My comments today are based on our wide-ranging work examining  federal acquisition efforts, often going back decades. We list relevant GAO  reports at the end of this statement. We conducted our work in  accordance with generally accepted government auditing standards.
subsections: section_title: Separating Wants from Needs
paragraphs: Given the current fiscal environment, agencies need to learn to separate  wants from needs to ensure that programs and investments provide the  best return within fiscal constraints. My first four observations on  systemic acquisition challenges relate to this need. They are that:    Agency budgets may not be fully linked to strategic goals and may not  adequately consider likely agencywide resource limitations.
Agencies too often pursue their individual needs rather than collective  needs.  Individual program and funding decisions may undercut sound policies.
Congressional direction sometimes requires agencies to buy items and  provide services that have not been planned for and may not be  needed.
Our work has shown that agencies sometimes budget and allocate  resources incrementally, largely based on historical precedents, rather  than conduct bottom-up reviews and allocate resources based on the  broader goals and objectives of agency strategic plans. For example, in  March we reported that DOD does not allocate resources on a strategic  basis and that it could improve its acquisition outcomes by adopting an  integrated portfolio management approach for allocating weapon system  investments. We found that military service allocations as a percentage of  the department’s overall investment budget have remained essentially the  same for the last 25 years, despite the dramatic changes that have  occurred in the strategic environment and warfighting needs during that  time. Similarly, in July 2005 we reported that the Environmental  Protection Agency budgeted and allocated resources incrementally,  largely based on historical precedents, and that its process did not reflect  a bottom-up review of the nature or distribution of its current workload— either based on specific environmental laws or the broader goals and  objectives in the agency’s strategic plan.
Similarly, in our Information Technology Investment Management Model  (ITIM) we point out that information technology (IT) portfolio selection  criteria support an agency’s mission, organizational strategies, and  business priorities and provide a link to the organization’s strategic plans  and budget processes. However, in 2004 we reported that a  governmentwide survey of investment management processes found that  only 6 of 26 agencies had fully implemented portfolio selection criteria— 16 had partially implemented them and 4 had not implemented them at all.  This remains an issue. For example, we reported just this year that the  Department of Homeland Security (DHS) is missing key elements of  effective investment management, such as procedures for implementing  project-specific investment management policies, as well as policies and  procedures for portfolio-based investment management. Further, it has yet  to fully implement either project- or portfolio-level investment control  practices. We noted that all told, this means DHS lacks the complete  institutional capability needed to ensure that it is investing in IT projects  that best support its strategic mission needs. In contrast, successful  commercial companies use portfolio management to adjust their resource  allocations across business areas based on changes in the marketplace and  the competitive environment. The government’s failure to successfully  implement such an approach significantly risks wasting investments on  wants versus true needs in a time when resources are limited.
We have also seen examples of agencies having fragmented decision- making processes for acquisition investments, failing to consider  agencywide needs and resource limitations. Successful commercial  companies make investment decisions that benefit the organization as a  whole within resource constraints. However, DOD continues to allow  individual organizational units to assess needs under separate processes,  failing to implement a departmental approach to investment decision- making. Consequently, DOD has less assurance that its investment  decisions address the right mix of warfighting needs and it starts more  programs than current and likely future resources can support.  Operationally, there can be real consequences in agencies’ pursuit of  individual over collective interests. For example, in December 2005 we  reported that on the basis of its experience with unmanned aircraft  systems (UAS) in Persian Gulf Operations, U.S. Central Command believed  that communications interoperability and payload commonality problems  occurred because the military services’ UAS development programs had  been service-specific and insufficiently attentive to joint needs.
Some agencies have successfully considered wider needs. For example, in  March 2005 we reported that DHS had opened communication among its  acquisition organizations through its strategic sourcing and small business  programs. With strategic sourcing, DHS’s organizations quickly  collaborated to leverage spending for various goods and services—such as  office supplies, boats, energy, and weapons—without losing focus on  small businesses, thus leveraging its buying power and increasing savings.
Individual program and funding decisions may also undercut sound  policies. We have noted that at some agencies, individual program units  may make investments in capabilities that can undercut agencywide goals.  This can occur when a disconnect exists between requirements and  resources and can lead to unnecessary duplication of effort and costs. For  example, we reported in 2006 that NASA’s Deep Space Network and  Ground Network programs made investment decisions that were leading  to the development of separate array technologies to support overlapping  requirements for the same lunar missions.
Additionally, while congressional spending directions to agencies  sometimes facilitate accomplishment of agency goals, at other times they  may require agencies to buy items and provide services for which they had  not planned and which may not be needed. Agency spending actions  which otherwise would not be taken based on an objective value and risk  assessment with consideration of available resources work against good  strategic planning. Such spending can circumvent careful planning and  divert resources from more critical needs. This can also serve to  exacerbate our serious long-range fiscal imbalance.
section_title: Establishing and Supporting Realistic Program Requirements
paragraphs: After differentiating their unlimited wants from their true needs, agencies  need to translate their needs into appropriate, executable programs. They  need to set and communicate realistic system requirements and better  maintain stability in those requirements. They also need to ensure that  programs proceed through the acquisition process based on having  requisite knowledge and that programs are funded adequately. However,  too often we see failure in one or more of these key dimensions.  Specifically, I have observed that:    Agencies too often overpromise and underdeliver in the acquisition of  major systems.
Programs too often experience requirements instability that causes  delays and cost growth in fielding capabilities.
Programs too often proceed through the development and  demonstration of systems without having achieved needed knowledge.
Agencies sometimes budget for less than is needed and put Congress in  a position of having to decide whether to provide additional funding.
Agencies too often overpromise and underdeliver in the acquisition of  major systems as a consequence of programs competing with each other  for funding in a fiscally constrained environment. In examining defense  programs, we have reported that competition for funding had incentivized  programs to produce optimistic cost and schedule estimates, overpromise  on capability, suppress bad news, and forsake the opportunity to identify  better alternatives. In addition, because DOD starts more weapons  programs than it can afford, it invariably finds itself in the position of  having to shift funds to sustain programs—often to the point of  undermining well-performing programs to pay for poorly performing ones.  I believe that even if more funding were provided, it would not be a  solution because wants will usually exceed the funding available. Rather,  we have to live within our means, which requires us to make difficult  choices between wants and needs.
Once programs are under way, they often experience requirements  instability during major systems development, thereby lengthening the  duration of the program. As a result, the problem the program was seeking  to address changes or the user and acquisition communities may simply  change their minds about a program. The resulting program instability can  cause cost escalation, schedule delays, and fewer end items, and can make  it harder for the government to hold contractors accountable. For  example, in 2005 the Department of Justice inspector general found that  the Federal Bureau of Investigation’s Trilogy project experienced  significant cost increases and schedule delays due to various factors  including evolving design requirements.
Acquisition programs that involve development and demonstration often  face another challenge—developing the requisite knowledge indicated by  best practices before proceeding through key knowledge points in the  system acquisition process. In examining DOD’s operations, we have  assessed weapon acquisitions as a high-risk area since 1990. Although U.S.  weapon systems are the best in the world, the programs to acquire them  often take significantly longer and cost significantly more than promised  and often deliver smaller quantities and different capabilities than  planned. In fact, it is not unusual for estimates of time and money to be off  by 20 to 50 percent. It does not, however, have to be so. Our best practices  work has shown that it is possible to get better outcomes if decisions are  based on high levels of knowledge.
Similarly, we have reported that other agencies do not ensure that major  acquisition programs have adequate knowledge before proceeding with  development. For example, the National Polar-orbiting Operational  Environmental Satellite System (NPOESS) project—a tri-agency (National  Oceanic and Atmospheric Administration, DOD, and NASA) effort— proceeded into development before the design was proven and before the  technologies had properly matured, knowledge that is needed based on  our best practices work. In 2004 we reported that the contractor for the  project was not meeting expected cost and schedule targets on the new  baseline because of technical issues in the development of key sensors.  Again, in November 2005, we reported that NPOESS continued to  experience problems in the development of a key sensor, resulting in  schedule delays and anticipated cost increases. Also, earlier this year we  found that DOE lacks a systematic process for ensuring that critical  technologies have been adequately demonstrated to work as intended  before committing to major construction projects to help maintain the  nuclear weapons stockpile, conduct research and development, and  process nuclear waste for disposal. In another example, we reported in  March 2005 that DHS has adopted a number of acquisition best practices  in establishing an investment review process. However, we also noted that  this process did not include two critical management reviews that would  help ensure that (1) resources match customer needs prior to beginning a  major acquisition and (2) program designs perform as expected before  moving to production.
Our work has also shown that it is not uncommon to find an acquisition  program underfunded. In our review of defense programs, we often see  cases where the cost of a system in development grows and where, as a  result, the return on the defense dollar is reduced. While such cost growth  may be accommodated within an agency’s budget through reductions in  the number of units to be acquired or by cutting other programs, it may  also put Congress in a position of having to decide to provide additional  funding if it finds accepting fewer units undesirable. As a consequence,  other needed programs may not be fully funded or overall government  spending may be increased, thereby adding to the federal deficit.
section_title: Using Contractors in Appropriate Circumstances and Contracts as a Management Tool
paragraphs: The next set of systemic acquisition challenges relate to those faced at the  contract management level. First and foremost, I believe that we must  engage in a fundamental re-examination of when and under what  circumstances we should use contractors versus civil servants or military  personnel. This is a major and growing concern that needs immediate  attention. Once the decision to contract has been made, we have observed  challenges in setting contract requirements, using the appropriate contract  with the right incentives given the circumstances, and ensuring proper  oversight of these arrangements—especially considering the evolving and  enlarging role of contractors in federal acquisitions. The failure to  adequately address these challenges explains, in part, why agencies  continue to experience poor acquisition outcomes in buying major  systems, goods, and services. My observations are that:    Contracts, especially service contracts, often do not have definitive or  realistic requirements at the outset to control costs and facilitate  accountability.
Contracts typically do not accurately reflect the complexity of projects,  or appropriately allocate risk between the contractor and the taxpayer.  Incentive and award fees are often paid based on contractor attitudes  and efforts versus positive results.
Contracts, especially service contracts, often don’t have definitive  requirements at the outset which are needed to control and facilitate  accountability. For example, in January we reported that many  reconstruction projects in Iraq have fallen short, in part because DOD had  not clearly defined its needs before it entered into contract arrangements.  The absence of well-defined requirements and clearly understood  objectives complicated efforts to hold DOD and contractors accountable  for poor acquisition outcomes in Iraq reconstruction.
Given the range of federal projects and circumstances, agencies’  contracting approaches vary widely, and with them, the level of risk. We  have found that agencies may not always use the most appropriate  contracting approach for the circumstance or effectively oversee their use.
Time-and-materials contracts. Time-and-materials contracts— agreements where contractors are paid based on the number of labor  hours and materials—pose such risk to the government that federal  regulations require contracting officers to make a determination and  findings in writing that no other contract type is suitable before using  such an arrangement. In a recent review of DOD’s use of such  contracts, we found that DOD contracting and program officials  frequently did not justify why time-and-materials contracts were the  only contract type suitable for the procurement. Further, with a few  exceptions, we found that little effort had been made to convert follow- on work to a less risky contract type when historical pricing data  existed, despite guidance to do so. We also found that oversight of  time-and-materials contracts was lacking as contracting officers  generally relied on contractor-provided monthly status reports to  conduct oversight.
Interagency contracting. We added management of interagency  contracting—the use of one agency’s contract by another agency or the  provision of contracting assistance and support by another agency—  to our high-risk list in 2005. Interagency contracts can leverage the  government’s buying power and provide a simplified and expedited  method of procurement. However, the rapid growth in use of such  contracts, combined with the limited expertise of some agencies in  their use and recent problems related to their management, causes  some concern. For example, in July 2005, we reported that the use of  franchise funds—government-run, fee-for-service organizations  providing a portfolio of services, including contracting services—at the  Departments of the Interior and the Treasury have not always resulted  in fair and reasonable prices for the government. We have also found  that agencies often do not have visibility into and effective oversight of  their interagency contracts. Last year, for instance, we reported that  while DHS spending through interagency contracting totaled billions of  dollars annually, and increased by 73 percent in the past year, the  department did not systematically monitor its use of these contracts to  ensure desired outcomes.
Undefinitized contract actions. DOD’s use of undefinitized contract  actions can also carry risk to the government and potentially waste  taxpayer dollars. These agreements allow contractors to begin work  before reaching final agreement on contract terms and are sometimes  used by agencies to rapidly fill urgent needs. In June 2007, we reported  that DOD did not meet the definitization time frame requirement of   180 days after award on 60 percent of the 77 undefinitized contract  actions we reviewed. In June 2004, we found that during Iraqi  reconstruction efforts, when requirements were not clear, DOD often  entered into contract arrangements that introduced risks. We reported  that DOD authorized contractors to begin work before key terms and  conditions, such as the projected costs of the work to be performed,  were fully defined. In September 2006, we reported that, under this  approach, DOD contracting officials were less likely to remove costs  questioned by the Defense Contract Audit Agency auditors if the  contractor had incurred these costs before reaching agreement on the  work’s scope and price. In one case, the Defense Contract Audit  Agency questioned $84 million in an audit of a task order for an oil  mission. In that case, the contractor did not submit a proposal until a  year after the work was authorized, and DOD and the contractor did  not negotiate the final terms of the contract until more than a year after  the contractor had completed the work. As a result, the DOD  contracting officer paid the contractor for all questioned costs but  reduced the base used to calculate contractor profit by $45 million.   As a result, the contractor was paid about $3 million less in fees.
Lead systems integrators. The use of lead systems integrators—prime  contractors with increased responsibilities, such as collaborating with  the government on system specifications—puts the government at  additional risk because it complicates the relationship between the  contractor and the government. We have found that agencies may use a  lead systems integrator when they believe they do not have the  capacity to manage a program, which is a risk in and of itself. This  arrangement creates an inherent risk, as the contractor is given more  discretion to make certain program decisions. Along with this greater  discretion comes the need for more government oversight and an even  greater need to develop well-defined outcomes at the outset. For  example, since the program’s inception, we have raised concerns about  the Coast Guard’s acquisition approach for its Deepwater program— including oversight of its lead systems integrator. For instance, we  observed that the Coast Guard had not held its lead systems integrator  accountable for taking steps to achieve competition among the  suppliers of Deepwater assets. In June of this year, we reported that  the Coast Guard has recently taken steps to hold the lead systems  integrator accountable for problems that have arisen with the design  and construction of certain Deepwater assets that will affect the lead  systems integrator’s roles and responsibilities in executing the program  moving forward. On the other hand, a close partner-like relationship  such as the one the Army has with its Future Combat Systems  integrator can also pose risks. Specifically, the government can become  increasingly invested in the results of shared decisions and runs the  risk of being less able to provide oversight compared with an arms- length relationship.
A lack of oversight contributes to the risks of these contracting  approaches and can contribute to poor outcomes for critical government  projects. Compounding this risk is the growing reliance on contractors to  perform functions previously carried out by government personnel.  Emergency situations can further exacerbate this risk, providing  additional oversight challenges. For example, although U.S. military forces  in Iraq have used contractors to a far greater extent than in prior  operations, DOD lacks sufficient numbers of contractor oversight  personnel at deployed locations to oversee them. Similarly, in work  examining contracts undertaken in support of response and recovery  efforts for Hurricanes Katrina and Rita, we found that while monitoring  was occurring on the contracts we reviewed, the number of monitoring  staff available was not always sufficient or effectively deployed to provide  oversight.
Contractors have an important role to play in the discharge of the  government’s responsibilities, and in some cases the use of contractors  can result in improved economy, efficiency, and effectiveness. At the same  time, there may be occasions when contractors are used to provide certain  services because the government lacks another viable and timely option,  or due to the preferences of some government officials. In such cases, the  government may actually be paying more and incurring higher risk than if  such services were provided by federal employees. In this environment of  increased reliance on contractors, sound planning and contract execution  are critical for success. We have previously identified the need to examine  the appropriate role for contractors to be among the challenges in meeting  the nation’s defense and other needs in the 21st century.
The proper role of contractors in providing services to the government is  currently the topic of some debate. In general, I believe there is a need to  focus greater attention on what type of functions and activities should be  contracted out and which ones should not, to review and reconsider the  current independence and conflict-of-interest rules relating to contractors,  and to identify the factors that prompt the government to use contractors  in circumstances where the proper choice might be the use of civil  servants or military personnel. Possible factors could include inadequate  force structure, outdated or inadequate hiring policies, classification and  compensation approaches, and inadequate numbers of full-time equivalent  slots.
We also have found that agencies sometimes pay contractors incentive and  award fees—financial bonuses or profit intended to motivate excellent  contractor performance—without a clear link to desired program  outcomes. We have reported that DOD, DOE, and NASA have not fared  well at using award and incentive-fee contracts to improve cost control  behavior and performance. For example, in 2005, we reported that DOD  paid award and incentive fees even when programs failed. About half of  the 27 incentive fee contracts that we reviewed failed or were projected to  fail to meet a key measure of program success, which was to complete the  acquisition at or below the target price. In March 2005, we reviewed   33 DOE contracts using a performance incentive. Of those 33, we found  that DOE had awarded 15 such contracts without an associate cost  incentive or constraint, as required by regulations. Thus, the contractor  could receive full fees by meeting all schedule baselines while  substantially overrunning costs. Earlier this year, we reported that NASA  paid significant amounts of available fee on all of the 10 contracts we  reviewed, including those end item contracts that did not deliver a  capability within initial cost, schedule, and performance parameters. In  one case, NASA paid the contractor 97 percent of the available award fee  despite a delay in the completion of the contract by over 2 years and an  increase in the cost of the contract of more than 50 percent. However,  when properly tied to program outcomes, incentive and award fees may  have their desired effect. Last year, we reported that DOE’s use of an  incentive fee contributed to the early completion of the cleanup of a  former nuclear weapons production facility.
section_title: Creating a Capable Workforce and Holding It Accountable
paragraphs: The last set of challenges I will discuss relate to having a capable  acquisition workforce and holding it accountable. These challenges  underlie the federal government’s ability to strategically plan and  effectively manage individual programs and contracts as they involve the  people needed to carry out these functions. My observations are that:    The government faces serious acquisition workforce challenges   (e.g., size, skills and knowledge, and succession planning).
Key program staff rotate too frequently, thus promoting myopia and  reducing accountability (i.e., tours based on time versus key  milestones). Additionally, the revolving door between industry and  agencies presents potential conflicts of interest.  Inadequate oversight has resulted in little or no accountability for  recurring and systemic problems.
Lack of high-level attention reduces the chances of success in the  acquisition, contracting, and other key business areas.
The acquisition workforce’s workload and complexity of responsibilities  have been increasing without adequate agency attention to the  workforce’s size, skills and knowledge, and succession planning. This  situation is made all the more challenging by the increasing use of  contractors to support program operations because of the additional  oversight needed.
Though many agencies lack good data on their workforces, it is clear that  the size of the workforce has declined, while the size of government  expenditures for goods and services has risen significantly. These trends  represent a major challenge to the current workforce—dealing with a  significantly increased workload.
At the same time that the federal acquisition workforce has decreased in  numbers and the size of its investments in goods and services has  increased significantly, the nature of the role of the acquisition workforce  has been changing and, as a result, so have the skills and knowledge  needed in that workforce to manage more complex contracting  approaches. One way agencies have dealt with this situation is to rely  more heavily on contractor support. For example, DOD is relying on  contractors in new ways to manage and deliver weapon systems. On the  basis of our work looking at various major weapon systems, we have  observed that DOD has given contractors increased program management  responsibilities to develop requirements, design products, and select  major system and subsystem contractors. In part, this increased reliance  has occurred because DOD is experiencing a critical shortage of certain  acquisition professionals with technical skills related to systems  engineering, program management, and cost estimation. Without adequate  oversight by and training of federal employees overseeing contracting  activities, reliance on contractors to perform functions that once would  have been performed by members of the federal workforce carries risk.   As I noted earlier, the use of lead system integrators is being undertaken  by agencies when they believe they lack the expertise needed to manage  complex acquisitions.
Our concern over the skills and knowledge of the workforce extends  beyond DOD. At times skills may be in short supply in both government  and the private sector. For example, in December 2006 we reported that  employees with certain information technology skills are in short supply in  both the federal and private sectors—particularly in enterprise  architecture, project management, and information security.
Demographic changes promise to further exacerbate agencies’ acquisition  workforce problems. In 2006, Office of Personnel Management reported  that approximately 60 percent of the government’s 1.6 million white collar  employees and 90 percent of about 6,000 federal executives will be eligible  for retirement over the next 10 years. The situation facing DOD  exemplifies this problem as more than half of DOD’s workforce will be  eligible for early or regular retirement in the next 5 years. In fact, Navy  officials recently told us that they are already seeing a “hemorrhaging” of  senior contracting officers as large numbers have started to retire.  Agencies facing workforce challenges have used strategic human capital  planning to develop long-term strategies for acquiring, developing,  motivating, and retaining staff to achieve programmatic goals.  Additionally, agencies should engage in broad, integrated succession  planning and management efforts that focus on strengthening their current  and future organizational capacity to obtain or develop the knowledge,  skill, and abilities they need to meet their missions. Without proper  strategic human capital planning, the government will not be a good  position to adjust to this challenge.
We also have concerns that acquisition employees rotate too frequently— both between programs and between government and industry. In a recent  assessment of selected DOD weapon systems, we found that many of the  programs had multiple program managers within the same development  phase, reducing accountability for poor program outcomes. We also  reported that the Coast Guard experienced high turnover of key  Deepwater program staff, resulting in the loss of knowledge on the teams  responsible for managing the program and overseeing the system  integrator. Also, the revolving door between industry and government may  present potential conflicts of interest. Federal ethics rules and standards  have been put in place to help safeguard the integrity of the procurement  process by mitigating the risk that employees will use their positions to  influence the outcomes of contract awards for future gain and that  companies will exploit this possibility. We currently have reviews under  way examining issues relating to the revolving door between federal  employment and contractors working for the government including   DOD actions to assess contractor hiring controls to address revolving   door issues.
Our work at DOD and other agencies has shown that there have been  persistent acquisition problems, particularly for complex developmental  systems, but also for the increasingly complex contracting arrangements  being used by the government to purchase goods and services. For  example, we reported on DOE’s weaknesses in managing its acquisitions  and found that DOE is only meeting its cost and schedule goals for its  ongoing construction projects about one-third of the time. We also found  that DOE’s National Nuclear Security Administration has not developed a  project management policy, implemented a plan for improving its project  management practices, or fully shared project management lessons  learned among its sites. Similarly, we also have reported on weaknesses in  the Federal Aviation Administration’s (FAA) management of its acquisition  process as the primary causes of its cost, schedule, and performance  problems in developing systems for air traffic control. Because of these  weaknesses, we continue to designate FAA’s modernization program as a  high-risk area.
A key part of addressing challenges to the acquisition workforce is having  mechanisms to hold the workforce accountable and ensure sufficient high- level attention to systemic acquisition problems. We have noted the  importance of sustained leadership to ensure accountability for results  and addressing key deficiencies when faced with complex and long-term  challenges. In July 2006, we reported that DOD continues to face  vulnerabilities in contracting fraud, waste, and abuse, in part because it  lacks sustained senior leadership in providing direction and vision, as well  as in maintaining the culture of the organization. By not setting the right  tone at the top, DOD allows a certain level of vulnerability into the  acquisition process and problems to persist. Holding the workforce  accountable has certain prerequisites. For example, we have reported that  senior leaders have to provide program managers an executable business  case, empower them, support them, and align managers’ tenures with  delivery dates.
We also have identified the need for similar high-level management  attention at other agencies. For example, we have raised concerns in the  past that DHS’s Chief Procurement Officer (CPO) did not have clear  enforcement authority to ensure that acquisition initiatives are carried out.  DHS recently stated that the Under Secretary for Management has  authority as the Chief Acquisition Officer to monitor acquisition  performance, establish clear lines of authority for making acquisition  decisions, and manage the direction of acquisition policy for the  department, and that those authorities also devolve to the CPO. A   formal designation of a Chief Acquisition Officer and corresponding  modifications to existing management directives should help address our  earlier concerns. Similarly, after creating a Chief Operating Officer to head  its air traffic modernization program, FAA was able to adopt more leading  practices of private sector businesses to address cost, schedule, and  performance shortfalls that have plagued air traffic control acquisitions.  Also, our work looking at leading company practices used to acquire  services found that companies elevated their procurement organizations  from mission support to a more strategically important business unit that  exercises more control over the acquisition of services.
Further, on the basis of on our defense work, we have noted that an  essential ingredient for better ensuring that overall DOD business  transformation is implemented and sustained is to create a full-time and  separate Chief Management Officer (CMO) position to address key  business transformation challenges and stewardship responsibilities. Such  a position could institutionalize accountability for DOD’s efforts to  improve its business operations, including prioritizing investments across  the department.
section_title: Conclusions
paragraphs: In closing, I would like to reemphasize why it is imperative that we correct  these systemic governmentwide acquisition challenges. The U.S.  government’s current financial condition and long-term fiscal outlook  require it to seek the best return it can on its investment in goods and  services and make some difficult, but necessary, strategic choices between  unlimited wants and real, affordable, and sustainable needs. The federal  government needs to engage in a fundamental and comprehensive   re-examination of the federal government’s overall approach to  contracting. This includes when and on what basis the government should  contract. In the day-to-day management and oversight of major projects  and purchases of goods and services, agencies will need to be realistic in  their requirements and technologies before they invest significant funds in  programs and strike a better balance among expediency, best value, and  oversight when entering into contracts for goods and services. Agencies  must also assess the skills, knowledge, and appropriate size of their  acquisition workforce, and must also have key leadership positions to set  the right tone at the top and have high-level accountability to fix recurring  acquisition issues. We should have zero tolerance for waste and  mismanagement in times of surplus or deficit, but it will never be zero.  Much, however, can and should be done to minimize it.
We have made numerous specific recommendations to DOD and other  agencies on how to address these systemic acquisition challenges, many of  which have not been implemented. Where agencies are responding to our  recommendations, we are seeing some improvements in their acquisition  management. I appreciate this committee’s attention to this important and  timely issue and look forward to working with you to see that agencies  continue to take actions to address these challenges.
Mr. Chairman and members of the committee, this concludes my  testimony. I would be happy to answer any questions you might have.
section_title: Contact and Staff Acknowledgments
paragraphs: For further information regarding this testimony, please contact   John P. Hutton at (202) 512-4841 or huttonj@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs can be found on  the last page of this testimony. Key contributors to this testimony were  Theresa Chen, Laura Holliday, John Neumann, Kenneth Patton,   Sylvia Schatz, Karen Sloan, and Bruce Thomas.
section_title: Appendix I: Systemic Acquisition Challenges at the Department of Defense
paragraphs: 1.  Service budgets are allocated largely according to top line historical  percentages rather than Defense-wide strategic assessments and current  and likely resource limitations.  2.  Capabilities and requirements are based primarily on individual service  wants versus collective Defense needs (i.e., based on current and  expected future threats) that are both affordable and sustainable   over time.  3.  Defense consistently overpromises and underdelivers in connection with  major weapons, information, and other systems (i.e., capabilities, costs,  quantities, and schedule).  4.  Defense often employs a “plug and pray approach” when costs escalate  (i.e., divide total funding dollars by cost per copy, plug in the number  that can be purchased, then pray that Congress will provide more  funding to buy more quantities).  5.  Congress sometimes forces the department to buy items (e.g., weapon  systems) and provide services (e.g., additional health care for non-active  beneficiaries, such as active duty members’ dependents and military  retirees and their dependents) that the department does not want and  we cannot afford.  6.  DOD tries to develop high-risk technologies after programs start instead  of setting up funding, organizations, and processes to conduct high-risk  technology development activities in low-cost environments,   (i.e., technology development is not separated from product  development). Program decisions to move into design and production  are made without adequate standards or knowledge.  7.  Program requirements are often set at unrealistic levels, then changed  frequently as recognition sets in that they cannot be achieved. As a  result, too much time passes, threats may change, or members of the  user and acquisition communities may simply change their mind. The  resulting program instability causes cost escalation, schedule delays,  smaller quantities and reduced contractor accountability.  8.  Contracts, especially service contracts, often do not have definitive or  realistic requirements at the outset in order to control costs and  facilitate accountability.  9.  Contracts typically do not accurately reflect the complexity of projects  or appropriately allocate risk between the contractors and the taxpayers  (e.g., cost plus, cancellation charges).  10.  Key program staff rotate too frequently, thus promoting myopia and  reducing accountability (i.e., tours based on time versus key  milestones). Additionally, the revolving door between industry and the  department presents potential conflicts of interest.  11.  The acquisition workforce faces serious challenges (e.g., size, skills,  knowledge, and succession planning).  12.  Incentive and award fees are often paid based on contractor attitudes  and efforts versus positive results (i.e., cost, quality, and schedule).  13.  Inadequate oversight is being conducted by both the department and  Congress, which results in little to no accountability for recurring and  systemic problems.  14.  Some individual program and funding decisions made within the  department and by Congress serve to undercut sound policies.  15.  Lack of a professional, term-based Chief Management Officer at the  department serves to slow progress on defense transformation and  reduce the chance of success in the acquisitions/contracting and other  key business areas.
section_title: Appendix II: Definition of Waste
paragraphs: Several of my colleagues in the accountability community and I have  developed a definition of waste. As we see it, waste involves the taxpayers  in the aggregate not receiving reasonable value for money in connection  with any government-funded activities due to an inappropriate act or  omission by players with control over or access to government resources  (e.g., executive, judicial or legislative branch employees; contractors;  grantees; or other recipients). Importantly, waste involves a transgression  that is less than fraud and abuse. Further, most waste does not involve a  violation of law, but rather relates primarily to mismanagement,  inappropriate actions, or inadequate oversight. Illustrative examples of  waste could include the following:    unreasonable, unrealistic, inadequate, or frequently changing    proceeding with development or production of systems without  achieving an adequate maturity of related technologies in situations  where there is no compelling national security interest to do so;  the failure to use competitive bidding in appropriate circumstances;    an over-reliance on cost-plus contracting arrangements where  reasonable alternatives are available;  the payment of incentive and award fees in circumstances where the  contractor’s performance, in terms of costs, schedule, and quality  outcomes, does not justify such fees;  the failure to engage in selected pre-contracting activities for contingent  events; and    congressional directions (e.g., earmarks) and agency spending actions  where the action would not otherwise be taken based on an objective  value and risk assessment and considering available resources.
section_title: Related GAO Products
subsections: section_title: Governmentwide/ Multiple Agencies
paragraphs: Human Capital: Federal Workforce Challenges in the 21st Century.   GAO-07-556T. Washington, D.C.: March 6, 2007.
High Risk Series: An Update. GAO-07-310. Washington, D.C.: January 2007.
Securing, Stabilizing, and Rebuilding Iraq: Key Issues for Congressional  Oversight. GAO-07-308SP. Washington, D.C.: January 9, 2007.
Information Technology: Status and Challenges of Employee Exchange  Program. GAO-07-216. Washington, D.C.: December 15, 2006.
Polar-Orbiting Operational Environmental Satellites: Technical Problems,  Cost Increases, and Schedule Delays Trigger Need for Difficult Trade-off  Decisions. GAO-06-249T. Washington, D.C.: November 16, 2005.
Human Capital: Selected Agencies Have Opportunities to Enhance  Existing Succession Planning and Management Efforts. GAO-05-585.  Washington, D.C.: June 30, 2005.
Interagency Contracting: Problems with DOD’s and Interior’s Orders to  Support Military Operations. GAO-05-201. Washington, D.C.: April 29, 2005.  21st Century Challenges: Reexamining the Base of the Federal  Government. GAO-05-325SP. Washington, D.C.: February 1, 2005.
Information Technology Investment Management: A Framework for  Assessing and Improving Process Maturity. GAO-04-394G. Washington,  D.C.: March 2004.
Acquisition Workforce: Status of Agency Efforts to Address Future Needs.  GAO-03-55. Washington, D.C.: December 18, 2002.
Contract Management: Taking a Strategic Approach to Improving Service  Acquisitions. GAO-02-499T. Washington, D.C.: March 7, 2002.
section_title: Department of Defense
paragraphs: Defense Contracting: Improved Insight and Controls Needed over DOD’s  Time-and-Materials Contracts. GAO-07-273. Washington, D.C.: June 29,  2007.
Defense Contracting: Use of Undefinitized Contract Actions Understated  and Definitization Time Frames Often Not Met. GAO-07-559. Washington,  D.C.: June 19, 2007.
Defense Acquisitions: Role of Lead Systems Integrator on Future Combat  Systems Program Poses Oversight Challenges. GAO-07-380. Washington,  D.C.: June 6, 2007.
Tactical Aircraft: DOD Needs a Joint and Integrated Investment Strategy.  GAO-07-415. Washington, D.C.: April 2, 2007.
Best Practices: An Integrated Portfolio Management Approach to Weapon  System Investments Could Improve DOD’s Acquisition Outcomes.   GAO-07-388. Washington, D.C.: March 30, 2007.
Defense Acquisitions: Assessments of Selected Weapon Programs.   GAO-07-406SP. Washington, D.C.: March 30, 2007.
Rebuilding Iraq: Reconstruction Progress Hindered by Contracting,  Security, and Capacity Challenges. GAO-07-426T. Washington, D.C.:  February 15, 2007.
Iraq Contract Costs: DOD Consideration of Defense Contract Audit  Agency’s Findings. GAO-06-1132. Washington, D.C.: September 25, 2006.
Department of Defense: Sustained Leadership Is Critical to Effective  Financial and Business Management Transformation. GAO-06-1006T.  Washington, D.C.: August 3, 2006.
Contract Management: DOD Vulnerabilities to Contracting Fraud, Waste,  and Abuse. GAO-06-838R. Washington, D.C.: July 7, 2006.
Defense Acquisitions: Actions Needed to Get Better Results on Weapons  Systems Investments. GAO-06-585T. Washington, D.C.: April 5, 2006.
Unmanned Aircraft Systems: DOD Needs to More Effectively Promote  Interoperability and Improve Performance Assessments. GAO-06-49.  Washington, D.C.: December 13, 2005.
Defense Acquisitions: DOD Has Paid Billions in Award and Incentive  Fees Regardless of Acquisition Outcomes. GAO-06-66. Washington, D.C.:  December 19, 2005.
Best Practices: Better Support of Weapon System Program Managers  Needed to Improve Outcomes. GAO-06-110. Washington, D.C.:   November 30, 2005.
Interagency Contracting: Franchise Funds Provide Convenience, but  Value to DOD Is Not Demonstrated. GAO-05-456. Washington, D.C.:   July 29, 2005.
Defense Ethics Program: Opportunities Exist to Strengthen Safeguards  for Procurement Integrity. GAO-05-341. Washington, D.C.: April 29, 2005.
section_title: Department of Energy
paragraphs: Department of Energy: Major Construction Projects Need a Consistent  Approach for Assessing Technology Readiness to Help Avoid Cost  Increases and Delays. GAO-07-336. Washington, D.C.: March 27, 2007.
DOE Contracting: Better Performance Measures and Management Needed  to Address Delays in Awarding Contracts. GAO-06-722. Washington, D.C.:  July 30, 2006.
Department of Energy: Further Actions Are Needed to Strengthen   Contract Management for Major Projects. GAO-05-123. Washington, D.C.:  March 18, 2005.
section_title: Department of Homeland Security
paragraphs: Coast Guard: Challenges Affecting Deepwater Asset Deployment and  Management and Efforts to Address Them. GAO-07-874. Washington, D.C.:  June 18, 2007.
Department of Homeland Security: Progress and Challenges in  Implementing the Department’s Acquisition Oversight Plan. GAO-07-900.  Washington, D.C.: June 13, 2007.
Department of Homeland Security: Ongoing Challenges in Creating an  Effective Acquisition Organization. GAO-07-948T. Washington, D.C.:   June 7, 2007.
Information Technology: DHS Needs to Fully Define and Implement  Policies and Procedures for Effectively Managing Investments.   GAO-07-424. Washington, D.C.: April 27, 2007.
Interagency Contracting: Improved Guidance, Planning, and Oversight  Would Enable the Department of Homeland Security to Address Risks.  GAO-06-996. Washington, D.C.: September 27, 2006.
Homeland Security: Challenges in Creating and Effective Acquisition  Organization. GAO-06-1012T. Washington, D.C.: July 27, 2006.
Hurricane Katrina: Improving Federal Contracting Practices in Disaster  Recovery Operations. GAO-06-714T. Washington, D.C.: May 4, 2006.
section_title: National Aeronautics and Space Administration
paragraphs: NASA Procurement: Use of Award Fees for Achieving Program Outcomes  Should Be Improved. GAO-07-58. Washington, D.C.: January 17, 2007.
NASA’s Deep Space Network: Current Management Structure Is Not  Conducive to Effectively Matching Resources with Future Requirements.  GAO-06-445. Washington, D.C.: April 27, 2006.
section_title: Department of Transportation
paragraphs: Next Generation Air Transportation System: Status of the Transition to  the Future Air Traffic Control System. GAO-07-784T. Washington, D.C.:  May 9, 2007.
This is a work of the U.S. government and is not subject to copyright protection in the  United States. It may be reproduced and distributed in its entirety without further  permission from GAO. However, because this work may contain copyrighted images or  other material, permission from the copyright holder may be necessary if you wish to  reproduce this material separately.