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United States Government Accountability Office: 
GAO: 

Report to Congressional Requesters: 

November 2011: 

Defense Contract Management Agency: 

Amid Ongoing Efforts to Rebuild Capacity, Several Factors Present 
Challenges in Meeting Its Missions: 

GAO-12-83: 

GAO Highlights: 

Highlights of GAO-12-83, a report to congressional requesters. 

Why GAO Did This Study: 

The Defense Contract Management Agency (DCMA) provides contract 
administration services for DOD buying activities. Its contract 
management offices (CMO) work with defense contractors to help ensure 
that goods and services are delivered on time, at projected cost, and 
that they meet performance requirements. DCMA also supports combatant 
commanders during contingency operations. As DCMA recovers from years 
of significant downsizing, GAO was asked to (1) assess how the agency 
is positioning itself to meet its missions, (2) determine the extent 
to which contingency missions affect its oversight domestically, and 
(3) identify other factors that may affect its domestic missions going 
forward. GAO reviewed regulations, policies, and guidance, analyzed 
the status of contractor business systems for 17 defense contractors, 
and interviewed a wide range of DCMA officials. 

What GAO Found: 

After undergoing significant shifts in its workforce, structure, and 
policies and procedures over the past 10 years, DCMA has taken steps 
to rebuild its capacity. As the workforce declined, the agency 
experienced significant erosion of expertise in some areas, such as 
the cost and pricing function, such that it could not fulfill all of 
its oversight functions. A shift to a substantially decentralized, 
customer-oriented approach in the mid-2000s, intended to mitigate the 
impact of this workforce imbalance, resulted in unintended 
consequences such as inefficiencies in how work was done at the CMOs. 
DCMA has since begun to rebuild workforce expertise and has instituted 
new, centralized policies and procedures. The agency expects to reach 
about 13,400 total civilian staff by 2015—a 43 percent increase from 
about 9,300 staff in 2008. DCMA’s military workforce has generally 
ranged between 500 and 600 in recent years. A growing number of DCMA’s 
new employees have been hired using the Defense Acquisition Workforce 
Development Fund. To help gauge progress in meeting its missions, the 
agency uses performance indicators for contractor supplier base issues 
and DCMA processes, workload, and resources. 

Agency staff deployed on contingency missions are small in number—272— 
when compared with the number of total DCMA employees, but several 
DCMA officials told GAO that deployments have a constraining impact on 
the agency’s domestic mission. CMO officials identified examples of 
how their operations have been affected by deployments, such as delays 
in conducting timely quality assurance, audits of contractor 
processes, and contract close-out activities. The impact of 
deployments depends on the type of deployment or on certain features 
of the CMO; the timing of military leaders’ deployments; and multiple 
or extended deployments of civilian volunteers. DCMA has noted support 
for the warfighter is a high priority for the agency, but has taken 
steps to mitigate the impact of deployments, such as lengthening 
deployment time frames to reduce their frequency. To minimize the 
impact of civilian deployments, DCMA established a position for a 
corps of personnel to support the contingency mission. 

Several factors may affect DCMA’s ability to meet its missions going 
forward. One significant source of external risk stems from DCMA’s 
reliance on the Defense Contract Audit Agency (DCAA) to conduct audits 
of certain contractor business systems. Business systems—such as 
accounting and estimating systems—are the government’s first line of 
defense against fraud, waste, and abuse. Because of its own workforce 
struggles, DCAA has lagged in completing a number of such audits and 
is currently focusing on other high priority areas. GAO found, 
however, that DCMA contracting officers maintained their determination 
of many contractor business systems as adequate despite the fact that 
the systems had not been audited in a number of years—in many cases 
well beyond the time frames outlined in DCAA guidance. Further, based 
on a recent DOD policy change, DCAA is no longer auditing contractor 
proposals below certain cost thresholds, and DCMA will need to use 
newly-hired contract cost/price analysts to help pick up this 
increased workload. Internal risks are also present, such as 
uncertainty on the part of CMOs about whether funding will be 
available to retain personnel hired using the Defense Acquisition 
Workforce Development Fund. 

What GAO Recommends: 

GAO recommends that DOD work with DCMA and DCAA to identify and 
execute options to assist in audits of contractor business systems. 
GAO also recommends that DCMA clarify for CMOs the agency’s plans to 
continue funding existing workforce positions and that it identify 
ways to accurately reflect the status of contractor business systems, 
such as changing the status to unassessed when audits are delayed. DOD 
concurred with the first two recommendations. DOD partially concurred 
with the remaining recommendation but discussed several planned 
actions which, if implemented, should improve the transparency of 
system assessments. 

View [hyperlink, http://www.gao.gov/products/GAO-12-83] or key 
components. For more information, contact John Hutton at (202) 512-
4841 or huttonj@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

DCMA Is Positioning Itself to Meet Its Missions by Strengthening Its 
Workforce, Policies, and Procedures: 

DCMA Uses Various Approaches to Address Impact of Contingency 
Deployments on Domestic Operations: 

A Number of Factors May Affect DCMA's Ability to Conduct Oversight and 
Surveillance Activities: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Comments from the Department of Defense: 

Appendix III: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Contractor Business Systems: 

Table 2: DCMA Deployment Types: 

Table 3: Guidelines for Frequency of Conducting Accounting, 
Estimating, and Material Management and Accounting System Audits: 

Figures: 

Figure 1: Actual and Projected DCMA Civilian Workforce Numbers, 1993- 
2015: 

Figure 2: Changes in DCMA Workload in Terms of Unliquidated 
Obligations, 1990-2015: 

Figure 3: Trends in Quality Assurance and Contracting for the DCMA 
Civilian Workforce, 2005-2010: 

Figure 4: DCMA Geographic Realignment of CMOs in 2010: 

Figure 5: 5-Year CCAS Deployment Trends: 

Figure 6: Most Recent System Audits for 17 Contractors Reviewed, as of 
May 31, 2011: 

Abbreviations: 

ACO: Administrative Contracting Officer: 

AT&L: Acquisition, Technology, and Logistics: 

CCAS: Contingency Contract Administration Services: 

CMO: Contract Management Office: 

DCAA: Defense Contract Audit Agency: 

DCMA: Defense Contract Management Agency: 

DFARS: Defense Federal Acquisition Regulation Supplement: 

DLA: Defense Logistics Agency: 

DOD: Department of Defense: 

EE: Emergency Essential: 

EVMS: Earned Value Management System: 

FAR: Federal Acquisition Regulation: 

MMAS: Material Management and Accounting System: 

NASA: National Aeronautics and Space Administration: 

O&M: Operations and Maintenance: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

November 3, 2011: 

The Honorable Claire McCaskill:
Chairman:
The Honorable Kelly Ayotte:
Ranking Member:
Subcommittee on Readiness and Management Support:
Committee on Armed Services:
United States Senate: 

The Honorable Richard Burr 
United States Senate: 

The Department of Defense (DOD) obligates far more government dollars 
than any other agency--more than $360 billion under contracts for 
products and services in 2010. After contracts are awarded, the 
Defense Contract Management Agency (DCMA) is responsible for providing 
contract administration services for DOD buying activities, working 
directly with defense contractors to help ensure that goods and 
services are delivered on time, at projected cost, and that they meet 
performance requirements.[Footnote 1] In addition, as a designated 
combat support agency, DCMA is tasked with providing contract 
administration and support to combatant commanders during contingency 
operations. To help execute its mission, DCMA has staff in Contract 
Management Offices (CMO) located at or near contractor facilities, in 
the agency's domestic and international locations. DCMA is currently 
in a state of transition, recovering from years of workforce 
downsizing that raised serious concerns about its ability to 
effectively meet its missions. 

Given the multiple responsibilities of DCMA, you asked us to (1) 
assess how DCMA is positioning itself to meet its missions; (2) 
determine the extent to which contingency missions have impacted 
DCMA's ability to provide oversight and surveillance domestically; and 
(3) identify other factors that may affect its capability to conduct 
oversight and surveillance domestically going forward. 

To conduct our work, we reviewed the Federal Acquisition Regulation 
(FAR) and the Defense Federal Acquisition Regulation Supplement 
(DFARS), DOD policies, DCMA guidance, workforce information, 
information on contingency deployments, and prior reports concerning 
DCMA, including our prior work as well as the reports of the 
Commission on Wartime Contracting in Iraq and Afghanistan. We 
interviewed DCMA officials at headquarters and selected DCMA Centers 
(e.g., the Combat Support Center and the Cost and Pricing Center). We 
visited DCMA's three domestic regional commands and 14 of the 40 
primary CMOs located across the country.[Footnote 2] Our 
nonprobability sample of CMOs was selected based on a number of 
factors, including geographic location and CMO workload. Within each 
of the geographic and plant-based CMOs, we selected a nonprobability 
sample of one or two DOD weapons system programs to gather more 
detailed information.[Footnote 3] Programs with large dollar values 
were selected, and other factors included ensuring that a range of 
DOD's military services and contractors were represented. For each of 
these programs, we reviewed DCMA oversight documentation and 
interviewed members of DCMA's Program Support Teams. We also collected 
information related to the status of contractor business systems for 
each of the selected DOD programs and interviewed the DCMA 
administrative contracting officer (ACO) responsible for oversight of 
those business systems.[Footnote 4] For some selected programs, we 
interviewed DOD program office officials and/or contractor 
representatives to gain their insights on DCMA oversight and 
surveillance. We also interviewed senior officials at the Defense 
Contract Audit Agency (DCAA) to develop a better understanding of 
issues related to contractor business system and pricing audits. See 
appendix I for additional details on our scope and methodology. 

We conducted this performance audit from October 2010 to November 2011 
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. 

Background: 

DCMA has undergone an evolutionary process to become the agency it is 
today. In 1990, DOD decided to consolidate and streamline contract 
administration services, which, at the time, were performed by the 
Defense Logistics Agency (DLA) as well as each of the military 
services. DOD made this change to achieve several benefits, including 
savings to the government through decreased overhead costs and 
increased efficiencies that would allow the elimination of thousands 
of DOD contract administration positions. As a result of these 
decisions, in 1990 the Defense Contract Management Command was formed 
as a command under DLA, with the responsibility of performing contract 
administration services that had previously been performed by DLA and 
the military services. In 2000, this command became DCMA, an 
independent agency no longer under the umbrella of DLA.[Footnote 5] As 
of June 2011, DCMA had approximately 10,900 staff, including roughly 
10,400 civilians and 500 military. 

The FAR identifies 71 functions for which a contract administration 
office (such as DCMA) is generally responsible, including activities 
such as issuing contract modifications, reviewing and approving 
contractors' requests for payments, performing production and 
engineering surveillance, ensuring contractor compliance with 
contractual quality assurance requirements, and maintaining 
surveillance of flight operations.[Footnote 6] A wide range of 
employees within DCMA perform these responsibilities, including ACOs, 
engineers, property administrators, quality assurance representatives, 
and government flight representatives. Government flight 
representatives, among other things, are responsible for approval of 
contractor test flights, procedures, and crew members, and for 
ensuring contractor compliance with DCMA guidance on contractor flight 
and ground operations. 

DCMA is assigned administrative oversight of a contract when delegated 
that authority by the procuring contracting office. Procuring 
contracting officers, who are responsible for awarding contracts, 
generally make the decision whether to retain some or all areas of 
contract administration or to delegate that authority to DCMA. When 
DCMA is delegated contract administration responsibilities for major 
programs, a memorandum of agreement is established between the program 
office that is buying the products or services and the CMOs.[Footnote 
7] 

DCMA and DCAA Roles Regarding Contractor Business Systems: 

DCMA also relies on DCAA in executing some of its contract oversight 
responsibilities.[Footnote 8] For example, DCMA contracting officers 
can use DCAA audits to assist in determining whether a contractor's 
business systems are adequate, although audit opinions can also be 
rendered by a licensed certified public accountant or persons working 
for a licensed certified public accounting firm or a government 
auditing organization. DOD has recently defined contractor business 
systems to include six systems, as shown in table 1. 

Table 1: Contractor Business Systems: 

System: Accounting system; 
Description: A contractor's system or systems for accounting methods, 
procedures, and controls established to gather, record, classify, 
analyze, summarize, interpret, and present accurate and timely 
financial data for reporting in compliance with applicable laws, 
regulations, and management decisions, and may include subsystems for 
specific areas such as indirect and other direct costs, compensation, 
billing, labor, and general information technology. 

System: Estimating system; 
Description: A contractor's policies, procedures, and practices for 
budgeting and planning controls, and generating estimates of costs and 
other data included in proposals submitted to customers in the 
expectation of receiving contract awards. 

System: Purchasing system; 
Description: A contractor's system or systems for purchasing and 
subcontracting, including make-or-buy decisions, selection of vendors, 
analysis of quoted prices, negotiation of prices with vendors, placing 
and administering of orders, and expediting delivery of materials. 

System: Earned-value management system (EVMS); 
Description: A contractor's project management tool that effectively 
integrates the project scope of work with cost, schedule and 
performance elements for optimum project planning and control. The 
qualities and operating characteristics of an earned-value management 
system are described in American National Standards Institute 
/Electronics Industries Alliance (ANSI/EIA) Standard-748. 

System: Material management and accounting system (MMAS); 
Description: A contractor's system or systems for planning, 
controlling, and accounting for the acquisition, use, issuing, and 
disposition of material. 

System: Property management system; 
Description: A contractor's system or systems for managing and 
controlling government property. 

Source: Federal and DOD acquisition regulations. 

[End of table] 

Whether or not a business system is determined adequate can affect the 
contracts between the government and the contractor. For example, cost-
reimbursement contracts are to be used only when the contractor's 
accounting system has been deemed adequate for determining costs 
applicable to the contract. If a contractor does not have an approved 
purchasing system, it is required to get the consent of the 
contracting officer before entering into certain subcontracts, for 
example, cost-reimbursement subcontracts, and fixed-price subcontracts 
over certain thresholds. 

The DCMA contracting officer is ultimately responsible for determining 
whether a contractor business system is acceptable. If the 
determination is made that a business system contains significant 
deficiencies, the contracting officer can withhold contract payments. 
The percentage of the withholds may be reduced if a contractor submits 
an acceptable corrective action plan and the contracting officer 
determines, in consultation with an auditor, such as DCAA, for 
example, that the contractor is effectively implementing the plan. 
Recently, there have been concerns about the overlap of 
responsibilities between DCMA and DCAA in areas such as contractor 
business systems, proposal audits and findings, and forward pricing 
rate agreements. The Office of the Under Secretary of Defense for 
Acquisition, Technology, and Logistics (AT&L), has worked with both 
DCMA and DCAA, and has recently issued new policies and spearheaded 
changes to the DFARS to help clarify the roles of the two agencies. 

DCMA's Domestic and Contingency Support Operations: 

Operationally, DCMA performs its contract administration mission in 
two environments--(1) based out of its contract management offices and 
(2) in the contingency environment. As an agency, DCMA reports to the 
Under Secretary of Defense for AT&L, but for the purpose of its 
contingency contract administration responsibilities, DCMA also has an 
indirect line of reporting to the Chairman of the Joint Chiefs of 
Staff. 

Contract Management Offices: 

CMOs are located domestically and internationally and are geographic 
based, plant-based, or specialized. Geographic CMOs provide oversight 
of contractors located within a specific geographic area, whereas 
plant-based CMOs are located within a specific contractor's plant and 
oversight is focused on that contractor and location. Specialized CMOs 
provide oversight of contracts focused on a specific type of product, 
such as aircraft propulsion, or aircraft overhaul, maintenance, 
modification, and repair. CMOs' leadership can be either military or 
civilian. 

Contingency Support: 

DCMA provides contract administration services and support to 
combatant commanders during contingency operations. In 2000, when DCMA 
became an independent agency, it was also established as a combat 
support agency for DOD. As such, one of DCMA's major roles is to 
deploy alongside warfighters to provide contingency contract 
administration services (CCAS). DCMA's Combat Support Center manages 
DCMA's CCAS support requirements. As the liaison between DCMA, the 
Joint Chiefs of Staff, and combatant commands, the Center develops and 
administers contingency policies for the agency and, in particular, 
manages CCAS deployments. Based on requirements from the CCAS 
commanders, the Center supervises the process of selecting, training, 
and deploying qualified DCMA candidates. The types and lengths of 
deployments are shown in table 2. 

Table 2: DCMA Deployment Types: 

Type: Emergency Essential (EE); 
Description: A corps of civilian personnel hired by DCMA (from inside 
or outside the agency) specifically to support the CCAS mission. Under 
this program, EEs agreed to a 3-year commitment. In 2011, DCMA 
implemented a new EE program for a 13-month appointment, with the 
agency retaining the option to extend the appointment up to 48 months; 
Deployment time: During the 3-year commitment, EEs deployed for 6 or 9 
months and returned to DCMA sites in the continental United States for 
the same time period before deploying again. Under the new program, 
EEs deploy for 12 months. 

Type: Civilian volunteer; 
Description: Selected from among DCMA employees offering to serve on 
CCAS assignments, civilian volunteers request deployments by applying 
directly to the Combat Support Center; 
Deployment time: 179 day temporary duty assignments, with options to 
extend. 

Type: Military; 
Description: Active military generally deploy at some point during 
their tour of duty with the agency; 
Deployment time: Generally 9 months to 1 year. 

Source: GAO analysis of DCMA information. 

[End of table] 

Our past work and that of others have identified concerns with DCMA's 
oversight in the contingency setting, but have also noted some 
positive outcomes. For example, over the past decade, we, the DOD 
Inspector General, and others expressed concerns that DCMA was not 
adequately staffed to provide sufficient oversight in contingency 
settings.[Footnote 9] Other contingency-setting issues included a lack 
of sufficient training for deployed staff and DCMA's inability to 
determine its resource requirements.[Footnote 10] However, we also 
found that DCMA's oversight in Iraq produced good results, reporting 
in 2004 for example that DCMA contracting officers had eliminated 
unnecessary airfield services and identified equipment and materials 
that could be reused to reduce contract costs.[Footnote 11] Further, 
in 2008 we found that DCMA had made progress in increasing its 
oversight personnel in Iraq.[Footnote 12] 

DCMA Is Positioning Itself to Meet Its Missions by Strengthening Its 
Workforce, Policies, and Procedures: 

DCMA has undergone significant shifts in its workforce, organizational 
structure, and policies and procedures over the past 10 years. After 
its formation in the early 1990s, DCMA's workforce numbers declined 
and there was significant erosion of some areas of expertise, such as 
the cost and pricing function. Ultimately, the workforce became so out 
of balance with workload after 2000 that the organization could not 
fulfill all of its oversight functions. A shift to a substantially 
decentralized, customer-oriented approach was intended to mitigate the 
impact of this workforce imbalance, but resulted in a number of 
unintended consequences, such as inefficiencies in how work was done 
at the CMOs. In light of recent, significant workforce growth, DCMA is 
rebuilding its expertise in areas that had been bereft, instituting 
new, centralized policies and procedures and developing agency-wide 
performance indicators intended to gauge how well the agency is 
meeting its missions. 

DCMA Is Rebuilding Its Workforce after Significant Erosion of Numbers 
and Skill Sets: 

DCMA officials told us that by 2004, the agency faced significant 
strains on its workforce, brought on by staffing and budget reductions 
that had been occurring since the agency's formation. Senior DCMA 
officials said the workforce downsizing made sense for much of the 
1990s because there were efficiencies to be gained when DOD 
consolidated its contract administration services into one agency and 
because DCMA's workload was also decreasing for much of the decade. By 
the early 2000s, however, while DCMA's total workforce numbers 
continued to decline, its workload--measured in obligations the 
government has incurred but not yet paid, also known as unliquidated 
obligations--started to increase. 

Rebuilding Workforce Size: 

From a low point of about 9,300 in 2008, DCMA has been increasing the 
size of its workforce. The agency has steadily increased its numbers 
since that time and expects to reach about 13,400 total civilian staff 
by 2015--about a 43 percent increase from its size in 2008. Figure 1 
depicts the fluctuations in DCMA's workforce from 1993 to 2015. 

Figure 1: Actual and Projected DCMA Civilian Workforce Numbers, 1993- 
2015: 

[Refer to PDF for image: line graph] 

Fiscal Year: 1993; 
Number of full-time equivalents: 19,403. 

Fiscal Year: 1994; 
Number of full-time equivalents: 18,697. 

Fiscal Year: 1995; 
Number of full-time equivalents: 17,932. 

Fiscal Year: 1996; 
Number of full-time equivalents: 15,252. 

Fiscal Year: 1997; 
Number of full-time equivalents: 14,353. 

Fiscal Year: 1998; 
Number of full-time equivalents: 14,009. 

Fiscal Year: 1999; 
Number of full-time equivalents: 12,786. 

Fiscal Year: 2000; 
Number of full-time equivalents: 12,363. 

Fiscal Year: 2001; 
Number of full-time equivalents: 12,123. 

Fiscal Year: 2002; 
Number of full-time equivalents: 11,709. 

Fiscal Year: 2003; 
Number of full-time equivalents: 10,709. 

Fiscal Year: 2004; 
Number of full-time equivalents: 10,757. 

Fiscal Year: 2005; 
Number of full-time equivalents: 10,761. 

Fiscal Year: 2006; 
Number of full-time equivalents: 10,092. 

Fiscal Year: 2007; 
Number of full-time equivalents: 9,715. 

Fiscal Year: 2008; 
Number of full-time equivalents: 9,325. 

Fiscal Year: 2009; 
Number of full-time equivalents: 9,618. 

Fiscal Year: 2010; 
Number of full-time equivalents: 10,304. 

Fiscal Year: 2011; 
Number of full-time equivalents: 10,395. 

Fiscal Year: 2012; 
Projected number of full-time equivalents: 11,387. 

Fiscal Year: 2013; 
Projected number of full-time equivalents: 12,073. 

Fiscal Year: 2014; 
Projected number of full-time equivalents: 12,534. 

Fiscal Year: 2015; 
Projected number of full-time equivalents: 13,374. 

[End of figure] 

Note: DCMA officials reported that the first year for which an 
accurate count is available is 1993. Prior to 1991, DCMA officials 
told us that as the Services and DLA were consolidating their contract 
administration workforces, there were a number of differing estimates 
of the size of the workforce, though size estimates were generally 
around 24,000. According to DCMA data, the DCMA military workforce 
numbers have ranged generally between 500-600 full-time equivalents 
over the past 8 years. 

Source: GAO analysis of DCMA data. 

Figure 2 depicts the fluctuations in DCMA's workload in terms of its 
unliquidated obligation balance from 1990 to 2015, including the 
growth over the past decade. 

Figure 2: Changes in DCMA Workload in Terms of Unliquidated 
Obligations, 1990-2015: 

[Refer to PDF for image: line graph] 

Fiscal year: 1990; 
Unliquidated obligations: $280.81 billion. 

Fiscal year: 1991; 
Unliquidated obligations: $266.01 billion. 

Fiscal year: 1992; 
Unliquidated obligations: $257.78 billion. 

Fiscal year: 1993; 
Unliquidated obligations: $247.89 billion. 

Fiscal year: 1994; 
Unliquidated obligations: $204.66 billion. 

Fiscal year: 1995; 
Unliquidated obligations: $147.88 billion. 

Fiscal year: 1996; 
Unliquidated obligations: $153.22 billion. 

Fiscal year: 1997; 
Unliquidated obligations: $143.8 billion. 

Fiscal year: 1998; 
Unliquidated obligations: $120.96 billion. 

Fiscal year: 1999; 
Unliquidated obligations: $112.88 billion. 

Fiscal year: 2000; 
Unliquidated obligations: $117.01 billion. 

Fiscal year: 2991; 
Unliquidated obligations: $127.4 billion. 

Fiscal year: 2002; 
Unliquidated obligations: $134.73 billion. 

Fiscal year: 2003; 
Unliquidated obligations: $148.83 billion. 

Fiscal year: 2004; 
Unliquidated obligations: $165.59 billion. 

Fiscal year: 2005; 
Unliquidated obligations: $174.81 billion. 

Fiscal year: 2006; 
Unliquidated obligations: $168.52 billion. 

Fiscal year: 2007; 
Unliquidated obligations: $175.07 billion. 

Fiscal year: 2008; 
Unliquidated obligations: $207.5 billion. 

Fiscal year: 2009; 
Unliquidated obligations: $204.25 billion. 

Fiscal year: 2010; 
Unliquidated obligations: $224.72 billion. 

Fiscal year: 2011; 
Unliquidated obligations: $233.65 billion. 

Fiscal year: 2012; 
Projected unliquidated obligations: $242.98 billion. 

Fiscal year: 2013; 
Projected unliquidated obligations: $251.81 billion. 

Fiscal year: 2014; 
Projected unliquidated obligations: $260.12 billion. 

Fiscal year: 2015; 
Projected unliquidated obligations: $267.89 billion. 

Source: GAO analysis of DCMA data. 

Note: Dollars have been adjusted for inflation. 

[End of figure] 

To build and support its workforce, DCMA is using several sources of 
funding. Based on DCMA's data, about 78 percent of the civilian 
workforce is currently funded through operations and maintenance (O&M) 
funds, but a growing number of new employees are hired using funds 
authorized in Section 852 of the National Defense Authorization Act 
for Fiscal Year 2008, called the Defense Acquisition Workforce 
Development Fund.[Footnote 13] For example, in fiscal year 2011 DCMA 
reported it hired 1,221 new employees under this authority, a 
substantial increase from 166 hired in fiscal year 2009. These new 
employees include 3-year interns as well as journeymen, described by 
DCMA officials as individuals with extensive experience in a certain 
business area. 

Two particular areas of emphasis in terms of building workforce 
numbers have been quality assurance and contracting (which includes 
cost and price analysis). As of December 2010, more than half of 
DCMA's civilian workforce was employed in one of these two areas. 
Trends in these particular skill sets from 2005 through 2010 are 
depicted in figure 3. 

Figure 3: Trends in Quality Assurance and Contracting for the DCMA 
Civilian Workforce, 2005-2010: 

[Refer to PDF for image: vertical bar graph] 

December of each year, except for Sept. 2005: Quality assurance: 

Year: 2005; 
Number on board: 2,737. 

Year: 2006; 
Number on board: 2,581. 

Year: 2007; 
Number on board: 2,460. 

Year: 2008; 
Number on board: 2,462. 

Year: 2009; 
Number on board: 2,651. 

Year: 2010; 
Number on board: 3,022. 

December of each year, except for Sept. 2005: Contracting: 

Year: 2005; 
Number on board: 1,996. 

Year: 2006; 
Number on board: 1,802. 

Year: 2007; 
Number on board: 1,703. 

Year: 2008; 
Number on board: 1,843. 

Year: 2009; 
Number on board: 1,843. 

Year: 2010; 
Number on board: 2,343. 

Source: GAO analysis of DCMA data. 

Note: According to DCMA, the workforce data for December 2005 was 
corrupted, so the agency provided us information from September of 
that year. 

[End of figure] 

Further, from 2011 to 2016, DCMA estimates that these two job 
categories will continue to be the areas where the agency will 
experience the most growth in the number of positions. 

While DCMA is hiring many new people to fill out its workforce, it is 
also facing a large percentage of retirement-eligible employees. As of 
the end of fiscal year 2010, about 24 percent of the DCMA workforce 
was eligible to retire, and an additional 28 percent qualified for 
early retirement incentives. The large number of retirement eligible 
employees makes DCMA vulnerable to the loss of valuable technical 
expertise and organizational knowledge. In part, DCMA plans to 
mitigate this risk through aggressive recruiting and knowledge 
management activities, such as bringing back retired annuitants to 
help raise the skill levels of the newer employees. 

Addressing Lost Skill Sets: 

Building workforce skills and expertise is just as important as 
increasing numbers of employees. In addition to its precipitous drop 
in workforce numbers, DCMA had experienced an atrophying of some key 
skill sets. At the CMO level, one way DCMA is looking to build 
expertise of its new employees is by changing the workforce structure. 
Specifically, CMO staff are organized in one of three functional 
areas: contracting, engineering, or quality assurance. Previously, 
CMOs were organized in multifunctional teams, with employees from 
different disciplines (e.g., an ACO, a quality assurance 
representative, an engineer, etc.) on one team and responsible for 
overseeing a certain number of contracts. With the new alignment, 
quality assurance representatives, for example, report to a quality 
team lead, and this team lead reports to a CMO level quality director. 
Senior DCMA officials view this change as important for new employees' 
skills, as they will be able to learn from supervisors with expertise 
in the same area. 

Following are some examples of how DCMA is rebuilding certain skill 
sets: 

Cost and pricing: 

A particular area of focus for DCMA is re-building its cost and 
pricing expertise, which had been depleted over time. For example, by 
the late 1990s DCMA was routinely combining the duties of its contract 
cost/price analyst positions with the duties of its contracting 
specialists; and at that time, the agency had lost the majority of its 
contract cost/price analysts. Loss of this skill set, according to 
DCMA, meant that many of its pricing-related contract administration 
responsibilities, such as negotiating forward pricing rate agreements 
and establishing final indirect cost rates and billing rates, were no 
longer performed to the same level of discipline and consistency as in 
prior years. As a result, DCMA reported that DOD's acquisitions were 
subjected to unacceptable levels of cost risks. In one recent example, 
a DCMA official told us about a case where an ACO, lacking support 
from contract cost/price analysts had, for simplicity, incorrectly 
blended a contractor's overhead rates rather than deriving separate 
rates for different areas (e.g., general and administrative, and 
manufacturing). 

DCMA has taken several steps to rebuild its cost and pricing 
capabilities: 

* In 2009, DCMA created the Cost and Pricing Center, with a mission of 
developing and sustaining the agency's expertise in pricing. DCMA 
officials said the center has helped to hire contract cost/price 
analysts for the CMOs. It also develops and conducts training for the 
growing DCMA contract cost/price analyst workforce. 

* Over the last 2 years, DCMA reports that it has hired 279 new 
contract cost/price analysts and cost monitors, extensively using the 
Defense Acquisition Workforce Development Fund to do so. Currently, 
DCMA employs a total of about 400 contract cost/price analysts and 
cost monitors. 

Earned-value management: 

Since 2008, DCMA has also concentrated on rebuilding its earned-value 
management (EVM) expertise through workforce increases and extensive 
training.[Footnote 14] DCMA has increased its workforce for its EVM 
Center, which was established in fiscal year 2000. Officials told us 
the workforce has grown from 5 or 6 in 2000 to 46 people in 2011, with 
plans to fill an additional 12 vacancies. In addition to its other 
responsibilities (such as overseeing the process for ensuring a 
contractor's EVM system is validated), center officials provide 
guidance and direction to EVM specialists located at the CMOs and 
develop EVM policy in coordination with the CMOs. 

Industrial specialists: 

Approximately 500 industrial specialists, located in the CMOs, are 
responsible for determining whether contractors have the manpower, 
machinery, materials, and methods to meet contract requirements; 
overseeing contractors' manufacturing processes to track progress in 
meeting contractual delivery dates; and notifying buying commands if 
the contractor might not meet those dates. There had been a 
substantial decline in the number of industrial specialists at the 
agency, but the number has started to grow again. While senior DCMA 
officials would like industrial specialists to spend more time "on the 
shop floor" at contractor facilities to gain an understanding of the 
root causes of scheduling delays, we found that they were not 
consistently doing so at the CMOs we visited. Several of the 
industrial specialists we spoke with primarily remain at their 
workstations monitoring contractor production schedules 
electronically, checking the accuracy of data entered into DCMA's 
contracts database, or assisting as needed with technical reviews of 
contractor proposals. Senior officials acknowledged that the focus of 
industrial specialists over time has shifted away from some of their 
more important tasks, such as performing on-site surveillance of 
contractor facilities. Workforce changes within DCMA have contributed 
to this shift. For example, DCMA procurement technicians traditionally 
performed routine administrative functions such as entering and 
maintaining contract data, but this role has been understaffed, 
resulting in more senior personnel, such as industrial specialists, 
performing such functions. DCMA is currently taking steps to rebuild 
the industrial specialist function by hiring more personnel, 
developing a new manufacturing and production policy, and upgrading 
training. 

Quality assurance: 

DCMA has identified ongoing concerns with its ability to effectively 
carry out its quality assurance responsibilities because of workforce 
size and capability shortfalls, increasing the risk to the warfighter 
and the taxpayers.[Footnote 15] For example, DCMA reported an increase 
in customer complaints in the form of reported quality deficiencies in 
products. To address the issues related to its quality assurance 
capabilities, DCMA reports it is, for example, defining certification 
training for its quality assurance personnel. DCMA also reports it is 
moving towards standardizing position descriptions as a way to 
establish consistent expectations for its quality assurance workforce. 

DCMA Is Shifting Back to Centralized Procedures After Customer- 
Oriented, Decentralized Approach Yielded Unintended Consequences: 

By the mid 2000s, when according to senior officials, DCMA did not 
have the workforce to fulfill its mission, it undertook a shift in its 
operations in an attempt to focus on the areas of most importance to 
its customers--the DOD program offices. This approach included a CMO 
re-alignment to mirror the organization of DOD program offices and a 
heavily decentralized approach to DCMA's policies and procedures. In 
the fall of 2005, DCMA re-aligned its CMOs under four product-oriented 
divisions: aeronautical, space and missiles, ground vehicles and 
munitions, and naval systems. In addition to providing a structure 
more in line with its DOD customers, the alignment was intended to 
improve the technical expertise of DCMA staff in these particular 
product areas. 

At the same time, DCMA implemented what it called performance-based 
management, wherein CMOs gauged their success based on metrics 
reflecting their contributions to outcomes of importance to their 
customers. In fact, the memorandums of agreement between CMOs and the 
DOD program offices were designed to hold the CMOs accountable to the 
program office for such things as reducing the number of functional 
defects of a product or ensuring that a component was delivered on 
time. For example, a 2008 memorandum of agreement with a program 
office purchasing heavy payload tactical trucks was designed to hold 
the CMO accountable for reducing the number of functional defects on 
the vehicles. In another example, a CMO committed to a variety of 
customer outcome performance standards with its Air Force customer 
that was purchasing unmanned aerial vehicles, including zero-defect 
products and timely product and shipment delivery. According to DCMA 
officials, thousands of metrics flourished at this time, which some 
officials noted were too many. 

DCMA also embarked on a substantially decentralized approach to its 
policies and procedures, again with the intent of becoming more 
customer-focused. As a key example, DCMA rescinded its compliance and 
procedures manual for the agency's required contract management 
functions--known as the "DCMA One Book." Contents of the manual that 
were still deemed required--reportedly a small portion--became a DCMA 
instruction, and the rest was considered to be guidance and not 
mandatory for CMOs to follow. The intent of the change was to allow 
more flexibility for the CMOs to modify existing processes and explore 
new ones to better support their own customers' expected outcomes and 
objectives. However, officials from some CMOs we visited said the loss 
of the "DCMA One Book" resulted in loss of consistent agency guidance 
and procedures, with one official characterizing this situation as a 
"free for all." 

Ironically, this focus on providing CMOs the flexibility to meet their 
customers' needs as well as the absence of specific guidance and 
procedures resulted, according to DCMA officials, in a level of 
confusion among their program office customers. Other unintended 
consequences included concerns on the part of DCMA that it had shifted 
too far toward focusing on the customer. Relatedly, the decentralized 
nature of DCMA guidance led each product division to develop and 
execute its own policies and provided CMOs the leeway to develop 
additional policies and procedures to respond to their own customers' 
needs. This led to inconsistent oversight and surveillance activities 
among CMOs. Another unintended consequence was inefficiencies in how 
CMOs operated. For example, CMOs in close proximity but under 
different product divisions sometimes did not share resources or 
expertise and thus did not leverage their workforces to help meet 
workload surge requirements. 

To address these unintended consequences and in light of its new and 
growing workforce, in 2009 DCMA undertook a number of changes to its 
organization, procedures, and policies. Rather than being aligned 
under the four DOD product areas, the 40 CMOs are now aligned under 
three regional commands, as shown in figure 4. 

Figure 4: DCMA Geographic Realignment of CMOs in 2010: 

[Refer to PDF for image: illustrated U.S. map] 

Eastern Regional Command: 
Boston, MA. 

Geographic CMOs: 
Atlanta, GA; 
Baltimore, MD; 
Boston, MA; 
Garden City, NY; 
Hartford, CT; 
Manassas, VA; 
Orlando, FL; 
Philadelphia, PA; 
Springfield, NJ. 

Plant CMOs: 
Lockheed Martin Marietta (GA); 
Lockheed Martin Moorestown (NJ); 
Lockheed Martin Orlando (FL); 
Boeing Philadelphia (PA); 
Sikorsky Aircraft (CT); 
Raytheon Tewksbury (MA). 

Specialized CMOs: 
Aircraft Propulsion Operations; 
Naval Special Emphasis Operations. 

Central Regional Command: 
Chicago, IL. 

Geographic CMOs: 
Chicago, IL; 
Dallas, TX; 
Dayton, OH; 
Detroit, MI; 
Huntsville, AL; 
Twin Cities, MN. 

Plant CMOs: 
Bell Helicopter Fort Worth (TX); 
Boeing St. Louis (MO); 
Lockheed Martin Fort Worth (TX). 

Specialized CMOs: 
Army Modernization Program Office; 
Aircraft Integrated Maintenance Operations. 

Western Regional Command: 
Carson, CA. 

Geographic CMOs: 
Denver, CO; 
Lathrop, CA; 
Los Angeles, CA; 
Palmdale, CA; 
Phoenix, AZ; 
Santa Ana, CA. 

Plant CMOs: 
Boeing Huntington Beach (CA); 
Boeing Long Beach (CA); 
Lockheed Martin Denver (CO); 
Lockheed Martin Sunnyvale (CA); 
Raytheon Tucson (AZ). 

Specialized CMO: 
NASA Product Operations. 

Source: GAO summary of DCMA information. 

[End of figure] 

According to DCMA, while the product-division alignment allowed for a 
strong customer focus, going back to a regional alignment has 
permitted more efficiencies among the CMOs by facilitating consistent 
execution of policy and tools throughout each region. 

DCMA is also updating and developing centralized instructions and 
procedures to help regain consistency among the CMOs and to help 
ensure the agency meets all of its contract administration 
responsibilities. Since 2009, DCMA has issued more than 40 
instructions and over 100 modifications or revisions to instructions. 
For example, in November 2010, DCMA revised in its entirety its Major 
Program Support Instruction. The purpose of major program support is 
to provide DCMA customers and internal management with timely analysis 
and insight to prevent and/or resolve a program's cost, schedule, or 
performance problems, and the instruction provides guidance on how 
DCMA will accomplish these objectives. DCMA has also updated three 
EVMS instructions since November 2010, and its quality assurance 
policy implementation includes 22 new instructions issued since March 
2009. While some CMO staff told us the plethora of new, centralized 
guidance and instructions can be overwhelming at times, several also 
indicated they were pleased to be moving away from the prior, 
decentralized model where they were largely left to their own devices. 

DCMA Is Developing Performance Indicators to Measure Progress and 
Using Other Strategies to Optimize Its Workforce Balance: 

In 2009, DCMA also began to shift from a focus on customer-based 
metrics to using performance indicators intended to gauge how well the 
agency is meeting its missions. The agency currently has 122 
indicators in place, addressing contractor supplier-base issues and 
DCMA processes, workload, and resources. DCMA officials noted that 
these indicators are reviewed for trends and to help identify root 
causes of any problems. For example, DCMA officials explained that the 
performance indicator related to contract closeouts showed a marked 
decline in timely closeouts over the last few years, indicating a 
major problem. Further analysis showed a severe resourcing problem in 
the two CMOs responsible for nearly half of all contract closeouts. 
DCMA identified a need for greater training on contract closeouts; 
after implementing a training program, the indicators revealed that 
the timeliness of contract closeouts had improved. In some cases, DCMA 
is looking to improve performance indicators to ensure they are 
motivating performance in the way the agency intends. For example, a 
primary performance indicator for industrial specialists involves 
prediction of schedule delays, which according to a DCMA official, 
encourages industrial specialists to track schedules from "behind 
their computers," rather than to be on the shop floor, where DCMA 
senior officials would like them to spend their time. Senior DCMA 
officials acknowledged that they are still in the process of 
reassessing the indicators. Additionally, DCMA is evaluating which 
indicators need to be reviewed at the headquarters level. 

DCMA also takes steps to identify and rectify workforce imbalances 
through its workload allocation processes. The headquarters 
directorate holds regular workload and resourcing sessions with each 
regional command and the CMOs under its purview to evaluate CMO 
workload requirements. DCMA officials expect these sessions to be 
important for making resource allocation decisions across the CMOs. In 
addition, headquarters officials had conducted resource reviews to 
identify the positions, by job series, required at each CMO based on 
current and future workloads and on the CMOs' performance. However, 
because of fiscal year 2011 funding constraints, the resource reviews 
have been put on hold. 

DCMA Uses Various Approaches to Address Impact of Contingency 
Deployments on Domestic Operations: 

While the overall requirement for support of contingency operations 
has increased fourfold over the past 5 years and the portion of that 
increase shouldered by DCMA staff has more than tripled from 2007, the 
number of DCMA staff deployed remains relatively small compared to the 
size of the agency workforce. CMO officials told us it is difficult to 
isolate the impact of CCAS deployments on overall CMO performance from 
other resource constraints DCMA faces. Nevertheless, the officials 
identified a number of ways deployments impact domestic operations-- 
including some instances of work being delayed or not completed--and 
identified a variety of approaches they use to manage workload given 
the deployments. A number of CMO leaders deploy, in part because a 
high proportion of them are military, and these deployments can have a 
significant impact on the operations of a CMO. Also, DCMA civilians 
may deploy multiple times, and CMO officials report they had little 
notice to plan for these deployments. To minimize the impact of 
civilian deployments, DCMA has established a position for a corps of 
250 personnel hired specifically to support the contingency mission, 
but CMOs report management challenges with using these resources. 

Proportion of DCMA's Deployed Workforce is Small, but Has Increased 
Substantially over the Last 5 Years: 

Based on requirements agreed to by the Joint Chiefs of Staff, 
combatant commands, and DCMA, the DCMA CCAS mission in Iraq, 
Afghanistan, and Kuwait currently requires an in-theater presence of 
450 personnel. This number represents more than a fourfold increase 
from the July 2007 deployment number of 83 and includes a recent, 80-
person increase for an enhanced presence in Afghanistan as well as 
support for the Department of State following the expected withdrawal 
of troops in Iraq in December 2011. From 2001 through 2008, DCMA had a 
small, clearly defined role administering the Army's Logistics Civil 
Augmentation Program support contracts. Then in 2007, an independent 
commission recommended significantly expanding DCMA's in-theater role. 
[Footnote 16] The Commission's report concluded that the Army's 
workforce was inadequately staffed, trained, or structured for 
handling contract management in Iraq and Afghanistan, and as a result, 
the Army reassigned contract administration to DCMA for contracts 
involving delivery of supplies and services in these two countries. 

As of July 2011, DCMA was deploying 272 of its own people-- 
approximately 2.5 percent of the workforce--with the balance of the 
450 total CCAS requirement filled with contractors and DOD military 
service personnel.[Footnote 17] The portion of the current CCAS 
requirement shouldered by DCMA staff, when compared to 2007, has more 
than tripled. Figure 5 shows the upward trend in CCAS deployments over 
the past 5 years and the types of personnel deployed. 

Figure 5: 5-Year CCAS Deployment Trends: 

[Refer to PDF for image: stacked vertical bar graph] 

Number of CCAS deployments: 

Fiscal year: July 2007; 
DCMA emergency essential: 17; 
DCMA civilian volunteer: 18; 
DCMA military: 48; 
Total: 83. 

Fiscal year: July 2008; 
DCMA emergency essential: 42; 
DCMA civilian volunteer: 102; 
DCMA military: 54; 
Total: 198. 

Fiscal year: July 2009; 
DCMA emergency essential: 76; 
DCMA civilian volunteer: 104; 
DCMA military: 30; 
Non-DCMA: DOD military service personnel: 76; 
Total: 286. 

Fiscal year: July 2010; 
DCMA emergency essential: 100; 
DCMA civilian volunteer: 89; 
DCMA military: 46; 
Non-DCMA: DOD military service personnel: 113; 
Non-DCMA: Contractor: 22; 
Total: 370. 

Fiscal year: July 2011; 
DCMA emergency essential: 127; 
DCMA civilian volunteer: 95; 
DCMA military: 50; 
Non-DCMA: DOD military service personnel: 156; 
Non-DCMA: Contractor: 22; 
Total: 450. 

Source: GAO analysis of DCMA. 

Note: According to DCMA, the civilian volunteers include a very small 
number of non-DCMA personnel. 

[End of figure] 

In terms of the type of work these personnel are performing in-
theater, nearly three-quarters of the required contingency positions 
are in the areas of contracting and quality assurance. Further, the 
need for these two areas of expertise in-theater has grown 
dramatically from 2007 to 2011, with the requirements for contracting 
positions increasing from 20 to 144, and the requirements for quality 
assurance increasing from 20 to 182. 

In Light of Overall Resource Constraints, CMO Officials Identified 
Ways Deployments Affect Their Domestic Operations and Workload: 

Several of the CMOs we visited report that it is difficult to isolate 
the impact of CCAS deployments on overall CMO performance from other 
resource constraints DCMA faces. DCMA conducted an analysis of the 
relationship between other agency performance indicators (e.g., 
percentage of contract closeouts completed and percentage of completed 
quality surveillance plans) and CMOs with high proportions of CCAS 
hours in fiscal year 2010, but this analysis showed no discernible 
correlation between high CCAS hours and CMO mission performance. While 
DCMA is working to develop performance indicators to assess the future 
impact of CCAS on the agency's domestic mission, these indicators are 
not yet fully implemented. 

Nevertheless, several DCMA officials we interviewed believe that CCAS 
deployments have a definite, constraining impact on the agency's 
domestic mission, and CMO officials identified specific examples of 
how their operations are affected by deployments. They cited delays in 
quality assurance response times, for example, and noted that audits 
of a contractor's processes and contract closeout activities have been 
delayed or not done. The officials provided numerous other examples, 
including: 

* In the contracting area, at one CMO, contract receipt and review and 
funds cancellations were delayed when a key person deployed. The CMO 
officials affirmed that activities were still performed, but took 
longer than usual to complete or the quality of the work was lower 
than customary. 

* In the quality area, a DCMA internal review team found that since 
quality assurance representatives must focus first on conducting 
necessary inspections, other functions--such as completing 
documentation, reviewing low or medium risk processes, and performing 
data analysis--were suffering. 

CMO officials identified a number of ways they manage the workload 
when someone deploys, such as adjusting workloads of the remaining 
staff, granting overtime and compensatory time, and implementing 
staggered work shifts. They also reported backfilling positions with 
temporary hires, seeking temporary promotions for CMO staff,[Footnote 
18] bringing back retired annuitants or reservists, or hiring 
permanent replacements. In some cases, CMO officials said they had 
temporarily assigned staff to other locations. 

CMOs commonly use a risk-based approach to ensure that what they view 
as the highest priority or most critical work is completed first. For 
example, a team leader might focus on getting the mission work done 
but may not have time to mentor staff. Officials in one of the 
regional commands said they have to take care that tasks such as 
inspection of items critical to safety and mandatory government 
inspections are performed first. Lower priority items often will be 
deferred, such as contract audit follow-up and contract closeout. In 
another instance, when an Industrial Specialist volunteered to deploy, 
CMO officials were able to come to agreement with the customer that 
schedule surveillance could be conducted less frequently, because the 
contractor typically made deliveries ahead of schedule. 

CMOs we visited noted that the impact of CCAS deployments on CMOs 
varies based on the type of deployment (civilian volunteer or EE), 
deployment of CMO leadership, and rates of deployment at the CMO. 

Type of Deployment: 

CMO officials told us they often cannot plan for civilian volunteer 
deployments because of short notice of the impending deployment 
(usually issued by the Combat Support Center 60-90 days in advance), 
which creates challenges in backfilling the position. In addition, 
once selected, the volunteer's time available to the CMO before 
deployment can be curtailed by more than a month because of 
requirements for training, medical checks, and other pre-deployment 
activities. The impact on CMO workload is magnified when civilian 
volunteers extend their deployments--which happens frequently--or 
deploy multiple times. For example, in 2010, 55 civilian volunteers 
requested an extension of their deployment, and only 4 were denied. 

CMOs we visited reported different challenges in relation to EE 
personnel.[Footnote 19] First, some said that EEs spend so little time 
at their CMO that they cannot be used effectively. The EE workforce, 
during its initial 3-year commitment, deployed for 6 to 9 months, and 
then returned to a home CMO for 6 to 9 months before deploying again. 
In one situation, a CMO commander placed an EE in an ACO position, but 
lost that person when he was denied a request to defer deployment, 
highlighting the challenges of using EEs in key positions or assigning 
them significant levels of responsibility. Second, CMO commanders 
noted that they have little say in the selection and deployment of 
EEs; some CMOs have a relatively high concentration of EEs--about 6 
percent of the CMO's workforce in two cases. According to senior 
leadership, DCMA now realizes it needs to improve its management of 
the EE placement process and has begun targeted hiring in areas where 
there may be a large untapped skill-base of potential EEs. Third, 
officials said they had unanticipated challenges as a result of the 
temporary promotions provided to deploying EE personnel. These 
temporary promotions were used as one of several means to incentivize 
potential hires, at a time when DCMA needed to quickly increase 
numbers to meet expanding requirements. However, DCMA officials 
reported that when these staff returned to their home CMO, they had 
adjusted to the higher salary and the associated work, but often, 
corresponding higher-level positions were not available at the CMO. 
DCMA officials stated that temporary promotions for EEs have been 
discontinued, noting the temporary promotions were not cost effective 
and that the CMO work did not always justify the higher grade. 

Leadership: 

Deployments can have an especially significant impact when they 
involve a CMO's leadership.[Footnote 20] A number of CMO leaders 
deploy, in part, because a high proportion of them are military. 
[Footnote 21] Specifically, according to senior DCMA officials, nearly 
half of its CMO heads and deputies at domestic CMOs are military, and 
all O-5 military commanders stationed with DCMA in the United States 
are scheduled to deploy for one year sometime within their 3-year tour 
with DCMA.[Footnote 22] Officials at several CMOs commented that 
losing leadership is difficult and challenging, resulting in deputies 
taking on the role of CMO leader, with other personnel then being 
detailed or temporarily promoted to Acting Deputy. Deployment of 
commanders in the middle of their tours can be particularly difficult, 
according to another CMO official, because a commander often requires 
2 to 3 continuous years in a leadership position to implement new 
initiatives, and an interruption can result in loss of momentum for 
change and improvements. While DCMA endeavors to have senior military 
personnel complete their deployments as close to the beginning of 
their DCMA tours as they can--ideally leaving them back at the CMO for 
a 2-year period at the tour's end for the sake of continuity--some 
senior officers nevertheless deploy in the middle of their tours, 
resulting in interruptions and a lack of continuity within the CMO. As 
an example, CCAS deployments had a considerable impact with respect to 
leadership at one CMO. Deployment of the commander in 2010 resulted in 
turnover of the commander's position five times in the following 16 
months, during which time a series of replacements was appointed for a 
variety of performance and operational reasons. According to CMO 
officials, instability in the leadership at this office contributed to 
morale and performance shortfalls that were exacerbated by significant 
growth in new program requirements and significant contractor quality 
issues at that site. Overcoming these issues required extensive 
temporary duty costs to split a commander between two sites and 
personal sacrifice and hardship for the entire leadership team. 

Some CMOs Affected More than Others: 

Some CMOs have higher rates of deployment than others, which leads to 
a disproportionate impact of deployments. According to DCMA data, 
CMOs' hours dedicated to CCAS in fiscal year 2010 ranged from 10.2 
percent of total workforce hours to 0.6 percent. For example, in the 
last 2 years, a total of 55 people--or about 11 percent of the total 
workforce--deployed from one CMO, of which 37 were civilian 
volunteers. In contrast, officials at another CMO reported that only 4 
of their 202 employees were deployed in the last 2 years. Reasons why 
some CMOs have higher rates of deployed personnel vary. It can be due 
to high concentrations of EE personnel at a CMO, a high proportion of 
military personnel, or large numbers of motivated civilians with 
skills that are in high demand in contingency situations, such as 
contracting or quality assurance. CMO officials also told us that 
deployments disproportionately impact some of their suboffices with 
small numbers of staff or in remote areas. For example, officials at 
one CMO told us a suboffice had 2 of 10 quality assurance staff 
deployed simultaneously. To fill the gap, personnel from the CMO had 
to drive to the suboffice--a distance of over 400 miles. Officials 
said that the level of quality assurance suffered, being limited to 
only the minimum required inspections. In reaction, some DOD program 
offices sent their own technical people to assist in this work; in 
other cases shipments were delayed. DCMA senior officials told us that 
they are trying to support CMOs that may be hit harder than others by 
considering delays or waivers for CCAS assignments if needed--but 
these situations have to be balanced against the high priority of the 
CCAS mission. 

DCMA has taken steps to mitigate the impact of deployments on 
individual CMOs. For example, it allows individuals to request 
deployment waivers, but few requests are made. From the start of 2010, 
through June of 2011, DCMA employees submitted 21 waiver requests. 
While 19 of these requests were approved, most (14) were because of 
medical or family emergencies or significant personal hardship; 5 were 
granted because of a significant mission impact to the CMO 
organization. Officials say that a high bar is set for granting 
waivers because of the CCAS mission, and that supporting the 
warfighter has a very high priority at DCMA. The agency has also 
lengthened deployment time frames to reduce their frequency. Military 
deployments have been increased from 6 months to 9 months, and EE 
deployments are in the process of being extended from 179 days to 12 
months. DCMA has also begun a CCAS track for third-year DCMA interns, 
intended to help meet increasing CCAS deployment requirements by 
enlarging the base of eligible civilian volunteers. 

A Number of Factors May Affect DCMA's Ability to Conduct Oversight and 
Surveillance Activities: 

In addition to the impact of contingency deployments, other factors 
present risks to DCMA's ability to execute its domestic oversight and 
surveillance mission. A key external risk to DCMA's ability to 
effectively carry out its responsibility to determine the adequacy of 
defense contractor business systems comes from delays in obtaining 
audits from DCAA. We also found that DCMA contracting officers 
maintained their determination of many contractor business systems as 
adequate despite the fact that the systems had not been audited by 
DCAA in a number of years--in many cases well beyond the time frames 
outlined in DCAA guidance. Another potential risk for DCMA is a recent 
DOD policy change that increased the dollar threshold at which DCAA 
will conduct certain audits; as a result, DCMA's own pricing workload 
will increase. In addition, DCMA must manage two sources of internal 
risk. First, some CMOs are uncertain how newly hired personnel using 
the Defense Acquisition Workforce Development Fund, and EEs hired 
under Overseas Contingency Operations funds, affect CMOs' authorized 
staffing levels and funding. Second, the agency faces a potential 
increased workload in oversight and surveillance of key suppliers as 
defense subcontracting grows. 

DCMA Maintains Adequacy Determination for Contractor Business Systems 
Even When DCAA Audits Are Outdated: 

Contractor business systems and internal controls are the first line 
of defense against waste, fraud, and abuse on government contracts, 
and so the government is at greater risk of overpaying contractors if 
possible deficiencies exist in the systems. A role of some DCMA ACOs 
is to determine the acceptability or adequacy of business systems for 
contractors under their purview.[Footnote 23] While DCMA has 
additional resources to support assessment of purchasing systems, 
EVMS, and property management systems, one method it relies on to 
arrive at status determinations for contractors' accounting, 
estimating, and material management and accounting systems is the DCAA 
audits of each system.[Footnote 24] DCAA policy establishes guidelines 
for how often contractor business system audits should take place, as 
shown in table 3. 

Table 3: Guidelines for Frequency of Conducting Accounting, 
Estimating, and Material Management and Accounting System Audits: 

Contractor Business System: Accounting; 
Time Frame for Audit: At least every 4 years. 

Contractor Business System: Estimating; 
Time Frame for Audit: At least every 3 years[A]. 

Contractor Business System: Material management and accounting; 
Time Frame for Audit: At least every 4 years. 

Source: DCAA Contract Audit Manual. 

[A] This is the time frame in DCAA guidance, unless a determination 
that current audit risk is considered to be low is documented. 

[End of table] 

We examined the status of these three business systems for the 17 
defense contractors responsible for programs included in this review, 
as provided by the cognizant ACO. We found a substantial number of 
systems that had not been audited within the DCAA time frames; 12 of 
the contractors had at least one system without a current and timely 
audit.[Footnote 25] For example, as of May 31, 2011, 10 contractors 
had not had an overall accounting system audit within the last 4 
years, and 9 had not had an estimating system audit within the last 3 
years. In one case, a contractor which has increased its government 
business more than sevenfold since 2000 has not had an overall 
accounting system audit since 1998, despite the ACO requesting that 
DCAA perform such an audit.[Footnote 26] Further, one estimating 
system audit and two MMAS audits have never been conducted because, 
according to DCAA and DCMA officials, DCAA has not had the resources 
available to perform them.[Footnote 27] For contractors where an audit 
was conducted, figure 6 illustrates the date of the last audits of the 
three business systems, relative to DCAA's guidelines. 

Figure 6: Most Recent System Audits for 17 Contractors Reviewed, as of 
May 31, 2011: 

[Refer to PDF for image: illustrated list] 

Year: 1998;
Last audit was outside DCAA guidelines for audit frequency: Accounting; 

Year: 2001; 
Last audit was outside DCAA guidelines for audit frequency: Material 
management and accounting; 

Year: 2002; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 

Year: 2003; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Material 
management and accounting; 

Year: 2004; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 
Last audit was outside DCAA guidelines for audit frequency: Material 
management and accounting; 

Year: 2005; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 
Last audit was outside DCAA guidelines for audit frequency: Material 
management and accounting; 

Year: 2006; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 
Last audit was outside DCAA guidelines for audit frequency: Material 
management and accounting; 
Last audit was outside DCAA guidelines for audit frequency: Material 
management and accounting; 

Year: 2007; 4-year guideline for accounting system and MMAS audits; 
Last audit was outside DCAA guidelines for audit frequency: Accounting; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 
Last audit was within DCAA guidelines for audit frequency: Accounting; 
Last audit was within DCAA guidelines for audit frequency: Material 
management and accounting; 

Year: 2008; 3-year guideline for estimating system audits; 
Last audit was outside DCAA guidelines for audit frequency: Estimating; 
Last audit was within DCAA guidelines for audit frequency: Estimating; 
Last audit was within DCAA guidelines for audit frequency: Estimating; 
Last audit was within DCAA guidelines for audit frequency: Material 
management and accounting; 
Last audit was within DCAA guidelines for audit frequency: Material 
management and accounting; 

Year: 2009; 
Last audit was within DCAA guidelines for audit frequency: Accounting; 
Last audit was within DCAA guidelines for audit frequency: Estimating; 

Year: 2010; 
Last audit was within DCAA guidelines for audit frequency: Estimating; 
Last audit was within DCAA guidelines for audit frequency: Estimating; 

Year: 2011; 
Last audit was within DCAA guidelines for audit frequency: Accounting; 
Last audit was within DCAA guidelines for audit frequency: Accounting; 
Last audit was within DCAA guidelines for audit frequency: Accounting; 
Last audit was within DCAA guidelines for audit frequency: Material 
management and accounting. 

Source: GAO analysis of DCMA data. 

Note: In June 2011, after the date for which we collected this 
information, DCAA completed an audit for one of the contractors whose 
previous estimating system audit was conducted in 2002. In cases where 
there was a follow-up audit conducted in relation to a system audit, 
the follow-up audit date is reflected in the figure. In some cases, no 
audit was conducted, and therefore audit information is not included 
in the figure. See footnote 25 for reasons why no audit was conducted. 

[End of figure] 

When an audit of a system becomes outdated, we found that the 
cognizant ACOs generally maintain their prior status determination 
even if it was made several years in the past. For example, the ACOs 
still termed as "adequate" or "approved" all 10 of the defense 
contractor accounting systems that have not been audited in the last 4 
years--including the accounting system that has not been audited since 
1998. And ACOs considered all but two of the estimating systems that 
have not been audited in the last 3 years "adequate," "approved," or 
"acceptable." Some ACOs also told us that, when audits are outdated, a 
program office may need to rely on DCMA and DCAA's more informal 
assessment of a business system's status. Officials with one DOD 
program office told us that while they were aware of the time that had 
passed since the last audit of business systems for the prime 
contractor, they continue to rely on the expertise of DCMA and DCAA to 
identify problems with the systems and oversee resolution. 

Some ACOs expressed concern that they did not have more up-to-date 
information with which to determine the status of the business 
systems, especially if they knew that a contractor had undergone 
significant change, such as rapid growth. Many expressed frustration 
at the lack of timely DCAA audit support and identified it as a 
significant impediment to their ability to assess the status of 
contractor business systems, particularly accounting and estimating 
systems. Further, most noted that their DCAA counterparts were unable 
to provide clear and firm time frames for when the next audits would 
take place. In some cases, ACOs reported that expected audits planned 
by DCAA for a given fiscal year were not completed, so were moved back 
to the next year or canceled. When business systems are not audited in 
a timely manner, the government is at increased risk of paying for 
unallowable and unreasonable costs, as a contractor's cost structure 
or accounting procedures may change over time. 

The Director of DCAA acknowledged that the agency has been behind on 
business system audits and that these audits had not been a top 
priority for fiscal years 2010 or 2011. He stated that DCAA has been 
focusing on addressing other priorities identified as higher risk with 
its limited workforce, such as support for overseas contingency 
operations contracts, reviewing contractors' forward pricing rates 
prior to contract award, and incurred cost audits. A DCAA official 
stated that compared to the resources expended, forward pricing rate 
audits have the greatest return to the taxpayer. DCAA officials noted 
that they were still assessing which business system audits need to 
take place and that the agency has to balance this requirement with 
its other current priorities. They added that they have recently 
launched a pilot program to conduct corporate-level business system 
audits for major defense contractors, aimed at improved coordination 
of DCAA audits and resources. DCAA officials told us that for fiscal 
years 2011 and 2012, this pilot primarily involves overseas 
contingency operations contractors, but also includes one other major 
defense contractor. In addition, DCAA plans to build its workforce, 
expecting to hire approximately 250 more auditors by the end of fiscal 
year 2011. Our recent work confirmed the challenges DCAA is facing in 
terms of its workforce and workload.[Footnote 28] In September 2011, 
we reported that while DCAA's workforce grew by 16 percent from fiscal 
years 2000 to 2011, DOD research and procurement spending (an 
indicator of DCAA's workload) increased by 87 percent. As a result, 
auditors have prioritized time-sensitive activities such as audits to 
support new awards. Further, in that report we found that DCAA's 
initiatives to address contractor business systems will take several 
years. 

Officials from the Office of the Secretary of Defense recognize the 
importance of contractor business systems and have taken some steps 
designed to improve their quality and transparency, but gaps in their 
approaches remain. For example, DCMA officials told us that DOD 
officials directed them to increase visibility into the status of 
business systems by developing a data repository for this information 
for use across the department. DCMA officials explained that this 
database, launched in March 2011, is intended to provide DOD buying 
commands and DCMA personnel more timely and accessible information on 
the status of defense contractors' corporate and division level 
business systems. While ACOs can document dates of the last business 
system audits in this database, because the system requires attaching 
documentation of the status of business systems rather than entering 
that information into a database, the system is not set up to allow 
DCMA officials visibility across all defense contractors to understand 
the full extent and impact of audit timeliness problems. In May 2011, 
DOD also issued an interim rule containing changes to the DFARS that 
clarified the department's definition of contractor business systems, 
delineated the roles of DCMA and DCAA with regard to systems 
oversight, and put in place processes for withholding payments from 
contractors with business system deficiencies. 

Our findings are consistent with recent issues raised by others about 
the timeliness of contractor business system audits. The House of 
Representatives Committee on Armed Services expressed concern in May 
2011 over DCAA's personnel shortfalls and audit delays and the impact 
these might have on competition in DOD contracting.[Footnote 29] In 
September 2009, the Commission on Wartime Contracting in Iraq and 
Afghanistan also noted the challenge of determining the real-time 
status of contractor business systems because of staffing shortages at 
DCAA that reduce the timeliness of audits.[Footnote 30] 

Changes in Audit Thresholds at DCAA Will Increase Pricing Workload for 
DCMA: 

DCMA personnel will face greater responsibilities as a result of a 
recent policy change spearheaded by the Office of the Under Secretary 
of Defense for AT&L, aimed at freeing up DCAA resources to prioritize 
high-risk audit work. This change came in response to recommendations 
made by oversight organizations and guidance from AT&L to ensure that 
DCAA's audit effort focuses on areas with greatest risk to the 
taxpayer and that it align workload requirements with available 
resources. Effective September 17, 2010, and in response to a change 
to guidance for defense acquisition regulations, DCAA generally no 
longer performs audits on contractor cost-type proposals below $100 
million or on fixed-price proposals below $10 million. As a result of 
this change, most pricing requests below these dollar thresholds will 
now be referred to DCMA. Although the new policy was developed in 
consultation with senior DCMA leadership, we found that in some 
instances, CMO officials were surprised by the change and expressed 
concern about implications for their workload. 

DCMA headquarters officials have conducted some analysis of how much 
work the agency might take on as a result of the threshold change. 
Based on data provided by DCAA and assumptions about how much work may 
be retained by either DCAA or DOD buying activities, DCMA estimates 
that it will receive approximately 1,250 additional pricing requests 
on contractor proposals in fiscal year 2011. DCMA officials told us 
that the agency plans to rely on newly hired contract cost/price 
analysts at the CMOs to shoulder this workload, even as they are 
undergoing a significant amount of training to achieve their necessary 
certifications. 

DCMA Faces Internal Sources of Potential Risk That May Affect Its 
Overall Efforts: 

DCMA's ability to conduct oversight and surveillance domestically may 
also be affected by how the agency responds to internal sources of 
risk. Our work identified two areas of potential internal risk for 
DCMA going forward: first, uncertainty among some CMO officials about 
the status of funding sources for new CMO personnel, and second, 
provision of adequate oversight of key suppliers in light of growing 
defense subcontracting. 

Uncertainty Exists about Funding Sources for New Hires and EE 
Personnel: 

Some CMO officials are uncertain how newly hired personnel using the 
Defense Acquisition Workforce Development Fund, and EEs hired under 
Overseas Contingency Operations funds, affect their authorized 
staffing levels and funding. In building its workforce, DCMA has made 
increasing use of the Defense Acquisition Workforce Development Fund 
for journeymen employees and entry-level interns. DCMA leadership 
noted that the agency is requesting increased O&M funding to convert 
these positions in the future. Some CMO leaders told us, however, they 
were not sure that they would have enough O&M-funded positions 
available to be able to retain the journeymen and interns they had 
originally hired using the new funding source. CMO leaders told us 
they were monitoring attrition to make sure they have spaces for 
conversions, if needed. DCMA leadership explained that decisions about 
funding sources for personnel take place at the agency headquarters 
level, rather than at the CMO level, and as a result, the mix of 
funding sources for a particular CMO may change over time but should 
not affect the number of positions at the CMO. Going forward, DCMA 
will continue to face the issue of ensuring adequate O&M funds to 
cover these positions. 

We also found some confusion about the source of funding for the EE 
personnel. According to DCMA headquarters officials, EE personnel are 
generally hired using Overseas Contingency Operations funds managed in 
a separate pool at headquarters. Because of this arrangement, EE 
personnel do not count against authorized CMO funding or manning 
levels--they are over and above those levels. Nevertheless, some CMOs 
and one of the regional commands we visited expressed concern that EEs 
take away staffing and/or dollars from the CMOs. For example, at the 
regional command we were told that EEs are paid out of O&M funds when 
they are working at the CMOs, but when deployed, they are compensated 
from another independent pot of money. Headquarters officials surmised 
that when the EE program was first initiated in 2008, O&M and Overseas 
Contingency Operations funds were mixed together for a short while and 
that there may be some lingering confusion as a result. 

In its fiscal year 2010-2015 strategic human capital plan, DCMA 
identified internal communication as a weakness, and its employees 
have noted that they get incomplete and mixed messages because of 
inconsistent flows of information from the top to lower levels of the 
agency. DCMA officials cite the agency's shift to a functional 
structure as a method for simplifying communication up and down the 
chain of command. 

Growth in Defense Subcontracting May Complicate Oversight of Key 
Suppliers: 

Our previous work has noted that prime contractors are subcontracting 
more work on the production of weapon systems, while concentrating 
their own efforts instead on systems integration. Based on some 
estimates, 60 to 70 percent of work on defense contracts is now done 
by subcontractors, with some industries aiming to outsource up to 80 
percent of the work.[Footnote 31] We have also identified parts 
quality problems in DOD systems that were, among other issues, 
directly attributed to a lack of effective supplier management, with 
the costs borne by the government.[Footnote 32] 

Per DCMA policy, CMOs responsible for monitoring the prime 
contractor's activities should exercise oversight and surveillance of 
those primes' subcontractors through delegations to the CMOs 
responsible for those subcontractors. The amount of delegated workload 
varies across CMOs. DCMA leadership generally did not express concern 
about the amount of delegated work or its potential growth. However, 
leadership has noted the need for improved data to provide visibility 
into the supply chain so that DCMA can receive and communicate to 
customers earlier warnings that a subcontractor's delivery might be 
late. For example, a contractor may be a prime contractor on one 
program, and a subcontractor on another. A senior DCMA official told 
us that better data about performance on the prime contract could 
provide DCMA with insight into potential delays or other issues that 
may affect the program on which the contractor has a subcontract. From 
the customer's perspective, several program office officials noted 
that DCMA surveillance across key suppliers was of value to them. 

DCMA has acknowledged the need to address supply chain risks that may 
affect program cost and schedule, such as poor supply chain management 
by prime contractors that are subcontracting, by defining where those 
risks lie and influencing prime contractor oversight in those areas. 
To support these activities, DCMA plans to increase the size and 
quality of its supply management specialist workforce, including 
provision of training and certification and creation of development 
plans for supply management professionals. DCMA is also placing more 
supply management specialists at the CMOs and has tasked one of its 
divisions with providing policies, training, and tools to the supply 
chain management workforce. In addition, DCMA's Industrial Analysis 
Center's mission is to provide insight into the ability of the 
supplier base to support DOD programs. 

Conclusions: 

Recovering from years of a seriously eroded workforce that left the 
agency unable to fulfill all of its missions has posed a significant 
management challenge for DCMA. It has taken several key steps-- 
including reorganizing the agency, strengthening its guidance and 
procedures, and rebuilding areas of expertise--aimed at putting the 
agency on the path to successfully meeting its missions going forward. 
The issues we have raised regarding the impact of contingency 
deployments on DCMA and its responsibilities domestically can be 
expected to continue, as the agency's contingency role is not expected 
to diminish in the near future. DCMA leadership is largely aware of 
the challenges in this regard and has indicated that steps will be 
taken to mitigate, to the extent possible, the impact on domestic CMOs. 

At the broader DOD level, the recent change to defense regulations is 
a positive step toward achieving better visibility into contractor 
business systems. However, because we found consistent delays in the 
audit time frames for the business systems that require support from 
DCAA, higher-level attention is needed to mitigate the risk to the 
government of outdated business system audits. DCAA, because of 
workforce challenges of its own, is not at present able to fulfill its 
business system audit responsibilities and is not likely to be in a 
position to do so in the near term given its other priorities. Thus, 
the department needs to consider alternative methods to accomplish 
these critical audits in a timelier manner. Other factors we 
identified, however, are largely in DCMA's control and can be 
addressed in the shorter term. In particular, DCMA's practice of 
considering contractor business systems adequate even when they have 
not been audited or reviewed in a number of years may put taxpayer 
funds at risk by suggesting a system is sound when that may not in 
fact be the case. And the uncertainty on the part of CMO leaders about 
sustained funding for their new hires brought in under the Defense 
Acquisition Workforce Development Fund and the source of funding for 
EE personnel suggests that clearer communication is warranted. 

Recommendations for Executive Action: 

We recommend that the Secretary of Defense work with DCMA and DCAA to 
identify and execute options, such as hiring external auditors, to 
assist in conducting audits of contractor business systems as an 
interim step until DCAA can build its workforce enough to fulfill this 
responsibility. 

We recommend that the Director of the DCMA take the following two 
actions: 

* Identify ways to accurately and transparently reflect the current 
status of business systems, such as changing the status of a system to 
"unassessed" when a system has not been audited within DCAA's time 
frames. 

* Clarify for the CMOs the specific plans for how O&M funding is to be 
provided to enable CMOs to continue supporting new hires brought in 
under the Defense Acquisition Workforce Development Fund and how EE 
personnel are funded when working at domestic CMOs, given the 
confusion regarding this issue. 

Agency Comments and Our Evaluation: 

DOD provided us with written comments on a draft of this report. DOD 
agreed with two of our recommendations and partially agreed with one. 
DOD's written response is reprinted in appendix II. 

Regarding our recommendation that the department consider alternative 
approaches to audits of contractor business systems, DOD agreed to 
consider alternative approaches but did not elaborate with any planned 
actions or time frames. DOD also agreed with our recommendation that 
DCMA clarify for the CMOs how O&M funding is to be provided to enable 
them to continue supporting new hires brought in under the Defense 
Acquisition Workforce Development Fund, as well as how EE personnel 
are funded when working at CMOs. The response explained that DCMA has 
O&M funding and full-time equivalents in its fiscal year 2012-2015 
fiscal guidance for the conversions and noted that DCMA is pursuing 
funding for future year conversions. It also clarified that EE 
personnel under the current 3-year program are funded by Overseas 
Contingency Operations funds wherever they are working, including at 
domestic CMOs. Given the confusion we found on these issues, we 
believe it is important that the Director of DCMA regularly share this 
funding information with the CMOs. 

DOD partially agreed with our recommendation that the Director of DCMA 
identify ways to accurately and transparently reflect the current 
status of contractor business systems. The response outlined steps 
DCMA is planning to take, including issuing a new policy on contractor 
business system requirements and updating the agency's existing data 
repository, to include adding data fields, to supplement current 
information. DOD expressed concern that automatically changing the 
status of a previously "approved" system to "not assessed" solely 
because status determinations had not occurred within the specified 
time frames may adversely impact the department's procurement process. 
The intent of our recommendation was not that all outdated business 
system assessments be automatically or retroactively changed to 
"unassessed." Rather, we intended that DCMA determine how a more 
accurate status could be conveyed. The actions DOD has outlined, if 
implemented, should provide greater transparency and visibility into 
the status of the business system assessments. 

We are sending copies of this report to the Secretary of Defense, 
interested congressional committees, and other interested parties. 
This report will also be available at no charge on GAO's Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-4841 or by e-mail at huttonj@gao.gov. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. Key contributors to this 
report are listed in appendix III. 

Signed by: 

John P. Hutton: 
Director Acquisition and Sourcing Management: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to (1) assess how the Defense Contract Management 
Agency (DCMA) is positioning itself to meet its missions; (2) 
determine the extent to which contingency missions have impacted 
DCMA's ability to provide oversight and surveillance domestically; and 
(3) identify other factors that may affect its capability to conduct 
oversight and surveillance domestically going forward. 

To conduct our work for each objective, we reviewed key documents, 
such as relevant sections of the Federal Acquisition Regulation (FAR) 
(e.g., FAR Part 42.3, Contract Administration Office Functions) and 
the Defense Federal Acquisition Regulation Supplement (DFARS), (e.g., 
DFARS 242.3 - Contract Administration Office Functions). We also 
reviewed DOD policies, such as the Office of the Under Secretary of 
Defense for Acquisition, Technology, and Logistics memorandums on 
Better Buying Power. We reviewed DCMA documentation, such as agency 
guidance and instructions; historical documentation related to DCMA's 
organizational structure; workforce data (e.g., the number of DCMA 
staff in different job series); and information on contingency 
deployments (e.g., total requirements, documentation on the types of 
deployment, and waiver and extension requests).[Footnote 33] We 
reviewed Defense Contract Audit Agency (DCAA) documentation such as 
relevant sections of the DCAA Contract Audit Manual and audits related 
to contractor business systems. We also reviewed prior reports 
concerning DCMA, including our prior work as well as reports of the 
Commission on Wartime Contracting in Iraq and Afghanistan and others. 

Further, we interviewed DCMA officials at headquarters as well as some 
DCMA centers and divisions, including the Combat Support Center; the 
Cost and Pricing Center; the Industrial Analysis Center; the 
Manufacturing Engineering/Supply Chain Predictability Division; and 
others. To learn more about DCMA processes and procedures, we 
interviewed DCMA headquarters officials about agencywide initiatives 
such as performance indicators and resource reviews. We also 
interviewed senior officials at DCMA's three domestic regional 
commands, and interviewed the heads of the Contract Management Offices 
(CMO) at 14 out of the 40 primary CMOs located across the country. We 
selected this nonprobability sample of CMOs based on a number of 
factors, including geographic location, obtaining a mix of CMO types 
(plant-based, geographic, and specialized), percentage of CMO hours 
spent on contingency contract administration services, and total 
contract dollar value at the CMO. The findings from the CMOs we 
visited are not generalizable to the population of all DCMA CMOs. 

Within the geographic and plant-based CMOs, we selected a 
nonprobability sample of one or two DOD weapons system programs (19 in 
total) to gather more detailed information about how DCMA provided 
support. The findings from these programs are not generalizable to all 
programs, but were chosen to ensure that programs with large dollar 
values were selected, and to ensure representation of a range of DOD 
military services and contractors. For each program, we reviewed DCMA 
oversight documentation such as surveillance plans and memorandums of 
agreement between DCMA and the program offices. We also interviewed 
members of DCMA's Program Support Teams for each selected program, 
including program integrators, administrative contracting officers, 
quality assurance representatives, engineers, industrial specialists, 
and others. To develop a more in-depth understanding of how DCMA 
provides oversight, we toured seven contractor facilities in relation 
to CMOs we visited. We also collected information on the status of 
contractor business systems related to each of the selected DOD 
programs and interviewed the DCMA administrative contracting officer 
responsible for oversight of those business systems.[Footnote 34] To 
gain their insights on DCMA oversight and surveillance, we also 
interviewed officials from eight DOD program offices and 
representatives from nine contractors, which we selected by taking 
into account factors such as obtaining the perspectives of a range of 
military services and contractors. To develop an understanding of 
DCAA's perspective on issues related to DCMA and DCAA, particularly 
oversight of contractor business systems and changes in DCAA's 
thresholds for conducting pricing-related audits, we also interviewed 
senior officials at DCAA. 

We conducted this performance audit from October 2010 to November 2011 
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. 

[End of section] 

Appendix II: Comments from the Department of Defense: 

Office Of The Under Secretary Of Defense: 
Acquisition, Technology And Logistics
3000 Defense Pentagon: 
Washington, DC 20301-3000: 

October 31, 2011: 

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

Dear Mr. Hutton: 

This is the Department of Defense (DOD) response to the GAO Draft 
Report GAO-12-83, "Defense Contract Management Agency: Amid Ongoing 
Efforts to Rebuild Capacity, Several Factors Present Challenges in 
Meeting its Missions," dated October 12, 2011 (GAO Code 120950). Our 
comments to the report recommendations are enclosed. 

Sincerely, 

Signed by: 

Richard Ginman: 
Director, Defense Procurement and Acquisition Policy: 

Enclosure: As stated. 

[End of letter] 

GAO Draft Report Dated October 12, 2011: 
GAO-12-83 (GAO Code 120950): 

"Defense Contract Management Agency: Amid Ongoing Efforts to Rebuild 
Capacity, Several Factors Present Challenges in Meeting its Missions" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation 1: The GAO recommends that the Secretary of Defense 
work with DCMA and DCAA to identify and execute options, such as 
hiring external auditors, to assist in conducting audits of contractor 
business systems as an interim step until DCAA can build its workforce 
enough to fulfill this responsibility. 

DoD Response: Concur. The Department will consider alternative 
approaches to audit contractor business systems. 

Recommendation 2: The GAO recommends that the Director of the DCMA 
identify ways to accurately and transparently reflect the current 
status of business systems, such as changing the status of a system to 
"unassessed" when a system has not been audited within DCAA's 
timeframes. 

DoD Response: Partially concur. The DCMA policy to implement the 
Contractor Business Systems requirements is in the final stages of 
internal coordination. The policy will require Contracting Officer 
updates of a standard Business System Status template with narrative 
to include the date of the last system determination and a status of 
Approved, Disapproved, Not Assessed, or Not Applicable. Also, the 
policy provides a matrix of the various business systems and the 
required timeframes for reviews. While we understand the importance of 
reviewing systems and making the necessary status determination within 
the mandated timeframes, automatically changing the status of a 
previously "Approved" system to "Not Assessed" solely because those 
actions have not occurred within specified timeframes may adversely 
impact the Department's procurement process. DCMA policy will direct 
the Contracting Officer to upload the most current Business System 
Status template to the Contractor Business Analysis Repository (CBAR); 
specifically, following any change to the system status. Attaching the 
template with a narrative will provide the most accurate information 
available to internal users and DCMA customers. Although the initial 
intent of CBAR was to be a means of recording data regarding the 
status of each system, date fields will be added, which will 
supplement the information in the uploaded template. In addition, DCMA 
will build query capability for agency management and Contracting 
Officers to evaluate the timeliness of reviews. 

Recommendation 3: The GAO recommends that the Director of the DCMA 
clarify for the CMOs the specific plans for how O&M funding is to be 
provided to enable CMOs to continue supporting new hires brought in 
under the Defense Acquisition Workforce Fund as funds expire and how 
EE personnel are funded when working at domestic CMOs, given the 
confusion regarding this issue. 

DoD Response: Concur. New personnel hired under the Defense 
Acquisition Workforce Development Fund (DAWDF) through fiscal year 
(FY) 2015 will be funded by the DAWDF until their graduation from the 
program. DCMA activities to include CMOs will be provided O&M funds 
and full time equivalents (FTEs) for personnel graduating from the 
DAWDF program and converting to an O&M funded position each fiscal 
year. DCMA currently has funding and FTEs in its FY 2012-2015 fiscal 
guidance for DAWDF conversions. DCMA is pursuing DAWDF to O&M 
conversion funds for FY 2016-2017 in the FY 2013-2017 Integrated
Program and Budget Review (IPBR) cycle; and will pursue O&M funds for 
DAWDF conversions in FY 2018 during the FY 2014-2018 IPBR cycle. 

Emergency Essential (EE) personnel under the current 3-year program 
are funded by Overseas Contingency Operations (OCO) funds throughout 
their 3-year commitment wherever they are working. 

[End of section] 

Appendix III: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

John P. Hutton, (202) 512-4841 or huttonj@gao.gov: 

Staff Acknowledgments: 

In addition to the contact named above, Michele Mackin, Assistant 
Director; Janet McKelvey; Robert Bullock; Virginia Chanley; John 
Krump; Suzanne Sterling; Roxanna Sun; and Peter Zwanzig made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] While DCMA also provides contract administration services for 
other agencies, such as the National Aeronautics and Space 
Administration (NASA), the focus of this report is its support for DOD 
activities. 

[2] Because of the interest in identifying the impact of contingency 
deployments on DCMA's domestic oversight activities, we focused our 
work on domestic CMOs, excluding overseas CMOs from our selection. 
DCMA also has what it calls "streamlined CMOs," which report to the 
primary CMOs. 

[3] The findings from the CMOs we visited are not generalizable to the 
population of all DCMA CMOs or all DOD weapons systems. The findings 
do, however, ensure regional diversity and representation of a range 
of DOD services and contractors. 

[4] For contractor business systems, we reviewed the status of each 
system and the date the system was last audited or reviewed. Our scope 
did not include an examination of the specific findings within each 
audit. 

[5] For purposes of this report, we refer to the agency as DCMA (and 
not as the Defense Contract Management Command under DLA), even when 
we make reference to the agency in the 1990s. 

[6] The FAR identifies 71 contract administration functions that are 
to be performed by a cognizant contract administration office (e.g., 
DCMA), to the extent that they apply, as well as an additional 11 
functions that are to be performed by the cognizant contract 
administration office only when specifically authorized by the 
procuring contracting office. FAR § 42.302 (a) and (b). 

[7] In its Major Program Support Instruction, DCMA defines "major 
programs" to include all Acquisition Category I and II programs, as 
well as other programs considered high priority by DCMA management. 
DOD classifies its acquisition programs into acquisition categories 
(ACAT) that depend on the value and type of acquisition. ACAT I 
programs are generally estimated to require an eventual total 
expenditure of more than $365 million for research, development, test 
and evaluation, or more than $2.19 billion for procurement. ACAT II 
programs do not meet the criteria for ACAT I, but are estimated to 
require more than $140 million for research, development, test and 
evaluation, or more than $660 million for procurement (all cost 
estimates are in fiscal year 2000 constant dollars). 

[8] DCAA performs contract audits for DOD, and provides accounting and 
financial advisory services (in connection with the negotiation, 
administration, and settlement of contracts and subcontracts) to DOD 
procurement and contract administration activities. 

[9] GAO, Military Operations: High-Level DOD Action Needed to Address 
Long-standing Problems with Management and Oversight of Contractors 
Supporting Deployed Forces, [hyperlink, 
http://www.gao.gov/products/GAO-07-145] (Washington, D.C.: Dec. 18, 
2006); GAO, Military Operations: DOD's Extensive Use of Logistics 
Support Contracts Requires Strengthened Oversight, [hyperlink, 
http://www.gao.gov/products/GAO-04-854] (Washington, D.C.: July 19, 
2004); DOD Inspector General, Defense Contract Management Agency 
Acquisition Workforce for Southwest Asia, D-2010-051 (Arlington, Va.: 
April 2010); Commission on Wartime Contracting in Iraq and 
Afghanistan, Transforming Wartime Contracting: Controlling Costs, 
Reducing Risks (August 2011); and the Report of the Commission on Army 
Acquisition and Program Management in Expeditionary Operations, Urgent 
Reform Required: Army Expeditionary Contracting (Oct. 31, 2007). 

[10] DOD Inspector General, D-2010-051. 

[11] [hyperlink, http://www.gao.gov/products/GAO-04-854]. 

[12] 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, [hyperlink, 
http://www.gao.gov/products/GAO-08-966] (Washington, D. C.: July 31, 
2008). 

[13] The National Defense Authorization Act for Fiscal Year 2008 
established the Defense Acquisition Workforce Development Fund to 
provide additional funds for the recruitment, training, and retention 
of DOD acquisition personnel. DOD aligned the Fund's initiatives into 
three major categories: recruit and hire, develop and train, and 
recognize and retain. Pub. L. No. 110-181 § 852; codified in 10 U.S.C. 
§ 1705. 

[14] EVM is an important program management tool for DOD, as it can 
provide early warning of potential contract cost and schedule 
performance problems. EVM data are the cost and schedule data reported 
by the contractor and used to evaluate progress toward program goals. 

[15] Relatedly, in 2008, we found that DOD's quality specialists, 
including those at DCMA, had to scale back the amount of oversight 
they provided as a result of downsizing. GAO, Best Practices: 
Increased Focus on Requirements and Oversight Needed to Improve DOD's 
Acquisition Environment and Weapon System Quality, [hyperlink, 
http://www.gao.gov/products/GAO-08-294] (Washington, D.C.: Feb. 1, 
2008). 

[16] The conclusions from the Commission on Army Acquisition and 
Program Management in Expeditionary Operations were instrumental in 
reaffirming the role of DCMA in the execution and oversight of all 
contracts in support of contingency operations. Subsequently, however, 
a DOD task force proposed transferring the majority of CCAS 
responsibility to the military services by 2013. According to a DOD 
review team, some CCAS participants are of the opinion that the 
military services do not possess, nor can they master, necessary core 
competencies to assume CCAS responsibility by that time. 

[17] DCMA is responsible for sourcing the 450-person CCAS requirement 
approved by the United States Central Command Joint Manning Document. 

[18] Although CMOs report using temporary promotions, they also 
reported this presents a challenge, because CCAS deployment timelines 
(typically 180 days or longer) exceed temporary promotion timelines 
specified in Office of Personnel Management regulations (up to 120 
days without competing the position). CMOs reported that this could 
require leaving the position open for a period of 60 days, or require 
that additional individuals be temporarily promoted to cover the full 
180-day vacancy. 

[19] As of July 2011, DCMA reported it had 250 authorized EE 
positions, with 229 EEs on board. 

[20] In this section, CMO leadership refers to CMO Commanders, 
Directors, and their deputies. 

[21] In general, DCMA's deployments involve a high percentage of the 
agency's military personnel. Excluding DCMA's aviation-related active 
duty personnel who are rarely deployed, the number of military members 
available to deploy is approximately 100, and of those, approximately 
50 percent can expect to deploy, generally for 9 months, sometime 
during their 3-year tour with DCMA. 

[22] However, DCMA does not deploy its O-6 commanders because the two 
in-theater O-6 command billets for CCAS are directly sourced by the 
Army. O-6 commanders are Air Force or Army Colonels or Navy Captains; 
O-5 commanders are Air Force or Army Lieutenant Colonels or Navy 
Commanders. 

[23] The term "contractors" in this section may refer to a contractor 
at the division or corporate level. Within DCMA, cognizant ACOs for 
contractor business systems at a contractor's division are known as 
Divisional ACOs, whereas cognizant ACOs at the corporate level are 
referred to as Corporate ACOs. 

[24] We collected information on the status of all six contractor 
business systems from the cognizant ACO. Our preliminary analysis of 
this information showed that, of the six contractor business systems, 
the audits of the accounting, estimating, and material management and 
accounting systems were particularly dated. While in some cases, 
system reviews for, for example, the purchasing system, were out of 
date, the ACO's information showed that the preponderance of 
purchasing, property management, and EVM systems had been reviewed 
more recently than the other three systems. Therefore, we focused on 
the timeliness of the accounting and estimating systems, as well as 
the MMAS, for the purposes of this objective. 

[25] In some cases, audits of a contractor's business system were not 
conducted. Examples of why a system was not evaluated included a 
recent establishment of a common business system for a joint venture 
between two companies, recent consolidation of multiple sites under 
one system, agency resource issues, or that a contractor business 
system audit was not required because, for instance, it was not 
required in the contract or the contractor was not considered a major 
contractor. Because there was no audit to include, all of these cases 
were excluded from our analysis. 

[26] A DCAA official told us that this contractor became a major 
contractor in 2004. This official reported that an accounting system 
audit was under way in 2006, at the same time the contractor was 
growing significantly and that there were many changes to the 
contractor's accounting system, but that this audit was never 
finished. The official reported that DCAA conducted a pre-award audit 
of the contractor's accounting system in 2009, but acknowledged an 
overall accounting system audit has not been completed. 

[27] The three audits that have not been conducted involved two 
contractors. DCAA officials told us that, for one of the contractors, 
limited scope audits of the contractor's estimating system and MMAS 
are currently under way based on identified risks. 

[28] GAO, Contingency Contracting: Improved Planning and Management 
Oversight Needed to Address Challenges with Closing Contracts, 
[hyperlink, http://www.gao.gov/products/GAO-11-891] (Washington, D.C.: 
Sept. 27, 2011). 

[29] National Defense Authorization Act for Fiscal Year 2012. Report 
of the Committee on Armed Services, House of Representatives, on H. R. 
1540 together with Additional Views. (Washington, D.C.: May 17, 2011). 

[30] Commission on Wartime Contracting in Iraq and Afghanistan, 
Special Report on Contractor Business Systems: Defense Agencies Must 
Improve Their Oversight of Contractor Business Systems to Reduce 
Waste, Fraud, and Abuse (Sept. 21, 2009). 

[31] GAO, Defense Acquisitions: Additional Guidance Needed to Improve 
Visibility into the Structure and Management of Major Weapon System 
Subcontracts, [hyperlink, http://www.gao.gov/products/GAO-11-61R] 
(Washington, D.C.: Oct. 28, 2010). 

[32] GAO, Space and Missile Defense Acquisitions: Periodic Assessment 
Needed to Correct Parts Quality Problems in Major Programs, 
[hyperlink, http://www.gao.gov/products/GAO-11-404] (Washington, D.C.: 
June 24, 2011). 

[33] To assess the reliability of the data used in this review, we 
reviewed related documentation, interviewed knowledgeable agency 
officials, looked for obvious inconsistencies in the data, and 
verified the accuracy of the data when necessary. From these efforts, 
we believe the information we obtained is sufficiently reliable for 
this report. 

[34] For contractor business systems, we reviewed the status of each 
system and the date the system was last audited or reviewed. Our scope 
did not include an examination of the specific findings within each 
audit. 

[End of section] 

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