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entitled 'Defense Acquisitions: Tailored Approach Needed to Improve 
Service Acquisition Outcomes' which was released on November 14, 2006. 

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Report to the Subcommittee on Readiness and Management Support, 
Committee on Armed Services, U.S. Senate: 

United States Government Accountability Office: 

GAO: 

November 2006: 

Defense Acquisitions: 

Tailored Approach Needed to Improve Service Acquisition Outcomes: 

GAO-07-20: 

GAO Highlights: 

Highlights of GAO-07-20, a report to the Subcommittee on Readiness and 
Management Support, Committee on Armed Services, U.S. Senate 

Why GAO Did This Study: 

Department of Defense (DOD) obligations for service contracts rose from 
$82.3 billion in fiscal year 1996 to $141.2 billion in fiscal year 
2005. DOD is becoming increasingly more reliant on the private sector 
to provide a wide range of services, including those for critical 
information technology and mission support. DOD must maximize its 
return on investment and provide the warfighter with needed 
capabilities and support at the best value for the taxpayer. 

GAO examined DOD’s approach to managing services in order to (1) 
identify the key factors DOD should emphasize to improve its management 
of services and (2) assess the extent to which DOD’s current approach 
exhibited these factors. 

What GAO Found: 

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. These factors can be found at both the strategic and 
the transactional levels and should be used together as a 
comprehensive, but tailored approach to managing service acquisition 
outcomes. At the strategic level, key success factors include (1) 
strong leadership that defines a corporate vision and normative goals; 
(2) sustained, results-oriented communication and metrics; (3) defined 
responsibilities and associated support structures; and (4) increased 
knowledge and focus on spending and data trends. The strategic level 
also sets the context for the transactional level, where the focus is 
on making sound decisions on individual transactions. Success factors 
at this level include having (1) valid and well-defined requirements; 
(2) properly structured business arrangements; and (3) proactively 
managed outcomes. 

DOD’s current approach to managing service acquisition has tended to be 
reactive and has not fully addressed the key factors for success at 
either the strategic or transactional level. At the strategic level, 
DOD has yet to set the direction or vision for what it needs, determine 
how to go about meeting those needs, capture the knowledge to enable 
more informed decisions, or assess the resources it has to ensure 
departmentwide goals and objectives are achieved. For example, despite 
implementing a review structure aimed at increasing insight into 
service transactions, DOD is not able to determine which or how many 
transactions have actually been reviewed. The military departments, 
while having some increased visibility, have only reviewed proposed 
acquisitions accounting for less than 3 percent of dollars obligated 
for services in fiscal year 2005 and are in a poor position to 
regularly identify opportunities to leverage buying power or otherwise 
change existing practices. Actions at the transactional level continue 
to focus primarily on awarding contracts and do not always ensure that 
user needs are translated into well-defined requirements or that post-
contract award activities result in expected performance. 

Figure: Key Strategic and Transactional Factors for Service 
Acquisition: 

Strategic level: Effective service acquisition requires the leadership, 
processes, and information necessary for mitigating risks, leveraging 
buying power, and managing outcomes. 

Transactional Level: Individual service transactions must focus on 
buying the right thing, the right way, while getting the desired 
outcomes. 

Source: GAO (analysis). 

[End of Figure] 

What GAO Recommends: 

GAO recommends that DOD take a proactive approach to managing strategic 
and transactional level service acquisition elements. This includes 
establishing a normative position of service spending, determining risk 
areas for greater attention, and communicating these in a manner where 
individual transactions can then be made to support strategic goals and 
meet cost and performance objectives. DOD concurred with all of our 
recommendations and noted several actions the department is taking or 
plans to take to improve the acquisition of services. 

[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-20]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Paul Francis at (202) 512-
4841 or francisp@gao.gov. 

[end of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Managing Service Acquisition Requires Both a Strategic and a 
Transactional Focus: 

DOD Service Acquisition Approach Does Not Fully Address Key Elements at 
the Strategic or Transactional Levels: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Scope and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgements: 

Tables: 

Table 1: Changes in DOD's Use of Service Contract Obligations, Fiscal 
Years 1996 to 2005: 

Table 2: Service Acquisitions Reviewed under DOD and Military 
Department Review Structure: 

Figures: 

Figure 1: Key Strategic and Transactional Factors for Service 
Acquisition: 

Figure 2: Key Factors in Achieving a Strategic Approach to Service 
Acquisition: 

Figure 3: Key Factors for Managing Service Acquisitions at a 
Transactional Level: 

Abbreviations: 

DAU: Defense Acquisition University: 
DOD: Department of Defense: 
NETC: Naval Education and Training Command: 

United States Government Accountability Office: 
Washington, DC 20548: 

November 9, 2006: 

The Honorable John Ensign: 
Chairman: 
The Honorable Daniel K. Akaka: 
Ranking Minority Member: 
Subcommittee on Readiness and Management Support: 
Committee on Armed Services: 
United States Senate: 

In fiscal year 2005, the Department of Defense (DOD) obligated more 
than $141 billion on service contracts, a 72-percent increase since 
fiscal year 1996. DOD is increasingly relying on the private sector to 
provide a wide range of services, including consulting and 
administrative support, information technology services, and weapon 
system and base operations support. As the largest buyer of services in 
the federal government, and operating in an environment in which the 
nation's large and growing structural deficit will require difficult 
resource decisions, DOD must maximize its return on investment and 
provide the warfighter with needed capabilities at the best value for 
the taxpayer. 

Our work and that of others has highlighted examples of long-standing 
concerns in planning, executing, and overseeing service acquisition. 
For example, GAO has identified DOD contract management to be at high 
risk of vulnerabilities to fraud, waste, abuse, and mismanagement for 
more than a decade. In our 2005 high-risk report update, we noted that 
with regard to service acquisition, DOD had not yet fully implemented a 
strategic approach to buying services; did not have a comprehensive 
plan to ensure it had the right skills and capabilities in its 
acquisition workforce; and did not always make sound use of the tools, 
such as performance-based service contracting, to acquire the services 
it needed.[Footnote 1] 

To ensure that DOD acquires services by means that are in the best 
interest of the government and managed in compliance with applicable 
statutory requirements, sections 801 and 802 of the National Defense 
Authorization Act for Fiscal Year 2002 required DOD to establish a 
service acquisition management approach, including developing a 
structure for reviewing individual service transactions based on dollar 
thresholds and other criteria.[Footnote 2] Further, in January 2006, 
additional requirements were established pertaining to DOD's service 
contracting management structure and oversight processes.[Footnote 3] 
This report assesses DOD's overall approach to managing service 
acquisition. Specifically, we (1) identified the key factors necessary 
for DOD to emphasize to improve its management of services and (2) 
assessed the extent to which DOD's approach, including its current 
management structure, exhibited these factors. 

To perform our review, we made extensive use of our prior work in this 
and other related areas, including our January 2002 report that 
identified how leading commercial companies took a strategic approach 
to acquiring services.[Footnote 4] For the transactional level, we used 
our prior work and that of others on issues related to individual 
service contract transactions and held detailed discussions with 
relevant contracting experts to confirm and validate key factors. In 
total, the results of these efforts proffer a model to improve results 
in service acquisition management. To assess the extent to which DOD's 
current approach exhibited these characteristics, we collected and 
reviewed relevant DOD guidance and policies, including those that 
established its current management structure and review processes. We 
interviewed officials responsible for implementing the management 
structure in the Office of the Secretary of Defense, as well as each of 
the cognizant offices within the military departments. We also obtained 
information on the types of activities and reviews conducted by these 
offices. We visited 20 commands and buying activities to understand the 
processes by which these organizations acquire services. We reviewed 
various contract files and process documentation for selected service 
acquisitions and discussed challenges faced in acquiring services and 
efforts to improve service acquisition with policy and contracting 
personnel at each of these locations. See appendix I for additional 
details on scope and methodology. We conducted our review from August 
2005 to September 2006 in accordance with generally accepted government 
auditing standards. 

Results in Brief: 

Achieving good service acquisition outcomes--that is, obtaining the 
right service, at the right price, in the right manner--requires 
management attention at both a strategic and a transactional level. The 
strategic level requires the leadership, processes, and information 
necessary for mitigating risks, leveraging buying power, and managing 
outcomes across the enterprise. At this level, we identified four key 
factors for improving outcomes: strong corporate leadership and vision, 
results-oriented goals and metrics, defined responsibilities and 
support structures, and improved knowledge of spending. The strategic 
level also sets the context for the transactional level, where 
individual service acquisitions are executed. Key factors for good 
outcomes at the transactional level include clearly defined 
requirements, sound business arrangements, and appropriate contract 
management and oversight processes. At both levels, risks exist that 
can impair an organization's ability to get desired service acquisition 
outcomes. A comprehensive management approach tailors the strategic and 
transactional factors to address these risks. For example, by knowing 
where its service acquisitions are and setting a course for where they 
ought to be, an organization provides the context for making decisions 
on individual transactions. 

DOD's current approach to managing service acquisition has tended to be 
reactive and has not fully addressed the key factors for success at 
either the strategic or the transactional level. At the strategic 
level, DOD has not developed a normative position for gauging whether 
ongoing and planned efforts can best achieve intended results. Further, 
good information on the volume and composition of service acquisitions 
is still wanting, perpetuating the circumstance in which the 
acquisition of services tends to happen to DOD, rather than being 
proactively managed. For example, despite implementing a review 
structure aimed at increasing insight into service transactions, DOD is 
not able to determine which or how many transactions have been 
reviewed. The military departments have only slightly better 
visibility, having reviewed proposed acquisitions accounting for less 
than 3 percent of dollars obligated for services in fiscal year 2005. 
At the transactional level, DOD tends to focus primarily on those 
elements associated with awarding contracts, with much less attention 
paid to formulation of service acquisition requirements and to 
assessment of the actual delivery of contracted services. Moreover, the 
results of individual acquisitions are generally not used to inform or 
adjust strategic direction. As a result, DOD is not in a position to 
determine whether investments in services are achieving their desired 
outcomes. 

To put DOD in a position to proactively manage service acquisition 
outcomes, we are making six recommendations to assist DOD in 
identifying specific solutions at the strategic and transactional 
levels. In written comments on a draft of this report, DOD concurred 
with our recommendations and agreed that a more coordinated, 
integrated, and strategic approach for acquiring services is needed. 
DOD noted that it is developing an integrated assessment of how best to 
acquire services and expects this assessment will result in a 
comprehensive, departmentwide architecture. DOD expects its assessment 
will be completed in early 2007. Our discussions with DOD officials 
indicate that this architecture may hold the potential for making 
fundamental changes at the strategic and transactional levels. The 
extent to which DOD successfully integrates the key factors we 
identified as it develops and implements its architecture will be 
essential to fostering the appropriate attention and action needed to 
make service acquisitions a managed outcome. The full text of DOD's 
comments may be found in appendix II. 

Background: 

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. 

Table 1: Changes in DOD's Use of Service Contract Obligations, Fiscal 
Years 1996 to 2005 (fiscal year 2005 dollars in billions): 

Service category: Professional, administrative, and management support; 
Service obligations Fiscal year: 1996: $10.8; 
Service obligations Fiscal year: 2005: $28.3; 
Percentage of service obligations, fiscal year 2005: 20.0; 
Percentage change, fiscal years 1996 to 2005: 161. 

Service category: Construction of facilities; 
Service obligations Fiscal year: 1996: 7.3; 
Service obligations Fiscal year: 2005: 11.7; 
Percentage of service obligations, fiscal year 2005: 8.3; 
Percentage change, fiscal years 1996 to 2005: 62. 

Service category: Maintenance and repair of equipment; 
Service obligations Fiscal year: 1996: 6.6; 
Service obligations Fiscal year: 2005: 11.4; 
Percentage of service obligations, fiscal year 2005: 8.1; 
Percentage change, fiscal years 1996 to 2005: 74. 

Service category: Information technology; 
Service obligations Fiscal year: 1996: 4.9; 
Service obligations Fiscal year: 2005: 10.3; 
Percentage of service obligations, fiscal year 2005: 7.3; 
Percentage change, fiscal years 1996 to 2005: 110. 

Service category: Medical services; 
Service obligations Fiscal year: 1996: 1.6; 
Service obligations Fiscal year: 2005: 8.0; 
Percentage of service obligations, fiscal year 2005: 5.6; 
Percentage change, fiscal years 1996 to 2005: 412. 

Service category: Housekeeping services; 
Service obligations Fiscal year: 1996: 2.4; 
Service obligations Fiscal year: 2005: 4.8; 
Percentage of service obligations, fiscal year 2005: 3.4; 
Percentage change, fiscal years 1996 to 2005: 98. 

Service category: Transportation, travel, and relocation; 
Service obligations Fiscal year: 1996: 2.4; 
Service obligations Fiscal year: 2005: 6.2; 
Percentage of service obligations, fiscal year 2005: 4.4; 
Percentage change, fiscal years 1996 to 2005: 154. 

Service category: All other services, excluding research and 
development[A]; 
Service obligations Fiscal year: 1996: 22.7; 
Service obligations Fiscal year: 2005: 23.6; 
Percentage of service obligations, fiscal year 2005: 16.7; 
Percentage change, fiscal years 1996 to 2005: 4. 

Service category: All services excluding research and development; 
Service obligations Fiscal year: 1996: $58.6; 
Service obligations Fiscal year: 2005: $104.2; 
Percentage of service obligations, fiscal year 2005: 73.8; 
Percentage change, fiscal years 1996 to 2005: 78. 

Service category: Research and development; 
Service obligations Fiscal year: 1996: 23.7; 
Service obligations Fiscal year: 2005: 37.0; 
Percentage of service obligations, fiscal year 2005: 26.2; 
Percentage change, fiscal years 1996 to 2005: 56. 

Service category: Total, all service contracts; 
Service obligations Fiscal year: 1996: $82.3; 
Service obligations Fiscal year: 2005: $141.2; 
Percentage of service obligations, fiscal year 2005: 100.0; 
Percentage change, fiscal years 1996 to 2005: 72. 

Source: DOD's DD350 database for all actions exceeding $25,000 (data); 
GAO (analysis). 

[A] Other services include photographic, mapping, and printing; 
education and training; and social services, among others. 

[End of table] 

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.[Footnote 5] 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.[Footnote 6] For example, we noted that: 

² 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. 

² Procurement processes within DOD were not always carried out 
efficiently and effectively. 

² 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.[Footnote 7] 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.[Footnote 8] 
Among other things, the legislation required DOD to: 

² identify the critical skills and competencies needed to carry out the 
procurement of services; 

² develop a comprehensive strategy for recruitment, training, and 
deploying employees to meet the requirements for skills and 
competencies; 

² establish contract services acquisition categories, based on dollar 
thresholds, for the purpose of establishing the level of review, 
decision authority, and applicable procedures; 

² dedicate full-time commodity managers to coordinate the procurement 
of key categories of services; 

² 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; 

² ensure that competitive procedures and performance-based contracting 
are used to the maximum extent practicable; and: 

² 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. 

Managing Service Acquisition Requires Both a Strategic and a 
Transactional Focus: 

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. 

Figure 1: Key Strategic and Transactional Factors for Service 
Acquisition: 

[See PDF for image] 

Source: GAO (analysis). 

[End of figure] 

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. 

Strategic Focus: Knowing Where Service Acquisition Is Today and Where 
It Should Be Tomorrow: 

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. 

Figure 2: Key Factors in Achieving a Strategic Approach to Service 
Acquisition: 

[See PDF for image] 

Source: GAO (analysis). 

[End of figure] 

Leadership Must Establish Vision and Goals: 

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. This position can then be 
translated into specifics, both in the aggregate and by type, such as: 

² the current volume, type, location, and trends of service 
acquisitions; 

² the results the organization wants to achieve in a specified time 
frame; 

² the definition of a good service acquisition outcome; and: 

² the characteristics of a service acquisition that make it desirable, 
undesirable, or sensitive. 

Critical to establishing a normative position is knowledge of current 
service acquisition expenditures, management priorities, and expected 
outcomes. The vision could also dictate which services represent risks 
to the organization. For example, acquisitions could be deemed low risk 
based on minimal cost exposure, high availability of service providers, 
or limited criticality for meeting mission requirements. Conversely, 
high-risk acquisitions may be those of higher dollar value, mission- 
critical requirements, services that are new or being acquired using a 
different approach, or any other services determined to need additional 
corporate-level involvement or oversight based on management 
priorities. 

Vision and Goals Must Be Communicated and Used to Measure Progress: 

Once a vision and desired end state for service acquisition have been 
defined, senior management must be both active and persistent in 
supporting ongoing efforts, adjusting the strategy to reflect new 
information, and moving toward the established normative position. 
Communication and metrics are important management ingredients in terms 
of overcoming resistance, cultural barriers, and other impediments to 
achieving identified goals. Senior leaders also have the responsibility 
to communicate and demonstrate a commitment to sound practices deemed 
acceptable for the acquisition function. We have previously reported 
that DOD faces vulnerabilities in aspects of its senior leadership 
because of certain disconnects, including senior positions that have 
remained unfilled for long periods of time, the acquisition culture 
fostered by management's tone at the top, and the management approach 
used in new industry partnering relationships.[Footnote 9] 

We have also noted the importance of leadership by senior agency 
officials to successfully transform other aspects of DOD's business 
operations and those of other federal agencies. For example, our prior 
work has shown that DOD's substantial financial and business management 
weaknesses adversely affect not only its ability to produce auditable 
financial information, but also its ability to provide accurate, 
complete, and timely information for DOD management and Congress to use 
in making informed decisions. We indicated that overcoming these 
weaknesses required sustained leadership at the highest level and a 
strategic and integrated plan.[Footnote 10] 

Metrics defining specified outcomes are vital to increasing the 
likelihood that changes to practices will successfully contribute to 
the organizational vision. While they can differ in nature and be used 
to varying degrees, metrics can be used to (1) evaluate and understand 
performance levels, (2) identify critical processes that require 
attention, (3) document results over time, and (4) report information 
to senior officials for decision-making purposes. To illustrate this, 
DOD spends 20 percent of its service dollars on professional and 
administrative management support contracts. If senior DOD officials 
believe that such volume poses risks, then it can use this information 
to establish targets to control and monitor the use of these services. 
For example, in March 2006 the Secretary of the Air Force issued a 
memorandum directing increased visibility and management of contract 
services in support of command functions, in an attempt to save over $6 
billion that would then be used for other transformation initiatives. 
If the Air Force follows up by collecting timely data on the individual 
service transactions made in this area, it can see whether it is making 
progress toward its desired end state. For DOD, risks of not doing this 
at a strategic level entail losing momentum and failing to sustain 
positive change, and such failures can then be manifested in quick 
fixes, fire drills, or changes in policy statements that do not have a 
material effect on actual operations. 

Structures and Processes Must Be Defined to Facilitate Service 
Management Direction: 

Successful service acquisition management also requires attention to 
the organization's ability to move from a fragmented manner of doing 
business to one that is more coordinated and strategically oriented. 
Primarily, this involves changing how services are acquired in terms of 
business processes, organizational structures, and roles and 
responsibilities. Our work with leading commercial firms found that 
typical changes in this area include: 

² restructuring acquisition organizations and elevating the procurement 
function to improve coordination with other internal organizations and 
optimize available resources; 

² establishing new processes for routine tasks and using cross- 
functional teams made up of individuals with various skills to ensure 
the right mix of knowledge, technical expertise, and credibility; and: 

² establishing full-time, dedicated commodity managers to provide more 
effective management over key services. 

We reported in March 2005 that the Department of Homeland Security was 
pursuing similar approaches as it attempted to integrate the various 
acquisition functions it inherited upon its establishment in 2003. For 
example, the department designated a Chief Procurement Officer with 
broad responsibility for its acquisition function and established 
commodity councils composed of representatives from across the 
department that were assigned responsibility for assessing future 
purchasing strategies. We noted, however, that senior agency leadership 
needed to address a number of challenges before fully integrating its 
procurement function, such as clearly defining the roles and 
responsibilities of key offices, and establishing a structure to ensure 
continued support for commodity councils--such as appointing full-time 
commodity managers.[Footnote 11] 

In essence, this move toward a more strategic orientation can be 
compared to a franchise model of business versus that of individually 
owned stores or units. While franchises, like individually owned 
businesses, operate at the local level and adapt to the specific needs 
and demands of a community, they still must adhere to the consistent 
set of standards and processes of the parent organization. For service 
acquisition, this translates into recognition that while unique local 
requirements need to be understood and met, individual acquisitions 
should also be viewed in the context of organizational goals, 
objectives, and strategies. In this regard, company officials indicated 
they can tailor delivery of services to meet local needs while helping 
to achieve organizational cost savings or quality improvement 
objectives. Risks here are twofold. First, if a single, monolithic 
process is used for every service acquisition regardless of size, 
sensitivity, or type, it could be overkill for some transactions and 
insufficient for others. Second, allowing local buying activities to 
operate independent of organizational standards and processes would 
impair or defeat an organization's ability to achieve desired aggregate 
goals or outcomes. 

Knowledge on Spending and Workforce Vital to Managing Services: 

Organizations also need basic, reliable data on how service dollars are 
being spent and the capabilities of the workforce in place to acquire 
and manage those services. Company officials who were successful with 
improving service acquisition management informed us it was critical to 
define the relevant types of information that were required and then 
develop the appropriate data systems to collect and provide reliable 
spending data. Such data enable senior managers to know not only the 
current state of service acquisition, but how far it is from the 
desired end state. While the type of information may vary depending on 
the organization and the types of services acquired, basic spend 
analysis data should include information and trends related to: 

* the type of services being acquired; 

* the number of suppliers for a specific service the organization is 
using; 

* the amount the organization is spending for that service, in total 
and with each supplier; and: 

* the units in the organization that are acquiring the services. 

We have previously reported that several civilian agencies have used 
this approach to leverage their buying power, reduce costs, and better 
manage suppliers of goods and services. For example, we reported in 
September 2004 that the Departments of Agriculture and Veterans 
Affairs, among others, had launched or expanded spend analysis efforts 
and in turn realized savings ranging from $1.8 million to $394 million 
on related acquisitions.[Footnote 12] Similarly, we noted in 2005 that 
the Department of Homeland Security identified 15 commodity areas as 
having the potential to leverage the department's buying power. In 
fiscal year 2004, four commodity councils reported approximately $14.1 
million in cost savings and avoidances.[Footnote 13] Some councils 
encountered difficulties due to a shortage of comprehensive data upon 
which to draw an accurate and detailed picture of what was being spent 
on certain commodities over time, thereby preventing them from taking 
full advantage of their strategic sourcing and spend analysis efforts. 

Equally important and necessary is for an organization to have a 
workforce that is manned at the appropriate levels and equipped with 
the right skills and abilities. To do this, a comprehensive, data- 
driven workforce analysis must be performed in conjunction with 
establishing the corporate vision and goals. An organization cannot 
fully understand what skills and staffing commitments are necessary at 
each organizational level to meet service acquisition requirements 
until it understands where it wants to go and how it plans to get 
there. Once information on spending and workforce capabilities is known 
and understood, organizations can be more strategic in planning and 
managing service acquisition. The absence of such data creates several 
risks, including not knowing how and where money is being spent on 
service acquisition or not having the appropriate workforce skills or 
staffing levels to ensure it is using sound buying practices. 

Transactional Focus: Buying the Right Individual Service the Right Way: 

While the strategic level defines the direction and manner in which an 
organization pursues improvements in service acquisition, it is through 
individual service transactions that the strategy is implemented. Key 
factors at this transactional level include (1) clearly defined and 
valid requirements; (2) appropriate business arrangements; and (3) 
effective contractor management and oversight. In short, an 
organization needs to assure itself that on individual service 
transactions it is buying the right thing in the right way and that 
doing so results in the desired outcome. See figure 3 for key factors 
for effectively managing service acquisitions at the transaction level. 

Figure 3: Key Factors for Managing Service Acquisitions at a 
Transactional Level: 

[See PDF for image] 

Source: GAO (analysis). 

[End of figure] 

Good Outcomes Begin with Sound Requirements: 

Establishing a valid need and translating that into a service 
acquisition requirement is essential for obtaining the right outcome. 
Without this, an organization increases the risk that it will pay too 
much for the services provided, acquire services that do not meet its 
needs, or enter too quickly into a sensitive arrangement that exposes 
the organization to financial, performance, or other risks. Moreover, 
to establish accurate requirements, the customer organization would 
benefit by involving stakeholders that have knowledge about past 
transactions, current market capabilities and the potential supplier 
base, and budgetary and financial management issues. The makeup of 
stakeholders may vary across different transactions depending on the 
nature, complexity, and risks. In the end, the purpose of stakeholders 
with varied knowledge and skills is to ensure at the earliest point 
possible that all aspects of the acquisition are necessary, executable, 
and tailored to the level of risk commensurate with the individual 
transaction. We have found that when DOD uses similar teaming concepts 
to develop and deliver products, the results have included superior 
outcomes within predicted time frames and budgets. For example, we 
reported in April 2001 that the Advanced Amphibious Assault Vehicle 
program used teams to reduce the time needed to make a design decision 
from 6 months to about a week.[Footnote 14] 

Because the nature of service contracts can vary, they naturally 
require different approaches in describing requirements. For example, 
the time, discipline, and sophistication of a team developing a 
requirement for repetitive building maintenance would be considerably 
less than that of a team developing a requirement for the first 
purchase of a space launch service. Observing these factors, tailored 
to the individual requirement at hand, can help to ensure that risks 
associated with a requirement for a service acquisition are fully 
considered before entering into a business arrangement. This is 
especially important for service acquisitions, because once 
requirements are developed, most transactions move very quickly into 
the business arrangement and contracting stages. 

Appropriate Business Arrangements Provide Right Way to Buy Services: 

Once a requirement has been validated and defined, it becomes necessary 
to develop an appropriate business arrangement to meet that need while 
protecting the government's interests. Of course, without a sound 
requirement, the business arrangement could be relegated to buying the 
wrong service the right way. At a basic level, this includes defining a 
clear scope of expected contractor performance, developing an objective 
means to assess the contractor's performance, ensuring effective 
contractor selection based on competition and sound pricing, and 
selecting an appropriate contracting vehicle. Here again, while these 
are performed with respect to the individual transaction, they must be 
done in the context of the organization's strategic vision. 

As an organization undergoes the process for selecting those 
contractors that will provide services, there should be clearly 
established relationships among what tasks the contractor is expected 
to perform, the contract terms and conditions, and performance 
evaluation factors and incentives. This is especially true as federal 
agencies makes adjustments to their acquisition practices. For example, 
in recent years, federal agencies have made a major shift in the way 
they buy services, turning increasingly to interagency contracts as a 
way to streamline the procurement process. In these cases, an agency 
can use an existing contract that has already been awarded by another 
agency, or turn to another agency to issue and administer task orders 
on its behalf, often for a fee.[Footnote 15] Requirements, roles, and 
responsibilities need to be clear to reduce risks. For example, we 
reported in July 2005 that DOD customers did not provide the awarding 
agency with detailed information about their needs.[Footnote 16] 
Without this information, these agencies did not translate DOD's needs 
into well-defined contract requirements that contained criteria to 
determine whether the contractor had performed successfully. In the 
absence of well-defined outcomes, DOD and the agencies lacked criteria 
to provide effective contractor oversight. 

Similarly, competition during the acquisition process is also important 
in getting reasonable prices, as offerors put forth their best bid and 
solution to meeting the proposed requirements and the government 
receives the benefit of market forces on pricing. We have noted, 
however, that DOD has, at times, sacrificed the benefits of competition 
for expediency. For example, we noted in April 2006 that DOD awarded 
contracts for security guard services supporting 57 domestic bases, 46 
of which were done on an authorized, sole-source basis. The sole-source 
contracts supporting the last 37 installations were awarded by DOD 
despite recognizing it was paying about 25 percent more than previously 
paid for contracts awarded competitively.[Footnote 17] 

When proper management controls are not in place, particularly in an 
interagency fee-for-service contracting environment, too much emphasis 
can be placed on customer satisfaction and revenue generation rather 
than on compliance with sound contracting policy and required 
procedures, such as competition. Significant problems in the way 
contracting offices carry out responsibilities in issuing the orders 
for services may not be detected or addressed by management. For 
example, in April 2005 we reported that a lack of effective management 
controls--in particular insufficient management oversight and a lack of 
adequate training--led to the breakdowns in the issuance and 
administration of task orders for interrogation and other services in 
Iraq, including: 

² issuing 10 out of 11 task orders that were beyond the scope of 
underlying contracts, in violation of competition rules; 

² not complying with additional DOD competition requirements when 
issuing task orders for services on existing contracts; 

² not properly justifying the decision to use interagency contracting; 

² not complying with ordering procedures meant to ensure best value for 
the government; and: 

² inadequate monitoring of contractor performance.[Footnote 18] 

Without appropriate attention, there is an increased risk that the 
government will pay too much for the purchased service, will be limited 
in its access to new and innovative alternatives, or will not be in the 
proper position to effectively manage the contractor after an 
arrangement is established. 

Actual Performance Must Be Managed and Assessed: 

At the transactional level it is also important to implement a post- 
contract award process to effectively manage and assess contractor 
performance to ensure that the business arrangement is properly 
executed. Managing and assessing post-award performance entails various 
activities performed by government officials to ensure that the 
delivery of services meets the terms of the contract, including 
adequate surveillance resources, proper incentives, and a capable 
workforce for overseeing contractor activities. Each of these requires 
metrics and tools to encourage contractors to provide superior 
performance and to manage and document that the contractor's 
performance was acceptable. For example, one important element of this 
phase is having a plan for assessing performance that outlines how 
services will be delivered. In addition, the plan should provide a 
mechanism for capturing and documenting performance information so it 
can serve as past performance information on future contracts. 
Effective use of such a plan can allow the government to evaluate the 
contractor's success in meeting the specified contract requirements. 
Further, organizations can use monetary incentives, such as those 
provided through award and incentive fee contracts, to promote desired 
acquisition outcomes. Finally, quality assurance surveillance-- 
oversight of the services being performed by the contractor--is 
important to ensure that contractors are providing timely and high- 
quality services and to help mitigate any contractor performance 
problems. 

In an environment that demands increased interaction between DOD and 
the contractor to ensure expected outcomes, acquisition personnel must 
be adequately trained to understand each of these elements and have the 
skills to manage service contractors accordingly. Without appropriate 
attention through contract completion, we have found that risks exist 
that could result in poor contractor performance, services not being 
delivered as expected, or payment to contractors for more than the 
value of the services they performed. For example, our March 2005 
review of 90 contracts showed wide variance in the level of 
surveillance, including 15 contracts that had no personnel assigned at 
all for these responsibilities.[Footnote 19] According to DOD 
officials, this condition existed because surveillance was not as 
important to contracting officials as awarding contracts and 
contracting oversight personnel were not properly assigned, evaluated 
on the performance of their duties, or provided enough time to complete 
surveillance tasks. In the same way that the development of 
requirements for services must be different from the development of 
requirements for products, so is the case for overseeing contractor 
performance. Given that performance thresholds may vary greatly, 
management and oversight of individual service acquisitions may need to 
be tailored to meet specific requirements. In some cases, dollar value 
may not be a good proxy for determining risk. For example, some high 
dollar contracts could pose relatively little risk to achieving the 
agency's mission. Conversely, certain lower dollar contracts, such as 
those used to obtain interrogation services in Iraq, may pose higher 
risk and, therefore, require greater management attention. 

DOD Service Acquisition Approach Does Not Fully Address Key Elements at 
the Strategic or Transactional Levels: 

DOD and the military departments have not yet fully addressed the key 
elements for managing service acquisition at a strategic or a 
transactional level. At the strategic level, DOD has not formed a 
normative position of where service acquisition needs to be and does 
not have the data necessary to know the state of service acquisition 
today. As a result, DOD is not in a position to determine whether 
investments in services are achieving their desired outcomes. These are 
precursors to defining and promoting improved outcomes. At the 
transactional level, most of DOD's efforts have been aimed at improving 
business arrangements, without commensurate focus on how requirements 
are established and communicated or how service contracts are executed. 
Despite the implementation of a senior-level review process, buying 
commands and activities have not made significant changes to how they 
manage individual service acquisitions. 

DOD's Strategic Level Approach Missing Key Elements: 

DOD's overall approach to managing service acquisition suffers from the 
absence of several key elements. DOD has not developed a strategic 
vision and lacks sustained commitment to manage service acquisition 
risks and foster more efficient outcomes. As a result, DOD is not in a 
position to communicate to its workforce how it intends to improve its 
acquisition of services; determine needed changes to structures and 
processes to better identify and prioritize risks; or understand the 
current state of service spending and the skills of its current 
workforce. While DOD's current approach to managing service acquisition 
at the strategic level provides some additional insight into high- 
dollar value service acquisitions, it lacks an overall road map for 
managing risk and integrating key service acquisition initiatives. 

Normative Position of Service Acquisition Not Yet Established: 

DOD has not yet identified the types and quantities of services it 
purchases; the outcomes needed in service acquisition so that necessary 
changes can be understood and evaluated; or metrics that can be used to 
assess whether those changes have actually achieved the expected 
outcomes. DOD and military department officials have acknowledged that 
DOD has not developed a comprehensive plan that targets areas needing 
improvements, coordinates ongoing and planned initiatives, and provides 
an overall road map to improve DOD's management of services. In the 
absence of such a vision, DOD's strategic level efforts do not position 
the department to proactively manage service acquisition outcomes, but 
rather relegate DOD to a reactive role in which the billions of dollars 
spent acquiring services simply reflects the sum total of individual 
actions. 

Further, DOD's efforts to transform its enterprisewide business 
operations may not translate into improved knowledge on how services 
are acquired. For example, DOD established the Business Transformation 
Agency in October 2005 to lead and coordinate business transformation 
efforts across the department. The Business Transformation Agency is 
tasked primarily with modernizing key information technology systems 
and business processes intended to make reliable data more readily 
available while at the same time consolidating the overall number of 
information technology systems and ensure consistency across the 
department. However, the Business Transformation Agency has few ongoing 
activities directly related to the acquisition of services. 

In addition, DOD has pursued few opportunities to leverage its buying 
power to acquire services through the use of strategic sourcing 
concepts. While DOD has undertaken a number of pilot efforts, only a 
limited number of these focused specifically on services. In 2006, DOD 
appointed the Assistant Deputy Under Secretary of Defense for Strategic 
Sourcing and Acquisition Processes to coordinate efforts and assist 
other DOD components, including the military departments and the 
Defense Acquisition University (DAU), as they develop strategic 
sourcing plans and training processes. The Assistant Deputy Under 
Secretary stated that initial efforts were focused on developing a 
concept of operations to facilitate this requirement, but so far had 
been limited by a lack of staff and resources. Further, he acknowledged 
that his office does not play a role in DOD's service acquisition 
review process. In September 2006, a senior DOD official indicated that 
DOD was considering transferring this responsibility to the Office of 
the Director, Defense Procurement and Acquisition Policy. It is 
uncertain how this change, if implemented, would affect the roles and 
responsibilities previously assigned to the office. 

DOD Has Not Communicated Its Vision for Managing Service Acquisition: 

Because it lacks a strategic vision, DOD is not in a position to 
communicate how it intends to improve its approach to service 
acquisition. DOD's primary policy for managing service acquisition came 
in the form of a memorandum issued in response to sections 801 and 802 
of the Fiscal Year 2002 National Defense Authorization Act. That 
memorandum, issued in May 2002, noted DOD's intent to move to a more 
strategic and integrated approach to the acquisition of services and 
the need to treat this area as seriously as it does that of 
hardware.[Footnote 20] Similarly, DOD and senior military department 
officials have testified on the need to improve service acquisition 
management within their departments. Nevertheless, our discussions with 
command and buying activity officials found that while recognizing this 
need, without specific guidance from DOD, their acquisition practices 
remain unchanged. As a result, senior DOD leadership's call for change 
has had limited impact on acquisition practices at lower levels within 
the department. 

Further, one of the biggest obstacles to a more strategic approach to 
service acquisition is breaking down cultural barriers at different 
levels and across various functions of the acquisition process. In that 
regard, officials noted that the acquisition and contracting 
communities often do not have a shared vision for improving service 
acquisition or of their role in such a vision. For example, DOD has 
acknowledged that the use of performance-based service contracting 
techniques is generally perceived as a "contracting" initiative, with 
the rest of the acquisition community generally not fully participating 
or embracing the initiative. Consequently, DOD and military department 
officials indicate that without senior leadership and commitment, it is 
difficult to get support for changes in business practices within the 
acquisition community. 

Changes to Supporting Structures, Processes, and Roles Have Had Limited 
Effect: 

As part of its May 2002 policy, DOD required the development of a 
review process for individual service acquisitions, established 
oversight thresholds, and specified which service acquisitions are to 
be reviewed. In addition, it required the military departments to 
establish a similar management review process. DOD officials noted in 
2003 that this approach, combined with several other initiatives, was 
expected to have significant impact on the acquisition of services. The 
new management structure DOD implemented to address identified 
deficiencies associated with the management of services established 
three levels: (1) review by the Under Secretary of Defense 
(Acquisition, Technology, and Logistics) for services acquisitions 
valued over $2 billion; (2) review by the component or designated 
acquisition executive for service acquisitions valued between $500 
million and $2 billion; and (3) review by a component-designated 
official for the acquisition of services valued at less than $500 
million. In response to this guidance, the Air Force, Army, and Navy 
each developed individual service acquisition review processes and 
authorities to support the DOD review requirements and identified 
respective decision authorities responsible for conducting execution 
reviews to assess progress against metrics. 

DOD and military department officials with whom we spoke indicated that 
the review structure has provided the reviewing office with additional 
insight on high-dollar value service acquisitions. However, the Office 
of the Under Secretary of Defense (Acquisition, Technology, and 
Logistics) lacked complete information on the number and scope of 
acquisitions of which it was notified and therefore could not give us a 
definitive response as to how many transactions were formally reviewed. 
Officials from that office provided a list of 19 service acquisitions 
that had been notified for review--9 Army and 2 Air Force acquisitions, 
in addition to 8 acquisitions from the Office of the Assistant 
Secretary of Defense (Networks and Information Integration), which are 
subject to review under the guidance for major automated information 
systems--but provided no additional information on the results of those 
reviews. 

Data provided by officials at the military department level indicated 
that through September 2005, 69 acquisitions--representing just under 3 
percent of service obligations--had been reviewed by the Air Force, 
Army, and Navy under the new process (see table 2). 

Table 2: Service Acquisitions Reviewed under DOD and Military 
Department Review Structure (dollars in millions): 

Review level/office: Under Secretary of Defense (Acquisition, 
Technology, and Logistics); 
Criteria[A]: Proposed service actions valued at $2 billion or more; 
Number of proposed contract actions reviewed: Unknown; 
Fiscal year 2005 obligations from reviewed actions[B]: [Empty]; 
Total fiscal year 2005 obligations for services: [Empty]; 
Percentage of obligations from reviewed actions: [Empty]. 

Review level/office: Army; Assistant Secretary of the Army 
(Acquisition, Logistics, and Technology); Deputy Assistant Secretary of 
the Army (Policy and Procurement); 
Criteria[A]: ; Proposed service acquisitions exceeding $500 million; 
Number of proposed contract actions reviewed: 16; 
Fiscal year 2005 obligations from reviewed actions[B]: $326; 
Total fiscal year 2005 obligations for services: $40,267; 
Percentage of obligations from reviewed actions: <1.0. 

Review level/office: Navy; Assistant Secretary of the Navy (Research, 
Development, and Acquisition); Deputy Assistant Secretary of the Navy 
(Acquisition Management); 
Criteria[A]: ; Proposed actions exceeding $1 billion; Proposed service 
acquisitions with a value between $500 million and $1 billion; 
Number of proposed contract actions reviewed: 9; 
Fiscal year 2005 obligations from reviewed actions[B]: $353; 
Total fiscal year 2005 obligations for services: $23,123; 
Percentage of obligations from reviewed actions: 1.5. 

Review level/office: Air Force; Program Executive Officer for Combat 
and Mission Support; 
Criteria[A]: ; Proposed service acquisitions exceeding $100 million or 
300 or more full-time equivalents for A-76 requirements; 
Number of proposed contract actions reviewed: 44[C]; 
Fiscal year 2005 obligations from reviewed actions[B]: $1,735; 
Total fiscal year 2005 obligations for services: $21,896; 
Percentage of obligations from reviewed actions: 7.9. 

Review level/office: Total; 
Criteria[A]: [Empty]; 
Number of proposed contract actions reviewed: 69; 
Fiscal year 2005 obligations from reviewed actions[B]: $2,414; 
Total fiscal year 2005 obligations for services: $85,286; 
Percentage of obligations from reviewed actions: 2.8. 

Source: DOD (data); GAO (analysis). 

[A] DOD and the military departments can also review any service 
acquisition below established thresholds, but otherwise determined to 
be of special interest. 

[B] Figures in this column may include obligations for contracts or 
orders that included products and research and development-related 
services. 

[C] Does not include one classified acquisition that underwent review. 

[End of table] 

While the DOD reviews to date under this process have provided some 
additional visibility over high-dollar value service acquisitions, the 
reviews tend to focus more on ensuring compliance with applicable 
statutes, regulations, and other requirements, rather than on imparting 
a vision or tailored method for strategically managing service 
acquisition. Senior DOD and military department officials noted that 
the process is generally not intended to review program or customer 
decisions made at lower levels within the department as to the need for 
the particular services or to have a post-contract award follow-up 
assessment to ensure expected outcomes. Also, the reviews have not 
positioned DOD to regularly identify opportunities to leverage buying 
power. Further, they noted that the reviews are largely perceived as a 
function and responsibility of the DOD contracting organization, rather 
than a shared responsibility of the entire acquisition community, to 
include the program office and other customers for services. 

Moreover, DOD's policy does not require the Under Secretary of Defense 
(Acquisition, Technology, and Logistics) to actually review those 
acquisitions that exceed the $2 billion threshold. Service acquisitions 
that meet this threshold are first reviewed and approved at the 
military department level. In turn, the military departments notify the 
Under Secretary that a service acquisition exceeding the threshold is 
available for review. If there is no response within 10 days, the 
acquisition is allowed to proceed without further review. Additionally, 
at the military department level, most of the service acquisitions 
reviewed to date have been indefinite delivery/indefinite quantity 
contracts.[Footnote 21] There is no requirement to review individual 
task orders that are subsequently issued even if the value of the task 
order exceeds the review thresholds. 

We spoke to many officials at buying activities that had proposed 
service acquisitions for review under this process. For the most part, 
they did not believe the review significantly improved those 
acquisitions and noted very few examples of occasions when, as a result 
of review feedback, acquisition strategies were changed in a meaningful 
way. For example, the reviews tended to focus on compliance with 
applicable laws, regulations, and socioeconomic goals, such as small 
business participation or, in other words, that the business 
arrangements are proper--all of which are covered in the development of 
the acquisition strategy prior to the review. These officials indicated 
that the timing of the review process--which generally occurs well into 
the planning cycle--is too late to provide opportunities to influence 
the acquisition strategy. These officials told us that the reviews 
would be more beneficial if they were conducted earlier in the process, 
in conjunction with the program office or customer, and in the context 
of a more strategic approach to how best to meet the requirement, 
rather than simply from a secondary or tertiary review of the contract 
and in an area where they have considerable experience and expertise. 
In addition, contracting officials at one buying command stated that 
reviewing officials often lack the resources or technical expertise to 
provide useful and valuable feedback. 

Knowledge on Spending and Workforce Is Not Readily Available: 

DOD's ability to effectively manage service acquisition at either the 
strategic or the transactional level is hindered by the absence of 
reliable data on which to make informed decisions. DOD and military 
department officials acknowledge that the DOD contracting information 
systems available to the locations we visited do not provide 
information on forecasted demands for services; current and reliable 
information on what services are currently being procured; or data to 
assess whether these services are being acquired in line with cost, 
schedule and performance goals, or otherwise meeting customer needs. 

For its part, DOD has not identified the specific data it needs to 
better manage service acquisition outcomes or developed appropriate 
data systems that are essential for providing the information necessary 
for improving results. According to DOD documentation, there are 
thousands of individual information systems that have been implemented 
over decades to meet various mission needs, and rather than providing 
usable information, these systems can hinder collecting information 
needed by decision makers. Because these systems were developed 
independently--often not designed to be interoperable with other such 
systems--it is a challenge to share data with other locations or higher 
organizational levels in support of broader planning and decision 
making. Even collecting basic information on high-dollar services often 
proves time-consuming. For example, in April 2005, DOD initiated a 
formal review of its service acquisition policy. According to DOD 
officials, after determining that its data systems were inadequate to 
identify and assess the status of service acquisition policy 
compliance, the department initiated a data call to each of the 
military components asking for a status review of the top 20 service 
acquisitions in each military department since inception of the policy. 
This data call took more than 6 months to collect, review, and report 
basic contracting data. Further, the results did not provide the types 
of knowledge DOD had expected. 

Finally, DOD has acknowledged that it faces significant workforce 
challenges that if not effectively addressed could impair the 
responsiveness and quality of acquisition outcomes. In response, DOD is 
in the process of identifying the current skill sets and gaps of the 
acquisition workforce that routinely are engaged in acquiring services. 
For example, DOD's 2006 Human Capital Strategic Plan noted there are 
currently efforts to develop a comprehensive competency model for each 
functional career field including the technical tasks, knowledge, 
skills, abilities, and personal characteristics required of the 
acquisition workforce. Similarly, DAU officials noted that they are 
revising the training curriculum for acquisition personnel, in part to 
provide an increased emphasis on service acquisition. For example, DAU 
has an ongoing effort to identify the critical competencies for service 
acquisition, determine which of these competencies require further 
workforce training, and develop the appropriate training. DAU officials 
stated the new courses will be initially targeted for contracting 
personnel. In addition, DOD officials stated that these courses will be 
made available to noncontracting acquisition personnel only as time and 
resources permit. 

DOD Transactional Approach Focuses Principally on Business Arrangement: 

Our work found that at the transactional level, buying commands and 
activities have not significantly adjusted their acquisition practices 
since DOD implemented its new review structure. The current 
transactional-level approach does not always take the necessary steps 
to ensure customer needs are translated into well-defined contract 
requirements or that post-contract award activities result in expected 
outcomes. Instead, DOD service acquisition management activities focus 
primarily on awarding the contract. Without clearly defined 
requirements and attention after the contract is awarded, DOD cannot be 
sure it is buying the right service or using an appropriate means to 
assess contractor performance. As a result, DOD is potentially exposed 
to a variety of risks, including buying things that do not fully meet 
customer needs or that should be provided in a different manner or with 
better results. 

Communication Challenges Hinder Establishment of Good Requirements: 

DOD and military department officials consistently identified poor 
communication and the lack of timely interaction between the 
acquisition and contracting personnel as key challenges to developing 
good requirements. These officials noted that developing well-defined 
and clearly articulated requirements in outcome-based performance 
measures is difficult in and of itself, but the challenges can be 
reduced if both communities work together early in the process. Several 
officials identified actions they have initiated to improve working 
relationships, but acknowledged that results have not been uniformly 
achieved. In part, these issues arise from cultural differences between 
the contracting and acquisition communities concerning their roles in 
managing various service acquisition elements. 

Generally the intended customer of a service, such as a program office, 
has the responsibility to identify what type of service it requires, 
the level of performance or quality needed, the period of performance, 
and the available budget. To avoid problems with the later stages of 
the acquisition process, and depending on the complexity of the 
services needed, early involvement of the contracting and other 
functional communities is important. However, contracting officers we 
spoke with frequently commented that the initial statements of work 
prepared by the customer were often insufficient, unclear, or not 
expressed in performance-based terms, requiring considerable rework. In 
addition, officials told us it is important that contracting officers 
fully understand exactly what the customer needs in order to get the 
best business arrangement for the government. However, contracting 
officers did not always have the necessary knowledge or expertise to 
understand the requirement, such as translating specific requirements 
into the statement of work. According to contracting officials, the 
resulting frustrations are heightened when customers identify the need 
to award a contract for the services in a short time period. 

Similarly, because services are generally funded on an annual basis, 
contracting officers are often faced with many pressures at the end of 
each fiscal year. For example, officials at the Navy Fleet Industrial 
Supply Center in Philadelphia noted the impact of DOD's recent policy 
requiring contracting officers to approve task orders with a value of 
$100,000 or more if they are issued against a non-DOD 
contract.[Footnote 22] While this does provide greater visibility in an 
area of previous concerns, the officials we spoke to indicated that the 
policy was issued without first assessing the impact on the contracting 
workforce or whether the customer was fully aware of the new process 
requirements. Consequently, contracting personnel were faced with a 
significant increase in workload, much of it at the end of the fiscal 
year. As many of these contracting officials had not been involved with 
the original negotiation or award of the contract, and because of the 
short time frames needed to issue the orders, they felt pressured to 
review and approve task orders without being able to fully assess 
whether the overall approach was the most effective or efficient. 

The lack of technical knowledge and training was raised as an issue at 
several commands we visited. For example, at many locations, officials 
commented on the lack of contracting knowledge on the part of the 
customer. One contracting manager told us he would be willing to pay 
for contracting-related training for customers, so that they could 
better understand how to prepare various contract documents, such as a 
performance-based statement of work or an award fee evaluation plan. 
Contracting officials told us that such documents can be difficult to 
prepare without sufficient planning and input from customers who are 
familiar with what needs to be accomplished. Similarly, contracting 
officers at one location told us that they sometimes have to alter 
acquisition approaches because it is too difficult to develop 
evaluation plans that can be used by customers to effectively evaluate 
contractor performance. Program officials also commented on the lack of 
technical knowledge on the part of the contracting community. One Air 
Force program official told us that he is required to use the general 
base contracting office to procure advanced medical services, even 
though the contracting officers usually do not have related technical 
knowledge and sometimes have difficulty understanding the requirement. 
Shared knowledge and communication are therefore important for ensuring 
that customers and contracting personnel are placed in the best 
position to achieve expected outcomes. 

Officials at some locations reported that better acquisition outcomes 
can result from establishing effective working partnerships. For 
example, Air Force Space Command officials noted that one of their 
major service acquisitions involves support for base operations in 
Thule, Greenland. The Air Force has relied on contractors to provide 
these services for more than four decades and believed their experience 
on the program illustrates key aspects needed to promote a successful 
acquisition. These officials noted that the service is a high priority 
and receives considerable attention from senior management. 
Additionally, the command employs a team-based approach to the 
acquisition, which means that personnel from both the customer and 
contracting communities are assigned and remain on the acquisition team 
throughout the development of the requirements, associated acquisition 
strategy, and contracting approach. Further, to help develop the 
requirements, the team receives considerable input from program 
personnel and the contracting officer's technical representative as to 
the contractor's performance, and makes use of monthly reports that 
measure key performance parameters. By including personnel from all 
stages of the acquisition process--program managers, contracting 
officers, and quality assurance personnel--Space Command officials 
believed they were able to make adjustments to their requirements that 
allowed the contract to be priced in a manner that reduced cost risk to 
the government. Command officials and those involved in the Thule 
service acquisition acknowledge, however, that they have not been able 
to consistently replicate this success on all other acquisitions. 

Because of the recognized need to improve communication and share 
knowledge between customers and the acquisition workforce, some of the 
buying commands we visited have taken actions to promote communication 
and timely interaction. For example, the Army's Communications and 
Electronics Command colocated senior contracting officers with 
customers to promote better communication and more cooperation between 
the two communities. These staff members, referred to as customer 
service representatives, establish early lines of communication by 
participating in management meetings with the customers to identify 
future acquisition needs. The representatives use this knowledge to 
help senior management in the contracting organization identify 
resources and approaches to meet customer needs. 

Business Arrangements Receive Majority of Management Attention, but 
Pressures to Meet Customer Needs Cited as Concerns: 

Buying commands and activities we visited focused the majority of their 
attention on structuring business arrangements to ensure compliance 
with applicable laws and regulations. As a result, command officials 
generally indicated that their previous practices were already in line 
with requirements established under DOD's review process and therefore 
remain largely unchanged. In some cases, the commands have established 
additional procedures to review specific areas of interest, such as the 
proposed use of an interagency contract or to ensure that task orders 
under multiple award contracts comply with competition requirements. 

Despite these reviews, however, we have identified examples of 
potentially poor contracting practices and the pressure to meet 
customer demands. For example, 

² On one acquisition, an Army contracting officer issued a task order 
for a product that the contracting officer knew was outside the scope 
of the service contract. The contracting officer noted in an e-mail to 
the requestor that this deviation was allowed only because the customer 
needed the product quickly and cautioned that no such allowances would 
be granted in the future. 

² The Navy has established Seaport-enhanced, a centralized electronic 
ordering system that competes and issues task orders for multiple 
customers for program management support contracts. The Navy instructed 
buying activities within its virtual system command structure to use 
Seaport-enhanced as the "mandatory method of choice" for these 
services. However, officials at one Navy buying command told us they 
plan to submit waivers to avoid using Seaport-enhanced to meet their 
customer's preference for using particular contractors and to use time- 
and-materials contracts, neither of which would be possible using 
Seaport-enhanced. 

² An Air Force contracting official noted that his office intended to 
award a number of contracts to local firms so that the firms, in turn, 
could have increased opportunities to provide services to other 
civilian and military organizations in the region, through marketing 
themselves as having been awarded a federal contract. 

While these cases are anecdotal, they indicate that some contracting 
officers feel pressured to meet their customers' needs and had, or were 
considering, options that may not be in the bests interests of the 
government. 

Limited Capability to Assess Service Acquisitions: 

Command and buying activities we reviewed generally had limited 
capabilities to assess the degree to which their service acquisitions 
were successful. For example, few of the commands or activities could 
provide us reliable or current information on the number of service 
acquisitions they managed, and others had not developed a means to 
consistently monitor or assess, at a command level, whether such 
acquisitions were meeting the performance objectives established in the 
contracts. Many command officials noted the difficulties in doing so, 
since service acquisitions involve a wide range of activities that 
necessitate different measures of quality or performance from each 
other or from acquisitions involving products or major weapon systems. 
Often, these officials noted that their measure of success is reflected 
in terms of customer satisfaction or the number of complaints received 
from the customers. 

Command officials noted that cost, delivery, or schedule performance 
measures may not be as effective on service contracts as for products 
or weapon systems. In this regard, the officials noted that services 
are often 1-year efforts in which schedule performance provides limited 
insights. Similarly, these officials noted that many of their service 
contracts, which are often cost reimbursable or time-and-materials in 
nature, are funded on a quarterly basis and are limited by the amount 
of funds made available. In these cases, program officials noted that 
if more funds are made available than expected, the customer may 
increase the number of staff or labor hours to be provided; conversely, 
funding reductions will be reflected in commensurate reductions in the 
number of staff or labor hours. In either case, measuring changes in 
cost or hours is more reflective of the availability of funding, rather 
than an indication of contractor performance. Command officials noted 
that their information systems generally do not provide a capability to 
assess service acquisition outcomes. 

Additionally, the ability to conduct oversight within DOD's management 
structure is often constrained by resources and workforce availability. 
For example, Air Force documentation suggests that 90 percent of 
planning activity is focused on getting the contract awarded, leaving 
very little for contract administration and oversight. Further, DOD 
officials noted that organizations like the Defense Contract Management 
Agency do not perform the same level of surveillance functions for 
services as they do for products. The Defense Contract Management 
Agency generally assembles integrated program support teams to deliver 
support at prime contractor facilities, which in turn supply business 
and technical support and furnish program managers with insight into 
program execution at the prime contract level, as well as the major and 
critical subcontract tiers. Senior DOD officials told us that because 
services tend not to rise to the level of a program, the Defense 
Contract Management Agency does not always provide the resources to 
support those acquisitions. Rather, the contract administration task is 
often assigned to a local contracting officer technical representative. 

Attention to Strategic and Transactional Elements Has Improved Some 
Service Acquisition Outcomes: 

Just as commercial firms have reported positives changes after 
implementing management approaches that include strategic and 
transactional elements, there are also examples where DOD has had 
similar success. DOD officials who report success stated that this can 
be achieved by paying attention to and addressing the risks inherent in 
each of the key elements in the service acquisition process--at both 
the strategic and the transactional levels. For example, the Air Force, 
in conjunction with the Army, developed a strategic approach to 
acquiring wireless services and generated projected savings of 30 
percent annually for just one of its service providers. According to 
Air Force officials, the combination of sustained leadership support, 
good data, a supporting structure, and communication with and among 
customers mitigated risks and set the context for the transactional 
level to achieve good acquisition outcomes. The Air Force's Chief 
Information Officer and the Deputy Assistant Secretary for Contracting 
actively participated in establishing and supporting the development of 
the Information Technology Commodity Council, which is responsible for 
managing information technology-related strategic sourcing initiatives. 
Clear roles and responsibilities were established within the supporting 
structure of the council, including appointing a single individual to 
lead the initiative; identifying stakeholders who were responsible for 
developing the requirements; and establishing a team to perform market 
research and obtain other necessary data. 

The team responsible for obtaining the data upon which to base its 
acquisition decisions consisted of Army and Navy officials. These 
officials worked together to perform a market analysis to understand 
the marketplace, develop a spend analysis to understand current 
expenditures, and forecast future demand to understand the needs of the 
military departments individually, and of DOD as a whole. As a result 
of the team's efforts, data are now available to help any agency within 
DOD save money when it acquires wireless services. 

Conclusions: 

Over the past 10 years, DOD has seen large growth in the acquisition of 
services, to the point where the value of these acquisitions exceeds 
the value of major weapon systems. To a large extent, this growth has 
not been a managed outcome. Congress, concerned over these rapid 
increases, has directed DOD to take several actions to promote more 
oversight and discipline in service acquisition. DOD has taken action, 
but action has not necessarily equated to progress. At this point, DOD 
is not in a good position to say where service acquisition is today in 
terms of outcomes, where it wants service acquisition to be in the next 
few years, or how to get there. This makes it difficult to set the 
context within which individual organizations can make informed 
judgments on service acquisition transactions. Without this context, 
DOD will not be in a position to determine: 

² the current volume, type, location, and trends of service 
acquisition; 

² the results DOD wants to achieve in the next 3 to 5 years in each of 
these areas; 

² the definition of a good service acquisition outcome; 

² the characteristics of a service acquisition that make it desirable, 
undesirable, or sensitive; 

² the risks that need to be managed at each stage of a transaction; 
and: 

² the conditions under which a transaction should be referred for 
review. 

Given the diverse nature of services that DOD acquires, multiple 
sources of risk, and wide variety of organizations that are involved in 
individual acquisitions, until this basic information is available and 
understood, it may not be to possible to develop an ideal 
departmentwide review process or organizational structure. For example, 
while setting dollar thresholds as a basis for reviewing an individual 
service acquisition is an improvement over no review, dollars are not 
always a good proxy for risk. Moreover, when a service acquisition 
reaches the review stage, the requirement and proposed business 
arrangement are set and expediency becomes an issue as the contract is 
ready to be awarded. Ultimately, the majority of individual service 
acquisition decisions will be made by organizations at the local level. 
The people making these decisions will have to make judgments regarding 
the risks and soundness of requirements, sources, competition, contract 
types, and execution follow-up. Their decisions will also trigger which 
acquisitions receive higher level review. Of primary importance now is 
to provide a context for these organizations in which they can make 
tailored decisions and recommendations that remain consistent with 
DOD's overarching views of risk, desirable outcomes, and direction for 
service acquisition. That context does not yet exist. 

The strategic and transactional elements presented in this report can 
ultimately provide such a context. While not new, these elements, when 
considered together, offer the prospect of a cohesive approach--a 
necessary precursor to developing specific solutions to improve service 
acquisition outcomes. DOD will then be able to evaluate outcomes 
against expected results, provide the basis for making course 
corrections, and ultimately make service acquisitions a managed 
outcome. 

Recommendations for Executive Action: 

We recommend the Secretary of Defense adopt a proactive approach to 
managing service acquisition that leverages strategic and transactional 
elements. Specifically, we recommend that the Secretary of Defense take 
the following six actions: 

² establish a normative position of how and where service acquisition 
dollars are currently and will be spent (including volume, type, and 
trends); 

² determine areas of specific risk that are inherent in acquiring 
services and that should be managed with greater attention (including 
those areas considered sensitive or undesirable in terms of quantity or 
performance); 

² on the basis of the above, clearly identify and communicate what 
service acquisition management improvements are necessary and the goals 
and timelines for completion; 

² ensure that decisions on individual transactions are consistent with 
DOD's strategic goals and objectives; 

² ensure that requirements for individual service transactions are 
based on input from key stakeholders; and: 

² provide a capability to determine whether service acquisitions are 
meeting their cost, schedule, and performance objectives. 

Agency Comments and Our Evaluation: 

DOD provided written comments on a draft of this report. DOD concurred 
with each of our recommendations and identified actions it has taken or 
plans to take to address them. These comments are reprinted in appendix 
II. As part of its comments, DOD provided its October 2006 policy 
memorandum that implements Section 812 of the National Defense 
Authorization Act for Fiscal Year 2006. We did not reprint the policy 
as it is publicly available through DOD's acquisition website 
(http://www.acq.osd.mil/dpap/). DOD also provided technical comments, 
which we have incorporated as appropriate. 

DOD agreed that a more coordinated, integrated and strategic approach 
for acquiring services is needed. In particular, DOD noted that it is 
reassessing its strategic approach to acquiring services, including 
examining the types and kinds of services it acquires and developing an 
integrated assessment of how best to acquire such services. DOD expects 
this assessment will result in a comprehensive, departmentwide 
architecture for acquiring services that will, among other 
improvements, help refine the process to develop requirements, ensure 
that individual transactions are consistent with DOD's strategic goals 
and initiatives, and provide a capability to assess whether service 
acquisitions are meeting their cost, schedule and performance 
objectives. DOD expects its assessment will be completed in early 2007. 

DOD also noted that it has taken a number of initiatives to improve 
specific issues associated with acquiring services. For example, DOD 
noted that its October 2006 policy will modify certain aspects of the 
current management structure, including providing lower dollar 
thresholds for reviewing proposed services acquisitions and requiring 
senior DOD officials to annually review whether service contracts were 
meeting established cost, schedule and performance objectives. Further, 
DOD noted that it had made organizational changes to improve its 
strategic sourcing efforts; it is assessing the skills and competencies 
needed by its workforce to acquire services; and the military 
departments and defense agencies are currently conducting self- 
assessments intended to address contract management issues we 
identified in our January 2005 high-risk report. 

While these efforts are steps in the right direction, they appear to be 
primarily incremental improvements to DOD's current approach to 
acquiring services. Our discussions with DOD officials indicate that 
the architecture being developed may hold the potential for making the 
more fundamental changes at the strategic and transactional level that 
we have recommended. We have identified a number of elements that are 
needed at each of these levels, such as clearly articulating where DOD 
wants service acquisition to be in the next few years, setting the 
context for making informed and tailored decisions at the transactional 
level, and assuring that requirements are well-defined and consistent 
with DOD's strategic objectives. The extent to which DOD successfully 
integrates these elements as it develops and implements its new 
architecture will be the key to fostering the appropriate attention and 
action needed to make service acquisitions a managed outcome. 

We are sending copies of this report to interested congressional 
committees; the Secretary of Defense; the Secretaries of the Air Force, 
Army, and Navy; the Commandant of the Marine Corps; and the Director, 
Office of Management and Budget. We will provide copies to others on 
request. This report will also be available at no charge on GAO's Web 
site at [Hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report or need 
additional information, please contact me at (202) 512-4841 or 
francisp@gao.gov. Contact points for our Offices of Congressional 
Relations and Public Affairs may be found on the last page of this 
report. Staff acknowledgments are listed in appendix III. 

Signed by: 

Paul Francis: 
Director: 
Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Scope and Methodology: 

To identify the key factors needed to improve service acquisition, we 
drew heavily on our prior work in this and other areas. We primarily 
used our January 2002 report that identified how leading commercial 
companies took a strategic approach to acquiring services.[Footnote 23] 
In addition, we reviewed previous GAO reports related to overall 
contract management and those related to individual service contract 
transactions, specifically in areas such as business transformation, 
interagency contracting, strategic sourcing, and contract surveillance. 
To confirm and validate key factors, we held detailed discussions with 
relevant defense contracting experts in the Office of the Under 
Secretary of Defense (Acquisition, Technology, and Logistics); the 
Office of the Assistant Secretary of Defense (Networks and Information 
Integration); the Office of the Deputy Undersecretary of Defense 
(Business Transformation); the Office of the Assistant Secretary of 
Defense (Health Affairs); and the Defense Acquisition University. In 
addition, we spoke with various offices within each of the military 
departments, including the Air Force Program Executive Office (Combat 
and Mission Support); the Deputy Assistant Secretary of the Army 
(Policy and Procurement); the Assistant Secretary of the Navy 
(Research, Development, and Acquisition); and the Air Force Information 
Technology Commodity Council.  

To assess the extent to which the Department of Defense (DOD) approach, 
including its current management structure, exhibited these 
characteristics, we reviewed relevant DOD guidance and policy 
memoranda, including those that established its current management 
structure and review processes. We interviewed officials responsible 
for implementing the management structure within the Office of the 
Secretary of Defense, as well as each of the offices mentioned above. 
Discussions with these officials focused on DOD and military department 
service acquisition approaches, including those in put in place in 
response to sections 801 and 802 of the National Defense Authorization 
Act for Fiscal Year 2002 and other service contracting issues and 
initiatives. Data collected includes the number of service contract 
management reviews that have occurred under the newly implemented 
structure as well as the composition and purpose of those review 
boards. We obtained information on the types of activities and reviews 
conducted by these offices, including the number and value of service 
acquisitions they reviewed. 

To document and analyze the processes by which individual military 
commands and buying activities acquired services, we visited 20 
locations. We selected these locations based both on recommendations 
from DOD officials and from our own internal knowledge. While our 
selection of locations cannot be generalized to the population of all 
DOD contracting locations, those selected represented each of the 
military services and represented a range of DOD service types. 
Locations visited include: 

* Air Force Space Command, Colorado Springs, Colorado; 

* Air Force 21st Space Wing, Peterson Air Force Base, Colorado Springs, 
Colorado; 

* Air Force 50th Space Wing, Schriever Air Force Base, Colorado 
Springs, Colorado; 

* Air Force 460th Space Wing, Buckley Air Force Base, Aurora, Colorado; 

* United States Air Force Academy, Colorado Springs, Colorado; 

* Army Contracting Center of Excellence, Arlington, Virginia; 

* Army Contracting Agency, Fort Carson, Colorado Springs, Colorado; 

* Army Communications and Electronics Command, Fort Monmouth, New 
Jersey; 

* Army Information Technology, E-Commerce and Commercial Contracting 
Center, Alexandria, Virginia; 

* Surface Deployment and Distribution Command, Alexandria, Virginia; 

* Naval Sea Systems Command, Washington Navy Yard, District of 
Columbia; 

* Naval Supply Systems Command, Mechanicsburg, Pennsylvania; 

* Navy Fleet and Industrial Supply Center, Philadelphia, Pennsylvania; 

* Navy Fleet and Industrial Supply Center, Norfolk, Virginia; 

* Navy Fleet and Industrial Supply Center, San Diego, California; 

* Naval Personnel Development Command, Norfolk, Virginia; 

* Navy Space and Warfare Command, San Diego, California; 

* Naval Education and Training Command (NETC), Pensacola Naval Air 
Station, Florida; 

* NETC Professional Development and Technology Center, Pensacola, 
Florida; and: 

* TRICARE Management Activity, Acquisition Management and Support, 
Aurora, Colorado. 

We conducted field observations at these locations and distributed a 
structured set of questions to solicit information from contracting 
officials designated to respond to our inquiry. Discussions with these 
officials focused on the level and type of contracting activity and 
service acquisition management approaches. These discussions centered 
on topics such as service acquisition culture and relationships between 
contracting personnel and customers (including program office and user 
personnel), changes in policy and practice under the new review 
structure, challenges faced in acquiring services, efforts to improve 
individual service acquisitions; databases for capturing service 
contract data, performance based contracting, strategic sourcing, and 
other service acquisition initiatives. We discussed the review 
processes for selected service acquisitions (as determined by buying 
activity officials); including those that met criteria for review by 
either the Office of the Secretary of Defense or the military 
departments and, for comparison, those that were not subject to review 
at these levels. We reviewed contract file documentation to examine 
standard processes, review authority, requirements determination, and 
risk management activity. Information collected included contract 
solicitations, acquisition strategies, status reports, performance 
certifications; review and approval checklists, and other contract 
specific documents. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Office Of The Under Secretary Of Defense: 
3000 Defense Pentagon: 
Washington, DC 20301-3000: 

Acquisition, Technology And Logistics: 

NOV 09 2006: 

Mr. Paul Francis: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Francis: 

This is the Department of Defense (DoD) response to the GAO Draft 
Report, GAO-07-20, Defense Acquisitions: Tailored Approach Needed to 
Improve Service Acquisition Outcomes, dated October 2, 2006 (GAO Code 
120415). The report includes six recommendations to the Secretary of 
Defense to improve the Department's strategic and tactical approach to 
acquiring services. The Department concurs with each of the 
recommendations in the report. 

The Department is taking action to improve the way it manages and 
acquires services. This integrated action involves changes and 
improvements in: 1) our organization, 2) our strategic approach, and 3) 
the tactical methods we will use to manage and acquire services. 

First, we have made organizational changes and are taking steps to 
improve workforce skills to more efficiently and effectively acquire 
services. Responsibility for Strategic Sourcing has been moved from 
Business Transformation to Acquisition and Technology. More 
specifically, the Director, Defense Procurement and Acquisition Policy 
(DPAP) is now charged with the responsibility for oversight of the 
strategic sourcing activities across the Department. In this new role, 
DPAP will be responsible for working with the Military Departments and 
the Defense Agencies to craft a coordinated and integrated strategic 
approach to the management and acquisition of services. 

We believe the consolidation of the development of acquisition and 
procurement policy of and the oversight of strategic sourcing of 
services will result in a more cohesive and integrated approach. It 
will ensure that the tactical approaches utilized within the Department 
are consistent and aligned with the strategic objectives for the 
acquisition of services. 

We are taking the necessary steps to meet the requirements of Section 
812 of the FY 2006 NDAA. Specifically for the past three months, DPAP, 
in concert with the Military Departments and the Defense Agencies, has 
been developing a model that will address the skills and competencies 
necessary for our contracting and procurement workforce for the 
procurement of contract services. We expect that the competency model 
will be completed in January 2007 and that during calendar year 2007 
that competency model will be deployed throughout the Department. The 
deployment will enable the Department to assess the workforce and 
develop a comprehensive recruiting, training, and deployment plan to 
meet the identified capability gaps. 

Second, the Department has set a course to completely reassess its 
strategic approach to services. This involves the examination of the 
types and kinds of services that we acquire and an integrated 
assessment of how to meet the needs of our warfighters while ensuring 
that the expenditure of taxpayer funds is wise and effective. We concur 
with the GAO that a more coordinated and integrated strategic approach 
is necessary. The ongoing reassessment includes examination of how 
services are acquired by the Department or bow they are acquired on its 
behalf by other Federal Agencies, such as GSA and the Department of 
Interior. We expect to have the reassessment completed in the first 
quarter of CY 2007. 

Upon completion of that reassessment, we will develop an effective 
strategic sourcing deployment plan. We expect the plan to be completed 
in CY 2007. The fundamental tenets of our strategy will be 
straightforward: Ensure that we effectively and efficiently, in terms 
of both timeliness and cost effectiveness, acquire the services 
necessary to meet the needs of our warfighters. Underpinning our 
strategy will be the utilization of contracting tools that ensure 
competition whenever possible. 

While we look for areas where combined buying power will result in 
savings, we will balance our responsibilities to fulfill the 
socioeconomic goals of the Department. It is our belief that the use of 
competition, at all levels, is the most effective tool we have in the 
acquisition of services. 

Third, implement our strategy with straightforward and simple tactical 
methods: 1) ensure that we clearly identify our requirement, 2) select 
the most efficient and effective tool to acquire particular services, 
3) drive consistency and discipline across the Department, and 4) 
ensure that we have metrics and accountable individuals who will 
oversee performance. A visual aid describing our tactical approach and 
additional comments on the report recommendations as well as the 
actions we have taken to strengthen the overall oversight of services 
within the Military Departments and Defense Agencies is enclosed. 

We thank GAO for its constructive comments and we look forward to 
keeping you fully informed as we implement the actions described above. 
Minor technical comments to the report were previously provided to your 
staff. My point of contact for this matter is Ms. Linda Neilson, and 
she can be reached on 703-697-8334 or via e-mail at 
linda.neilson@osd.mil. 

Sincerely, 

Signed by: 

Shay D. Assad: 
Director , Defense Procurement and Acquisition Policy: 

Enclosures: 
As stated: 

GAO Draft Report Dated OCTOBER 2, 2006 GAO-07-20 (GAO 120415): 

"Defense Acquisitions: Tailored Approach Needed To Improve Service 
Acquisition Outcomes" 

Department Of Defense Comments To The GAO Recommendation: 

Recommendation 1: The GAO recommended that the Secretary of Defense 
establish a normative position of how and where service acquisition 
dollars are currently and will be spent (including volume, type, and 
trends). (p. 34/GAO Draft Report): 

DOD Response: Concur. On October 2, 2006, the Under Secretary of 
Defense for Acquisition, Technology, and Logistics (USD(AT&L)) issued a 
policy memo (enclosure (2) entitled "Acquisition of Services Policy" 
designed to "strengthen the DoD management of the acquisition of 
services at the strategic and tactical level." This policy implements 
section 812 of the Fiscal Year 2006 National Defense Authorization Act 
(FY 2006 NDAA) (enclosure (3)) and provides for the management and 
oversight of acquisitions of services based on dollar values and review 
thresholds. 

Recommendation 2: The GAO recommended that the Secretary of Defense 
determine areas of specific risk that are inherent in acquiring 
services and that should be managed with greater attention (including 
those areas considered sensitive or undesirable in terms of quantity or 
performance) (p. 34/GAO Draft Report): 

DOD Response: Concur. The DoD Improvement Plan for the GAO High Risk 
Area: Contract Management addresses areas of specific risk that are 
inherent in acquiring services and that should be managed with greater 
attention. The Military Departments and Defense Agencies are currently 
conducting self assessments in accordance with the Plan. Any weaknesses 
identified as a result of these assessments will be used to identify 
areas of policy, regulation and/or training that should be updated, 
clarified or revised to facilitate improved execution and to evolve 
policy in this area. 

Recommendation 3: The GAO recommended that the Secretary of Defense 
clearly identify and communicate what service acquisition management 
improvements are necessary and the goals and timelines of completion. 
(p. 35/GAO Draft Report): 

DOD Response: Concur. The USD(AT&L) policy memo of October 2, 2006, 
designed to implement the requirements of Section 812 of the FY 2006 
National Defense Authorization Act (NDAA), required all DoD Components 
to establish and implement a management structure for the acquisition 
of services, based on dollar values and review thresholds, and submit 
an action plan within 60 days of issuance of the policy. 

The requirements of the USD(AT&L) October 2, 2006, policy memo and 
other complementary guidance will be included in the next revision of 
DoD Instruction 5000.2 expected to be issued by the end of FY 2007. 

In addition, the Director, Defense Procurement and Acquisition Policy 
is leading the Senior Procurement Executives of the Military 
Departments, Defense Logistics Agency, and Defense Contract Audit 
Agency, in the development of a comprehensive Defense-wide architecture 
for the acquisition of services that will support the following basic 
tenets: 

* Maximum use of competition to ensure pricing based on competitive 
environments: 

* Application of best practices: 

* Refinement of requirements definition: 

* Appropriate application of performance-based approaches: 

* Enhanced contract performance management supported by - -: 

- Early-on identification of appropriate performance metrics, 

- quality assurance or written surveillance plans, 

- properly trained contracting officer representative: 

* Award fee evaluation plans with metrics tied to expected outcomes as 
appropriate: 

* Use of "Best Practice" tools for the acquisition of specific types of 
services: 

* Enhanced contract performance management: 

* Shorter periods of performance to ensure refreshment of pricing, 
market conditions: 

* Enhanced application of past performance information : 

* Strategic approach to Department socio-economic goals: 

Recommendation 4: The GAO recommended that the Secretary of Defense 
ensure that decisions on individual transactions are consistent with 
DoD's strategic goals and objectives. (p. 35/GAO Draft Report): 

DOD Response: Concur. The USD(AT&L) October 2, 2006, policy memo 
requires the DoD Components, within 60 days of the issuance of the 
policy, to issue implementing guidance ensuring that "services are 
acquired using a strategic, enterprise-wide approach." 

In addition, the new comprehensive, DoD-wide architecture for managing 
the acquisition of services currently under development will require 
DoD Components to perform early-on reviews of requirements for 
individual transactions for services to ensure disposition in 
accordance with DoD strategic goals and initiatives. This capability 
should facilitate a strategic approach to DoD's strategic goals and 
objectives. For example, it should facilitate a strategic approach to 
the Department's socio-economic goals. 

Recommendation 5: The GAO recommended that the Secretary of Defense 
ensure that requirements for individual service transactions are based 
on input from key stakeholders. (p. 35/GAO Draft Report): 

DOD Response: Concur. The October 2, 2006, USD(AT&L) policy memo 
imposes acquisition management roles and responsibilities on "Senior 
Officials" including the Under Secretary of Defense for Acquisition, 
Technology, and Logistics, the Senior Acquisition Executive of each 
Military Department and the Assistant Secretary of Defense for Networks 
and Information Integration/Chief Information Officer (CIO). This 
should enhance the participation of key DoD Component stakeholders in 
the planning and execution of acquisitions of services. 

In addition, paragraph 4.2.7 of the October 2, 2006 USD(AT&L) memo 
indicates that DoD Senior Officials may identify any acquisition of 
services as a special interest acquisition subject to review. 

Recommendation 6: The GAO recommended that the Secretary of Defense 
provide a capability to determine whether service acquisitions are 
meeting their cost, schedule, and performance objectives. (p. 35/GAO 
Draft Report): 

DOD Response: Concur. The October 2, 2006, USD(AT&L) policy memo 
imposes a similar requirement and requires DoD Components to issue 
implementing policy within 60 days of the policy issuance. Paragraphs 
4.2.11 and 4.2.12 of the October 2, 2006, memo provide for senior DoD 
management insight into progress against cost, schedule and performance 
metrics by requiring annual USD(AT&L) and Senior Official reviews. 

In addition, the new, comprehensive DoD-wide architecture for managing 
the acquisition of services currently under development will provide 
for enhance contract performance management that is expected to 
facilitate attainment of cost, schedule, and performance objectives. 
This enhanced contract performance management will be supported by - -: 

* Early-on identification of appropriate performance metrics, 

* Quality assurance or written surveillance plans, 

* Properly trained contracting officer representatives involved early 
and engaged throughout contract performance, 

* Award fee evaluation plans with metrics tied to expected outcomes as 
appropriate. 

Figure: Acquisition of Services: 

[See PDF for Image] 

Source: DOD. 

[End of Figure] 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgements: 

GAO Contact: 

Paul Francis (202) 512-4841 or francisp@gao.gov: 

Acknowledgements: 

In addition to the contact above, Tim DiNapoli, Assistant Director; 
Brian Mullins; Christina Cromley Bruner; Whitney Havens; Moshe 
Schwartz; Andrew Redd; Julia Kennon; and John Krump made key 
contributions to this report. 

FOOTNOTES 

[1] GAO, High-Risk Series: An Update, GAO-05-207 (Washington, D.C.: 
January 2005). 

[2] Pub. L. No. 107-107, § 801-802, (2001). Sec. 801 added new sections 
2330 and 2330a to title 10, U.S. Code. 

[3] Pub. L. No. 109-163, § 812, (2006). Sec. 812 amended 10 U.S.C. § 
2330. 

[4] GAO, Best Practices: Taking A Strategic Approach Could Improve 
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 
2002). 

[5] The policies and practices for these types of acquisitions are 
reflected in DOD Directive 5000.1 and Instruction 5000.2. 

[6] GAO-02-230. 

[7] GAO, Contract Management: High-Level Attention Needed to Transform 
DOD Services Acquisition, GAO-03-935 (Washington, D.C.: Sept. 10, 
2003). 

[8] Pub. L. No. 109-163, § 812. 

[9] GAO, Contract Management: DOD Vulnerabilities to Contracting Fraud, 
Waste, and Abuse, GAO-06-838R (Washington, D.C.: July 7, 2006). 

[10] GAO, DOD Business Transformation: Sustained Leadership Needed to 
Address Long-standing Financial and Business Management Problems, GAO-
05-723T (Washington, D.C.: June 8, 2005). 

[11] GAO, Homeland Security: Successes and Challenges in DHS's Efforts 
to Create an Effective Acquisition Organization, GAO-05-179 
(Washington, D.C.: Mar. 29, 2005). 

[12] GAO, Best Practices: Using Spend Analysis to Help Agencies Take a 
More Strategic Approach to Procurement, GAO-04-870 (Washington, D.C.: 
Sept. 16, 2004). 

[13] GAO-05-179. 

[14] GAO, Best Practices: DOD Teaming Practices Not Achieving Potential 
Results, GAO-01-510 (Washington, D.C.: Apr. 10, 2001). 

[15] Task orders are placed against established contracts that provide 
for the issuance of orders for the performance of tasks during the 
period of the contract. 

[16] GAO, Interagency Contracting: Franchise Funds Provide Convenience, 
but Value to DOD is Not Demonstrated, GAO-05-456 (Washington, D.C.: 
July 29, 2005). GAO designated the management of interagency 
contracting a high-risk area in January 2005. 

[17] GAO, Contract Security Guards: Army's Guard Program Requires 
Greater Oversight and Reassessment of Acquisition Approach, GAO-06-284 
(Washington, D.C.: Apr. 3, 2006). 

[18] GAO, Interagency Contracting: Problems with DOD's and Interior's 
Orders to Support Military Operations, GAO-05-201 (Washington, D.C.: 
Apr. 29, 2005). 

[19] GAO, Contract Management: Opportunities to Improve Surveillance on 
Department of Defense Service Contracts, GAO-05-274 (Washington, D.C.: 
Mar. 17, 2005). 

[20] This policy memorandum was formalized on May 12, 2003. 

[21] Indefinite-delivery/indefinite-quantity contracts establish basic 
terms in advance, enabling agency personnel to issue subsequent task or 
delivery orders for specific services or goods expeditiously. Orders 
must be within the contract's scope, issued within the period of 
performance, and be within the contract's maximum value. Federal 
Acquisition Regulation (FAR) Subpart 16.5 (2006). 

[22] DOD established this requirement in response to concerns about the 
improper use of interagency contracts. 

[23] GAO, Best Practices: Taking A Strategic Approach Could Improve 
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 
2002). 

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