This is the accessible text file for GAO report number GAO-09-460T 
entitled 'DOD's High-Risk Areas: Actions Needed to Reduce 
Vulnerabilities and Improve Business Outcomes' which was released on 
March 12, 2009.

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as part 
of a longer term project to improve GAO products' accessibility. Every 
attempt has been made to maintain the structural and data integrity of 
the original printed product. Accessibility features, such as text 
descriptions of tables, consecutively numbered footnotes placed at the 
end of the file, and the text of agency comment letters, are provided 
but may not exactly duplicate the presentation or format of the printed 
version. The portable document format (PDF) file is an exact electronic 
replica of the printed version. We welcome your feedback. Please E-mail 
your comments regarding the contents or accessibility features of this 
document to

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately.


Before the Committee on Armed Services, House of Representatives:

United States Government Accountability Office: 

For Release on Delivery: 
Expected at 10:00 a.m. DST:
Thursday, March 12, 2009:

DOD's High-Risk Areas:

Actions Needed to Reduce Vulnerabilities and Improve Business Outcomes:

Statement of Gene L. Dodaro: 
Acting Comptroller General of the United States:


GAO Highlights:

Highlights of GAO-09-460T, a testimony to before the Committee on Armed 
Services, House of Representatives. 

Why GAO Did This Study:

The Department of Defense (DOD) spends billions of dollars to sustain 
key business operations intended to support the warfighter. In January, 
GAO released its 2009 high-risk series update report for the 111th 
Congress. This series emphasizes federal programs and operations that 
are at high risk because of vulnerabilities to fraud, waste, abuse, and 
mismanagement and has also evolved to draw attention to areas 
associated with broad-based transformation needed to achieve greater 
efficiency, effectiveness, and sustainability. Of the 30 high-risk 
areas identified by GAO across government, DOD bears sole 
responsibility for eight defense specific high-risk areas and shares 
responsibility for seven other high-risk areas—all of which are related 
to its major business operations.  

The Committee asked GAO to provide its views on (1) actions needed to 
achieve measurable outcomes in DOD’s high-risk areas and (2) DOD’s 
progress in strengthening its management approach for business 
transformation, including establishing the Chief Management Officer 
(CMO) position. GAO was additionally asked to highlight information 
regarding the high-risk area related to contract management at the 
Department of Energy’s (DOE) National Nuclear Security Administration. 

What GAO Found:

Longstanding weaknesses in DOD’s business operations adversely affect 
the department’s economy, efficiency, and effectiveness, and have 
resulted in a lack of adequate accountability. As a result, DOD 
continues to experience cost growth in many of these areas and wastes 
billions of dollars annually that could be freed up for higher priority 
needs. DOD’s senior leadership has shown a commitment to transforming 
business operations, and taken many steps to address weaknesses. 
However, additional actions are needed to achieve and sustain progress. 


Business Area: Weapon Systems Acquisition; Impact on department and 
warfighter: Major defense acquisition programs continue to take longer, 
cost more, and deliver fewer quantities and capabilities to the 
warfighter than planned.  Compared to initial estimates, costs for 
DOD’s fiscal year 2007 portfolio of 95 major programs grew by $295 
billion or 26 percent.  On average, current programs experienced a 21-
month delay in delivering initial capabilities, reflecting a 5-month 
increase over fiscal year 2000 programs. 

Business Area: Contract Management; 
Impact on department and warfighter: From fiscal years 2001 and 2008, 
DOD’s obligations for contracts have more than doubled to $387 billion, 
but its workforce that manages and oversees contracts grew by only 
about 1 percent.  As the largest civilian contracting agency, DOE 
spends about 90 percent of its budget on contracts. Weaknesses in 
contract management at both DOD and DOE, such as unsound business 
practices, inadequate numbers of oversight personnel, and the lack of 
training result in increased costs and risks. 

Business Area: Supply Chain Management; Impact on department and 
warfighter: DOD has been unable to consistently meet its goal of 
delivering “the right items to the right place at the right time” to 
support the deployment and sustainment of its forces.  Also, the 
military services have billions of dollars in excess inventory due to 
weaknesses in forecasting demand.  For fiscal years 2004 to 2007, the 
Army and Navy held a combined annual average of $11 billion in 
inventory that was excess to requirements. 

Business Area: Financial Management; 
Impact on department and warfighter: System deficiencies and other 
pervasive challenges in DOD’s financial management operations impact 
its ability to control costs, ensure accountability, and measure 
performance, thus limiting DOD’s ability to prevent and detect fraud, 
waste, abuse, and improper payments. To date, none of the military 
services have received favorable financial statement audit opinions. 
Source:  GAO. 

[End of table] 

DOD has taken some steps to establish the CMO and other key positions, 
but still lacks some critical elements to strengthen its management 
approach. The National Defense Authorization Act for Fiscal Year 2008 
codified the CMO position, created a Deputy CMO, directed that CMO 
duties be assigned to the Under Secretary of each military department, 
and required a strategic plan for  business operations.  DOD has yet to 
clearly define the roles, responsibilities, and relationships among key 
positions, including the Deputy CMO and military department CMOs.  
Also, its first plan, issued in July 2008, lacks clear goals,  
objectives, and performance measures. As DOD’s approach continues to 
evolve, GAO remains open to the possibility of further progress.  
However, because of the roles and responsibilities currently assigned 
to key positions, it is still unclear whether DOD will provide the long-
term sustained leadership needed to address significant challenges in 
its business operations. 

To view the full product, click on [hyperlink,]. For more information, contact 
Janet St. Laurent at (202) 512-4402 or or Paul 
Francis at (202) 512-2811 or 

[End of section]

Mr. Chairman and Members of the Committee:

I appreciate the opportunity to be here today to discuss the Department 
of Defense's (DOD) high-risk areas and why further action is needed to 
enhance and sustain progress in transforming DOD's business operations. 
For almost two decades, we have reported on pervasive and longstanding 
weaknesses in DOD's business operations that affect its efficiency and 
effectiveness, leaving it vulnerable to billions of dollars of fraud, 
waste, and abuse annually. As a result, DOD continues to dominate our 
list of high-risk federal programs and operations, bearing 
responsibility, in whole or in part, for half of the 30 areas cited in 
our January 2009 high-risk series update report.[Footnote 1] As table 1 
indicates, eight of these fifteen areas are specific to DOD and seven 
are governmentwide areas that apply to DOD. Collectively, these high- 
risk areas relate to DOD's major business operations that are 
inextricably linked to the department's ability to perform its overall 
mission, directly affect the readiness and capabilities of U.S. 
military forces, and can affect the success of a mission.

Figure 1: High Risk Areas Involving the Department of Defense:

Defense-specific: DOD Approach to Business Transformation; 
Governmentwide areas that apply to DOD: Strategic Human Capital 

Defense-specific: DOD Weapon Systems Acquisition; 
Governmentwide areas that apply to DOD: Protecting the Federal 
Government's Information Systems and the Nation's Critical 

Defense-specific: DOD Contract Management; 
Governmentwide areas that apply to DOD: Managing Federal Real Property.

Defense-specific: DOD Supply Chain Management; 
Governmentwide areas that apply to DOD: Establishing Effective 
Mechanisms for Sharing Terrorism-Related Information to Protect the 

Defense-specific: DOD Financial Management; 
Governmentwide areas that apply to DOD: Ensuring the Effective 
Protection of Technologies Critical to U.S. National Security Interests.

Defense-specific: DOD Business Systems Modernization; 
Governmentwide areas that apply to DOD: Management of Interagency 

Defense-specific: DOD Support Infrastructure Management; 
Governmentwide areas that apply to DOD: Improving and Modernizing 
Federal Disability Programs.

Defense-specific: DOD Personnel Security Clearance Program; 
Governmentwide areas that apply to DOD: [Empty].

Source: GAO. 

[End of table] 

DOD is entrusted with more taxpayer dollars than any other federal 
agency, representing a large part of the discretionary spending of the 
U.S. budget. For example, Congress provided DOD with about $512 billion 
in annual appropriations for fiscal year 2009 and recently passed the 
American Recovery and Reinvestment Act[Footnote 2] that contains nearly 
$12.6 billion for DOD for military construction, environmental 
restoration, and other purposes. In addition, since 2001, DOD has 
received about $808 billion in supplemental emergency funding for the 
Global War on Terrorism, including support for ongoing military 
operations. Given the growing longer-range fiscal imbalance facing our 
nation, DOD will increasingly have to compete for constrained resources 
and cannot afford to continue to conduct "business as usual" and miss 
opportunities to achieve greater efficiencies and free up resources for 
higher priority needs.

Common to all of DOD's high-risk areas is the need for sustained, 
senior level leadership and a more strategic decision-making approach 
to ensure that programs and investments are based on plans with 
measurable goals, clear objectives, validated requirements, prioritized 
resource needs, and performance measures to gauge progress. Because of 
the complexity and magnitude of the challenges facing the department in 
improving its business operations, we have long advocated the need for 
a senior management official to provide strong and sustained 
leadership. As a result of legislation passed in the 110th Congress 
[Footnote 3], under the leadership of this committee and many others, 
DOD now has a Chief Management Officer (CMO) who is statutorily 
responsible and accountable for the department's overall business 
transformation efforts.

My testimony today will discuss (1) additional actions needed to 
achieve measurable outcomes in selected high-risk areas and (2) DOD's 
progress in strengthening its management approach for business 
transformation, including establishing the CMO position. In particular, 
I will focus my remarks on the defense-specific areas of weapon systems 
acquisition, contract management, supply chain management, financial 
management, and the defense-related aspects of the governmentwide areas 
of strategic human capital management, protecting technologies critical 
to U.S. national security interests, and protecting the federal 
government's information systems and critical infrastructure. As you 
requested, I will also highlight information regarding contract 
management challenges at the Department of Energy's (DOE) National 
Nuclear Security Administration (NNSA), which is also a high-risk area. 
Details on all of the high-risk areas involving DOD and DOE, as well as 
the rest of the federal government can be found in our January 2009 
High-Risk Series update.

In preparing this testimony, we relied on our extensive body of work on 
DOD's and DOE's high-risk areas. This work was conducted in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings and 
conclusions based on our audit objectives. We believe that the evidence 
obtained provides a reasonable basis for our findings and conclusions 
based on our audit objectives.

Failure to Match Requirements with Technology and Other Resources 
Underlie Poor Weapons Program Outcomes and Undermine Accountability:

Since fiscal year 2000, DOD has significantly increased the number of 
major defense acquisition programs and its overall investment in them. 
During this same time period, acquisition outcomes have not improved. 
For example, in last year's assessment of selected DOD weapon programs, 
we found that total acquisition costs for the fiscal year 2007 
portfolio of major defense acquisition programs increased by $295 
billion or 26 percent and development costs increased by 40 percent 
from first estimates--both of which are higher than the corresponding 
increases in DOD's fiscal year 2000 portfolio.[Footnote 4] In most 
cases, the programs we assessed failed to deliver capabilities when 
promised--often forcing warfighters to spend additional funds on 
maintaining legacy systems. Our analysis showed that current programs 
experienced, on average, a 21-month delay in delivering initial 
capabilities to the warfighter, a 5-month increase over fiscal year 
2000 programs as shown in table 2. Continued cost growth results in 
less funding being available for other DOD priorities and programs, 
while continued failure to deliver weapon systems on time delays 
providing critical capabilities to the warfighter. We are currently 
updating our analysis and intend to issue our assessment of DOD's 
current portfolio later this month.

Table 1: Analysis of DOD Major Defense Acquisition Program Portfolios:

Fiscal year 2008 dollars.

Portfolio size: Number of programs; 
Fiscal year: 2000 portfolio: 75; 
Fiscal year: 2005 portfolio: 91; 
Fiscal year: 2007 portfolio: 95.

Portfolio size: Total planned commitments; 
Fiscal year: 2000 portfolio: $790 billion; 
Fiscal year: 2005 portfolio: $1.5 trillion; 
Fiscal year: 2007 portfolio: $1.6 trillion.

Portfolio size: Commitments outstanding; 
Fiscal year: 2000 portfolio: $380 billion; 
Fiscal year: 2005 portfolio: $887 billion; 
Fiscal year: 2007 portfolio: $858 billion.

Portfolio performance: Change to total RDT&E costs from first estimate; 
Fiscal year: 2000 portfolio: 27 percent; 
Fiscal year: 2005 portfolio: 33 percent; 
Fiscal year: 2007 portfolio: 40 percent.

Portfolio performance: Change in total acquisition cost from first 
Fiscal year: 2000 portfolio: 6 percent; 
Fiscal year: 2005 portfolio: 18 percent; 
Fiscal year: 2007 portfolio: 26 percent.

Portfolio performance: Estimated total acquisition cost growth; 
Fiscal year: 2000 portfolio: $42 billion; 
Fiscal year: 2005 portfolio: $202 billion; 
Fiscal year: 2007 portfolio: $295 billion.

Portfolio performance: Share of programs with 25 percent or more 
increase in program acquisition unit cost; 
Fiscal year: 2000 portfolio: 37 percent; 
Fiscal year: 2005 portfolio: 44 percent; 
Fiscal year: 2007 portfolio: 44 percent.

Portfolio performance: Average schedule delay in delivering initial 
Fiscal year: 2000 portfolio: 16 months; 
Fiscal year: 2005 portfolio: 17 months; 
Fiscal year: 2007 portfolio: 21 months.

Source: GAO analysis of DOD data.

Note: Data were obtained from DOD's Selected Acquisition Reports (dated 
December 1999, 2004, and 2006) or in a few cases,data were obtained 
directly from program offices. Number of programs reflects the programs 
with Selected Acquisition Reports. In our analysis we have broken a few 
Selected Acquisition Report programs (such as Missile Defense Agency 
systems) into smaller elements or programs. Not all programs had 
comparative cost and schedule data, and these programs were excluded 
from the analysis where appropriate. Also, data do not include full 
costs of developing Missile Defense Agency systems. 

[End of table] 

Several underlying systemic problems at the strategic level and at the 
program level continue to contribute to poor weapon system program 
outcomes. At the strategic level, DOD does not prioritize weapon system 
investments and the department's processes for matching warfighter 
needs with resources are fragmented and broken.[Footnote 5] DOD largely 
continues to define warfighting needs and make investment decisions on 
a service-by-service basis and assess these requirements and their 
funding implications under separate decision-making processes. 
Ultimately, the process produces more demand for new programs than 
available resources can support, promoting an unhealthy competition for 
funds that encourages programs to pursue overly ambitious capabilities, 
develop unrealistically low cost estimates and optimistic schedules, 
and suppress bad news. Similarly, DOD's funding process does little to 
prevent programs from going forward with unreliable cost estimates and 
lengthy development cycles, which is not a sound basis for allocating 
resources and ensuring program stability. Invariably, DOD and Congress 
end up continually shifting funds to and from programs--undermining 
well-performing programs to pay for poorly performing ones.

At the program level, programs are started without knowing what 
resources will truly be needed and are managed with lower levels of 
product knowledge at critical junctures than expected under best 
practices standards. For example, in our March 2008 assessment, we 
found that only 12 percent of the 41 programs we reviewed had matured 
all critical technologies at the start of the development effort. 
[Footnote 6] None of the 26 programs we reviewed that were at or had 
passed their production decisions had obtained adequate levels of 
knowledge. In the absence of such knowledge, managers rely heavily on 
assumptions about system requirements, technology, and design maturity, 
assumptions that are consistently too optimistic. These gaps are 
largely the result of a lack of a disciplined systems engineering 
[Footnote 7] analysis prior to beginning system development, as well as 
DOD's tendency to allow new requirements to be added well into the 
acquisition cycle. This exposes programs to significant and unnecessary 
technology, design, and production risks, ultimately damaging cost 
growth and schedule delays. With high-levels of uncertainty about 
technologies, design, and requirements, program cost estimates and 
related funding needs are often understated, effectively setting 
programs up for failure.

When DOD consistently allows unsound, unexecutable programs to pass 
through the requirements, funding, and acquisition processes, 
accountability suffers. Program managers cannot be held accountable 
when the programs they are handed already have a low probability of 
success. Moreover, program managers are not empowered to make go or no- 
go decisions, have little control over funding, cannot veto new 
requirements, have little authority over staffing, and are frequently 
changed during a program's development. Consequently, DOD officials are 
rarely held accountable for these poor outcomes, and the acquisition 
environment does not provide the appropriate incentives for contractors 
to stay within cost and schedule targets, making officials strong 
enablers of the status quo.

With regard to improving its acquisition of weapon systems, DOD has 
made changes consistent with the knowledge-based approach to weapons 
development that GAO has recommended in its work. In December 2008, DOD 
revised DOD Instruction 5000.02, which provides procedures for managing 
major defense acquisition programs in ways that aim to provide key 
department leaders with the knowledge needed to make informed decisions 
before a program starts and to maintain discipline once it begins. For 
example, the revised instruction includes procedures for the completion 
of key systems engineering activities before the start of the systems 
development, a requirement for more prototyping early in programs, and 
the establishment of review boards to monitor weapon system 
configuration changes. We have previously raised concerns, however, 
with DOD's implementation of guidance on weapon systems acquisition. At 
the same time, DOD must begin making better choices that reflect joint 
capability needs and match requirements with resources. DOD's 
investment decisions cannot continue to be driven by the military 
services that propose programs that overpromise capabilities and 
underestimate costs simply to start and sustain development programs.

Recent congressional actions, including efforts by your committtes 
reflect the need for achieving better acquisition outcomes. We commend 
this Committee for forming a special panel on Defense Acquisition 
Reform to address broad issues surrounding the defense acquisition 
process including how to evaluate performance and value in the current 
system, the root causes of system failures, the administrative and 
cultural pressures that lead to negative outcomes, and the reform 
recommendations of previous studies. The Senate Committee on Armed 
Services also has proposed legislation with provisions to strengthen 
DOD's acquisition processes including provisions to improve systems 
engineering, developmental testing, technology maturity assessments, 
independent cost estimates and the role of the combatant commanders, 
among other provisions.

DOD Continues to Face Longstanding Challenges Managing Service 
Contracts and Contractors:

DOD Has Yet to Fully Assess Which Functions and Activities Should Be 
Performed by Contractors, Limiting Its Ability to Mitigate Risks:

DOD relies increasingly on contractors to support its missions and 
operations. For example, DOD estimated that more than 230,000 
contractor personnel were supporting operations in Iraq and Afghanistan 
as of October 2008. Officials have stated that without a significant 
increase in its civilian and military workforce, the department is 
likely to continue to rely on contractors both in the United States and 
overseas. Contractors can provide important benefits, such as 
flexibility to fulfill immediate needs. But, using contractors also 
comes with inherent risks, which must be mitigated through effective 

DOD's reliance on contractors has not been the result of a strategic or 
deliberate process but instead resulted from thousands of individual 
decisions to use contractors in specific situations. DOD's longstanding 
guidance for determining the appropriate military, civilian, and 
contractor mix needed to accomplish the department's mission, focuses 
on individual decisions of whether to use contractors to provide 
specific capabilities and not the overarching question of what the 
appropriate role of contractors should be. We have repeatedly called 
for DOD to be more strategic in how it uses contractors.[Footnote 8] 
Without a fundamental understanding of when, where, and how contractors 
should or should not be used, DOD's ability to mitigate the risks 
associated with using contractors is limited.

Our work has highlighted risks, which include differing ethical 
standards, diminished institutional capacity, potentially greater 
costs, and mission risks. For example:

* Contractor employees often work side-by-side with government 
employees, performing such tasks as studying alternative ways to 
acquire desired capabilities, developing contract requirements, and 
advising or assisting on source selection, budget planning, and award-
fee determinations. Contractor employees are generally not subject, 
however, to the same laws and regulations that are designed to prevent 
conflicts of interests among federal employees.[Footnote 9]

* Reliance on contractors can create mission risks when contractors are 
supporting deployed forces. For example, because contractors cannot be 
ordered to serve in contingency environments, the possibility that they 
will not deploy can create risks that the mission they support may not 
be effectively carried out. Further, if commanders are unaware of their 
reliance on contractors, they may not realize that substantial numbers 
of military personnel may be redirected from their primary 
responsibilities to provide force protection or assume functions 
anticipated to be performed by contractors, and commanders therefore 
may not plan accordingly. The Chairman of the Joint Chiefs of Staff has 
directed the Joint Staff to examine the use of DOD service contracts 
(contractors) in Iraq and Afghanistan in order to better understand the 
range and depth of contractor capabilities necessary to support the 
Joint Force.

* One underlying premise of using contractors is that doing so will be 
more cost-effective than using government personnel. This assumption 
may not always be the case. In one instance, we found that the Army 
Contracting Agency's Contracting Center of Excellence was paying up to 
27 percent more for contractor-provided contract specialists than it 
would have for similarly graded government employees.[Footnote 10]

DOD Continues to Face Challenges in Employing Sound Business Practices 
When Contracting for and Managing Service Contracts:

Once the decision has been made to use contractors to support DOD's 
missions or operations, it is essential that DOD clearly define its 
requirements and employ sound business practices, such as using 
appropriate contracting vehicles. Our work, however, has identified 
weaknesses in DOD's management and oversight, increasing the 
government's risk. For example,

* In June 2007, we found significant use of time-and-materials 
contracts.[Footnote 11] These contracts are considered high risk for 
the government because they provide no positive profit incentive to the 
contractor for cost control or labor efficiency and their use is 
supposed to be limited to cases where no other contract type is 
suitable. We found that DOD underreported its use of time-and-materials 
contracts; frequently did not justify why time-and-materials contracts 
were the only contract type suitable for the procurement; made few 
attempts to convert follow-on work to less risky contract types; and 
was inconsistent in the rigor with which contract monitoring occurred.

* In that same month, we reported that DOD needed to improve its 
management and oversight of undefinitized contract actions, under which 
DOD can authorize contractors to begin work and incur costs before 
reaching a final agreement on contract terms and conditions, including 
price.[Footnote 12] The contractor has little incentive to control 
costs during this period, creating a potential for wasted taxpayer 
dollars. We found that the government's federal procurement data system 
did not track undefinitized contract actions awarded under task or 
delivery order contracts. Moreover, we found that the use of some 
undefinitized contract actions could have been avoided with better 
acquisition planning, that DOD frequently did not definitize the 
undefinitized contract actions within the required time frames thereby 
increasing the cost risk to the government, and that contracting 
officers were not documenting the basis for the profit or fee 
negotiated, as required.

In response to GAO's recommendations relative to time-and-materials 
contracts and undefinitized contract actions, DOD has taken actions to 
limit risk to the government under both circumstances.

Our previous work has also demonstrated that better collection and 
distribution of information on contract management could limit risks. 
For example:

* Our 2008 review of several Army service contracts found that 
contracting offices were not documenting contract administration and 
oversight actions taken in accordance with DOD policy and guidance. As 
a result, incoming contract administration personnel did not know 
whether the contractors were meeting their contract requirements 
effectively and efficiently and therefore were limited in their ability 
to make informed decisions related to award fees, which can run into 
the millions of dollars.[Footnote 13]

* In addition, several GAO reports and testimonies have noted that 
despite years of experience using contractors to support deployed 
forces in the Balkans, Southwest Asia, Iraq, and Afghanistan, DOD has 
made few efforts to systematically collect and share lessons learned 
regarding the oversight and management of contractors supporting 
deployed forces. As a result, many of the management and oversight 
problems we identified in earlier operations have recurred in current 

Workforce Issues Continue to Limit DOD's Ability to Provide Adequate 
Contract Oversight and Management:

Properly managing the acquisition of contractor services requires a 
workforce with the right mix of skills and capabilities. Individuals 
and organizations involved in the acquisition process include not just 
the contracting officers who award contracts, but also those military 
and civilian officials who define requirements, receive or benefit from 
the services provided, and oversee contractor performance, including 
the Defense Contract Audit Agency (DCAA) and the Defense Contract 
Management Agency (DCMA).

We and others have raised questions whether DOD has a sufficient number 
of trained acquisition and contract oversight personnel to meet its 
needs. For example, the increased volume of contracting is far in 
excess of the growth in DOD contract personnel. Between fiscal years 
2001 and 2008, DOD obligations on contracts when measured in real 
terms, have more than doubled to over $387 billion in total, and to 
more than $200 billion just for services. Over the same time period, 
however, DOD reports its contracting career field grew by only about 1 
percent as shown in figure 1. In 2008, DOD completed an assessment of 
its civilian contracting workforce to provide a foundation for 
understanding the skills and capabilities of its current workforce and 
to determine how to close any gaps. DOD has not yet completed its 
assessments of the competencies and skills in the rest of its 
acquisition workforce. To facilitate improvements to DOD's acquisition 
workforce, the National Defense Authorization Act for Fiscal Year 2008 
required DOD to establish and dedicate funding to an Acquisition 
Workforce Development Fund.[Footnote 14] DOD is in the process of 
implementing this fund and has focused its efforts in three key areas:

(1) recruiting and hiring, (2) training and development, and (3) 
retention and recognition. We are currently assessing DOD's ability to 
determine the sufficiency of its acquisition workforce and its efforts 
to improve its workforce management and oversight and will be issuing a 
report in the spring.

Figure 2: Changes in DOD's Contract Obligations and Contracting 
Workforce, Fiscal Years 2001 through Fiscal Year 2008 (dollars are in 
costant fiscla year 2008 dollars):

[Refer to PDF for image: combination stacked vertical bar and line 

Fiscal year: 2001; 
Services: $92.7 billion; 
Products: $80 billion; 
Contracting career field: 25,400. 

Fiscal year: 2002; 
Services: $108.3 billion; 
Products: $91.2 billion; 
Contracting career field: 27,900. 

Fiscal year: 2003; 
Services: $135.5 billion; 
Products: $103.5 billion; 
Contracting career field: 27,000. 

Fiscal year: 2004; 
Services: $141.9 billion 
Products: $114.8 billion; 
Contracting career field: 26,200. 

Fiscal year: 2005; 
Services: $153.6 billion; 
Products: $132.1 billion; 
Contracting career field: 26,000. 

Fiscal year: 2006; 
Services: $159.4 billion; 
Products: $144.6 billion; 
Contracting career field: 27,700. 

Fiscal year: 2007; 
Services: $174.4 billion; 
Products: $160.4 billion; 
Contracting career field: 26,000. 

Fiscal year: 2008; 
Services: $200.9 billion; 
Products: $186.8 billion; 
Contracting career field: 25,700. 

Source: GAO analysis, Federal Procurement Data System-Next Generation, 

[End of figure]

Having too few contract oversight personnel presents unique 
difficulties at deployed locations given the more demanding operational 
environment compared to the United States because of an increased 
operational tempo, security considerations, and other factors. We and 
others have found significant deficiencies in DOD's oversight of 
contractors because of an inadequate number of trained personnel to 
carry out these duties and the lack of training for military commanders 
and oversight personnel. As we testified in 2008, limited or no pre- 
deployment training on the use of contractor support can cause a 
variety of problems for military commanders in a deployed location, 
such as being unable to adequately plan for the use of those 
contractors and confusion regarding the military commanders' roles and 
responsibilities in managing and overseeing contractors.[Footnote 15] 
Lack of training also affects the ability of contract oversight 
personnel to perform their duties.

While performing oversight is often the responsibility of military 
service contracting officers or their representatives, DCAA and DCMA 
play key roles in the oversight process. DCAA provides a critical 
internal control function on behalf of DOD and other federal agencies 
by performing a range of contract audit services, including reviewing 
contractors' cost accounting systems, conducting audits of contractor 
cost proposals and payment invoices, and providing contract advisory 
services to help assure that the government pays fair and reasonable 
prices. To be an effective control, DCAA must perform reliable audits. 
In a report we issued in July 2008, however, we identified a serious 
noncompliance with generally accepted government auditing standards at 
three field audit offices responsible for billions of dollars of 
contracting.[Footnote 16] For example, we found that workpapers did not 
support reported opinions and sufficient audit work was not performed 
to support audit opinions and conclusions. As a result, DCAA cannot 
assure that these audits provided reliable information to support sound 
contract management business decisions or that contract payments are 
not vulnerable to significant amounts of fraud, waste, abuse, and 
mismanagement. The DCAA Director subsequently acknowledged agencywide 
problems and initiated a number of corrective actions. In addition, DOD 
included DCAA's failure to meet professional standards as a material 
internal control weakness in its fiscal year 2008 agency financial 
report.[Footnote 17] We are currently assessing DCAA's corrective 
actions and anticipate issuing a report later this spring.

Similarly, DCMA provides oversight at more than 900 contractor 
facilities in the United States and across the world, providing 
contract administration services such as monitoring contractors' 
performance and management systems to ensure that cost, performance, 
and delivery schedules comply with the terms and conditions of the 
contracts. DCMA has also assumed additional responsibility for 
overseeing service contracts in Iraq, Afghanistan, and other deployed 
locations, including contracts that provide logistical support and 
private security services. In a July 2008 report, we noted that DCMA 
had increased staffing in these locations only by shifting resources 
from other locations and had asked the services to provide additional 
staff since DCMA did not have the resources to meet the requirement. 
[Footnote 18] As a result, it is uncertain whether DCMA has the 
resources to meet its commitments at home and abroad.

DOD Has Taken Some Steps to Address Service Contract Management and 
Oversight Challenges in Response to GAO Recommendations:

GAO's body of work on contract management and the use of contractors to 
support deployed forces has resulted in numerous recommendations over 
the last several years. In response, DOD has issued guidance to address 
contracting weaknesses and promote the use of sound business 
arrangements. For example, in response to congressional direction and 
GAO recommendations, DOD has established a framework for reviewing 
major services acquisitions; promulgated regulations to better manage 
its use of contracting arrangements that can pose additional risks for 
the government, including time-and-materials contracts and 
undefinitized contracting actions; and has efforts under way to 
identify and improve the skills and capabilities of its workforce. For 
example, we reported in November 2008 that DOD has been developing, 
revising, and finalizing new joint policies and guidance on the 
department's use of contractors to support deployed forces (which DOD 
now refers to as operational contract support) and has begun to develop 
training programs for non-acquisition personnel to provide information 
necessary to operate effectively on contingency contracting matters and 
work with contractors on the battlefield.[Footnote 19]

As the department moves forward, it needs to ensure that guidance is 
fully complied with and implemented. Doing so will require continued, 
sustained commitment by senior leadership to translate policy into 
practice and to hold decision makers accountable. In addition, at the 
departmentwide level, DOD has yet to conduct the type of fundamental 
reexamination of its reliance on contractors that we called for in 
2008.[Footnote 20] Without understanding the depth and breadth of 
contractor support, the department will be unable to determine if it 
has the appropriate mix of military personnel, DOD civilians, and 
contractors. As a result, DOD may not be totally aware of the risks it 
faces and will therefore be unable to mitigate those risks in the most 
cost-effective and efficient manner.

DOE's National Nuclear Security Administration Has Yet to Take 
Significant Action to Address Contract and Project Management 

Contract and project management challenges are not unique to DOD. DOE 
manages over 100 construction projects with estimated costs over $90 
billion and 97 nuclear waste cleanup projects with estimated costs over 
$230 billion. DOE is the largest civilian contracting agency in the 
federal government, spending about 90 percent of its budget on 
contracts. It has about 14,000 employees to oversee the work of more 
than 93,000 contractor employees. While other DOE program offices have 
recently made progress, the National Nuclear Security Administration 
(NNSA), which is responsible for maintaining the safety and reliability 
of the nuclear weapons stockpile, remains on our High-Risk List for 
continued weaknesses in contract and project management.[Footnote 21] 
As the largest component organization within DOE, the NNSA has an 
annual budget of approximately $9 billion for the management and 
security of the nation's nuclear weapons, nuclear nonproliferation, and 
naval reactors programs. For the past 2 years, we have been reporting 
on the lack of sufficient action by NNSA as well as specific projects 
that continue to face contract and project management challenges. For 
example, on March 4, 2009, [Footnote 22] we testified on, among other 
things, significant cost overruns and schedule delays on five of NNSA's 
largest construction projects.[Footnote 23] These construction projects 
experienced cumulative cost increases of nearly $6 billion above the 
initial cost estimates. These projects also experienced cumulative 
schedule delays in excess of 32 years above initial estimates. Though 
some of the cost and schedule delays can be tied to increased cost of 
materials and labor, most of these cost and schedule increases were the 
result of poor performance on the part of NNSA and its contractors. 
Specifically, we have found NNSA in some instances:  

* failed to follow its own project guidance,

* produced internal cost and schedule estimates for projects that are 
not credible,

* conducted insufficient and ineffective project reviews,

* relied on technologies without assessing their readiness, and:

lacked sufficient federal staffing and expertise for project management 

We have made a series of recommendations to strengthen DOE's and NNSA's 
contract management, which collectively call for the agencies to take 
the following actions:

* ensure that project management requirements are consistently followed,

* improve oversight of contractors, and:

* strengthen accountability for performance.

DOE and NNSA have generally agreed with our recommendations and, over 
the last 2 years, have been working to better understand the underlying 
weaknesses in contract and project management and develop appropriate 
corrective actions to address the weaknesses. As part of the Office of 
Management and Budget initiative for federal agencies to develop 
detailed corrective action plans for high-risk areas, DOE obtained 
input from headquarters and field officials, including NNSA officials, 
with contract and project management expertise to develop a root-cause 
analysis of NNSA's weaknesses. DOE then used this analysis to develop a 
corrective action plan and performance measures to assess progress.

However, we continue to believe that further improvements are needed. 
For example, as of the end of fiscal year 2008, NNSA had still not 
implemented any of the 21 recommendations we had made in January 2007 
that were aimed, in part, at improving NNSA contractor oversight and 
project management.[Footnote 24] More recently, in a March 2, 2009, 
report issued to this Committee's Strategic Forces Subcommittee, we 
found that NNSA and DOD have not effectively managed the project cost, 
schedule, and technical risks for programs to extend the lifetimes of 
two warheads in the nuclear weapons stockpile.[Footnote 25] We are 
concerned that weaknesses, such as these, if left unaddressed, will 
impact NNSA's plans to modernize its infrastructure and create a 
smaller, more responsive nuclear weapon's complex as NNSA and DOD have 
recently proposed.[Footnote 26] This effort, known as Complex 
Transformation, is expected to require tens of billions of dollars over 
several decades to complete.

The administration is placing greater emphasis on the need to address 
contracting related challenges governmentwide. President Obama has just 
issued an executive memorandum directing, in part, the Director of the 
Office of Management and Budget--in collaboration with the Secretary of 
Defense, the Administrator of the National Aeronautics and Space 
Administration, the Administer of General Services, the Director of 
Personnel Management, and the heads of any other agencies that the 
Director of the Office of Management and Budget determines appropriate-
-to develop and issue government-wide guidance to assist agencies in 
reviewing, and creating processes for ongoing review of existing 
contracts in order to identify contracts that are wasteful, 
inefficient, or otherwise unlikely to meet the agencies needs, and to 
formulate corrective action in a timely manner. Congress is also 
emphasizing the need to address government-wide contracting related 
challenges. For example, in the National Defense Authorization Act for 
Fiscal Year 2008, Congress created the Commission on Wartime 
contracting to study federal agency contracting for the reconstruction, 
logistical support of coalition forces, and the performance of security 
functions, in Iraq and Afghanistan. The Senate Committee on Homeland 
Security and Governmental Affairs also recently announced the creation 
of a new Ad Hoc Subcommittee on Contracting Oversight.

Systemic Supply Chain Management Problems and Inadequate Plans Lead to 
Challenges in Meeting Warfighter Supply Requirements:

Supply chain management continues to be on our high-risk list as a 
result of weaknesses in the DOD's management of supply inventories and 
responsiveness to warfighter requirements. The availability of spare 
parts and other critical supply items that are procured and delivered 
through DOD's supply chain network affects the readiness and 
capabilities of U.S. military forces, and can affect the success of a 
mission. DOD reported spending approximately $178 billion on its supply 
chain in fiscal year 2007. While DOD has taken a number of positive 
steps toward improving its supply chain management, such as 
consolidating certain inventories in regional hubs and improving 
transportation management of military freight, it has continued to 
experience weaknesses in its ability to provide efficient and effective 
supply support to the warfighter. Consequently, the department has been 
unable to consistently meet its goal of delivering the "right items to 
the right place at the right time" to support the deployment and 
sustainment of military forces.

For example, the military services continued to have billions of 
dollars worth of spare parts that were in excess of current 
requirements, representing a significant portion of their inventories. 
For example, in our most recent reviews of inventory management, we 
found that, the Army and Navy, over a 4-year period from fiscal years 
2004 to 2007, averaged an annual total of $11 billion in inventory 
value (in constant fiscal year 2007 dollars) that exceeded current 
requirements. The Navy's portion of the total--$7.5 billion-- 
represented about 40 percent of the average annual value of its total 
inventory ($18.7 billion). The Army's portion--$3.6 billion-- 
represented 22 percent of the average annual value of its total 
inventory ($16.3 billion).[Footnote 27] A major cause for the services' 
excess inventories was weakness in demand forecasting. Moreover, we 
noted a lack of metrics and targets focusing on the cost efficiency of 
inventory management.

In addition, DOD had not instituted a coordinated management approach 
to improving distribution and supply support for joint military 
operations,[Footnote 28] and faced challenges in achieving widespread 
implementation of key technologies aimed at improving asset visibility. 
[Footnote 29] We have also reported that DOD, as it looked ahead to 
drawing down its forces from Iraq, lacked a unified or coordinated 
command structure to plan for the management and execution of the 
return of material and equipment from Iraq, worth approximately $16.5 
billion. While the U.S. Central Command has recently taken steps to 
refine and solidify a theater logistics command to address these 
weaknesses, corrective actions have not yet been fully implemented.

DOD has recognized the need for a comprehensive, integrated strategy 
for transforming logistics and in July 2008 released its Logistics 
Roadmap with the intent to provide a more coherent and authoritative 
framework for logistics improvement efforts, including supply chain 
management. However, we found that the road map was missing key 
elements that would make the information more useful for DOD's senior 
leaders.[Footnote 30] First, it did not identify the scope of DOD's 
logistics problems or gaps in logistics capabilities. Second, it lacked 
outcome-based performance measures that would enable DOD to assess and 
track progress toward meeting stated goals and objectives. Third, DOD 
had not clearly stated how it intended to integrate the roadmap into 
DOD's logistics decision-making processes or who within the department 
was responsible for this integration.

DOD has generally concurred with our recommendations, and in some cases 
has committed to take action or has taken action. For example, when DOD 
updates the Logistics Roadmap later this year, DOD plans to remedy some 
of the weaknesses we identified. To successfully resolve key supply 
chain management problems, DOD needs to:

* sustain top leadership commitment and long-term institutional support 
for the Logistics Roadmap and demonstrate progress in achieving the 
objectives in the road map;

* address the elements missing from its Logistics Roadmap, to ensure 
that the road map provides a comprehensive, integrated strategy for 
guiding supply chain management improvement efforts;

* conduct systematic evaluations of demand forecasting used for 
inventory management to identify and correct weaknesses and establish 
goals and metrics for tracking and assessing the cost efficiency of 
inventory management;

* develop and implement a coordinated and comprehensive management 
approach to guide and oversee efforts across the department to improve 
distribution and supply support for U.S. Forces in a joint theater;

* collect cost and performance data on the initial implementation of 
asset visibility technologies, analyze the return on investment for 
these technologies, and determine whether they have received sufficient 
funding priority; and:

* take steps to fully implement DOD's recent initiative to establish a 
unified or coordinated chain of command over logistics operations in 
support of the retrograde of equipment and materiel from Iraq, and 
correct incompatibility weaknesses in the various data systems used to 
maintain visibility of equipment and materiel while they are in- 

Achieving and sustaining progress will require commitments and a 
coordinated management approach at the highest level of the department 
as well as the military services and other DOD components.

Weaknesses in Financial Management Adversely Affect DOD's Ability to 
Effectively Manage and Account for Its Resources and Assets:

Efficient and effective management and accountability of DOD's hundreds 
of billions of dollars worth of resources require timely, reliable, and 
useful information. However, DOD's pervasive financial and related 
business management and system deficiencies continue to adversely 
affect its ability to control costs; ensure basic accountability; 
anticipate future costs and claims on the budget; measure performance; 
maintain funds control; prevent and detect fraud, waste, and abuse; and 
address pressing management issues. To date, while the U.S. Army Corps 
of Engineers, Civil Works has achieved a clean audit opinion on its 
financial statements, none of the military services have. For many 
years, DOD has annually acknowledged that long-standing weaknesses in 
its business systems and processes have prevented auditors from 
determining the reliability of DOD's financial statement information. 
We also have previously reported that a weak overall control 
environment and poor internal controls limit DOD's ability to prevent 
and detect fraud, waste, abuse, and improper payments. For example, 
before awarding contracts or making purchases from the General Services 
Administration's Federal Supply Schedule, contracting officers and 
other agency officials are required to check the Excluded Party List 
System to ensure that a prospective vendor is not prohibited from doing 
business with the federal government. However, in February 2009, we 
reported that failure to follow contract award procedures resulted in 
DOD's contracting officers making awards to debarred or suspended 
companies.[Footnote 31]

Over the years, DOD has initiated numerous efforts intended to improve 
its financial management practices. In response to a congressional 
mandate, DOD issued its Financial Improvement and Audit Readiness 
(FIAR) Plan in December 2005, which it updates twice a year, to outline 
its strategy for addressing its financial management challenges and 
achieving clean audit opinions. In addition, DOD has taken steps toward 
developing and implementing a framework for addressing its long- 
standing financial management weaknesses and improving its capability 
to provide timely, reliable, and relevant financial information for 
decision making and reporting, a key defense transformation priority. 
This framework includes a Standard Financial Information Structure and 
Business Enterprise Information System, intended to provide 
standardization in financial reporting. DOD's efforts should help to 
improve the consistency and comparability of its financial information 
and reporting; however, a great deal of work needs to be done. In 
particular, data cleansing, improvements in policies, processes, and 
controls; as well as successful system implementations are needed to 
improve DOD's financial management and reporting.

We are in the process of reviewing the department's September 2008 FIAR 
Plan to determine if there are any areas where improvements are needed 
to enhance the plan's effectiveness as a management tool for guiding, 
monitoring, and reporting on the department's efforts to identify and 
resolve its financial management weaknesses and achieve financial 
statement auditability. We will provide the Committee a copy of the 
report when it is issued. Key to successful transformation of DOD's 
financial management operations will continue to be:

* development and sustained implementation of a comprehensive and 
integrated financial management transformation strategy, within an 
overall business transformation strategy, to guide financial management 
improvement efforts,

* prioritization of initiatives and resources, and:

* monitoring of progress through the establishment and utilization of 
cascading performance goals, objectives, and metrics.

Opportunities Exist to Build on Recent Progress to Strengthen DOD's 
Civilian Human Capital Strategic Plan:

We designated strategic human capital management as a high risk area 
because of the federal government's long-standing lack of a consistent 
approach to human capital management and the continuing need for a 
governmentwide framework to advance human capital reform. Like other 
federal agencies, DOD also faces challenges in managing its human 
capital, particularly with its civilian workforce. With almost 30 
percent of its total civilian workforce (about 670,000) becoming 
eligible to retire in the next few years,[Footnote 32] DOD may be faced 
with deciding how to fill numerous mission-critical positions-- 
positions that involve developing policy, providing intelligence, and 
acquiring weapon systems. Having the right number of civilian personnel 
with the right skills is critical to achieving the department's mission.

In recent years, Congress has passed legislation requiring DOD to 
conduct human capital planning efforts for the department's overall 
civilian workforce and its senior leaders. Specifically, the National 
Defense Authorization Act for Fiscal Year 2006[Footnote 33] requires 
DOD to develop a strategic human capital plan, update it annually 
through 2010, and address eight requirements. The National Defense 
Authorization Act for 2007[Footnote 34] added nine requirements to the 
annual update to shape DOD's senior leader workforce.

In February 2009, we reported while DOD's 2008 strategic human capital 
plan update, when compared with its 2007 plan, showed progress in 
addressing the National Defense Authorization Act for Fiscal Year 2006 
requirements, it only partially addressed each of the act's 
requirements.[Footnote 35] For example, DOD identified 25 critical 
skills and competencies--referred to as enterprisewide mission- 
critical occupations, which included logistics management and medical 
occupations. The update, however, did not contain assessments for over 
half of the 25 occupations, and the completed assessments of future 
enterprisewide mission-critical occupations did not cover the required 
10-year period. Also, DOD's update only partially addressed the act's 
requirements for a plan of action for closing the gaps in DOD's 
civilian workforce. Although DOD recently established a program 
management office whose responsibility is to monitor DOD's updates to 
the strategic human capital plan, the office, at the time of our 
review, did not have and did not plan to have a performance plan that 
articulates how the legislative requirements will be met. Until such a 
plan is developed, DOD may not be well positioned to design the best 
strategies to meet its civilian workforce needs.

Regarding plans for DOD's senior leader workforce, DOD's 2008 update 
and related documentation addressed four of the nine requirements in 
the fiscal year National Defense Authorization Act for Fiscal Year 
2007, but only partially addressed the remaining five. For example, 
DOD's update notes that the department has not completely addressed the 
requirement to assess its need for senior leaders. Although DOD 
recently established an executive management office to manage the 
career life cycle of DOD senior leaders, as well as the National 
Defense Authorization Act for Fiscal Year 2007 requirements, this 
office, at the time of our review, did not have and did not plan to 
develop a performance plan to address the national defense 
authorization act requirements. Until DOD develops a performance plan 
to guide its efforts to strengthen its human capital strategic 
planning, it may be unable to design the best strategies to meet its 
senior leader workforce needs.

Ensuring Effective Protection of Technologies Is Critical to U.S. 
National Interests:

We designated the effective protection of technologies critical to U.S. 
national interests as a high risk area due to weaknesses GAO identified 
in the effectiveness and efficiency of government programs designed to 
protect such technologies. The U.S. government approves selling DOD 
weapon systems and defense-related technologies overseas for foreign 
policy, security, and economic reasons and has a number of long- 
standing programs to identify and protect critical technologies from 
reverse engineering and illegal export. These include the anti-tamper 
program,[Footnote 36] militarily critical technologies program, and the 
export controls systems for defense-related and dual-use items. DOD is 
responsible for implementing several of these programs and is a key 
stakeholder in others. We have identified actions specific to DOD, 
including that it needs to:

* develop and provide departmentwide guidance to program managers in 
how to implement anti-tamper protection[Footnote 37],

* develop an approach to identify and catalogue technologies that best 
meet the needs of U.S. government programs that control militarily 
critical technologies[Footnote 38], and:

* resolve disagreements with the Department of State on export control 
exemption use and guidelines.[Footnote 39]

While actions at the agency level can lead to improvements, agencies 
have yet to take action to address our major underlying concern, which 
is the need for a fundamental re-examination of current government 
programs and evaluate the potential of alternative approaches to 
protect critical technologies.

The Federal Government, Including DOD, Faces Challenges in Protecting 
Information Systems and Critical Infrastructures:

Federal agencies, including DOD, face challenges in protecting the 
security of information technology systems--commonly referred to as 
cybersecurity, including those systems that support our nation's 
critical infrastructures (e.g., power distribution system, 
telecommunications networks). Long-standing, pervasive security control 
weaknesses continue to place national, federal, and DOD assets at risk 
of inadvertent or deliberate misuse, financial information at risk of 
unauthorized modification, sensitive information at risk of 
inappropriate disclosure, and critical operations at risk of 
disruption. Well publicized computer-based attacks against information 
technology systems in the United States and other countries show these 
threats pose a potentially devastating impact to federal systems and 
operations and the critical infrastructures.

To address the threats, the President in January 2008 began 
implementing a series of initiatives--called the Comprehensive National 
Cybersecurity Initiative--aimed primarily at improving the security of 
DOD and other information technology systems within the federal 
government. More recently, in February 2009, the new President 
initiated a review of the government's overall cybersecurity strategy 
and supporting activities with the goal of reporting its finding in 
April 2009. We currently have work under way for this Committee's 
Subcommittee on Terrorism and Unconventional Threats and Capabilities 
to assess the interagency Comprehensive National Cyber Initiative and 
its results. We are also examining the progress DOD has made in 
developing its organizational structure, policies, plans, doctrine, and 
capabilities for cyber defensive and offensive operations.

DOD Has Made Progress in Establishing Key Management Positions for 
Business Transformation, but Critical Actions Are Still Needed:

Without sustained leadership and comprehensive strategic planning, 
DOD's ability to achieve and sustain measurable progress in addressing 
high-risk areas and thereby improving its business operations is at 
risk. We have long advocated that DOD establish a Chief Management 
Officer (CMO) to be responsible and accountable for the department's 
business transformation and a strategic planning process to direct its 
efforts and measure progress. DOD's senior leadership has shown a 
commitment to transforming business operations and taken many steps to 
strengthen its management approach, both in response to congressional 
requirements and on its own accord. For example, the Secretary of 
Defense designated the Deputy Secretary of Defense as CMO of the 
department in May 2007. The National Defense Authorization Act for 
Fiscal Year 2008 subsequently codified the position, created a Deputy 
CMO, directed that CMO duties be assigned to the Under Secretary of 
each military department, and required DOD to develop a strategic 
management plan for business operations.[Footnote 40] In 2008, DOD 
issued its first Strategic Management Plan, which it characterizes as a 
first step toward providing Congress with the comprehensive plan 
required by law and as a primer for incoming officials that describes 
newly established and existing structures and processes within DOD to 
be used by the CMO for delivering effective and efficient support to 
the warfighter.[Footnote 41] DOD also issued directives broadly 
defining the roles and responsibilities of the CMO and Deputy CMO, 
[Footnote 42] established a DCMO office, and named an Assistant Deputy 
CMO to lead the stand-up of the office prior to the nomination and 
filling of the Deputy CMO position. Prior to these actions, DOD had 
established various management and governance entities that, in 
addition to the CMO and Deputy CMO, will comprise the management 
framework for business transformation, such as the Defense Business 
Systems Management Committee and the Business Transformation Agency.

While DOD has taken several positive steps, it still lacks critical 
elements needed to ensure successful and sustainable transformation 
efforts. Specifically, it has not fully or clearly defined the 
authority, roles, and relationships for some positions and entities. 
For example, the Deputy CMO position has not been assigned clear 
decision making authority or accountability for results, and the 
position appears to be advisory in nature. Therefore, it is unclear how 
the creation of the Deputy CMO position changes the existing structure 
of DOD's senior leadership. It is also unclear how the Deputy CMO will 
work with other senior leaders across the department who have 
responsibility for business operations and who are at the same level or 
even higher, such as the various Under Secretaries of Defense and the 
military department CMOs. The roles and relationships of various 
governance entities are similarly unclear.

In addition, DOD's first Strategic Management Plan lacks key 
information and elements of a strategic plan. For example, it does not 
clearly define business operations; does not contain goals; objectives; 
or performance measures; and does not assign accountability for 
achieving desired results in its transformation efforts. Therefore, the 
plan cannot be used to link resources to performance, measure progress, 
or guide efforts of the military components. DOD plans to update its 
Strategic Management Plan in July 2009 and every 2 years thereafter as 
required by the National Defense Authorization Act for Fiscal Year 
2008.[Footnote 43]

We recognize that DOD has only recently established the CMO position 
and that DOD is in the early stages of implementation for several of 
its improvement efforts. To help DOD proceed with its efforts, the new 
administration needs to move quickly to nominate and fill key 
leadership positions that are currently vacant. These positions include 
the Deputy CMO and military department CMOs. Moving forward, DOD needs 
to further:

* define and clarify the roles, responsibilities, and relationships 
among the various positions and governance entities within DOD's 
management framework for business transformation, and:

* develop its strategic management plan and implement a strategic 
planning process that will allow DOD to measure progress, establish 
investment priorities, and link resource needs to performance.

Because of the complexity and long-term nature of DOD's business 
transformation efforts, we have repeatedly advocated the need for the 
CMO to be a separate, full-time position with significant authority, 
experience, and a set term. As DOD continues to develop its approach 
and carries out planned additional actions, we remain open to the 
possibility of further progress and that these efforts will have a 
positive impact. However, because of the current statutory requirements 
and the roles and responsibilities currently assigned to key positions, 
it is still unclear whether DOD will provide the long-term sustained 
leadership needed to address these significant challenges in its 
business operations.

Concluding Observations:

DOD and DOE have recognized they face challenges in the selected high 
risk areas we have outlined today and have taken some steps to address 
these challenges. However, the current fiscal climate presents an 
imperative for both agencies to refocus management attention and 
commitment at the highest levels and to aggressively take additional 
actions to achieve greater progress in the key business areas that 
underpin the ability to achieve mission success. As DOD moves forward, 
among other things, it will need to continue to reform its approach to 
acquiring major weapon system programs, fundamentally reexamine its 
reliance on contractors as well as take action to better size and train 
its contractor workforce, and develop and implement viable strategies 
for managing its supply chain and improving its financial management. 
For DOE's NNSA, it is important that actions be taken to improve 
contract and project management in order to reverse the historical 
trend of schedule delays, cost growth, and increased risks in its major 

As DOD and DOE compete for resources in a constrained fiscal 
environment, they can no longer afford to miss opportunities to achieve 
greater efficiencies and free up resources for higher priority needs. 
Furthermore, because of the complexity and magnitude of the challenges 
facing DOD in transforming its business operations, it will need strong 
and sustained leadership, as well as sound strategic planning to guide 
and integrate its efforts. The new Deputy Secretary of Defense has been 
given the unique opportunity to set the precedent going forward as 
DOD's statutory Chief Management Officer. It will be important within 
the first year of this administration, that the Deputy Secretary of 
Defense clearly articulate the department's expectations for this 
position, clarify the roles, responsibilities, and relationships among 
all individuals and entities that share responsibility for transforming 
DOD's business operations, and establish a strategic planning process 
to guide efforts and assess progress across the department.

Mr. Chairman and Members of the Committee, this concludes my statement. 
I would be happy to answer any questions you may have at this time. 

[End of section] 


[1] GAO, High-Risk Series: An Update, GAO-09-271 (Washington, D.C.: 
January 2009).

[2] American Recovery and Reinvestment Act of 2009, Pub. L. No. 111-5 

[3] National Defense Authorization Act for Fiscal Year 2008, Pub. L. 
No. 110-181, §904 (2008).

[4] GAO, Defense Acquisitions: Assessments of Selected Weapon Programs, 
GAO-08-467SP (Washington, D.C.: Mar. 31, 2008).

[5] DOD has three major processes involved in making weapon system 
investment decisions, including the Joint Capabilities Integration and 
Development System for identifying warfighting needs; the Planning, 
Programming, Budgeting and Execution system, for allocating resources; 
and the Defense Acquisition System for managing product development and 

[6] GAO-08-467SP

[7] "Systems engineering" translates customer needs into specific 
product requirements for which requisite technological, software, 
engineering, and production capabilities can be identified through 
requirements analysis, design, and testing. 

[8] GAO, Defense Management: DOD Needs to Reexamine Its Extensive 
Reliance on Contractors and Continue to Improve Management and 
Oversight, GAO-08-572T (Washington, D.C.:Mar. 11, 2008).

[9] GAO, Defense Contracting: Additional Personal Conflict of Interest 
Safeguards Needed for Certain DOD Contractor Employees, GAO-08-169 
(Washington, D.C.: Mar. 7, 2008). 

[10] GAO, Defense Contracting: Army Case Study Delineates Concerns with 
Use of Contractors as Contract Specialists, GAO-08-360 (Washington, 
D.C.: Mar. 26, 2008). 

[11] GAO, Defense Contracting : Improved Insight and Controls Needed 
over DOD's Time-and-Materials Contracts, GAO-07-273 (Washington, 
D.C.:June 29, 2007).

[12] GAO, Defense Contracting: Use of Undefinitized Contract Actions 
Understated and Definitization Time Frames often Not Met, GAO-07-559 
(Washington, D.C.: June 19, 2007). 

[13] GAO-08-360.

[14] Pub. L. No. 110-181, § 852 (codified at 10 U.S.C. § 1705). The 
fund is financed by an amount equivalent to a portion of the military 
services' and defense agencies' expenditures for certain types of 
service contracts. 

[15] GAO, Military Operations: Implementation of Existing Guidance and 
Other Actions Needed to Improve DOD's Oversight and Management of 
Contractors in Future Operations, GAO-08-436T (Washington, D.C.: Jan. 
24, 2008).

[16] GAO, DCAA Audits: Allegations That Certain Audits at Three 
Locations Did Not Meet Professional Standards Were Substantiated, GAO-
08-857 (Washington, D.C.: July 22, 2008). 

[17] DOD, Fiscal Year 2008 Agency Financial Report, Department of 
Defense (Washington, D.C.: Nov. 17, 2008).

[18] GAO, Rebuilding Iraq: DOD and State Department Have Improved 
Oversight and Coordination of Private Security Contractors in Iraq, but 
Further Actions Are Needed to Sustain Improvements, GAO-08-966 
(Washington, D.C.: July 31, 2008). 

[19] GAO, Contract Management: DOD Developed Draft Guidance for 
Operational Contract Support but Has Not Met All Legislative 
Requirements, GAO-09-114R (Washington, D.C.: Nov. 20, 2008). 

[20] GAO-08-436T.

[21] DOE's Office of Environmental Management also remains on the High- 
Risk List.

[22] GAO, Department of Energy: Contract and Project Management 
Concerns at the National Nuclear Security Administration and Office of 
Environmental Management, GAO-09-406T, (Washington, D.C.: Mar. 4, 2009).

[23] GAO, Department of Energy: Major Construction Projects Need a 
Consistent Approach for Assessing Technology Readiness to Help Avoid 
Cost Increases and Delays, GAO-07-336 (Washington, D.C.: Mar, 27, 2007).

[24] GAO, National Nuclear Security Administration: Security and 
Management Improvements Can Enhance Implementation of the NNSA Act, GAO-
07-428T (Washington, D.C.: Jan. 31, 2007); and National Nuclear 
Security Administration: Additional Actions Needed to Improve 
Management of the Nation's Nuclear Programs, GAO-07-36 (Washington, 
D.C.: Jan.19, 2007).

[25] GAO, Nuclear Weapons: NNSA and DOD Need to More Effectively Manage 
the Stockpile Life Extension Program, GAO-09-385 (Washington, D.C.: 
Mar. 2, 2009).

[26] GAO, Nuclear Weapons: Views on NNSA's Proposal to Transform the 
Nuclear Weapons Complex, GAO-08-1032T (Washington, D.C.: July 17, 2008).

[27] GAO, Defense Inventory: Army Needs to Evaluate Impact of Recent 
Actions to Improve Demand Forecasts for Spare Parts. GAO-09-199. 
(Washington, D.C.: Jan. 12, 2009), and Defense Inventory: Management 
Actions Needed to Improve the Cost Efficiency of the Navy's Spare Parts 
Inventory. GAO-09-103. (Washington, D.C.: Dec. 12 , 2008). The Army 
data includes items managed by the Aviation and Missile Command and the 
Tank-automotive and Armaments Command.

[28] After we reported on DOD's efforts to improve joint theater 
logistics, DOD in July 2008 revised joint doctrine to, among other 
things, better define the joint deployment and distribution enterprise, 
incorporate U.S. Transportation Command's role as the department's 
Distribution Process Owner, and introduce joint logistics imperatives. 
However, we have not determined the extent to which the revised 
doctrine has resulted in a more coordinated approach to improving joint 
theater logistics.

[29] GAO, High-Risk Series, An Update, GAO-09-271.

[30] GAO, Defense Logistics: Lack of Key Information May Impede DOD's 
Ability to Improve Supply Chain Management. GAO-09-150. (Washington, 
D.C.: Jan. 12, 2009).

[31] GAO, Excluded Parties List System: Suspended and Debarred 
Businesses and Individuals Improperly Receive Federal Funds. GAO-09-174 
(Washington, D.C., Feb. 25, 2009).

[32] This figure represents data as of December 31, 2008. 

[33] National Defense Authorization Act for Fiscal Year 2006, Pub. L. 
No. 109-163, §1122 (2006).

[34] John Warner National Defense Authorization Act for Fiscal Year 
2007, Pub. L. No. 109-364 (2006). 

[35] GAO, Human Capital: Opportunities Exist to Build on Recent 
Progress to Strengthen DOD’s Civilian Human Capital Strategic Plan, GAO-
09-235 (Washington, D.C.: Feb. 10, 2009).

[36] The purpose of this program is to establish anti-tamper techniques 
on weapon systems when warranted as a method to protect critical 

[37] Defense Acquisitions: Departmentwide Direction is Needed for 
Implementation of the Amti-tamper Policy. GAO-08-91.(Washington, D.C.: 
January., 2008).

[38] GAO-08-91.

[39] Defense Trade: Clarification and More Comprehensive Oversight of 
Export Exemptions Certified by DOD Are Needed. GAO-07-1103. 
(Washington, D.C.: Sept. 19, 2007). 

[40] Pub. L. No. 110-181 §904 (2008).

[41] Department of Defense, Strategic Management Plan, July 28, 2008.

[42] Department of Defense Directive 5105.02, Deputy Secretary of 
Defense (Feb. 18, 2009) and Department of Defense Directive 5105.82, 
Deputy Chief Management Officer (DCMO) of the Department of Defense 
(Oct. 17, 2008).

[43] Pub. L. No. 110-181 §904 (2008).

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the performance 
and accountability of the federal government for the American people. 
GAO examines the use of public funds; evaluates federal programs and 
policies; and provides analyses, recommendations, and other assistance 
to help Congress make informed oversight, policy, and funding 
decisions. GAO's commitment to good government is reflected in its core 
values of accountability, integrity, and reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's Web site [hyperlink,]. Each 
weekday, GAO posts newly released reports, testimony, and 
correspondence on its Web site. To have GAO e-mail you a list of newly 
posted products every afternoon, go to [hyperlink,] 
and select "E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAO’s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO’s Web site, 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional 

To Report Fraud, Waste, and Abuse in Federal Programs: 


Web site: [hyperlink,]: 
Automated answering system: (800) 424-5454 or (202) 512-7470: 

Congressional Relations: 

Ralph Dawn, Managing Director, 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, D.C. 20548: 

Public Affairs: 

Chuck Young, Managing Director, 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, D.C. 20548: