Department of Homeland Security: Further Action Needed to Improve Management of Special Acquisition Authority
Released: 2012-05-08T00:00:00

Letter

Background

The acquisition function plays a critical role in helping federal agencies fulfill their missions. Other transaction authority provides the ability to acquire cutting-edge science and technology, in part through attracting entities that typically have not pursued government contracts because of the cost and impact of complying with government procurement requirements. This authority, when used selectively, is a tool intended to help the Science and Technology Directorate leverage commercial technology to reduce the cost of homeland security items and systems. Other transaction agreements are distinct from procurement contracts, grants, or cooperative agreements because of the flexibilities that they offer to both awardees and the government. For example, they allow the federal government and awardees flexibility in negotiating intellectual property and data rights, which stipulate each party’s rights to technology developed under the agreements. The flexibility of other transaction agreements is an important characteristic to attract nontraditional contractors. We previously reported, however, that because these agreements do not have a standard structure based on regulatory guidelines, they can be challenging to create and administer.

The Homeland Security Act of 2002 originally authorized DHS to carry out a 5-year pilot program to exercise other transaction authority. in 2007, other transaction authority has been extended annually through appropriations legislation. The Homeland Security Act of 2002 authorizes DHS to enter into an other transaction agreement that advances the development, testing, and evaluation of critical supports basic, applied, and advanced research and development; technologies; and carries out prototype projects.

Pub. L. No. 107-296, § 831(a). business arrangements or structures that would not be feasible or appropriate under a procurement contract. Other transaction agreements for research do not require the involvement of a nontraditional contractor.

One Science and Technology Directorate program funded other transaction agreements to promote homeland security by advancing the development and testing of rapid biological detectors. This “detect-to- protect” system would monitor a facility and detect the presence of biological agents in time to provide sufficient warning to facility occupants to limit their exposure (see left image in fig. 1). A different Science and Technology Directorate program used an other transaction agreement to develop and test a new high-voltage transformer that helps provide power during the recovery time following blackouts or outages resulting from severe natural disasters or terrorist attacks (see right image in fig. 1).

The period of performance for other transaction agreements varies and may last longer than a traditional FAR contract. Other transaction agreements are generally structured in successive phases, so each project may have several phases. At the end of a phase, the awardees submit a statement of work and technical and cost proposals for the next phase. Continuation between phases may be based on an independent technical evaluation and is not guaranteed. Unlike FAR contracts, which are generally limited to a length of 5 years, an other transaction agreement may continue as long as funding is available and work is required under a phase. As a result, other transaction agreements can vary in length, from 3 months to over 7 years, as shown in figure 2.

Further, the funding for other transaction agreements may grow over time. For example, in one other transaction agreement, the Science and Technology Directorate obligated $200,000 in the first phase with an 8- month period of performance. This agreement has been in existence for almost 7 years with at least $5.3 million obligated on it. Another two agreements were funded for $2 million at the time of award, but at completion, each other transaction agreement had obligations of approximately $100 million.

Use of Other Transaction Authority Has Declined

The use of other transaction authority by the Science and Technology Directorate has declined since its peak in fiscal years 2005 and 2006. From fiscal year 2004 through fiscal year 2011, the Science and Technology Directorate entered into 58 other transaction agreements, totaling $583 million in obligations. Fourteen agreements remained active in fiscal year 2011 and the directorate has not entered into a new other transaction agreement since fiscal year 2010. The Science and Technology Directorate’s use of other transaction authority has declined since 2005 when it entered into 28 new agreements. Total obligations also have declined since peaking at $151 million in 2006 (see fig. 3).

DHS officials offered reasons for the decline in use of other transaction authority. DHS acquisition officials told us that recently they have noted a decrease in the number of nontraditional contractors submitting proposals to use other transaction agreements while the use of FAR contracts has increased. Further, one official explained that as DHS’s requirements have changed over time, the requirements have targeted different industries. Finally, DHS officials have been uncertain about renewal of other transaction authority. For example, in fiscal year 2011, there was a gap in DHS’s other transaction authority because the continuing resolution did not extend the authority until April 2011. DHS officials explained that they were unsure if DHS had the authority to enter into new agreements or modify existing agreements under continuing resolutions. However, while use has declined, DHS officials said the flexibility provided by other transaction authority to conduct business with nontraditional contractors is still important to the directorate’s research needs. For example, one program manager explained that without other transaction authority, DHS would be required to go through a traditional contractor to reach a nontraditional contractor, and this could affect the Science and Technology Directorate’s ability to directly obtain the necessary technology.

DHS Has Taken Steps to Address Challenges, but Actions Are Not Fully Implemented

DHS has made some progress in addressing challenges and the related recommendations we previously made regarding its use of other transaction agreements (see fig. 4). DHS has faced challenges overseeing its use of other transaction authority and establishing safeguards in the following five areas: 1. developing guidance for the use of audit provisions,2. updating policies related to documentation of lessons learned, 3. identifying workforce training requirements, and 4. conducting a workforce assessment, 5. collecting relevant data on other transaction agreements.

GAO-05-136.

GAO-05-136.

GAO-08-1088.

GAO-08-1088.

Gaps in the Collection and Reporting of Information on the Use of Other Transactions

Based on our review of all 27 available DHS agreement files, we found three gaps in the collection and reporting of information on its use of other transaction authority: (1) DHS does not consistently document the rationale for entering into an other transaction agreement in an agreement analysis document, despite DHS guidance to do so; (2) discrepancies between DHS’s data sources result in an incomplete picture of other transaction agreements activity, including an inaccurate annual report to Congress; and (3) DHS does not track the circumstances that permit the use of other transaction authority, such as the involvement of a nontraditional contractor, through the phases of an other transaction agreement. Involving nontraditional contractors is one of the benefits of having other transaction authority, yet without knowing how many are involved or for how long, DHS is not in a position to measure the benefits of using the special acquisition authority.

While DHS’s guidance requires it to document the rationale for using other transaction authority, DHS does not do this consistently. One of the following three conditions must be met to use an other transaction agreement for prototypes: (1) there is at least one nontraditional government contractor participating to a significant extent, (2) at least one-third of the total cost of a prototype project is to be paid out of funds provided by parties to the transaction other than the federal government, or (3) the DHS Chief Procurement Officer determines, in writing, that exceptional circumstances justify the use of a transaction that provides for innovative business arrangements or structures that would not be feasible or appropriate under a procurement contract. Since 2005, DHS other transaction guidance requires that this rationale be documented in an agreement analysis that should be maintained in the other transaction agreement file. We found that the agreement analysis is not consistently documented in the files. In our review of 11 other transaction for prototype agreement files, we found inconsistent documentation of the agreement analysis—7 other transaction agreement files contained an agreement analysis document for the initial award and 4 did not contain an agreement analysis document. These 4 other transaction agreement files that do not contain any agreement analysis documentation were awarded recently, from 2007 to 2009. DHS other transaction agreement officers said they rely on the agreement analysis to learn the background on agreements they have inherited from previous other transaction agreement officers. Given the high turnover of acquisition staff, the agreement analysis document is an important tool to capture information about the rationale for use of other transaction authority.

Recent annual reports to Congress on other transaction activity have been incomplete. DHS is required to provide an annual report to Congress detailing the projects for which other transaction authority was used, the rationale for its use, the funds spent using the authority, the outcome of each project, and the results of any audits of such projects. We previously reported that DHS’s June 30, 2008 report to Congress did not include 14 agreements from the reporting period.current analysis of DHS’s fiscal year 2010 congressional report and other transaction agreement files, we found that DHS did not report three agreements that received funding totaling over $3.2 million in obligations, Based on our or 22 percent of other transaction obligations for the year. In addition, DHS does not include information on open agreements that did not involve the exercise of an option or the award of a new phase during the reporting period. While this information is not expressly required by the legislation, without it DHS is not providing a complete picture of the use of its authority. Based on our file review, we found the following other transaction agreements which were not reported in DHS’s 2009 and 2010 annual congressional reports (see fig. 5).

For example, one open other transaction agreement, which was not reported in the fiscal year 2009 annual report, included a payment schedule with four dates during fiscal year 2009 totaling about $10 million. Without accurate information about the universe of other transaction agreements, Congress may be unable to oversee DHS’s use of its other transaction authority.

Further, we found that DHS does not track information to measure the benefits of other transaction authority, which include reaching nontraditional contractors. DHS’s guidance states that the government team, which includes acquisition and program officials, should establish and track metrics that measure the value or benefits directly attributable to the use of other transaction authority. But DHS officials told us they have not established metrics.

In addition, DHS does not collect information at each phase of an other transaction agreement to determine if the original circumstances permitting the use of other transaction authority still exist. Specifically, DHS does not track the involvement of a nontraditional contractor throughout the various phases of the other transaction agreement. Based on our file review, we identified 11 other transaction agreements that cited the significant contribution of a subawardee nontraditional contractor as the circumstance permitting the use of other transaction authority. However, we found that six of these agreement files did not include documentation to demonstrate that the subawardee nontraditional contractor was involved during one or more phases of the agreement. For example, one nontraditional contractor was involved as a subawardee for 14 months, but the other transaction agreement lasted 40 months. While circumstances frequently change when conducting research or prototype development, the Science and Technology Directorate does not have visibility into the impact of these changes over time.

In contrast, the Department of Defense (DOD) has determined that tracking information about participants, which includes nontraditional contractors, is important to managing its other transaction authority. In its guidance, DOD requires defense agencies and military departments to report significant changes to key participants involved in the agreement. This information is used to track the number of nontraditional contractors involved in other transaction agreements, which DOD officials use to measure the benefit of its other transaction authority.

Conclusions

Even with the recently reduced use of other transaction authority, the Science and Technology Directorate continues to identify this as an important tool that provides the flexibilities needed to develop critical technologies. However, while other transaction agreements may carry the benefit of reaching nontraditional contractors to develop and test innovative homeland security technology, they also carry the risk of reduced accountability and transparency because they are exempt from federal procurement regulations. While DHS has responded to our prior recommendations, it still faces challenges addressing our recommendation to develop a mechanism to collect and track relevant data. Without consistent information on the universe of other transaction agreements, DHS continues to report inaccurate or incomplete information on the use of its other transaction authority in its annual report to Congress. This may undermine Congress’s ability to obtain a full picture on the use of this special acquisition authority. DHS has taken steps by updating its guidance to require documentation of lessons learned; however, the guidance is not being implemented. In particular, we found that DHS does not document lessons learned from completed other transaction agreements nor has it consistently documented the agreement analysis, as required by guidance. Other transaction agreements may be in place for an extended time period and obligate a significant amount of funds, yet DHS does not have full information on other transaction activity at each phase of the award. Involving nontraditional contractors is one of the circumstances permitting the use of other transaction authority, yet without knowing how many are involved or for how long, DHS is not in a position to determine whether the continued use of the other transaction authority is still the best approach through the life of the agreement. If other transaction authority is made permanent, it is important for DHS to have complete information to understand and track its use of other transaction authority over time.

Recommendations for Executive Action

To promote the efficient and effective use by DHS of its other transaction authority to meet its mission needs, we recommend that the Secretary of Homeland Security direct the Under Secretary for Management to take the following three actions:

Establish an action plan with specific time frames for fully implementing the prior GAO recommendation to establish a mechanism to collect and track relevant data on other transaction agreements, including the role of the nontraditional contractor, and systematically assess the data and report to Congress.

Establish an action plan with specific time frames to help ensure full implementation of DHS other transaction guidance, regarding documentation of lessons learned and documentation of the agreement analysis.

Establish a policy to review and document the circumstances permitting the use of other transaction authority at each new phase, throughout the life of the agreement, to determine if the continued use of an other transaction agreement is appropriate.

Agency Comments

We provided a draft of this report to DHS for comment. In written comments, DHS agreed with our recommendations and described actions under way or planned to address them. DHS also provided technical comments, which we have incorporated into the report as appropriate. DHS’s comments are reprinted in appendix III.

We are sending copies of this report to interested congressional committees and the Secretary of Homeland Security. In addition, the report is available at no charge on the GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact me at (202) 512-4841 or woodsw@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix IV.

Appendix I: Objectives, Scope, and Methodology

The objectives for this report were to review (1) the Department of Homeland Security’s (DHS) Science and Technology Directorate’s use of other transaction authority, (2) the extent to which DHS has addressed challenges we previously identified with its use of the authority, and (3) the information DHS collects and reports on the use of other transaction authority.

To review the Science and Technology Directorate’s use of other transaction authority, we analyzed data provided by DHS’s Office of Procurement Operations Science and Technology Acquisitions Division on all other transaction agreements it has entered into since 2004. These data included agreement award date, agreement end date, annual obligations, and information on nontraditional contractors’ roles as prime awardees or subawardees. DHS officials compiled these data from DHS’s procurement system, annual reports to Congress on other transaction authority, and hard copy agreement files. To understand reasons for its trends in use of other transaction authority, we interviewed Science and Technology Directorate program officials and DHS acquisition officials.

To determine the extent to which DHS has addressed challenges with its use of other transaction authority, we drew upon prior GAO reports on DHS’s use of other transaction authority, reviewed DHS other transaction agreement policies and procedures, conducted interviews with DHS officials, and reviewed other transaction agreement files that were active on or after April 1, 2008, through September 2011. To determine the steps taken to encourage the use of audit provisions, we reviewed DHS’s May 2008 guidance and its October 2009 updated guidance, Other Transactions for Research and Prototype Projects Guide. We identified and reviewed 4 other transaction agreements that were awarded after May 2008 to determine if DHS has included audit provisions as encouraged by the guidance. To determine the steps taken by DHS to document lessons learned, we identified DHS’s policy to document lessons learned in the October 2009 guidance, reviewed the files of 10 agreements that ended after October 2009, and interviewed acquisition and program officials to determine if they had participated in lessons learned discussions or documented lessons learned, as described in the guidance. To determine the steps taken by DHS to identify and implement workforce training requirements, we reviewed DHS’s Management Directive 0771.1, Procurement Operating Procedure 311, and the associated June 2011 cancellation; we obtained acquisition official training certifications; and interviewed program staff to determine if they had attended training. We also reviewed training materials to determine if other transaction authority was covered in the contract officer technical representative training attended by program officials. To identify steps taken by DHS to conduct a workforce analysis to determine if it has the appropriate number of agreement officers to execute other transaction authority, we interviewed DHS officials and requested workforce assessments addressing DHS’s acquisition workforce. To determine whether DHS collects relevant data on other transaction authority, we analyzed information that DHS collected from its review of the hard copy files, its procurement system, and annual reports to Congress on other transaction authority.

To assess the information DHS collects and reports on its use of other transaction authority, we obtained an initial list of agreements from DHS’s Office of Procurement Operations Science and Technology Acquisitions Division; reviewed annual reports to Congress on other transaction authority; and interviewed program, acquisition, and general counsel officials. We also contacted officials at the Department of Defense to understand its policies and procedures to manage its other transaction authority. We identified 28 agreements that were active on or after April 1, 2008, through September 30, 2011. We conducted an in-depth file review for 27 of these 28 agreements; DHS was unable to locate one agreement file prior to the date we drafted this report. To determine the accuracy of DHS’s annual report to Congress, we reviewed the requirements for the report and compared the information included in these reports to the requirements and information from the other transaction agreement files. To identify information documenting the circumstances permitting the use of other transaction authority, such as information collected on nontraditional contractors, we looked at several documents in the agreement files. Specifically, we reviewed preaward documentation, such as awardee proposals, determination and findings, and agreement analysis documents, and postaward documentation, such as the signed other transaction agreement, all modifications, and statements of work. We interviewed program, acquisition, and general counsel officials to determine the process for verifying a nontraditional contractor’s status and significant contribution. In analyzing DHS’s agreements, we did not independently verify a contractor’s reported status as a nontraditional contractor.

We conducted this performance audit from August 2011 through May 2012 in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives.

Appendix II: Steps DHS Has Taken to Address Prior GAO Recommendations and Related Challenges

Table 1 presents the information in figure 4 in a noninteractive format.

Appendix III: Comments from the Department of Homeland Security

Appendix IV: GAO Contact and Staff Acknowledgments

GAO Contact

Staff Acknowledgments

In addition to the contact named above, Penny Berrier, Assistant Director; Kristin Van Wychen; Beth Reed Fritts; Anne McDonough-Hughes; John Krump; Kenneth Patton; Mary Quinlan; Roxanna Sun; Robert Swierczek; Keo Vongvanith; and Rebecca Wilson made key contributions to this report.