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Before the Committee on Homeland Security and Governmental Affairs, 
U.S. Senate: 

United States Government Accountability Office: 


For Release on Delivery Expected at 10:00 a.m. EDT: 

Tuesday, July 17, 2007: 

Federal Acquisitions And Contracting: 

Systemic Challenges Need Attention: 

Statement of David M. Walker: 
Comptroller General of the United States: 


GAO Highlights: 

Highlights of GAO-07-1098T, a testimony before the Committee on 
Homeland Security and Governmental Affairs, United States Senate 

Why GAO Did This Study: 

In fiscal year 2006, the federal government spent over $400 billion for 
a wide variety of goods and services, with the Department of Defense 
(DOD) being the largest purchaser. Given the large and growing 
structural deficit, the government must get the best return it can on 
its investment in goods and services. 

For decades, GAO has reported on a number of systemic challenges in 
agencies’ acquisition of goods and services. These challenges are so 
significant and wide-ranging that GAO has designated four areas of 
contract management across the government to be high-risk. 

This testimony highlights four key acquisition challenges agencies 
face: (1) separating wants from needs, (2) establishing and supporting 
realistic program requirements, (3) using contractors in appropriate 
circumstances and contracts as a management tool, and (4) creating a 
capable workforce and holding it accountable. 

What GAO Found: 

Given the current fiscal environment, agencies must separate wants from 
needs to ensure that programs provide the best return on investments. 
Our work has shown that some agencies budget and allocate resources 
incrementally, largely based on historical precedents, rather than 
conducting bottom-up reviews and allocating resources based on 
agencywide goals. We have also seen examples of agencies using 
fragmented decision-making processes for acquisition investments. 
Agency spending actions that would not otherwise be taken based on an 
objective value and risk assessment and considering available 
resources, work against good strategic planning. Such spending can 
circumvent careful planning and divert resources from more critical 
needs, and can serve to exacerbate our serious long-range fiscal 

Agencies also need to translate their true needs into executable 
programs by setting realistic and stable requirements, acquiring 
requisite knowledge as acquisitions proceed through development, and 
funding programs adequately. However, agencies too often promise 
capabilities they cannot deliver and proceed to development without 
adequate knowledge. As a result, programs take significantly longer, 
cost more than planned, and deliver fewer quantities and different 
capabilities than promised. Even if more funding were provided, it 
would not be a solution because wants will usually exceed the funding 

No less important is the need to examine the appropriate circumstances 
for using contractors and address contract management challenges. 
Agencies continue to experience poor acquisition outcomes in buying 
goods and services in part because of challenges in setting contract 
requirements, using the appropriate contract with the right incentives, 
and ensuring sufficient oversight. Exacerbating these challenges is the 
evolving and enlarging role of contractors in performing functions 
previously carried out by government personnel. Further, while contract 
management challenges can jeopardize successful acquisition outcomes in 
normal times, they also take on heightened importance and significantly 
increase risks in the context of contingency operations such as 
Afghanistan, Iraq, or Hurricane Katrina. 

Finally, it is imperative that the federal government develop an 
accountable and capable workforce, because the workforce is ultimately 
responsible for strategic planning and management of individual 
programs and contracts. Yet much of the acquisition workforce’s 
workload and complexity of responsibilities have been increasing 
without adequate attention to the workforce’s size, skills and 
knowledge, and succession planning. Sustained high-level leadership is 
needed to set the right tone at the top in order to address acquisition 
challenges and ultimately, prevent fraud, waste, and abuse. 

What GAO Recommends: 

While GAO is making no new recommendations in this testimony, GAO has 
made numerous recommendations through the years to improve government 
acquisitions, many of which have not been implemented. Where agencies 
have responded to our recommendations, we have seen some improvements 
in their acquisition management. 


To view the full product, including the scope and methodology, click on 
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4841 or 

[End of section] 

Mr. Chairman and Members of the Committee: 

Thank you for inviting me here today to discuss systemic challenges 
facing the federal government in its acquisition of goods and services. 
The U.S. federal government is the single largest buyer in the world, 
obligating over $400 billion in fiscal year 2006 for a wide variety of 
goods and services, including complex projects that often involve 
unproven technologies. While acquisitions are made throughout 
government, the majority of them are concentrated in a few agencies, 
particularly the Department of Defense (DOD)--as shown in figure 1. 

Figure 1: Fiscal Year 2006 Federal Government Acquisitions Obligations: 

[See PDF for image] 

Source: GAO analysis of data from the Federal Procurement Data System. 

Note: Due to rounding, dollar values do not add up to the specified 
total value. 

[End of figure] 

Recently, I have been quite vocal about the large and growing long- 
range structural deficits the federal government faces. These are 
driven primarily by known demographic trends and rising health care 
costs. These structural deficits will mean escalating and ultimately 
unsustainable federal deficits and debt levels. Given this fiscal 
reality, it is imperative that the federal government gets the best 
return it can on its investment in goods and services; the American 
people have the right to expect no less. Table 1 shows the size of the 
federal government's total fiscal exposure, how it has grown since the 
end of fiscal year 2000, and the burden it would place on the American 

Table 1: Understanding the Size of Major Reported Fiscal Exposures: 

Major fiscal exposures; 
2000: $20.4 trillion; 
2001: $50.5 trillion; 
Percentage increase: 147%. 

Total household net worth; 
2000: $42.0 trillion; 
2001: $53.3 trillion; 
Percentage increase: 27%. 

Total household net worth: Ratio of fiscal exposures to net worth; 
2000: 49 percent; 
2001: 95 percent; 
Percentage increase: 94%. 

Burden: Per person; 
2000: $70,000; 
2001: $170,000; 
Percentage increase: 132%. 

Burden: Per full-time worker; 
2000: $165,000; 
2001: $400,000; 
Percentage increase: 143%. 

Burden: Per household; 
2000: $190,000; 
2001: $440,000; 
Percentage increase: 134%. 

Income: Median household income; 
2000: $41,990; 
2001: $46,326; 
Percentage increase: 10%. 

Income: Disposable personal income per capita; 
2000: $25,127; 
2001: $31,519; 
Percentage increase: 25%. 

Ratio of household burden to median income; 
2000: 4.5; 
2001: 9.5; 
Percentage increase: 112%. 

Sources: GAO analysis of data from the Department of the Treasury, 
Federal Reserve Board, U.S. Census Bureau, and the Bureau of Economic 

Note: Percentage increases reflect actual data and may differ from 
calculation of rounded numbers presented in table. 

[End of table] 

However, our work extending back decades has demonstrated that agencies 
face a number of systemic challenges in their acquisition of goods and 
services. In examining our defense work, I have observed 15 systemic 
acquisition challenges facing DOD--which I have included in appendix I. 
GAO's work examining acquisitions in other federal agencies indicates 
that they often face similar challenges. For example, not only have we 
identified contract management as a high-risk area for DOD, but also 
for the Department of Energy (DOE) and the National Aeronautics and 
Space Administration (NASA). Further, interagency contracting--a 
process in which one agency uses another agency's contracts or 
contracting services to acquire goods or services--was designated a 
high-risk area as well. 

In my testimony today, I will highlight these acquisition challenges 
categorized in four key areas: 

* separating wants from needs, 

* establishing and supporting realistic program requirements, 

* using contractors in appropriate circumstances and contracts as a 
management tool, and: 

* creating a capable workforce and holding it accountable. 

Separating wants from needs in an affordable and sustainable fashion 
will be critical to improving management within the current fiscal 
environment. No less important is the need for clearly defining program 
requirements and sticking with them while also using the appropriate 
contract type with sufficient oversight. Contract management challenges 
can jeopardize successful acquisition outcomes in normal times, but 
also take on heightened importance and significantly increase risks in 
the context of contingency operations such as Iraq, Afghanistan, or 
Hurricane Katrina. A significant part of this challenge relates to the 
evolving and enlarging role of contractors in acquisitions, 
particularly through the use of service contracts--which accounted for 
nearly 60 percent of fiscal year 2006 government acquisition 
obligations. This raises the question of what work should be performed 
by contractors versus government personnel. This is a major issue that 
is of growing concern and is in need of serious attention by both the 
executive branch and Congress. In addition, an accountable and capable 
workforce underlies the federal government's ability to strategically 
plan and effectively manage individual programs and contracts as the 
workforce includes the people needed to carry out these functions, as 
well as the higher-level accountability needed to address recurring and 
systemic problems. Tackling each of these systemic challenges requires 
a fundamental and comprehensive re-examination of the federal 
government's overall approach to contracting: what we buy, who we buy 
from, and how we buy it. We also need to target waste in government 
spending. Government waste is growing and far exceeds the cost of fraud 
and abuse. Several of my colleagues in the accountability community and 
I have developed a definition of waste, which is contained in appendix 

My comments today are based on our wide-ranging work examining federal 
acquisition efforts, often going back decades. We list relevant GAO 
reports at the end of this statement. We conducted our work in 
accordance with generally accepted government auditing standards. 

Separating Wants from Needs: 

Given the current fiscal environment, agencies need to learn to 
separate wants from needs to ensure that programs and investments 
provide the best return within fiscal constraints. My first four 
observations on systemic acquisition challenges relate to this need. 
They are that: 

* Agency budgets may not be fully linked to strategic goals and may not 
adequately consider likely agencywide resource limitations. 

* Agencies too often pursue their individual needs rather than 
collective needs. 

* Individual program and funding decisions may undercut sound policies. 

* Congressional direction sometimes requires agencies to buy items and 
provide services that have not been planned for and may not be needed. 

Our work has shown that agencies sometimes budget and allocate 
resources incrementally, largely based on historical precedents, rather 
than conduct bottom-up reviews and allocate resources based on the 
broader goals and objectives of agency strategic plans. For example, in 
March we reported that DOD does not allocate resources on a strategic 
basis and that it could improve its acquisition outcomes by adopting an 
integrated portfolio management approach for allocating weapon system 
investments. We found that military service allocations as a percentage 
of the department's overall investment budget have remained essentially 
the same for the last 25 years, despite the dramatic changes that have 
occurred in the strategic environment and warfighting needs during that 
time. Similarly, in July 2005 we reported that the Environmental 
Protection Agency budgeted and allocated resources incrementally, 
largely based on historical precedents, and that its process did not 
reflect a bottom-up review of the nature or distribution of its current 
workload--either based on specific environmental laws or the broader 
goals and objectives in the agency's strategic plan. 

Similarly, in our Information Technology Investment Management Model 
(ITIM)[Footnote 1] we point out that information technology (IT) 
portfolio selection criteria support an agency's mission, 
organizational strategies, and business priorities and provide a link 
to the organization's strategic plans and budget processes. However, in 
2004 we reported that a governmentwide survey of investment management 
processes found that only 6 of 26 agencies had fully implemented 
portfolio selection criteria--16 had partially implemented them and 4 
had not implemented them at all. This remains an issue. For example, we 
reported just this year that the Department of Homeland Security (DHS) 
is missing key elements of effective investment management, such as 
procedures for implementing project-specific investment management 
policies, as well as policies and procedures for portfolio-based 
investment management. Further, it has yet to fully implement either 
project-or portfolio-level investment control practices. We noted that 
all told, this means DHS lacks the complete institutional capability 
needed to ensure that it is investing in IT projects that best support 
its strategic mission needs. In contrast, successful commercial 
companies use portfolio management to adjust their resource allocations 
across business areas based on changes in the marketplace and the 
competitive environment. The government's failure to successfully 
implement such an approach significantly risks wasting investments on 
wants versus true needs in a time when resources are limited. 

We have also seen examples of agencies having fragmented decision- 
making processes for acquisition investments, failing to consider 
agencywide needs and resource limitations. Successful commercial 
companies make investment decisions that benefit the organization as a 
whole within resource constraints. However, DOD continues to allow 
individual organizational units to assess needs under separate 
processes, failing to implement a departmental approach to investment 
decision-making. Consequently, DOD has less assurance that its 
investment decisions address the right mix of warfighting needs and it 
starts more programs than current and likely future resources can 
support. Operationally, there can be real consequences in agencies' 
pursuit of individual over collective interests. For example, in 
December 2005 we reported that on the basis of its experience with 
unmanned aircraft systems (UAS) in Persian Gulf Operations, U.S. 
Central Command believed that communications interoperability and 
payload commonality problems occurred because the military services' 
UAS development programs had been service-specific and insufficiently 
attentive to joint needs. 

Some agencies have successfully considered wider needs. For example, in 
March 2005 we reported that DHS had opened communication among its 
acquisition organizations through its strategic sourcing and small 
business programs. With strategic sourcing, DHS's organizations quickly 
collaborated to leverage spending for various goods and services--such 
as office supplies, boats, energy, and weapons--without losing focus on 
small businesses, thus leveraging its buying power and increasing 

Individual program and funding decisions may also undercut sound 
policies. We have noted that at some agencies, individual program units 
may make investments in capabilities that can undercut agencywide 
goals. This can occur when a disconnect exists between requirements and 
resources and can lead to unnecessary duplication of effort and costs. 
For example, we reported in 2006 that NASA's Deep Space Network and 
Ground Network programs made investment decisions that were leading to 
the development of separate array technologies to support overlapping 
requirements for the same lunar missions. 

Additionally, while congressional spending directions to agencies 
sometimes facilitate accomplishment of agency goals, at other times 
they may require agencies to buy items and provide services for which 
they had not planned and which may not be needed. Agency spending 
actions which otherwise would not be taken based on an objective value 
and risk assessment with consideration of available resources work 
against good strategic planning. Such spending can circumvent careful 
planning and divert resources from more critical needs. This can also 
serve to exacerbate our serious long-range fiscal imbalance. 

Establishing and Supporting Realistic Program Requirements: 

After differentiating their unlimited wants from their true needs, 
agencies need to translate their needs into appropriate, executable 
programs. They need to set and communicate realistic system 
requirements and better maintain stability in those requirements. They 
also need to ensure that programs proceed through the acquisition 
process based on having requisite knowledge and that programs are 
funded adequately. However, too often we see failure in one or more of 
these key dimensions. Specifically, I have observed that: 

* Agencies too often overpromise and underdeliver in the acquisition of 
major systems. 

* Programs too often experience requirements instability that causes 
delays and cost growth in fielding capabilities. 

* Programs too often proceed through the development and demonstration 
of systems without having achieved needed knowledge. 

* Agencies sometimes budget for less than is needed and put Congress in 
a position of having to decide whether to provide additional funding. 

Agencies too often overpromise and underdeliver in the acquisition of 
major systems as a consequence of programs competing with each other 
for funding in a fiscally constrained environment. In examining defense 
programs, we have reported that competition for funding had 
incentivized programs to produce optimistic cost and schedule 
estimates, overpromise on capability, suppress bad news, and forsake 
the opportunity to identify better alternatives. In addition, because 
DOD starts more weapons programs than it can afford, it invariably 
finds itself in the position of having to shift funds to sustain 
programs--often to the point of undermining well-performing programs to 
pay for poorly performing ones. I believe that even if more funding 
were provided, it would not be a solution because wants will usually 
exceed the funding available. Rather, we have to live within our means, 
which requires us to make difficult choices between wants and needs. 

Once programs are under way, they often experience requirements 
instability during major systems development, thereby lengthening the 
duration of the program. As a result, the problem the program was 
seeking to address changes or the user and acquisition communities may 
simply change their minds about a program. The resulting program 
instability can cause cost escalation, schedule delays, and fewer end 
items, and can make it harder for the government to hold contractors 
accountable. For example, in 2005 the Department of Justice inspector 
general found that the Federal Bureau of Investigation's Trilogy 
project experienced significant cost increases and schedule delays due 
to various factors including evolving design requirements. 

Acquisition programs that involve development and demonstration often 
face another challenge--developing the requisite knowledge indicated by 
best practices before proceeding through key knowledge points in the 
system acquisition process. In examining DOD's operations, we have 
assessed weapon acquisitions as a high-risk area since 1990. Although 
U.S. weapon systems are the best in the world, the programs to acquire 
them often take significantly longer and cost significantly more than 
promised and often deliver smaller quantities and different 
capabilities than planned. In fact, it is not unusual for estimates of 
time and money to be off by 20 to 50 percent. It does not, however, 
have to be so. Our best practices work has shown that it is possible to 
get better outcomes if decisions are based on high levels of knowledge. 

Similarly, we have reported that other agencies do not ensure that 
major acquisition programs have adequate knowledge before proceeding 
with development. For example, the National Polar-orbiting Operational 
Environmental Satellite System (NPOESS) project--a tri-agency (National 
Oceanic and Atmospheric Administration, DOD, and NASA) effort--
proceeded into development before the design was proven and before the 
technologies had properly matured, knowledge that is needed based on 
our best practices work. In 2004 we reported that the contractor for 
the project was not meeting expected cost and schedule targets on the 
new baseline because of technical issues in the development of key 
sensors. Again, in November 2005, we reported that NPOESS continued to 
experience problems in the development of a key sensor, resulting in 
schedule delays and anticipated cost increases. Also, earlier this year 
we found that DOE lacks a systematic process for ensuring that critical 
technologies have been adequately demonstrated to work as intended 
before committing to major construction projects to help maintain the 
nuclear weapons stockpile, conduct research and development, and 
process nuclear waste for disposal. In another example, we reported in 
March 2005 that DHS has adopted a number of acquisition best practices 
in establishing an investment review process. However, we also noted 
that this process did not include two critical management reviews that 
would help ensure that (1) resources match customer needs prior to 
beginning a major acquisition and (2) program designs perform as 
expected before moving to production. 

Our work has also shown that it is not uncommon to find an acquisition 
program underfunded. In our review of defense programs, we often see 
cases where the cost of a system in development grows and where, as a 
result, the return on the defense dollar is reduced. While such cost 
growth may be accommodated within an agency's budget through reductions 
in the number of units to be acquired or by cutting other programs, it 
may also put Congress in a position of having to decide to provide 
additional funding if it finds accepting fewer units undesirable. As a 
consequence, other needed programs may not be fully funded or overall 
government spending may be increased, thereby adding to the federal 

Using Contractors in Appropriate Circumstances and Contracts as a 
Management Tool: 

The next set of systemic acquisition challenges relate to those faced 
at the contract management level. First and foremost, I believe that we 
must engage in a fundamental re-examination of when and under what 
circumstances we should use contractors versus civil servants or 
military personnel. This is a major and growing concern that needs 
immediate attention. Once the decision to contract has been made, we 
have observed challenges in setting contract requirements, using the 
appropriate contract with the right incentives given the circumstances, 
and ensuring proper oversight of these arrangements--especially 
considering the evolving and enlarging role of contractors in federal 
acquisitions. The failure to adequately address these challenges 
explains, in part, why agencies continue to experience poor acquisition 
outcomes in buying major systems, goods, and services. My observations 
are that: 

* Contracts, especially service contracts, often do not have definitive 
or realistic requirements at the outset to control costs and facilitate 

* Contracts typically do not accurately reflect the complexity of 
projects, or appropriately allocate risk between the contractor and the 

* Incentive and award fees are often paid based on contractor attitudes 
and efforts versus positive results. 

Contracts, especially service contracts, often don't have definitive 
requirements at the outset which are needed to control and facilitate 
accountability. For example, in January we reported that many 
reconstruction projects in Iraq have fallen short, in part because DOD 
had not clearly defined its needs before it entered into contract 
arrangements. The absence of well-defined requirements and clearly 
understood objectives complicated efforts to hold DOD and contractors 
accountable for poor acquisition outcomes in Iraq reconstruction. 

Given the range of federal projects and circumstances, agencies' 
contracting approaches vary widely, and with them, the level of risk. 
We have found that agencies may not always use the most appropriate 
contracting approach for the circumstance or effectively oversee their 

For example: 

* Time-and-materials contracts. Time-and-materials contracts--
agreements where contractors are paid based on the number of labor 
hours and materials--pose such risk to the government that federal 
regulations require contracting officers to make a determination and 
findings in writing that no other contract type is suitable before 
using such an arrangement. In a recent review of DOD's use of such 
contracts, we found that DOD contracting and program officials 
frequently did not justify why time-and-materials contracts were the 
only contract type suitable for the procurement. Further, with a few 
exceptions, we found that little effort had been made to convert follow-
on work to a less risky contract type when historical pricing data 
existed, despite guidance to do so. We also found that oversight of 
time-and-materials contracts was lacking as contracting officers 
generally relied on contractor-provided monthly status reports to 
conduct oversight. 

* Interagency contracting. We added management of interagency 
contracting--the use of one agency's contract by another agency or the 
provision of contracting assistance and support by another agency--to 
our high-risk list in 2005. Interagency contracts can leverage the 
government's buying power and provide a simplified and expedited method 
of procurement. However, the rapid growth in use of such contracts, 
combined with the limited expertise of some agencies in their use and 
recent problems related to their management, causes some concern. For 
example, in July 2005, we reported that the use of franchise funds-- 
government-run, fee-for-service organizations providing a portfolio of 
services, including contracting services--at the Departments of the 
Interior and the Treasury have not always resulted in fair and 
reasonable prices for the government. We have also found that agencies 
often do not have visibility into and effective oversight of their 
interagency contracts. Last year, for instance, we reported that while 
DHS spending through interagency contracting totaled billions of 
dollars annually, and increased by 73 percent in the past year, the 
department did not systematically monitor its use of these contracts to 
ensure desired outcomes. 

* Undefinitized contract actions. DOD's use of undefinitized contract 
actions can also carry risk to the government and potentially waste 
taxpayer dollars. These agreements allow contractors to begin work 
before reaching final agreement on contract terms and are sometimes 
used by agencies to rapidly fill urgent needs. In June 2007, we 
reported that DOD did not meet the definitization time frame 
requirement of 180 days after award on 60 percent of the 77 
undefinitized contract actions we reviewed. In June 2004, we found that 
during Iraqi reconstruction efforts, when requirements were not clear, 
DOD often entered into contract arrangements that introduced risks. We 
reported that DOD authorized contractors to begin work before key terms 
and conditions, such as the projected costs of the work to be 
performed, were fully defined. In September 2006, we reported that, 
under this approach, DOD contracting officials were less likely to 
remove costs questioned by the Defense Contract Audit Agency auditors 
if the contractor had incurred these costs before reaching agreement on 
the work's scope and price. In one case, the Defense Contract Audit 
Agency questioned $84 million in an audit of a task order for an oil 
mission. In that case, the contractor did not submit a proposal until a 
year after the work was authorized, and DOD and the contractor did not 
negotiate the final terms of the contract until more than a year after 
the contractor had completed the work. As a result, the DOD contracting 
officer paid the contractor for all questioned costs but reduced the 
base used to calculate contractor profit by $45 million. As a result, 
the contractor was paid about $3 million less in fees. 

* Lead systems integrators. The use of lead systems integrators--prime 
contractors with increased responsibilities, such as collaborating with 
the government on system specifications--puts the government at 
additional risk because it complicates the relationship between the 
contractor and the government. We have found that agencies may use a 
lead systems integrator when they believe they do not have the capacity 
to manage a program, which is a risk in and of itself. This arrangement 
creates an inherent risk, as the contractor is given more discretion to 
make certain program decisions. Along with this greater discretion 
comes the need for more government oversight and an even greater need 
to develop well-defined outcomes at the outset. For example, since the 
program's inception, we have raised concerns about the Coast Guard's 
acquisition approach for its Deepwater program--including oversight of 
its lead systems integrator. For instance, we observed that the Coast 
Guard had not held its lead systems integrator accountable for taking 
steps to achieve competition among the suppliers of Deepwater assets. 
In June of this year, we reported that the Coast Guard has recently 
taken steps to hold the lead systems integrator accountable for 
problems that have arisen with the design and construction of certain 
Deepwater assets that will affect the lead systems integrator's roles 
and responsibilities in executing the program moving forward. On the 
other hand, a close partner-like relationship such as the one the Army 
has with its Future Combat Systems integrator can also pose risks. 
Specifically, the government can become increasingly invested in the 
results of shared decisions and runs the risk of being less able to 
provide oversight compared with an arms-length relationship. 

A lack of oversight contributes to the risks of these contracting 
approaches and can contribute to poor outcomes for critical government 
projects. Compounding this risk is the growing reliance on contractors 
to perform functions previously carried out by government personnel. 
Emergency situations can further exacerbate this risk, providing 
additional oversight challenges. For example, although U.S. military 
forces in Iraq have used contractors to a far greater extent than in 
prior operations, DOD lacks sufficient numbers of contractor oversight 
personnel at deployed locations to oversee them. Similarly, in work 
examining contracts undertaken in support of response and recovery 
efforts for Hurricanes Katrina and Rita, we found that while monitoring 
was occurring on the contracts we reviewed, the number of monitoring 
staff available was not always sufficient or effectively deployed to 
provide oversight. 

Contractors have an important role to play in the discharge of the 
government's responsibilities, and in some cases the use of contractors 
can result in improved economy, efficiency, and effectiveness. At the 
same time, there may be occasions when contractors are used to provide 
certain services because the government lacks another viable and timely 
option, or due to the preferences of some government officials. In such 
cases, the government may actually be paying more and incurring higher 
risk than if such services were provided by federal employees. In this 
environment of increased reliance on contractors, sound planning and 
contract execution are critical for success. We have previously 
identified the need to examine the appropriate role for contractors to 
be among the challenges in meeting the nation's defense and other needs 
in the 21st century. 

The proper role of contractors in providing services to the government 
is currently the topic of some debate. In general, I believe there is a 
need to focus greater attention on what type of functions and 
activities should be contracted out and which ones should not, to 
review and reconsider the current independence and conflict-of-interest 
rules relating to contractors, and to identify the factors that prompt 
the government to use contractors in circumstances where the proper 
choice might be the use of civil servants or military personnel. 
Possible factors could include inadequate force structure, outdated or 
inadequate hiring policies, classification and compensation approaches, 
and inadequate numbers of full-time equivalent slots. 

We also have found that agencies sometimes pay contractors incentive 
and award fees--financial bonuses or profit intended to motivate 
excellent contractor performance--without a clear link to desired 
program outcomes. We have reported that DOD, DOE, and NASA have not 
fared well at using award and incentive-fee contracts to improve cost 
control behavior and performance. For example, in 2005, we reported 
that DOD paid award and incentive fees even when programs failed. About 
half of the 27 incentive fee contracts that we reviewed failed or were 
projected to fail to meet a key measure of program success, which was 
to complete the acquisition at or below the target price. In March 
2005, we reviewed 33 DOE contracts using a performance incentive. Of 
those 33, we found that DOE had awarded 15 such contracts without an 
associate cost incentive or constraint, as required by regulations. 
Thus, the contractor could receive full fees by meeting all schedule 
baselines while substantially overrunning costs. Earlier this year, we 
reported that NASA paid significant amounts of available fee on all of 
the 10 contracts we reviewed, including those end item contracts that 
did not deliver a capability within initial cost, schedule, and 
performance parameters. In one case, NASA paid the contractor 97 
percent of the available award fee despite a delay in the completion of 
the contract by over 2 years and an increase in the cost of the 
contract of more than 50 percent. However, when properly tied to 
program outcomes, incentive and award fees may have their desired 
effect. Last year, we reported that DOE's use of an incentive fee 
contributed to the early completion of the cleanup of a former nuclear 
weapons production facility. 

Creating a Capable Workforce and Holding It Accountable: 

The last set of challenges I will discuss relate to having a capable 
acquisition workforce and holding it accountable. These challenges 
underlie the federal government's ability to strategically plan and 
effectively manage individual programs and contracts as they involve 
the people needed to carry out these functions. My observations are 

* The government faces serious acquisition workforce challenges (e.g., 
size, skills and knowledge, and succession planning). 

* Key program staff rotate too frequently, thus promoting myopia and 
reducing accountability (i.e., tours based on time versus key 
milestones). Additionally, the revolving door between industry and 
agencies presents potential conflicts of interest. 

* Inadequate oversight has resulted in little or no accountability for 
recurring and systemic problems. 

* Lack of high-level attention reduces the chances of success in the 
acquisition, contracting, and other key business areas. 

The acquisition workforce's workload and complexity of responsibilities 
have been increasing without adequate agency attention to the 
workforce's size, skills and knowledge, and succession planning. This 
situation is made all the more challenging by the increasing use of 
contractors to support program operations because of the additional 
oversight needed. 

Though many agencies lack good data on their workforces, it is clear 
that the size of the workforce has declined, while the size of 
government expenditures for goods and services has risen significantly. 
These trends represent a major challenge to the current workforce-- 
dealing with a significantly increased workload. 

At the same time that the federal acquisition workforce has decreased 
in numbers and the size of its investments in goods and services has 
increased significantly, the nature of the role of the acquisition 
workforce has been changing and, as a result, so have the skills and 
knowledge needed in that workforce to manage more complex contracting 
approaches. One way agencies have dealt with this situation is to rely 
more heavily on contractor support. For example, DOD is relying on 
contractors in new ways to manage and deliver weapon systems. On the 
basis of our work looking at various major weapon systems, we have 
observed that DOD has given contractors increased program management 
responsibilities to develop requirements, design products, and select 
major system and subsystem contractors. In part, this increased 
reliance has occurred because DOD is experiencing a critical shortage 
of certain acquisition professionals with technical skills related to 
systems engineering, program management, and cost estimation. Without 
adequate oversight by and training of federal employees overseeing 
contracting activities, reliance on contractors to perform functions 
that once would have been performed by members of the federal workforce 
carries risk. As I noted earlier, the use of lead system integrators is 
being undertaken by agencies when they believe they lack the expertise 
needed to manage complex acquisitions. 

Our concern over the skills and knowledge of the workforce extends 
beyond DOD. At times skills may be in short supply in both government 
and the private sector. For example, in December 2006 we reported that 
employees with certain information technology skills are in short 
supply in both the federal and private sectors--particularly in 
enterprise architecture, project management, and information security. 

Demographic changes promise to further exacerbate agencies' acquisition 
workforce problems. In 2006, Office of Personnel Management reported 
that approximately 60 percent of the government's 1.6 million white 
collar employees and 90 percent of about 6,000 federal executives will 
be eligible for retirement over the next 10 years. The situation facing 
DOD exemplifies this problem as more than half of DOD's workforce will 
be eligible for early or regular retirement in the next 5 years. In 
fact, Navy officials recently told us that they are already seeing a 
"hemorrhaging" of senior contracting officers as large numbers have 
started to retire. Agencies facing workforce challenges have used 
strategic human capital planning to develop long-term strategies for 
acquiring, developing, motivating, and retaining staff to achieve 
programmatic goals. Additionally, agencies should engage in broad, 
integrated succession planning and management efforts that focus on 
strengthening their current and future organizational capacity to 
obtain or develop the knowledge, skill, and abilities they need to meet 
their missions. Without proper strategic human capital planning, the 
government will not be a good position to adjust to this challenge. 

We also have concerns that acquisition employees rotate too frequently-
-both between programs and between government and industry. In a recent 
assessment of selected DOD weapon systems, we found that many of the 
programs had multiple program managers within the same development 
phase, reducing accountability for poor program outcomes. We also 
reported that the Coast Guard experienced high turnover of key 
Deepwater program staff, resulting in the loss of knowledge on the 
teams responsible for managing the program and overseeing the system 
integrator. Also, the revolving door between industry and government 
may present potential conflicts of interest. Federal ethics rules and 
standards have been put in place to help safeguard the integrity of the 
procurement process by mitigating the risk that employees will use 
their positions to influence the outcomes of contract awards for future 
gain and that companies will exploit this possibility. We currently 
have reviews under way examining issues relating to the revolving door 
between federal employment and contractors working for the government 
including DOD actions to assess contractor hiring controls to address 
revolving door issues. 

Our work at DOD and other agencies has shown that there have been 
persistent acquisition problems, particularly for complex developmental 
systems, but also for the increasingly complex contracting arrangements 
being used by the government to purchase goods and services. For 
example, we reported on DOE's weaknesses in managing its acquisitions 
and found that DOE is only meeting its cost and schedule goals for its 
ongoing construction projects about one-third of the time. We also 
found that DOE's National Nuclear Security Administration has not 
developed a project management policy, implemented a plan for improving 
its project management practices, or fully shared project management 
lessons learned among its sites. Similarly, we also have reported on 
weaknesses in the Federal Aviation Administration's (FAA) management of 
its acquisition process as the primary causes of its cost, schedule, 
and performance problems in developing systems for air traffic control. 
Because of these weaknesses, we continue to designate FAA's 
modernization program as a high-risk area. 

A key part of addressing challenges to the acquisition workforce is 
having mechanisms to hold the workforce accountable and ensure 
sufficient high-level attention to systemic acquisition problems. We 
have noted the importance of sustained leadership to ensure 
accountability for results and addressing key deficiencies when faced 
with complex and long-term challenges. In July 2006, we reported that 
DOD continues to face vulnerabilities in contracting fraud, waste, and 
abuse, in part because it lacks sustained senior leadership in 
providing direction and vision, as well as in maintaining the culture 
of the organization. By not setting the right tone at the top, DOD 
allows a certain level of vulnerability into the acquisition process 
and problems to persist. Holding the workforce accountable has certain 
prerequisites. For example, we have reported that senior leaders have 
to provide program managers an executable business case, empower them, 
support them, and align managers' tenures with delivery dates. 

We also have identified the need for similar high-level management 
attention at other agencies. For example, we have raised concerns in 
the past that DHS's Chief Procurement Officer (CPO) did not have clear 
enforcement authority to ensure that acquisition initiatives are 
carried out. DHS recently stated that the Under Secretary for 
Management has authority as the Chief Acquisition Officer to monitor 
acquisition performance, establish clear lines of authority for making 
acquisition decisions, and manage the direction of acquisition policy 
for the department, and that those authorities also devolve to the CPO. 
A formal designation of a Chief Acquisition Officer and corresponding 
modifications to existing management directives should help address our 
earlier concerns. Similarly, after creating a Chief Operating Officer 
to head its air traffic modernization program, FAA was able to adopt 
more leading practices of private sector businesses to address cost, 
schedule, and performance shortfalls that have plagued air traffic 
control acquisitions. Also, our work looking at leading company 
practices used to acquire services found that companies elevated their 
procurement organizations from mission support to a more strategically 
important business unit that exercises more control over the 
acquisition of services. 

Further, on the basis of on our defense work, we have noted that an 
essential ingredient for better ensuring that overall DOD business 
transformation is implemented and sustained is to create a full-time 
and separate Chief Management Officer (CMO) position to address key 
business transformation challenges and stewardship responsibilities. 
Such a position could institutionalize accountability for DOD's efforts 
to improve its business operations, including prioritizing investments 
across the department. 


In closing, I would like to reemphasize why it is imperative that we 
correct these systemic governmentwide acquisition challenges. The U.S. 
government's current financial condition and long-term fiscal outlook 
require it to seek the best return it can on its investment in goods 
and services and make some difficult, but necessary, strategic choices 
between unlimited wants and real, affordable, and sustainable needs. 
The federal government needs to engage in a fundamental and 
comprehensive re-examination of the federal government's overall 
approach to contracting. This includes when and on what basis the 
government should contract. In the day-to-day management and oversight 
of major projects and purchases of goods and services, agencies will 
need to be realistic in their requirements and technologies before they 
invest significant funds in programs and strike a better balance among 
expediency, best value, and oversight when entering into contracts for 
goods and services. Agencies must also assess the skills, knowledge, 
and appropriate size of their acquisition workforce, and must also have 
key leadership positions to set the right tone at the top and have high-
level accountability to fix recurring acquisition issues. We should 
have zero tolerance for waste and mismanagement in times of surplus or 
deficit, but it will never be zero. Much, however, can and should be 
done to minimize it. 

We have made numerous specific recommendations to DOD and other 
agencies on how to address these systemic acquisition challenges, many 
of which have not been implemented. Where agencies are responding to 
our recommendations, we are seeing some improvements in their 
acquisition management. I appreciate this committee's attention to this 
important and timely issue and look forward to working with you to see 
that agencies continue to take actions to address these challenges. 

Mr. Chairman and members of the committee, this concludes my testimony. 
I would be happy to answer any questions you might have. 

Contact and Staff Acknowledgments: 

For further information regarding this testimony, please contact John 
P. Hutton at (202) 512-4841 or Contact points for our 
Offices of Congressional Relations and Public Affairs can be found on 
the last page of this testimony. Key contributors to this testimony 
were Theresa Chen, Laura Holliday, John Neumann, Kenneth Patton, Sylvia 
Schatz, Karen Sloan, and Bruce Thomas. 

[End of section] 

Appendix I: Systemic Acquisition Challenges at the Department of 

1. Service budgets are allocated largely according to top line 
historical percentages rather than Defense-wide strategic assessments 
and current and likely resource limitations. 

2. Capabilities and requirements are based primarily on individual 
service wants versus collective Defense needs (i.e., based on current 
and expected future threats) that are both affordable and sustainable 
over time. 

3. Defense consistently overpromises and underdelivers in connection 
with major weapons, information, and other systems (i.e., capabilities, 
costs, quantities, and schedule). 

4. Defense often employs a "plug and pray approach" when costs escalate 
(i.e., divide total funding dollars by cost per copy, plug in the 
number that can be purchased, then pray that Congress will provide more 
funding to buy more quantities). 

5. Congress sometimes forces the department to buy items (e.g., weapon 
systems) and provide services (e.g., additional health care for non- 
active beneficiaries, such as active duty members' dependents and 
military retirees and their dependents) that the department does not 
want and we cannot afford. 

6. DOD tries to develop high-risk technologies after programs start 
instead of setting up funding, organizations, and processes to conduct 
high-risk technology development activities in low-cost environments, 
(i.e., technology development is not separated from product 
development). Program decisions to move into design and production are 
made without adequate standards or knowledge. 

7. Program requirements are often set at unrealistic levels, then 
changed frequently as recognition sets in that they cannot be achieved. 
As a result, too much time passes, threats may change, or members of 
the user and acquisition communities may simply change their mind. The 
resulting program instability causes cost escalation, schedule delays, 
smaller quantities and reduced contractor accountability. 

8. Contracts, especially service contracts, often do not have 
definitive or realistic requirements at the outset in order to control 
costs and facilitate accountability. 

9. Contracts typically do not accurately reflect the complexity of 
projects or appropriately allocate risk between the contractors and the 
taxpayers (e.g., cost plus, cancellation charges). 

10. Key program staff rotate too frequently, thus promoting myopia and 
reducing accountability (i.e., tours based on time versus key 
milestones). Additionally, the revolving door between industry and the 
department presents potential conflicts of interest. 

11. The acquisition workforce faces serious challenges (e.g., size, 
skills, knowledge, and succession planning). 

12. Incentive and award fees are often paid based on contractor 
attitudes and efforts versus positive results (i.e., cost, quality, and 

13. Inadequate oversight is being conducted by both the department and 
Congress, which results in little to no accountability for recurring 
and systemic problems. 

14. Some individual program and funding decisions made within the 
department and by Congress serve to undercut sound policies. 

15. Lack of a professional, term-based Chief Management Officer at the 
department serves to slow progress on defense transformation and reduce 
the chance of success in the acquisitions/contracting and other key 
business areas. 

[End of section] 

Appendix II: Definition of Waste: 

Several of my colleagues in the accountability community and I have 
developed a definition of waste. As we see it, waste involves the 
taxpayers in the aggregate not receiving reasonable value for money in 
connection with any government-funded activities due to an 
inappropriate act or omission by players with control over or access to 
government resources (e.g., executive, judicial or legislative branch 
employees; contractors; grantees; or other recipients). Importantly, 
waste involves a transgression that is less than fraud and abuse. 
Further, most waste does not involve a violation of law, but rather 
relates primarily to mismanagement, inappropriate actions, or 
inadequate oversight. Illustrative examples of waste could include the 

* unreasonable, unrealistic, inadequate, or frequently changing 

* proceeding with development or production of systems without 
achieving an adequate maturity of related technologies in situations 
where there is no compelling national security interest to do so; 

* the failure to use competitive bidding in appropriate circumstances; 

* an over-reliance on cost-plus contracting arrangements where 
reasonable alternatives are available; 

* the payment of incentive and award fees in circumstances where the 
contractor's performance, in terms of costs, schedule, and quality 
outcomes, does not justify such fees; 

* the failure to engage in selected pre-contracting activities for 
contingent events; and: 

* congressional directions (e.g., earmarks) and agency spending actions 
where the action would not otherwise be taken based on an objective 
value and risk assessment and considering available resources. 

[End of section] 

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[1] The ITIM framework is a maturity model composed of five progressive 
stages of maturity that an agency can achieve in its IT investment 
management capabilities. The framework can be used both to assess the 
maturity of an agency's investment management processes and as a tool 
for organizational improvement.

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