Over the past decade, DOD has increasingly relied on private sector contractors to provide a range of services, including management and information technology support. For example, DOD’s obligations on service contracts rose from $82.3 billion in fiscal year 1996 to $141.2 billion in fiscal year 2005 (see table 1). DOD committed 20 percent of its total service obligations in fiscal year 2005 for professional, administrative, and management support contracts. Overall, according to DOD, the amount obligated on service contracts exceeded the amount the department spent on supplies and equipment, including major weapon systems. The growth in service acquisition spending results, in part, from recent trends and changes within DOD’s acquisition environment, including the increased use of contracted services. For example, while spending on services has increased, DOD’s civilian workforce shrank by about 38 percent between fiscal years 1989 and 2002. DOD performed this downsizing without proactively shaping the civilian workforce to ensure that it had the specific skills and competencies needed to accomplish future DOD missions. In June 2006, DOD issued a human capital strategy that acknowledged that DOD’s civilian workforce is not balanced by age or experience. DOD further noted that a proposed reduction of an additional 55,000 personnel through fiscal year 2007, continuing increases in the number of retirement age employees, and the loss of experienced personnel and institutional knowledge could make it difficult to mentor its developing workforce. DOD’s strategy identified a number of steps planned over the next 2 years to more fully develop a long-term approach to managing its acquisition workforce. The increased use of service contracts is also partly attributable to DOD acquiring capabilities through different acquisition approaches, as well as needing to meet new requirements and demands. For example, DOD historically bought space launch vehicles, such as the Delta and Titan rockets as products. Now, under the Evolved Expendable Launch Vehicle program, the Air Force purchases launch services using contractor-owned launch vehicles. Similarly, after the terrorist attacks on September 11, 2001, increased security requirements and the deployment of active duty and reserve personnel resulted in DOD having fewer military personnel to protect domestic installations. Consequently, the U.S. Army awarded contracts worth nearly $733 million to acquire contract guards at 57 installations. DOD has traditionally approached the acquisition of services differently than the acquisition of products. DOD and military department officials we interviewed noted that DOD generally views service acquisition as less risky than the acquisition of weapon systems, in part because many services are not tied directly to mission accomplishment and tend to be composed of far more numerous and lower dollar value contracts. DOD has long focused its attention, policies, and procedures on managing major weapon systems and typically does so using the cost of the weapon system as a proxy for risk. For example, DOD classifies its acquisition programs, including research and development efforts related to weapon systems and major automated information systems, in categories based upon estimated dollar value or designation as a special interest. The largest programs generally fall under the responsibility of the Under Secretary of Defense (Acquisition, Technology, and Logistics), while less complex and risky programs are overseen by the service or component acquisition executive. Overall, more than 25 percent of DOD’s annual budget is managed under this framework. For example, as of December 2005, DOD managed 85 major defense acquisition programs currently estimated to cost about $1.6 trillion combined over their program life. Conversely, we previously reported that DOD’s approach to buying services is largely fragmented and uncoordinated, as responsibility for acquiring services is spread among individual military commands, weapon system program offices, or functional units on military bases, with little visibility or control at the DOD or military department level. For example, we noted that DOD’s information systems could provide data on the amount spent on services, but the reliability of the information was questionable and the system itself was seldom used as a tool to manage or identify opportunities for managing DOD’s supplier base. Procurement processes within DOD were not always carried out efficiently and effectively. There were few service contracting-related enterprisewide annual performance metrics, none of which measured the cost-effectiveness or quality of services obtained. Services differ from products in several aspects and can also be challenging when attempting to define requirements, establish measurable and performance-based outcomes, and assess contractor performance. For example, it can easily take over 10 years to define requirements and develop a product like a weapon system before it can actually be delivered for field use. Individual service acquisitions generally proceed through requirements, solution, and delivery more rapidly. Further, delivery of services generally begins immediately or very shortly after the contract is finalized. In response to the National Defense Authorization Act for Fiscal Year 2002, DOD and the military departments established a service acquisition management structure, including processes at the headquarters level for reviewing individual, high-dollar acquisitions. In September 2003, we reported that this approach did not provide a departmentwide assessment of how spending for services could be more effective and recommended that DOD give greater attention to promoting a strategic orientation by setting performance goals for improvements and ensuring accountability for achieving those results. In its response, DOD concurred in principle and agreed that additional actions could strengthen the management structure as implemented, but also identified challenges for doing so based on organizational size, complexity, and acquisition environment. In January 2006, Congress again enacted legislation with specific requirements for managing the acquisition of services. Among other things, the legislation required DOD to identify the critical skills and competencies needed to carry out the procurement of services; develop a comprehensive strategy for recruitment, training, and deploying employees to meet the requirements for skills and competencies; establish contract services acquisition categories, based on dollar thresholds, for the purpose of establishing the level of review, decision authority, and applicable procedures; dedicate full-time commodity managers to coordinate the procurement of key categories of services; ensure that contract services are procured by means of procurement actions that are in the best interests of DOD and entered into and managed in compliance with applicable laws, regulations, directives, and requirements; ensure that competitive procedures and performance-based contracting are used to the maximum extent practicable; and monitor data and periodically collect spend analyses to ensure that funds allotted for the procurement of services are expended in the most rational and economical manner practicable. The requirements pertaining to establishing contract service acquisition categories were to be phased in over a period of 3 years, with the first categories, for acquisitions with an estimated value of $250 million or more, to be established by October 2006. At the conclusion of our review, DOD issued a policy memorandum aimed at strengthening service acquisition management in response to the legislation. DOD is to report on its implementation by January 2007. Several key factors are necessary to improve DOD’s service acquisition outcomes—that is, obtaining the right service, at the right price, in the right manner. Our work found that to do this, an organization must understand the volume, sources, portfolios, and trends related to what it is buying, then ensure that requirements are valid and understood, services are purchased properly, and performance delivered with minimum risk and maximum efficiency. Success factors to achieve these goals can be defined at both the strategic and the transactional level, as shown in figure 1. The strategic level is where the enterprise sets the direction or vision for what it needs, captures the knowledge to enable more informed management decisions, ensures deparmentwide goals and objectives are achieved, determines how to go about meeting those needs, and assesses the resources it has to achieve desired outcomes. The strategic level also sets the context for the transactional level, where the focus is on making sound decisions on individual transactions. Our work found that officials need to ensure that individual service transactions have valid and well- defined requirements, have appropriate business arrangements, and that performance is being managed—again, while minimizing related risks and maximizing efficiency. A comprehensive approach would use the strategic and transactional factors in a complementary manner to tailor management activity to ensure preferred outcomes. Without this management attention, risks exist within each level that can impair an organization’s ability to get desired service acquisition outcomes. Our prior work with leading commercial firms found that a successful organization proactively identifies and manages outcomes of the services it acquires at a strategic, or enterprisewide, level. Effective service acquisition requires the leadership, processes, and information necessary for mitigating risks, leveraging buying power, and managing outcomes. Several factors are needed to implement a strategic approach, including (1) strong leadership to define and articulate a corporate vision, including specific goals and outcomes; (2) results-oriented communication and metrics; (3) defined responsibilities and associated support structures; and (4) increased knowledge and focus on spending data and trends. See figure 2 for key factors to achieve a strategic approach to acquiring services. Our work found that organizations seeking to significantly improve service acquisition outcomes must begin with an established vision and commitment from senior management. This can come in various ways, ranging from restructuring the corporate procurement function, providing greater insight into and authority over the company’s service spending, or signaling support for a new way of doing business. With an articulated vision, leaders then have a basis for making commitments to factors important for realizing the desired end state, such as practices, procedures, structures, information, and human capital planning. Our work has shown that when corporate goals and expected outcomes are not defined, employees becomes less likely to accept new roles or understand the importance of upcoming changes that are necessary to reduce risks in service acquisition. These include allowing the sum total of individual transactions to define the strategy and not providing a context within which managers of individual transactions can make sound judgments about the risk and sensitivity of a particular service acquisition. Being able to define a strategic vision presupposes that leaders can determine and articulate a normative position for the future. A normative position would entail defining what end state or goals they want to achieve at a specified time.