Chemical Demilitarization:

Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program

GAO-08-134: Published: Dec 6, 2007. Publicly Released: Jan 15, 2008.

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Destruction of the nation's remaining stockpile of chemical weapons in a safe, efficient, and timely manner is essential to meet Chemical Weapons Convention treaty obligations and to reduce the risk of a potential catastrophic event. The Department of Defense (DOD) established the Chemical Demilitarization Program to manage the destruction of the remaining stockpile. GAO was asked to evaluate the (1) progress DOD and the Army have made in addressing GAO's prior recommendations to strengthen program management, (2) reasonableness of schedule milestones, (3) reliability of cost estimates, and (4) effectiveness of efforts to provide monetary incentives to the systems contractors. GAO reviewed relevant planning documents, schedules, cost estimates, and contracts; interviewed program and contractor officials; and visited chemical agent destruction sites.

DOD and the Army have taken steps in addressing GAO's prior recommendations to strengthen program management by establishing an overall strategy and supporting implementation plan, but some key elements, such as annual performance measures for some key goals, including interim destruction goals, are not fully developed. Moreover, actions DOD and the Army have taken to identify and mitigate the risk of future program schedule extensions and cost growth have not been effective because the Chemical Materials Agency's risk management process has not been fully developed or integrated with DOD's risk management process. As a result, managers lack an integrated and systematic approach to evaluate and manage risk. Recently achieved destruction rates may indicate that adjusted schedule milestones are overly conservative. Moreover, the program's schedule was extended in 2005 in response to the slower-than-anticipated destruction rates experienced since 2003, when more optimistic milestones were adopted. GAO's review of processing rates achieved at the sites since the revised schedule determined that most sites are significantly ahead of the revised, extended program estimates for recently completed munitions campaigns. For example, Umatilla, Oregon, completed destruction of one of its rocket munitions by August 2007, about 12 months earlier than forecasted. GAO was not able to verify the accuracy of the program's cost estimates because of shortcomings in the underlying cost data, such as undefined facility closure requirements and unstable baseline costs. GAO determined that the usefulness of the earned value management tool to provide visibility over the program's cost performance is limited because of these shortcomings. The program's projected cost growth is largely attributable to longer schedules and increased costs associated with facility closure estimates. GAO estimated that a 1-month schedule extension would cost an additional $9.5 million. Also, schedules used for the closure cost estimates for destruction sites have increased, from 12 months to about 30 months at some sites, but they have not been finalized or independently reviewed. Since 2003, the Army has actively managed criteria for determining monetary fees--largely award fees--it provided systems contractors to incentivize their performance. These fees had emphasized safety and environmental compliance, and Army officials acknowledged that award fees did not successfully control schedule and cost growth. In 2006, after audit results and DOD direction, and while extending the schedule, the Army reinstated schedule as a performance measure. The award fee plan allows site project managers flexibility to weigh performance measures within a range, and GAO determined that the high end of the range for management was generally selected, rather than for schedule and cost. Most criteria in the program's award fee plans are subjective and are not linked to objective outcomes as much as possible, as called for in DOD guidance. Given the program's maturity, GAO found that the Army could apply more weight to performance measures, such as schedule and cost, and add objective criteria in these plans.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that while DOD and the Army had taken steps toward addressing our prior recommendation to strengthen program management by establishing strategic and supporting implementation plans, they had not fully developed an integrated approach for measuring performance or for managing risk. Specifically, while DOD's plans contain performance measures to monitor progress and contain goals related to a single fiscal year, they do not show previous years' trends or show how achievement of the specified goals would contribute to the program's long-term goal. Without this information, congressional and other decision makers were limited in their abilities to assess the incremental progress the agency expected to make in achieving results. As a result, GAO recommended that the Secretary of Defense direct the Secretary of the Army to incorporate baseline and trend data for past performance and multiyear performance goals for the future in its annual performance plan. DOD concurred with our recommendation and in response to our recommendation stated that they intended to incorporate baseline and trend data for past performance in the 2008 Army Chemical Materials Agency Annual Performance Plan. On January 7, 2008, the U.S. Army Chemical Materials Agency issued its Annual Performance Plan for Fiscal Year 2008, which incorporated baseline and trend data. The Army's action, therefore, implemented this recommendation.

    Recommendation: To strengthen program management and increase the likelihood that more progress can be made in destroying chemical agents, the Secretary of Defense should direct the Secretary of the Army to incorporate baseline and trend data for past performance and multiyear performance goals for the future in its annual performance plan.

    Agency Affected: Department of Defense

  2. Status: Closed - Not Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that while DOD and the Army have made progress in establishing program goals, some of the goals were not linked to one another or to key performance measures. For example, the Chemical Materials Agency had developed an annual performance measure linked to the interim Chemical Weapons Convention destruction goal of 45 percent by December 2007 but had not developed annual performance measures that were linked to achieving the ultimate goal of destroying the stockpile at each remaining site by the April 29, 2012, treaty deadline, and to include interim approaches and milestones for chemical agent destruction. These approaches and milestones were not linked to the April 29, 2012, deadline. Rather, activities targeted the March 2017 destruction target established in the Acquisition Program Baseline, which would result in the United States not fulfilling its obligations under the Chemical Weapons Convention. Consequently, DOD has not fully addressed this recommendation.

    Recommendation: To strengthen program management and increase the likelihood that more progress can be made in destroying chemical agents, the Secretary of Defense should direct the Secretary of the Army to develop interim destruction goals, approaches, and milestones that are directly linked to overall program goals for meeting Chemical Weapons Convention (CWC) deadlines.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that DOD had partially implemented our recommendations to establish performance measures and implement a risk management approach that anticipates and influences internal and external factors that could adversely affect the program. However, a number of important steps had not been implemented. For example, DOD had not developed a programwide approach to integrate the risk management efforts, had not fully developed site-specific risk management plans, and had not created the tools needed to implement an overarching risk management program. As we note in our report, without clear expectations for fully developing and implementing its risk management approach within a set time frame, the Chemical Materials Agency risked being limited in its efforts to control the issues that were negatively affecting the program. As a result, GAO recommended that the Secretary of Defense direct the Secretary of the Army to establish a time frame for completing and implementing its risk management approach, including integration across sites and with DOD. DOD concurred with the recommendation, and noted that it intended to evaluate and update the Chemical Materials Agency risk management approach by the third quarter of Fiscal Year 2008. On May 16, 2008, the director of the U.S. Army Chemical Materials Agency issued the U.S. Army Chemical Materials Agency Integrated Risk Management Follow-on Development and Implementation Plan, which address seven areas for improvement. These areas included the identification of goals and requirements; analysis of risk management processes; and the identification, prioritization, and timeframes for the completion of key deliverables. This plan also provides a summary schedule for implementing the risk management approach described in the document. DOD, therefore, implemented this recommendation and, as a result, was better positioned to identify and control issues negatively affecting the program.

    Recommendation: To strengthen program management and increase the likelihood that more progress can be made in destroying chemical agents, the Secretary of Defense should direct the Secretary of the Army to establish a time frame for completing and implementing its risk management approach, including integration across sites and with DOD.

    Agency Affected: Department of Defense

  4. Status: Closed - Not Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that since DOD extended the program office schedules and DOD schedule milestones in 2005, actual processing rates have considerably exceeded the forecasted rates at the four incineration sites, indicating that schedule milestones being used to measure the program's progress may be too conservative to be realistic. For example, the 2005 program office schedule forecasted that one site would complete destruction of its munitions by August 2007. However, those operations were ultimately completed 12 months ahead of schedule. While the program office updated its schedule estimates to reflect the latest processing rates, independent schedule estimates have not been developed nor have cost and schedule estimates been revised to reflect the current status of the program. Because these steps were not taken, DOD and Congress can have little confidence that the program is being held accountable to a reasonable baseline. As a result, GAO recommended that the Secretary of Defense direct the Secretary of the Army to update the 2005 program schedule milestones for each of DOD's chemical demilitarization sites to reflect recent site processing rates and then adjust the cost estimate accordingly. However, DOD officials said that independent assessments of cost and schedule were deemed to be unnecessary during the 2010 Program Objective Memorandum process and that DOD does not believe it is prudent to adjust cost and schedule estimates or rebaseline due to the risks associated with planned destruction campaigns. Consequently, DOD has not taken the actions needed to fulfill this recommendation.

    Recommendation: To provide more realistic cost estimates for chemical demilitarization sites in light of recent experience and information gained, the Secretary of Defense should direct the Secretary of the Army to update the 2005 program schedule milestones for each of DOD's chemical demilitarization sites to reflect recent site processing rates and then adjust the cost estimate accordingly.

    Agency Affected: Department of Defense

  5. Status: Closed - Not Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that actual processing rates at demilitarization sites have considerably exceeded the forecasted rates at several sites indicating that schedule milestones being used to measure the program's progress may be too conservative to be realistic. While the program office updated its schedule estimates to reflect the faster processing rates and changes to other underlying assumptions, independent schedule estimates had not been developed since the Cost Analysis and Improvement Group (currently known as the Cost Assessment and Program Evaluation Office) conducted its review in 2005. Because there was not a current independent cost and schedule assessment, DOD and Congress could have limited confidence that the program was being held accountable to a reasonable baseline to measure program progress and that program costs were reasonable. As a result, GAO recommended that the Secretary of Defense direct Cost Analysis Improvement Group to establish a periodic schedule to review the program's processing history to determine whether the schedule milestones were reasonable. While DOD concurred that program reviews were appropriate in its agency comments, it noted that this review would take place as part of the program's budget estimate submission and that only if there are significant differences between the estimates and the Acquisition Program Baseline would the Cost Analysis Improvement Group conduct an independent assessment. As of June 14, 2012, DOD officials said that this group was not asked to develop a cost position for this program. Consequently, DOD has not implemented this recommendation.

    Recommendation: To help ensure that the program baseline schedule is current and achievable and to improve the accuracy and reliability of program manager estimates for measuring the Chemical Demilitarization Program's progress, the Secretary of Defense should direct the Cost Analysis Improvement Group (CAIG) to establish a periodic schedule to review the program's processing history to determine whether the schedule milestones are still reasonable.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that actual processing rates at demilitarization sites have considerably exceeded the forecasted rates at several sites indicating that schedule milestones being used to measure the program's progress may be too conservative to be realistic. While the program office updated its schedule estimates to reflect the faster processing rates and changes to other underlying assumptions, these revisions were not included in the Chemical Demilitarization Program's Acquisition Program Baseline and Selected Acquisition Report. Because these documents did not reflect the most current data regarding processing rates and schedule, DOD and Congress had limited confidence that the program was being held accountable to a reasonable baseline to measure program progress. As a result, GAO recommended that the Secretary of Defense direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to include in the Chemical Demilitarization Program's Acquisition Program Baseline and Selected Acquisition Report the updated and reviewed scheduled milestones for completing destruction operations and facility closure activities for each of the chemical agent destruction sites. DOD concurred with this recommendation and, in December 2007, updated these documents to include the Selected Acquisition Report baseline, the Acquisition Program Baseline objective, and a curent estimated timeline for all of its chemical agent destruction sites. DOD, therefore, implemented this recommendation.

    Recommendation: To increase the ability of decision makers to measure the Army's and Chemical Materials Agency's (CMA) performance against schedule growth, the Secretary of Defense should direct the Under Secretary of Defense for Acquisition, Technology, and Logistics to include in the Chemical Demilitarization Program's Acquisition Program Baseline and Selected Acquisition Report the updated and reviewed schedule milestones for completing destruction operations and facility closure activities for each of the chemical agent destruction sites.

    Agency Affected: Department of Defense

  7. Status: Closed - Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that DOD's Chemical Demilitarization Program's continuing growth in cost estimates was largely attributable to longer schedules and the increased costs associated with plant closure. Longer schedules led to increases in cost estimates for sites currently in the operations phase because of additional labor costs, which are a high percentage of site costs. Additionally, the program used a baseline that does not reflect all of the work to be performed, such as facility closure activities, which distorted cost and schedule performance metrics. To provide more realistic cost estimates for closure of chemical demilitarization sites and to establish, stabilize, and maintain an accurate, valid, and current performance baseline, GAO recommended that the Secretary of Defense direct the Secretary of the Army to coordinate with the systems contractors in defining closure requirements and developing accurate and realistic closure cost estimates for each of DOD's chemical demilitarization sites' contract performance measurement baseline. DOD partially concurred with our recommendation and noted in its comments on our report that three of the destruction sites had already completed contract performance baselines that included contract requirements for closure. In July 2012, a cognizant DOD official indicated that DOD acted on this recommendation when it issued a contract modification for each destruction site. While these modifications are part of the normal contracting process, the official indicated that they were informed by GAO's review and recommendations. DOD defined closure requirements in June 2007 and issued contract modifications for Anniston Chemical Agent Disposal Facility, Anniston Chemical Activity, Alabama (December 2011); Tooele Chemical Agent Disposal Facility, Deseret Chemical Depot, Utah (March 2012); Umatilla Chemical Agent Disposal Facility, Umatilla Chemical Depot, Oregon (December 2011); and Pine Bluff Chemical Agent Disposal Facility, Pine Bluff Chemical Activity, Arkansas (November 2010), thereby updating its cost estimates at each of these destruction sites. Consequently, DOD has taken the steps needed to implement this recommendation, and its actions help provide DOD with accurate and realistic closure cost estimates for each of its chemical demilitarization sites so that the department can accurately and adequately budget for the Chemical Demilitarization Program.

    Recommendation: To provide more realistic cost estimates for closure of chemical demilitarization sites and to establish, stabilize, and maintain an accurate, valid, and current performance management baseline, Secretary of Defense should direct the Secretary of the Army to coordinate with the systems contractors in defining closure requirements and developing accurate and realistic closure cost estimates for each of DOD's chemical demilitarization sites' contract performance measurement baseline.

    Agency Affected: Department of Defense

  8. Status: Closed - Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that DOD's Chemical Demilitarization Program's continuing growth in cost estimates was largely attributable to longer schedules and the increased costs associated with plant closure. Longer schedules led to increases in cost estimates for sites currently in the operations phase because of additional labor costs, which are a high percentage of site costs. Additionally, the performance baseline was unstable because large amounts of additional costs were added to the performance baseline annually. Each fiscal year, a portion of the unpriced work that was part of the planned budget was negotiated (priced), and it was moved into the performance baseline. The negotiated funding was often greater than what was used as a placeholder, increasing the contract baseline to more than what was included as unpriced work. To provide more realistic cost estimates for closure of chemical demilitarization sites and to establish, stabilize, and maintain an accurate, valid, and current performance baseline, GAO recommended that the Secretary of Defense direct the Secretary of the Army to define all contract requirements, including authorized unpriced work associated with facility closure activities, and develop comprehensive cost estimates through closure at each chemical destruction site. DOD partially concurred with our recommendation and noted in its comments on our report that three of the destruction sites had already completed contract performance baselines that included contract requirements for closure. In July 2012, a cognizant DOD official indicated that DOD acted on this recommendation when it issued a contract modification for each destruction site. While these modifications are part of the normal contracting process, the official indicated that they were informed by GAO's review and recommendations. The same cognizant official told us in July 2012 that there was no authorized unpriced work remaining on any of the chemical destruction site contracts. DOD defined closure requirements in June 2007 and issued contract modifications for Anniston Chemical Agent Disposal Facility, Anniston Chemical Activity, Alabama (December 2011); Tooele Chemical Agent Disposal Facility, Deseret Chemical Depot, Utah (March 2012); Umatilla Chemical Agent Disposal Facility, Umatilla Chemical Depot, Oregon (December 2011); and Pine Bluff Chemical Agent Disposal Facility, Pine Bluff Chemical Activity, Arkansas (November 2010), thereby updating its cost estimates at each of these destruction sites. Consequently, DOD has taken the steps needed to implement this recommendation, and its actions help provide DOD with accurate and realistic closure cost estimates for each of its chemical demilitarization sites so that the department can accurately and adequately budget for the Chemical Demilitarization Program.

    Recommendation: To provide more realistic cost estimates for closure of chemical demilitarization sites and to establish, stabilize, and maintain an accurate, valid, and current performance management baseline, Secretary of Defense should direct the Secretary of the Army to define all contract requirements, including authorized unpriced work associated with facility closure activities, and develop comprehensive cost estimates through closure at each chemical destruction site.

    Agency Affected: Department of Defense

  9. Status: Closed - Not Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that DOD's Chemical Demilitarization Program's continuing growth in cost estimates was largely attributable to longer schedules and the increased costs associated with plant closure. Longer schedules led to increases in cost estimates for sites currently in the operations phase because of additional labor costs, which are a high percentage of site costs. Additionally, the performance baseline was unstable because large amounts of additional costs were added to the performance baseline annually. Each fiscal year, a portion of the unpriced work that was part of the planned budget was negotiated (priced), and it was moved into the performance baseline. The negotiated funding was often greater than what was used as a placeholder, increasing the contract baseline to more than what was included as unpriced work. To provide more realistic cost estimates for closure of chemical demilitarization sites and to establish, stabilize, and maintain an accurate, valid, and current performance baseline, GAO recommended that the Secretary of Defense direct the Secretary of the Army to establish a time frame for completing the negotiation for placing all authorized work that has not been priced on contract and ensuring that the negotiations take place. DOD concurred with our recommendation and expected negotiations to be completed by June 30, 2008. In July 2012, a cognizant DOD official indicated that DOD acted on this recommendation when it issued a contract modification for each destruction site. While these modifications are part of the normal contracting process, the official indicated that they were informed by GAO's review and recommendations. In July 2012, the same cognizant official told us that there was no authorized unpriced work remaining on any of the chemical destruction site contracts. DOD defined closure requirements in June 2007 and issued contract modifications for Anniston Chemical Agent Disposal Facility, Anniston Chemical Activity, Alabama (December 2011); Tooele Chemical Agent Disposal Facility, Deseret Chemical Depot, Utah (March 2012); Umatilla Chemical Agent Disposal Facility, Umatilla Chemical Depot, Oregon (December 2011); and Pine Bluff Chemical Agent Disposal Facility, Pine Bluff Chemical Activity, Arkansas (November 2010), thereby updating its cost estimates at each of these destruction sites. Although DOD ensured that negotiations took place for placing all authorized work that was not priced into the contracts for the four chemical agent destruction sites, and that these contracts were modified accordingly, DOD did not establish a time frame for completing these negotiations. Consequently, DOD did not implement this recommendation.

    Recommendation: To provide more realistic cost estimates for closure of chemical demilitarization sites and to establish, stabilize, and maintain an accurate, valid, and current performance management baseline, Secretary of Defense should direct the Secretary of the Army to establish a time frame for completing the negotiation for placing all authorized work that has not been priced on contract and ensuring that the negotiations take place.

    Agency Affected: Department of Defense

  10. Status: Closed - Not Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that actual processing rates at demilitarization sites have considerably exceeded the forecasted rates at several sites indicating that schedule milestones being used to measure the program's progress may be too conservative to be realistic. While the program office updated its schedule estimates to reflect the faster processing rates and changes to other underlying assumptions, independent schedule estimates had not been developed since the Cost Analysis and Improvement Group (currently known as the Cost Assessment and Program Evaluation Office) did its review in 2005. Because there was not a current independent cost and schedule assessment, DOD and Congress could have limited confidence that the program was being held accountable to a reasonable baseline to measure program progress and that program costs were reasonable. As a result, GAO recommended that the Secretary of Defense direct Cost Analysis Improvement Group to establish a periodic schedule to review the program's processing history to determine whether the schedule milestones were reasonable. While DOD concurred that program reviews were appropriate in its agency comments, it noted that this review would take place as part of the program's budget estimate submission and that only if there are significant differences between the estimates and the Acquisition Program Baseline would the Cost Analysis Improvement Group conduct an independent assessment. As of June 14, 2012, DOD officials said that this group was not asked to develop a cost position for this program. Consequently, DOD has not implemented this recommendation.

    Recommendation: After the cost estimates are complete and schedule milestones have been updated and reviewed, the Secretary of Defense should direct the CAIG to conduct an independent cost review of the cost estimates.

    Agency Affected: Department of Defense

  11. Status: Closed - Not Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that while the Army has actively reviewed and adjusted the types of monetary fees used and the criteria and weighting for determining monetary fees, there may be opportunities to further emphasize schedule and cost. Specifically, during the period we reviewed, award fees emphasized safety and environmental compliance but have not focused on controlling schedule and cost growth. However, we determined there may have been opportunities to further emphasize schedule and cost without sacrificing safety and environmental compliance. As a result, GAO recommended that the Secretary of Defense direct the Secretary of the Army to determine for each of the four incineration site contracts whether greater weight can be applied to performance measures, such as schedule and cost, in award fee plans to further incentivize the systems contractors to increase the destruction rate of chemical agents. DOD concurred with our recommendation and indicated in its comments in our report that it would conduct a review of the award fee plans for each incineration site to determine whether the weighting factors were appropriate. However, as of July 19, 2012, DOD had not completed this assessment. A knowledgeable DOD official told us that DOD determined that the guidance included in Policy Statement 29, "Procedure for Implementing Contractor Incentives to Include Award Fee and Performance Based Incentive Fee," which was issued in September 2006, sufficiently addressed this issue and, as a result, no further actions were taken. Consequently, DOD has not taken the steps needed to meet the intent of this recommendation.

    Recommendation: To continue to further the Army's efforts to improve the potential to meet the CWC deadline for destroying chemical weapons safely and within environmental compliance and reduce the risk of storing lethal chemical agents any longer than necessary, the Secretary of the Defense should direct the Secretary of the Army to determine for each of the four incineration site contracts whether greater weight can be applied to performance measures, such as schedule and cost, in award fee plans to further incentivize the systems contractors to increase the destruction rate of chemical agents in a safe and environmentally sound manner.

    Agency Affected: Department of Defense

  12. Status: Closed - Not Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that while the Army has actively reviewed and adjusted the types of monetary fees used and the criteria and weighting for determining monetary fees, there may be opportunities to make greater use of objective award fee criteria and evaluation factors. Specifically, based on our review of the fiscal year 2007 award fee plan's performance measures and related evaluation criteria for the destruction sites, we determined that although most of the award fee criteria and incentives to objective and measurable criteria is not legally required, it is a sound business and management practice. As a result, GAO recommended that the Secretary of Defense direct the Secretary of the Army to better align its award fee policy with DOD's March 2006 guidance on award fees. DOD concurred with our recommendation and indicated in its comments on our report that it had taken action in September 2006 to address this issue by issuing a memorandum revising its Policy Statement 29, "Procedure for Implementing Contractor Incentives to Include Award Fee and Performance Based Incentive Fee." However, this action was taken during the course of our review, and we determined that it did not address the intent of our recommendation. A knowledgeable DOD official told us that DOD determined that the guidance included in Policy Statement 29, which was issued in September 2006, sufficiently addressed this issue and, as a result, no further actions were taken. Consequently, DOD has not taken the steps needed to meet the intent of this recommendation.

    Recommendation: To further link monetary incentives and key acquisition outcomes, and to provide a means for objectively measuring the systems contractors' performance during the assessment period as much as possible, the Secretary of Defense should direct the Secretary of the Army to better align its award fee policy with DOD's March 2006 guidance on award fees.

    Agency Affected: Department of Defense

  13. Status: Closed - Not Implemented

    Comments: In our report on Chemical Demilitarization: Additional Management Actions Needed to Meet Key Performance Goals of DOD's Chemical Demilitarization Program (GAO-08-134, December 6, 2007), we found that the Army recently offered monetary fees intended to provide additional incentives to improve schedule performance. However, at the time of our review, it was unclear how effective these incentives would be in motivating individual systems contractors' schedule performance due to the manner in which incentives were earned and the relative size of incentives tied to schedule. As a result, GAO recommended that the Secretary of Defense direct the Secretary of the Army to link more of its award fee criteria to performance measures that focus on identifiable interim outcomes. discrete events, or milestones. DOD partially concurred with our recommendation and indicated in its comments on our report that it would review the U.S. Army Chemical Materials Agency award fee plans to determine whether there are performance measures that focus on outcomes or outputs. A knowledgeable DOD official told us that DOD determined that the guidance included in Policy Statement 29, "Procedure for Implementing Contractor Incentives to Include Award Fee and Performance Based Incentive Fee," which was issued in September 2006, sufficiently addressed this issue and, as a result, no further actions were taken. Consequently, DOD has not taken steps needed to meet the intent of this recommendation.

    Recommendation: To further link monetary incentives and key acquisition outcomes, and to provide a means for objectively measuring the systems contractors' performance during the assessment period as much as possible, the Secretary of Defense should direct the Secretary of the Army to link more of its award fee criteria to performance measures that focus on identifiable interim outcomes, discrete events, or milestones.

    Agency Affected: Department of Defense

 

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