Major Management Challenges and Program Risks
Department of Defense Gao ID: GAO-03-98 January 1, 2003In its 2001 performance and accountability report on the Department of Defense (DOD), GAO identified systemic and specific problems with management processes related to strategic planning, human capital, support infrastructure, financial and information management, acquisition reform, contracting processes, and logistics reengineering. The information GAO presents in this report is intended to help to sustain congressional attention; facilitate a departmental focus on continuing to make progress in addressing these challenges' and others that have arisen since 2001; and ultimately overcome them. This report is part of a special series of reports on governmentwide and agency-specific issues.
DOD is transforming its business operations, and its current leadership places high priority and great attention on transformation. However, significant management problems continue to impact the economy, effectiveness, and efficiency of DOD's business processes. This places mission capabilities at risk by unnecessarily spending funds that could be directed to higher priorities such as modernization and readiness. Strengthen strategic planning and budgeting: DOD developed a new strategic plan and management framework, but shortcomings in strategic planning and budgeting processes provide little assurance that DOD manages and operates programs effectively or ensures adequate program accountability. Hire, support, and retain military and civilian personnel: DOD has instituted benefits, but junior officer shortages, retention problems, and civilian workforce reductions and imbalances create a workforce not balanced by age or experience and that puts at risk the orderly transfer of institutional knowledge. Overcome support infrastructure inefficiencies: DOD emphasizes reform but lacks an overarching business transformation strategy; infrastructure costs continue to consume nearly 44 percent of its budget, detracting from DOD's ability to spend funds on more critical needs such as weapon system modernization and readiness. Confront and transform pervasive, decades-old financial management problems: DOD has adopted business transformation initiatives, but long-standing financial management problems adversely affect its ability to control costs, ensure basic accountability, anticipate future costs and claims on the budget, measure performance, maintain funds control, prevent fraud, and address pressing management issues. Effectively manage information technology investments: DOD is investing heavily in modernizing its information technology, but management weaknesses have limited success. At the same time, information security weaknesses limit DOD's ability to ensure that current and future systems are not compromised. Improve DOD's weapons acquisition process: DOD has undertaken acquisition reforms, but cost increases, schedule delays, and performance shortfalls pervade the acquisition process; reforms have not produced consistent improvements in program outcomes. Improve processes and controls to reduce contract risk: DOD is trying to reduce contract risk, but problems in service contracting, techniques and approaches, payments, health contract management, and human capital undermine DOD's ability to effectively acquire goods and services. Improve quality of logistics support: DOD has 400 improvement initiatives ongoing, but longstanding problems in logistics processes, systems, and operations result in decreases in the quality and timeliness of logistics support. This is particularly the case for its high-risk inventory area.
GAO-03-98, Major Management Challenges and Program Risks: Department of Defense
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Performance and Accountability Series:
January 2003:
Major Management Challenges and Program Risks:
Department of Defense:
GAO-03-98:
A Glance at the Agency Covered in This Report
The Department of Defense provides the military forces needed to deter
war and to protect the security of our country. U.S. defense strategy
seeks to defend the freedom of the United States and its allies and
friends, and to secure an international environment of peace that
makes other goals possible. The department has developed the following
four goals to help achieve its mission:
* assure allies and friends by maintaining an overseas presence;
* dissuade future military competition by maintaining or enhancing
U.S. advantage in key areas of military capability;
* deter threats against U.S. interests by having a range of military
options, emphasizing peacetime forward deterrence in critical areas
of the world, and enhancing the capability of forward deployed and
stationed forces; and finally, * defeat any adversary decisively, if
deterrence fails.
The Department of Defense‘s Budgetary and Personnel Resources:
[See PDF for Image]
[A] Budgetary resources include new budget authority (BA) and
unobligated balances of previous BA.
[B] Budget and staff resources are actuals for FY 1998-2001. FY 2002
are estimates from the FY 2003 budget, which are the latest publicly
available figures on a consistent basis as of January 2003. Actuals
for FY 2002 will be contained in the President‘s FY 2004 budget to
be released in February 2003.
[C] Does not include guard and reserve personnel, which are an
all-volunteer force of about 1.3 million (almost half of the total
military force), or retired reserve personnel.
[End of Figure]
This Series:
This report is part of a special GAO series, first issued in
1999 and updated in 2001, entitled the Performance and
Accountability Series: Major Management Challenges and Program Risks.
The 2003 Performance and Accountability Series contains separate
reports
covering each cabinet department, most major independent agencies, and
the U.S. Postal Service. The series also includes a governmentwide
perspective on transforming the way the government does business in
order to meet 21st century challenges and address long-term fiscal
needs. The companion 2003 High-Risk Series: An Update identifies
areas at high risk due to either their greater vulnerabilities to
waste, fraud, abuse, and mismanagement or major challenges associated
with their economy, efficiency, or effectiveness. A list of all of the
reports in this series is included at the end of this report.
GAO Highlights:
Highlights of GAO-03-98, a report to Congress included as part of GAO‘s
Performance and Accountability Series.
PERFORMANCE AND ACCOUNTABILITY SERIES
Department of Defense
Why GAO Did This Report:
In its 2001 performance and accountability report on the Department
of Defense (DOD), GAO identified systemic and specific problems with
management processes related to strategic planning, human capital,
support infrastructure, financial and information management,
acquisition reform, contracting processes, and logistics
reengineering.
The information GAO presents in this report is intended to help to
sustain congressional attention; facilitate a
departmental focus on continuing to make progress in addressing these
challenges”and others that have arisen since 2001; and ultimately
overcome them. This report is part of a special series of reports
on governmentwide and agency-specific issues.
What GAO Found:
DOD is transforming its business operations, and its current
leadership places high priority and great attention on transformation.
However, significant management problems continue to impact the
economy,
effectiveness, and efficiency of DOD‘s business processes. This places
mission capabilities at risk by unnecessarily spending funds that could
be directed to higher priorities such as modernization and readiness.
* Strengthen strategic planning and budgeting. DOD developed a new
strategic plan and management framework, but shortcomings in strategic
planning and budgeting processes provide little assurance that DOD
manages
and operates programs effectively or ensures adequate program
accountability.
* Hire, support, and retain military and civilian personnel. DOD
has instituted benefits, but junior officer shortages, retention
problems, and civilian workforce reductions and imbalances create a
workforce not balanced by age or experience and that puts at risk
the orderly transfer of institutional knowledge.
* Overcome support infrastructure inefficiencies. DOD emphasizes
reform but lacks an overarching business transformation strategy;
infrastructure costs continue to consume nearly 44 percent of
its budget, detracting from DOD‘s ability to spend funds on more
critical needs such as weapon system modernization and readiness.
* Confront and transform pervasive, decades-old financial
management problems. DOD has adopted business transformation
initiatives, but long-standing financial management problems
adversely affect its ability to control costs, ensure basic
accountability, anticipate future costs and claims on the budget,
measure performance, maintain funds control, prevent fraud, and address
pressing management issues.
* Effectively manage information technology investments. DOD is
investing heavily in modernizing its information technology,
but management weaknesses have limited success. At the same time,
information security weaknesses limit DOD‘s ability to ensure
that current and future systems are not compromised.
* Improve DOD‘s weapons acquisition process. DOD has undertaken
acquisition reforms, but cost increases, schedule delays, and
performance shortfalls pervade the acquisition process; reforms
have not produced consistent improvements in program outcomes.
* Improve processes and controls to reduce contract risk. DOD
is trying to reduce contract risk, but problems in service
contracting, techniques and approaches, payments, health
contract management, and human capital undermine DOD‘s ability
to effectively acquire goods and services.
* Improve quality of logistics support. DOD has 400 improvement
initiatives ongoing, but longstanding problems in logistics
processes, systems, and operations result in decreases in the
quality and timeliness of logistics support. This is particularly
the case for its high-risk inventory area.
What Remains to Be Done:
DOD needs a strategic approach to transition its business
processes that includes the
* integrated nature of the department‘s management challenges
and related solutions;
* importance of continuity in leadership to achieve process
improvements; and
* agreement between the executive and legislative branches of
government on planned actions, time frames, and desired results.
Legislatively establishing a chief management officer may be one
option to help achieve these goals.
To view the full report, click on the link above.
For more information, contact Henry L. Hinton, Jr., at
(202) 512-4300 or hintonh@gao.gov.
Contents:
Transmittal Letter:
Major Performance and Accountability Challenges:
GAO Contacts:
Related GAO Products:
Performance and Accountability and High-Risk Series:
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Transmittal Letter January 2003:
The President of the Senate and the
Speaker of the House of Representatives:
This report addresses the major management challenges and program risks
facing the Department of Defense (DOD) as it seeks to support and
defend the Constitution of the United States; provide for the common
defense of the nation, its citizens, and its allies; and protect and
advance U.S. interests around the world.
The report discusses the actions that DOD has taken and that are
underway to address the challenges GAO identified in its Performance
and Accountability Series 2 years ago. It also discusses major events
that significantly influence the environment in which the department
carries out its mission. GAO summarizes the challenges that remain, new
ones that have emerged, and further actions that it believes are
needed.
This analysis is intended to help the new Congress and the
administration carry out their responsibility and improve government in
order to benefit the American people. For additional information about
this report, please contact Henry L. Hinton, Jr., Managing Director,
Defense Capabilities and Management, at (202) 512-4300 or at
hintonh@gao.gov.
David M. Walker
Comptroller General of the United States:
Signed by David M. Walker:
[End of section]
Major Performance and Accountability Challenges:
The United States began the new millennium with military forces second
to none. The effectiveness of U.S. forces has been well evidenced by
experiences in the Persian Gulf, Bosnia, and Kosovo. However, the
Department of Defense (DOD) has reached a pivotal point, with the
tragic terrorist attacks of September 11, 2001, permanently changing
the defense landscape. These terrorist attacks underlined the
importance of change in equipping DOD to meet unconventional threats
and asymmetrical warfare. The attacks also resulted in DOD‘s
requirement for additional resources to meet a broad array of needs
that support the readiness of U.S. forces. DOD has undertaken a number
of initiatives to transform its forces and improve its business
operations. However, unless these initiatives are addressed in a
unified, integrated fashion, DOD will continue to see billions of
dollars consumed to support inefficiencies in its business functions
that if reformed, could be directed to other higher priorities such as
modernization and readiness. Such opportunities will be achieved
only through transformations involving challenges in the following
key functions: (1) strategic planning and budgeting, (2) human
capital, (3) infrastructure, (4) financial management and
accountability, (5) information technology, (6) weapons acquisition
process, (7) contracting, and (8) logistics support.
We have reported on many of these challenges for years and highlighted
them all in our January 2001 Performance and Accountability Series. As
we reported then, and as is the case today, limitations in DOD‘s
strategic planning and budgeting processes led to difficulties in
assessing DOD‘s mission achievements and in planning and executing
DOD‘s budget. We also reported our concerns on human capital challenges
in recruiting and retaining military personnel as well as ensuring that
the civilian workforce is properly constituted in key areas such as
acquisition management. We identified DOD‘s human capital problems as
part of a broader pattern of human capital shortcomings that have
eroded mission capabilities across the federal government, and this
problem persists. In addition, much of DOD‘s infrastructure was
inadequately funded and maintained, with scarce resources being devoted
to inefficient and unneeded facilities. Indeed, aging and substandard
housing exacerbates human capital issues. Furthermore, decades-old
financial management and accountability problems continued. Such
problems also involved ineffectively managed information technology
investments and the overbudget, untimely weapons acquisition process.
In addition, numerous contract management difficulties were related to
payment issues and service acquisitions. DOD revealed that it had not
effectively managed even the most basic processes relating to contract
payment, resulting in millions of dollars of overpayments. Such
financial management and contracting challenges in turn affected the
quality and timeliness of logistics support for the warfighter.
DOD‘s senior civilian and military leaders appear to be committed to
transforming the department and improving its business operations.
Since our last report, DOD has emphasized force transformation as
necessary to effectively anticipate, counter, and eliminate the
emergence of unconventional threats overseas and domestically. DOD
believes force transformation will create an environment of greater
precautions, heightened intelligence, and greater homeland security,
all while DOD is simultaneously fighting the war on terrorism. As part
of the transformation process, DOD has committed to adopt a
capabilities-based approach to planning based on clear goals and to
improve the linkage between strategy and investments. At the same time,
DOD has embarked on a series of efforts to improve its business
processes, including support infrastructure reforms, the issuance of a
new human capital resource plan, and the adoption of a new management
approach to balancing risks. Additionally, in acknowledging DOD‘s
numerous ongoing financial difficulties, the Secretary of Defense has
laid out an 8-year plan to reform financial management and
accountability and instituted new contract management policies and
programs aimed at increasing the importance given to these processes.
While DOD recognizes the need for internal transformation and budget
reform, its goals are challenging, and its strategic plan is currently
not set up to allow DOD to implement and measure progress toward
achieving its performance goals in an integrated fashion.
As old problems persist for DOD and new problems emerge, the eight
areas we identified in January 2001 continue to challenge DOD in its
attempts to develop world-class operations and activities to support
its forces. Six of the eight are included on our high-risk list. As the
security environment shifted from a Cold War structure to one of many
and varied threats, DOD did not keep pace with the changing
capabilities and productivity of the modern business environment.
Indeed, transformation applies not just to what DOD does but also to
how DOD does it and who implements it. As we have reported, if these
and related support problems are not addressed, inefficiencies will
continue to make the cost of carrying out assigned missions
unnecessarily high and, more importantly, increase the risk associated
with those missions. Each dollar that is spent inefficiently is a
dollar that is unavailable for other departmental priorities such as
weapon system modernization and readiness.
However, effectuating departmental transformation also requires
cultural transformation and business process reengineering that take
years to accomplish and a commitment from both the executive and
legislative branches of government. Although sound strategic planning
is the foundation upon which to build, sustained leadership is needed
to maintain continuity. One way to ensure sustained, committed
leadership would be to create a full-time position, such as a chief
management officer position. Such a position would provide the
sustained attention essential for addressing key stewardship
responsibilities such as strategic planning, performance management,
and financial management in an integrated manner while helping to
facilitate the transformation processes within DOD. Equally important
is the Congress‘s responsibility to provide the necessary review and
visible leadership to demonstrate its commitment to reform
and oversight.
This report summarizes ours and, where appropriate, the DOD Inspector
General‘s findings and recommendations to address DOD‘s challenges.
We continue to consider all or part of six areas relating to support
infrastructure, financial management, information technology,
acquisitions, contracts, and logistics to be high risk.
[See PDF for image] - graphic text:
[End of figure] - graphic text:
Strengthen Strategic Planning and Budgeting to Achieve Desired Mission
Outcomes:
Strategic planning that clearly lays out DOD‘s mission and goals and
the resources needed, strategies to be followed, assigned
responsibilities, and performance measures for tracking goal
accomplishments is crucial to fully focusing DOD‘s activities on
achieving desired mission outcomes. However, as we reported in January
2001, limitations in DOD‘s strategic planning and budgeting processes
have led to difficulties in assessing its performance in achieving
mission outcomes and in planning and executing the budget. This
condition has not changed, and key actions needed to improve planning
and budgeting have not been accomplished. Consequently, the same
strategic management challenges we previously noted continue to exist.
While DOD has developed a new strategic plan, it has not yet updated
its mission outcomes or linked those outcomes to the budget.
Additionally, shortcomings in the strategic plan‘s underlying analyses,
the absence of performance plans for fiscal years 2002 and 2003, and
the failure to link budget resources to mission outcomes provide
little assurance to DOD and congressional decision makers that DOD
is adequately managing its programs and operations and being held
accountable for doing so.
DOD‘s Strategic Planning Has Limitations:
The President‘s management agenda for fiscal year 2002 emphasizes
the need to fully integrate performance measures in the federal budget
process so that resource allocation is tied to specific outcomes. The
Government Performance and Results Act of 1993 provides a framework for
DOD and other federal agencies to accomplish this task and to achieve
greater accountability in their programs and operations. Under the
Results Act, DOD is to develop a strategic plan and subsequent annual
performance plans to establish performance goals and measures covering
a given fiscal year and directly link its longer-term strategic goals
to day-to-day activities. Annual performance reports are to disclose
the degree to which those performance goals were met. At the request of
the Congress, DOD conducts the Quadrennial Defense Review, a
comprehensive analysis of its defense strategy, every 4 years. The
review--DOD‘s strategic plan--forms the foundation for DOD‘s mission
and vision statements and strategic goals.[Footnote 1]
In January 2001, as DOD was preparing to conduct its next Quadrennial
Defense Review, we reported that it must follow results-oriented
management principles in performing its next review and that the review
should have an explicit strategy for achieving force structure goals.
DOD subsequently issued its review report in September 2001, which, as
we have reported, has both strengths and weaknesses. On the positive
side, sustained involvement of senior DOD officials, including the
Secretary of Defense, enhanced the review and led to the adoption of a
new defense strategy that underscores the need to transform the force
to meet future military threats and adopt more efficient business
practices. However, weaknesses in the Quadrennial Defense Review
process, analysis, and reporting limited the review‘s usefulness as a
means for fundamentally reassessing U.S. defense plans and programs.
* The Secretary of Defense‘s decision to delay the Quadrennial Defense
Review‘s start until late spring 2001, when DOD completed a series of
strategic reviews led by outside defense experts, imposed additional
time constraints on the review‘s already tight schedule.
* A clear link between the specific legislative reporting
requirements[Footnote 2] and the issues assigned to study teams for
analysis did not always exist because the principal guidance document
of the Quadrennial Defense Review was designed to emphasize the
Secretary‘s priorities and not the reporting requirements.
* The varied thoroughness of DOD‘s analysis and reporting on issues
mandated by legislation limited the Quadrennial Defense Review‘s
usefulness, and some significant issues were not addressed or were
deferred to follow-on studies. For example, limitations in the
assessment of force structure requirements--such as the lack of focus
on longer-term threats and requirements for critical support
capabilities--provided few insights into how future threats and planned
technological advances in U.S. capabilities would affect future force
requirements. Additionally, DOD‘s Quadrennial Defense Review report
provided little information on some required issues such as the
specific assumptions used in the analysis and deferred analysis of some
issues, such as the role of the reserves, for later studies.
As a result of these shortcomings, the Congress did not receive
comprehensive information on all of the legislatively mandated issues,
DOD lacks assurance that it has optimized its force structure to
balance short-and long-term risks, and the Quadrennial Defense Review
resulted in few specific decisions on how existing military forces and
weapons modernization programs may need to be changed in response
to emerging threats. We recommended that DOD clearly assign
responsibility for addressing legislatively required review issues
and provide the Congress with more complete information on key
assumptions, scenarios, analytical methods, and alternatives used in
assessing DOD‘s force structure requirements.[Footnote 3] DOD partially
concurred with our recommendations, indicating that clear assignment
of responsibilities is important to the success of the review. However,
DOD noted that the Secretary of Defense must be allowed to manage the
review in a manner that focuses on issues of primary importance. DOD
also stated that, given the scope and timing of the review, it
effectively used a combination of analytical tools and professional
judgment to reach its conclusions on force structure.
The weaknesses with the Quadrennial Defense Review permeate throughout
DOD‘s planning and budgeting processes--from initial planning, to
programming, and to budgeting resources. The review forms the backbone
for the development and integration of DOD‘s missions and strategic
priorities, and it also is the foundation from which DOD‘s
results-oriented performance goals flow and from which achievement of
those goals is measured. In June 2001, we reported on the need for DOD
to have sound strategic planning to guide improvements to DOD‘s
operations and to tie plans to desired mission outcomes. At that time,
we noted that:
DOD had made efforts to improve its overall reporting.[Footnote 4]
However, we reported that progress in achieving selected outcomes was
unclear[Footnote 5] and noted that it was difficult to assess
performance shortfalls in DOD‘s strategies and measures for the
outcomes identified at that time. Affected areas included combat
readiness, support infrastructure reduction, force structure needs, and
matching resources to program spending plans. We also pointed out that
DOD‘s fiscal year 2002 performance plan--which has yet to be developed
and finalized--could have provided DOD with an opportunity to address
these shortfalls and that the conduct of the review could have provided
DOD with another opportunity to include the necessary qualitative and
quantitative information that could contribute to providing a clearer
picture of performance.
However, to date, DOD has not issued performance plans for fiscal years
2002 and 2003 or reported on fiscal year 2001 results.[Footnote 6]
According to the Deputy Secretary of Defense, DOD has not finalized
performance plans and reports because it introduced a new management
framework and has undertaken a fundamental restructuring of defense
priorities and programs. According to the Deputy Secretary, most of the
performance targets established in 2000 have been replaced by new or
revised standards derived from the September 2001 Quadrennial Defense
Review. Thus, while DOD is taking actions to improve its performance
planning and reporting, it does not have a strong basis to optimize
decision making in an integrated manner across diverse activities
and programs.
Currently, DOD is formulating new performance goals and metrics to
align with outcomes described in the September 2001 Quadrennial Defense
Review. DOD hopes that its new goals and measures will meet or exceed
the intent of the Results Act and, when available, provide the
President and the Congress with up-to-date, useful information with
which to assess its performance. DOD had hoped to submit a new
performance plan for fiscal years 2002 to 2003 and a report for fiscal
year 2001 by the end of August 2002, but DOD did not meet its target.
It expects to publish its next performance plan in February 2003.
Budget Formulation and Execution Have Continuing Weaknesses:
We previously reported that DOD employs overly optimistic planning
assumptions in its budget formulation. Figure 1 illustrates that DOD‘s
budget has increased significantly over the last few years and shows
plans for continued growth. Nevertheless, DOD still plans more programs
than it can fund, and costs for functions such as health care could
possibly put additional pressure on DOD‘s budget. Also, in some cases,
DOD has limited ability to track expenditures from operating and
supplemental appropriations to ensure that funds are expended as
intended. Moreover, DOD has not always effectively managed and
monitored its use of appropriated funds. These system weaknesses, which
DOD has recognized, limit the information available to DOD and
congressional decision makers in planning and overseeing DOD‘s budget.
Figure 1: DOD‘s Budget from Fiscal Year 2000 through Fiscal Year 2007:
[See PDF for image] - graphic text:
Notes: GAO‘s analysis of DOD‘s data.
Data for fiscal years 2000-2003 are appropriated funds; data for fiscal
years 2004-2007 are projected funds.
[End of figure] - graphic text:
Since the mid-1980s, we have reported that DOD employs overly
optimistic planning assumptions in its budget formulation. As a result,
DOD has too many programs for the available dollars, which often leads
to program instability, costly program stretch-outs, and program
termination. In 2000, we reported that because the fiscal year 2001
program‘s projected cost was about $16 billion more than the cost
projected for the same elements in the fiscal year 2000 program, DOD
could not implement its operation and maintenance and procurement
programs as planned. Over the past few years, the mismatch between
programs and budgets has continued, especially in the area of weapon
systems acquisition. For example, as discussed in more detail later,
the estimated cost of developing eight major weapon systems has
increased from about $47 billion in fiscal year 1998 to about
$72 billion by fiscal year 2003.
In executing the budget, DOD‘s ability to effectively manage and track
expenditures from operating and supplemental appropriations is limited.
The net effect of DOD‘s problems in this area is that it does not know
with certainty the amount of funding available. Such information is
essential for DOD and the Congress to determine if funds are available
that could be reprogrammed or transferred to meet other critical
program needs.
While DOD has some flexibility in how to use its annual operating
appropriation and often transfers funds among its operating accounts,
it has not developed systems that can sufficiently track the movement
of funds. For example, DOD does not have reports to show how it used
much of $47 billion appropriated from fiscal years 1999 through 2001
that it moved among or into its operation and maintenance accounts.
While it does track the movement of some high-priority readiness
accounts, it has frequently used some of these funds for purposes other
than intended. For example, we reported that over a 4-year period--
fiscal year 1997 to fiscal year 2000--one service moved almost
$1 billion (about 21 percent) of the nearly $4.8 billion that the
Congress had provided for training to finance other expenses such as
base operations and real property maintenance.
Moreover, DOD does not always effectively use its funds from its
operating appropriations. For example, in 2002, we reported that DOD
had to return an annual average of $1 billion in unexpended balances
from its operation and maintenance accounts to the Department of
Treasury for fiscal years 1992 through 1996. We reported that in one
service, fund managers had failed to make required reviews that could
have freed up funds no longer needed for their original purpose and
could have been used for other appropriate purposes.
DOD has similar problems in tracking and managing funds from
supplemental appropriations. From February 1991 to May 2002,
DOD reported $44 billion in incremental costs for overseas contingency
operations and the war on terrorism. In May 2002, we reported that
DOD had not provided adequate guidance and monitoring for some of
these funds. We recommended that DOD provide better guidance
for contingency fund use and improve oversight of contingency fund
expenditures. In its written response, DOD recognized the need to make
these improvements and stated that it would more closely monitor the
execution of funds to avoid the situations discussed in our
report.[Footnote 7]
For contingency operations in the Balkans and Southwest Asia, we
reported that DOD spent as much as $101 million of $2.2 billion in
fiscal years 2000 and 2001 on questionable expenditures. Some expenses
did not appear to be specifically for the contingency, other
expenditures were for items already in the theater, and some
expenditures were for seemingly unneeded items such as cappuccino
machines, golf memberships, and decorator furniture.
In addition, a continuing inability to capture and report the full cost
of its programs represents one of the most significant impediments
facing DOD. DOD does not have the systems and processes in place to
capture the required cost information from hundreds of millions of
transactions it processes each year. Lacking complete and accurate
overall life-cycle cost information for weapon systems impairs DOD‘s
and congressional decision makers‘ ability to make fully informed
judgments on funding comparable weapon systems. DOD has acknowledged
that the lack of a cost accounting system is the largest impediment to
controlling and managing weapon system costs. Further, an April 2001
report on the results of an independent study of DOD‘s financial
operations commissioned by the Secretary of Defense concluded that DOD
lacked the ability to routinely generate cost-based metrics needed to
link financial management to DOD‘s goals.[Footnote 8]
The Secretary of Defense, in the most recent Quadrennial Defense Review
report (September 2001), acknowledged that DOD‘s financial systems are
outdated and incompatible with one another. The report also noted that
many of DOD‘s business processes must be modernized and simplified,
including the planning, programming, and budgeting system. According
to the report, over the next several years, DOD will explore options to
redesign the way it plans and budgets.
Key Actions Needed:
DOD is taking a number of actions to better align its planning,
budgeting, and execution functions. However, to help overcome
inefficiencies in its strategic planning processes and to promote more
realistic budgeting, DOD must follow results-oriented management
principles, beginning with improvements to the Quadrennial Defense
Review process.
A number of options are available to enhance the usefulness of future
quadrennial defense reviews. In November 2002, we recommended that
the Secretary of Defense clearly assign responsibility for addressing
all legislative requirements and provide the Congress with more
complete information on DOD‘s analyses to meet legislative reporting
requirements, particularly DOD‘s examination of force structure
requirements. In addition, we suggested that the Congress consider
extending the time frame for the review, reassessing and focusing the
legislative requirements on a clear set of high-priority issues, and
establishing an advisory panel to identify the critical issues that the
next review should address.
As previously discussed, DOD believes that clear assignment of
responsibilities is important to the success of the Quadrennial Defense
Review and that its briefings to the Congress provide sufficient
visibility into its decisions. With regard to the timing of the review,
DOD proposed extending the time frame for the review. The Bob Stump
National Defense Authorization Act for Fiscal Year 2003 included
language that extended the time frame.[Footnote 9]
As we have reported, sound plans linked to DOD‘s overall strategic
goals are critical to achieving needed reforms and to holding DOD
accountable for achieving intended results. To ensure that DOD has a
strong basis to make sound decisions about its activities and programs,
it is imperative that DOD‘s future performance plans be linked directly
to the Quadrennial Defense Review‘s goals and outcomes.
DOD has a critical need for funds for weapon systems, readiness, and
other operations. Failure to accurately account for what it spends
has enormous implications for DOD and could prevent the effective
allocations of funds to those programs most in need. To promote more
realistic budgeting and execution, DOD needs to incorporate more
realistic assumptions into its planning processes and enhance the
reporting and monitoring of its expenditures. The implementation of
such actions may put DOD in a better position to more realistically and
effectively allocate resources to those key needs for weapon systems,
readiness, and other operations.
Hire, Support, and Retain Military and Civilian Personnel with the
Skills to Meet Mission Needs:
Effective human capital management is key to enabling DOD to have the
right number of military and civilian personnel with the right
knowledge, skills, and abilities to accomplish its mission. In January
2001, we reported that human capital management represented a huge
challenge that affected virtually every DOD activity. The department
was dealing with military personnel issues such as shortages of junior
officers for the career force, problems in retaining certain skills,
and the military services‘ failure to meet recruiting goals. DOD also
faced significant challenges in managing its civilian workforce. With
the exception of recruiting and retention, this situation remains, in
general, unchanged. In fiscal year 2001, all of the active and reserve
components--except the Air National Guard--met their numeric goals for
recruitment and retention. However, retention challenges continued for
those personnel holding technical and scientific skills that are in
demand in the private sector. Also of significance, is DOD‘s issuance,
in 2002, of a three-component human capital strategic plan addressing
military and civilian personnel management and policies and quality of
life issues affecting servicemembers and their families.
DOD uses pay and benefits as tools to recruit and retain military
personnel.[Footnote 10] In fiscal year 2002, the Congress appropriated
more than $100 billion in compensation for military personnel.[Footnote
11] Although DOD provides a wide array of benefits to its people, its
benefit package was developed piecemeal in the absence of a strategic
approach to human capital management. DOD has faced many challenges in
providing an employee benefit package to servicemembers that responds
to their changing needs and is competitive with private-sector
companies. However, DOD may face increased competition for qualified
people over the next few years because of continued increases in the
number of high school graduates going on to college and labor shortages
projected through at least 2010. In addition, the recent war on
terrorism has added to the operational tempos in all the reserve
components, and on March 19, 2002, more than 95,000 reservists were on
duty. Many of these reservists had been mobilized for 6 months or more.
In contrast, only about 35,000 reservists were on duty supporting
worldwide military operations during an average day in fiscal year
2000. Furthermore, significant challenges are emerging related to
supporting the reserves. For example, maintaining employers‘ continued
support for their reservist employees is critical in order to retain
experienced reservists in these times of longer and more frequent
deployments. The expanded use of reserve forces has raised questions
concerning the adequacy and equity of compensation and support programs
for reservists. Given these concerns and the potential for even greater
use of the reserve components, now may well be an appropriate time to
assess the components‘ management practices and policies as well as
future roles and missions. Also, significant challenges exist for the
management of DOD‘s civilian workforce that has undergone a sizeable
reduction since the end of the Cold War. Additional reductions in DOD‘s
civilian workforce are expected at least through fiscal year 2007.
DOD and the Congress Have Acted to Improve Military Personnel Benefits:
Although developed piecemeal in the absence of a strategic approach to
human capital management, DOD has instituted a number of benefits in
response to demographic changes in the active duty force since the
military became an all-volunteer force in 1973. Many of these benefits
address one of the most significant demographic changes--an increase in
servicemembers with family obligations. For each year between 1980
and 2000, at least half of the active duty force consisted of married
servicemembers, and active duty servicemembers had about 1.23 million
children in 2000. Many servicemembers are in dual-income households,
with spouses contributing on average about 25 percent of the family‘s
income. Figure 2 shows the composition of the active duty force, by
family status, in 2000.
Figure 2: Composition of Active Duty Force by Family Status
(as of Sept. 2000):
[See PDF for image] - graphic text:
Notes: Data taken from DOD‘s Profile of the Military Community 2000
Demographics Report.
’Joint-service“ refers to a marriage where an active duty member is
married to another active duty member or to a reservist.
Percentages do not add up to 100 due to rounding.
[End of figure] - graphic text:
A second major demographic change in the active military has been the
growing proportion of servicemembers who are women. In 2000, women
comprised about 15 percent of the active duty force, compared with
4 percent in 1974. Up to 10 percent of women in the military become
pregnant each year. We previously reported that of the 28,353 women
without prior military service who enlisted in fiscal year 1993,
2,074 separated because of pregnancy between the 7th and 48th month
of enlistment. Another 706 separated because of parenthood. These
separations accounted for more than one-third of the attrition for
female enlistees who joined the services in 1993. Replacing trained,
experienced personnel who leave is expensive. DOD estimated for fiscal
year 1998 that it had spent $35,000 per enlistee by the time each
enlistee had been recruited and trained for 6 months.[Footnote 12]
In September 2002, we reported that DOD has responded positively to
most demographic changes by incorporating a number of family-friendly
benefits; however, opportunities exist to improve current benefits in
this area. For example, although DOD has several planned initiatives to
assist the hundreds of thousands of military servicemembers‘ spouses
who seek employment largely due to the frequent moves (on average every
2 years) servicemembers make, it has not systematically tracked and
assessed the effectiveness of the employment assistance that services
offered at military installations. DOD also has not assessed the
feasibility, costs, and benefits of offering extended time off to new
parents as a way to increase retention of trained,
experienced personnel.
All the core benefits offered by most private-sector firms--retirement
pay, health care, life insurance, and paid time off--are offered by the
military. In fact, military benefits in some cases exceed those offered
by the private sector. These benefits include free health care for
members, free housing or housing allowances, and discount shopping at
commissaries and exchanges. During the 1990s, some servicemembers
expressed concerns that their benefits were eroding, particularly their
health care and retirement benefits. In response to such concerns, the
military benefit package has been enhanced. In recent years, for
example, the Congress restored retirement benefits that had previously
been reduced for some servicemembers and significantly expanded
health benefits.[Footnote 13]
Strategic Human Capital Approach for Military Personnel Compensation Is
Not Fully Developed:
A well-developed human capital strategy would provide a means for
aligning all elements of DOD‘s human capital management, including pay
and benefits, with DOD‘s broader organizational objectives. Pay and
benefits are tools that an organization can use to shape its workforce,
fill gaps, and meet future requirements.
In prior reports and testimony, we have identified strategic human
capital management planning as a governmentwide high-risk area and a
key challenge. We have stated that agencies, including DOD, need to
improve the development of integrated human capital strategies that
support the organization‘s strategic and programmatic goals. In March
2002, we issued an exposure draft of our model for strategic human
capital management to help federal agency leaders effectively lead and
manage their people. We also testified on how strategic human capital
management can contribute to transforming the cultures of
federal agencies.
Several DOD studies also have identified the need for a more strategic
approach to human capital planning within DOD. The 8th Quadrennial
Review of Military Compensation, completed in 1997, strongly advocated
that DOD adopt a strategic human capital planning approach. The review
found that DOD lacked an institutionwide process for systematically
examining human capital needs or translating needs into a coherent
strategy. Subsequent DOD and service studies, including the Defense
Science Board Task Force on Human Resources Strategy, the Naval
Personnel Task Force, and the DOD Study on Morale and Quality of Life,
endorsed the concept of human capital strategic planning.
DOD officials have acknowledged the need for a more strategic approach
and in April 2002 issued the first of a three-component human capital
plan to establish personnel priorities for the next 3 to 5 years. The
strategic plan identifies more than 30 initiatives that are organized
into five ’lines of operation,“ or goals. These five goals are
(1) increase the willingness of the American public to recommend
military service to young Americans; (2) recruit the right number and
quality of personnel; (3) develop, sustain, and retain the force;
(4) transition members from active status; and (5) sustain the process
of strategic planning and maintain its viability. A majority of the
initiatives are studies addressing various military personnel issues.
Some of the issues that DOD will study--such as the lateral entry of
civilians into the military workforce, the ramifications of variable
career lengths for officers, and the appropriate grade structure for
the manpower needs of future weapon systems--could lead to proposed
changes that have far-reaching impacts. The strategy does not call for
any near-term changes to pay and benefits. However, DOD plans to study
several pay and benefit issues, such as nonmonetary incentives that
support retention.
Since the military personnel strategy is intended to be a dynamic
document that will be assessed and refined periodically, DOD will
have opportunities to incorporate additional elements of human capital
strategic planning in future iterations of the strategy. We recently
testified that while DOD has recognized the need for a strategic
approach to managing its human capital, the military personnel strategy
is missing elements that would be found in a fully realized human
capital strategic plan. For example, with the increased reliance on the
1.3 million reservists that comprise almost half of the total military
force, this opportunity would include also incorporating the needs of
the reservists into DOD‘s strategic planning. One area that DOD plans
to study is how to increase employer awareness of the importance of
supporting reserve members.
Increased Use of Reservists Can Have Implications for Retention:
Since the end of the Cold War, a shift has occurred in the way DOD uses
the reserve forces.[Footnote 14] Previously, reservists were viewed
primarily as an expansion force that would supplement active forces
during a major war. Today, no significant operation can be conducted
without reserve involvement. Reservists not only supplement but also
replace active forces in military operations and exercises. The current
mobilization for the war on terrorism is adding to this increased
operational tempo[Footnote 15] and is expected to last a long time.
Good relations between reservists and their employers are important,
because deployments can be disruptive to employers and difficulties, if
not resolved, could lead some reservists to abandon military service.
In June 2002, we reported that despite increases in operations since
1992, the average operational tempo of reserves throughout DOD
increased only slightly between 1992 and 2001--from 43 to 46 days a
year. Normal required training periods accounted for the bulk of this
total. Average operational tempos fluctuated for all components over
the period but did not appreciably increase, with the exception of the
Air Reserve components whose tempos have historically been the highest.
Tempos increased from 54 to 65 days in the Air National Guard and from
55 to 65 days in the Air Force Reserve.
Although component averages have not increased appreciably, all the
components contain some individual reservists who are in units or
occupations that have been disproportionately affected. For example,
during the past 3 years, operational tempos within the Army National
Guard averaged between 40 and 44 days a year, but hundreds of National
Guard members from units in Texas, Georgia, and Virginia were deployed
to Bosnia for 6 months or more. Hundreds more from other units are
scheduled to participate in future 6-month deployments. Moreover,
reservists in the fields of aviation, special forces, security,
intelligence, psychological operations, and civil affairs have
experienced operational tempos two to seven times higher than those of
the average reservists in their services. As discussed earlier, the war
on terrorism has added to the operational tempos in all the
reserve components.
Figure 3 shows that the majority of reservists supporting operations
related to the war on terrorism have been involuntarily called to duty
under the partial mobilization that went into effect in September 2001.
Even if the mobilized force declines in size, the mobilization could
have considerable long-term effects on reserve operational tempos
because it allows DOD to activate reservists involuntarily for as long
as 2 years.
Figure 3: Reserve Buildup to Support the War on Terrorism:
[See PDF for image] - graphic text:
[A] Includes Coast Guard Reserves.
[End of figure] - graphic text:
We reported that several factors hamper DOD‘s outreach efforts to both
employers and reservists.
* DOD lacks complete information on who the reservists‘ employers are,
and it has viewed the Privacy Act[Footnote 16] as a constraint that
prevents it from requiring reservists to provide this information.
Because information is incomplete, DOD cannot (1) inform all employers
of their rights and obligations, (2) identify all exemplary employers
for recognition, and (3) carry out effective outreach activities.
* DOD relies on volunteers in the field to carry out many of its
outreach activities. However, these volunteers do not always report
their contacts with reservists and employers; as a result, DOD does not
know the full extent of problems that arise and has no assurance that
its outreach activities are being implemented consistently.
* Although DOD has an active program to address problems that arise
between reservists and their civilian employers, no such program is in
place to deal systematically with issues that arise between students
and their educational institutions. Because students make up an
estimated one-third of all reservists, it is important that such issues
as lost tuition, credits, and educational standing be addressed
more directly.
* DOD has not fully analyzed data on reservists‘ operational tempo and
recruiting and retention trends on an ongoing basis to determine how
deployments might be affecting reservists and their employers. More
analyses of such data would enable DOD to better identify emerging
problems and formulate outreach activities to address the problems.
DOD‘s activities to enhance reserve-employer relations are not as
effective as they could be. DOD has conducted hundreds of briefings
each year for both reservists and employers. However, we reported that
a sizable number of the employers and reservists indicated that they
were unsure of their rights and responsibilities under the Uniformed
Services Employment and Reemployment Rights Act of 1994[Footnote 17]
and that some had never been briefed on their rights and
responsibilities. While the majority of reservists believed their
employers complied with legal requirements, some reservists alleged
that their rights had been violated. Both employers and reservists
claimed that frequently they were not given 30 days‘ advance notice of
deployments, and some employers wanted the right to verify reserve duty
under 30 days on a case-by-case basis. These findings suggest that some
changes may be needed in the management of reservist-employer relations
to forestall reservists from leaving military service.
Significant Civilian Workforce Management Issues Exist:
DOD employs about 700,000 civilians--some 37 percent of all nonpostal
civilian federal workers. Because it is the largest employer of federal
employees in the competitive civil service, how DOD approaches
human capital management sends important signals about trends and
expectations for federal employment across government. Moreover, the
role that DOD‘s civilian workforce plays in support of U.S. national
security makes DOD‘s approach to managing its people a matter of
fundamental public interest.
As shown in figure 4, DOD has undergone a sizable reduction in its
civilian workforce since the end of the Cold War, and additional
reductions are expected at least through fiscal year 2007. Between
fiscal year 1989 and 2001, DOD reduced its civilian workforce by about
400,000 positions (excluding foreign national employees), from
approximately 1,075,000 to 672,000--a 37 percent reduction. The
President‘s fiscal year 2003 budget request projected additional
reductions in DOD‘s civilian workforce, to a level of 614,865 by fiscal
year 2007--a cumulative reduction of nearly 43 percent from the fiscal
year 1989 level.
Figure 4: DOD Civilian Workforce Trends (fiscal years 1989-2001):
[See PDF for image] - graphic text:
Notes: GAO‘s analysis of DOD‘s data
Figure does not include indirect hire employees, for example, persons
rendering service to the federal government under agreements or
contracts
with a foreign government.
[End of figure] - graphic text:
Without an integrated strategic view, DOD‘s approach to civilian
downsizing in the early 1990s relied primarily on voluntary turnover
and retirements and varying freezes on hiring authority. DOD also used
existing authority for early retirements to encourage voluntary
separations at activities facing major reductions in force. The fiscal
year 1993 National Defense Authorization Act authorized a number of
transition assistance programs for civilian employees, including
financial separation incentives, or ’buyouts,“ to induce the voluntary
separation of civilian employees and reduce authorized positions. DOD
has credited the use of separation incentives, early retirement
authority, and various job placement opportunities as ways to avoid
nearly 200,000 involuntary demotions and separations.
While the tools available to DOD to manage its civilian downsizing
helped mitigate the adverse effects of force reductions, DOD‘s approach
to the reductions was not oriented toward shaping the makeup of the
workforce. During our work on the early phases of the DOD downsizing,
some DOD officials voiced concerns about what was perceived to be a
lack of attention to identifying and maintaining a balanced basic level
of skills needed to maintain in-house capabilities as part of the
defense industrial base. Career civilians possess ’institutional
memory,“ which is particularly important in DOD because of the frequent
rotation of military personnel and the short tenure of the average
political appointee.
The consequences of the lack of attention to force shaping can be seen
in the current age distribution of the civilian workforce in comparison
to the distribution at the start of the drawdown. Today‘s workforce is
older and more experienced; but not surprisingly, 58 percent of the
workforce will be eligible for early or regular retirement in the next
3 years. Since 1989, there has been a 69 percent drop in the number of
civilians with 11 to 30 years of service.
The net effect is a workforce that is not balanced by age or experience
and that puts at risk the orderly transfer of institutional knowledge.
The continuing increase in the number of retirement-age employees could
make it difficult for DOD to infuse its workforce with new and creative
ideas and develop the skilled civilian workers, managers, and leaders
it will need to meet future mission requirements. With senior
management attention, strategic leadership, and results-oriented
performance management, however, DOD can rebuild its civilian workforce
to meet future requirements for specific skills and experience.
These human capital challenges are even more severe in certain areas,
such as acquisition and financial management (see ’Confront and
Transform Pervasive, Decades-Old Financial Management Problems
to Improve Financial Accountability“ and ’Improve DOD‘s Ability to
Acquire Weapon Systems in a Cost-Effective and Timely Way“). The
acquisition area is a part of the workforce that the United States has
relied upon to maintain the technological superiority that plays an
essential role in the national security strategy. According to DOD‘s
Acquisition 2005 task force report, the rate of reduction in the
civilian acquisition workforce has substantially exceeded that of the
rest of the DOD workforce. In the past decade, DOD has downsized its
acquisition workforce by almost half. More than 50 percent of the
remaining acquisition workforce will be eligible to retire by 2005; and
in some occupations, DOD projects that half of the current employees
will have retired by 2006.
The 2005 task force report made a series of recommendations to DOD in
October 2000. In April 2002, we reported on DOD‘s plans to implement
these recommendations. We noted that DOD has made progress in laying
a foundation for reshaping its acquisition workforce. However, DOD
recognizes that it will be challenging to implement a strategic
approach. Consequently, DOD views implementation of the recommendations
as long-term efforts with specific outcomes taking years to achieve.
In addition, many of DOD‘s financial management shortcomings are
attributable in part to human capital issues. While DOD‘s financial
management personnel are struggling to carry out routine day-to-day
transaction processing, personnel in world-class financial management
organizations are providing value-added analyses and insights about
the financial implications of program decisions on their organizations,
performance goals, and objectives. DOD has a number of initiatives
underway that are directed at improving the competencies and
professionalism of its financial management workforce. However,
although it concurred with our August 2001 recommendation, DOD has not
yet developed a strategic approach to addressing its financial
management human capital challenges.[Footnote 18] Lacking such a
strategy, DOD will be unable to meet the challenges presented by the
increasing number of employees that will be eligible to retire over the
next few years.
Key Actions Needed:
DOD and the Congress have worked successfully to enhance the
military personnel benefit package. To help keep pace with changing
demographics and to be competitive with the private sector, we have
recommended that DOD (1) develop measures for tracking and assessing
the effectiveness of installation-level services offered through its
spousal employment assistance program and (2) assess the feasibility,
costs, and benefits of offering extended time off to parents of newborn
or adopted children as one way to increase retention of trained,
experienced personnel. DOD is working to achieve these actions.
However, to provide continued focus to meet future challenges, DOD
needs to take a strategic approach.
Taking an integrated, strategic view of DOD‘s approach to human capital
and using a measurement tool will be important for DOD to align all
elements of its human capital management, including pay and benefits,
with its broader organizational objectives. Such measurement tools
include our human capital self-assessment checklist and the exposure
draft of our model for strategic human capital management for agency
leaders. We testified that since the DOD military personnel strategy is
intended to be a dynamic document that periodically will be assessed
and refined, DOD will have opportunities to incorporate additional
elements of human capital strategic planning in future iterations of
the strategy. Specifically, DOD needs to:
* link human capital goals with its mission and programmatic goals;
* include adequate performance measures for assessing the effectiveness
of human capital approaches;
* address military workforce requirements or gaps, especially for
mission-critical skills;
* demonstrate a clear linkage between benefits and its ability to
recruit and retain a high-quality workforce; and:
* address the dissatisfaction that servicemembers have expressed about
their work conditions.
We have also made several recommendations to enhance DOD‘s management
of its reserve forces. Our recommendations are designed to (1) increase
the scope and effectiveness of DOD‘s outreach programs, (2) promote
good relations between reservists and their employers or schools, and
(3) increase an understanding of the effects of high[Footnote 19]
operational tempos on reservists. The recommendations would achieve
these goals by increasing DOD‘s information on reservists‘ civilian
employers, specifically addressing the unique needs of student
reservists, enhancing the effectiveness of volunteer members of the
Employer Support to Guard and Reserve organization, and making improved
use of available deployment and retention data. DOD generally concurred
with the recommendations. Some of its planned initiatives include
establishment of a policy requiring that orders be issued 30 days in
advance of deployment, unless operational requirements dictate
otherwise, and studying reasons why the reserve components sometimes
miss the 30-day goal.
Overcome Support Infrastructure Inefficiencies to Reduce Costs and
Improve Operations:
DOD‘s infrastructure categories include force installations,
communications and information infrastructure, science and
technology programs, acquisition infrastructure, central logistics,
Defense Health Program, central personnel administration and benefits
programs, central training, departmental management, and other selected
infrastructure programs such as support of DOD‘s intelligence and air
traffic control activities.[Footnote 20] DOD has been concerned for a
number of years over the amount of funding devoted to its support
infrastructure and the impact on its ability to devote more funding to
weapon system modernization and other critical needs. Our analysis of
DOD data contained in its fiscal year 2002 annual report[Footnote 21]
and fiscal year 2003 Future Years Defense Plan (FYDP)[Footnote 22]
showed that approximately $151 billion (44 percent)[Footnote 23] of the
$345 billion allocated to mission and support activities was spent on
infrastructure in fiscal year 2002. Of the reported $151 billion spent
on infrastructure, approximately $25 billion was spent for military
installations, including programs to protect the environment, house and
support the daily operations of combat units, and sustain, restore, and
modernize facilities. In our 2001 performance and accountability
series, we reported that regarding specific operations challenges, DOD
needed to address inefficiencies in its support infrastructure.
Infrastructure management, which we first identified as a high-risk
area in 1997, remains on our high-risk list and continues to present
major challenges to DOD.
Infrastructure Costs Remain a Concern:
According to DOD, infrastructure costs continue to consume a larger
than desired portion of its budget--nearly 46 and 44 percent,
respectively, in fiscal years 2001 and 2002, with some growth projected
in its future spending plans (see fig. 5). Recently, DOD reported that
many of its business processes and much of the infrastructure are
outdated and must be modernized. While America‘s businesses have
streamlined and adopted new business models to react to fast-moving
changes in markets and technologies, DOD has lagged behind without an
overarching strategy to improve its business practices. Left alone, the
current organizational arrangements, processes, and systems will
continue to drain scarce resources. DOD has also realized that high-
priority readiness needs such as weapons modernization can be fulfilled
only with a large influx from infrastructure savings.
Figure 5: Direct Infrastructure Funding Versus the Total Funding
Allocated to Mission and Support Activities (fiscal years 1998 through
2007):
[See PDF for image] - graphic text:
Note: GAO‘s analysis of DOD‘s data.
[End of figure] - graphic text:
Transforming DOD‘s Support Infrastructure Remains a Long-term
Challenge:
To its credit, DOD has given high-level emphasis to reforming its
support infrastructure, including an emphasis on transforming its
associated business processes in recent years. However, many key
reforms that may have the greatest impact on managing the support
infrastructure and reducing costs are long term in nature and will
require many years to be fully implemented.
The Defense Reform Initiative, started in 1997, was intended to
improve the effectiveness and efficiency of DOD‘s business processes
and support infrastructure. To varying degrees, some of the former
programs are being continued under the current administration‘s
business transformation:
program, which was created in 2001 under the auspices of a Senior
Executive Council, a Business Initiative Council, and an Executive
Steering Committee.[Footnote 24] These groups have focused on launching
new initiatives. Many of the initiatives, such as eliminating
unnecessary reports, streamlining the general and flag officer
nomination process, and implementing cell phone subsidies, have been
fairly limited in scope. However, many others, including efforts to
identify noncore functions for potential transfer to the private sector
and a review of defense agencies‘ missions, have been broader.
Furthermore, the charter for the Business Initiative Council
specifically indicates that the new business transformation program
will address broader reform efforts over time.
Some highly visible, major reform efforts that have been underway
include acquisition and financial management reform, logistics
reengineering, public-private competitions under the Office of
Management and Budget‘s Circular A-76 process,[Footnote 25] and
elimination of unneeded facilities infrastructure. The latter includes
such actions as demolition of unneeded buildings, privatization of
housing and utilities on military facilities, and passage of
legislation for additional base realignments and closures. Financial
management and acquisition and logistics reform are more fully
discussed in separate sections of this report. These reform efforts
offer the potential for significant improvements in the efficiency and
effectiveness of operations, including savings in terms of reductions
in program costs or cost avoidances.
While it is difficult to quantify the savings precisely, two
initiatives that have yielded the greatest savings over time are the
public-private competitions under the A-76 program and the
congressionally approved defense base realignment and closure actions.
While further opportunities exist for savings through these
initiatives, both are not without controversy because of their
potential impact on affected workforces and communities.
DOD has been the most aggressive of all federal agencies in pursuing
A-76 cost studies in recent years, completing studies on nearly
117,000 positions between fiscal year 1997 and 2001. Our work has shown
that DOD has achieved significant savings through this program, even
though it has been difficult to determine precisely the magnitude of
those savings. Savings may be limited in the short term because up-
front investment costs associated with conducting and implementing the
results of the studies must be absorbed before long-term savings begin
to accrue. Several of our reports in recent years have highlighted
these issues. The number of A-76 studies to be completed in the future
is somewhat uncertain as DOD examines other alternatives, such as
reengineering, divestiture, public/private partnering, and
privatization, for achieving greater operating efficiencies. Although
largely outside DOD‘s control, the work and recent report of the
congressionally mandated Commercial Activities Panel, chaired by the
Comptroller General, have recommended actions to improve the sourcing
decisions of DOD and other federal agencies and to stimulate the
creation of high-performing organizations.[Footnote 26]
Currently, the Office of Management and Budget is considering the
panel‘s recommendations as it revises A-76 policy.[Footnote 27]
Successful implementation of the recommendations offers the potential
for improved decision tools to facilitate improved operating
efficiencies within DOD as well as other federal agencies. DOD
completed four rounds of base realignment and closures between 1988 and
1995 and has congressional authorization for another round of base
realignments and closures scheduled for 2005. DOD officials have
testified the 2005 round could achieve a 20 to 25 percent reduction in
military infrastructure, with annual savings of about $6 billion. Our
reviews have found that estimated savings from the first four rounds,
while imprecise, are nonetheless substantial in the long term. In
addition, DOD reports that the savings accrued from removing this
excess infrastructure can be better applied to maintaining and
revitalizing the facilities it plans to keep as well as to improving
military readiness.
With or without future base closures, DOD faces the challenge of
adequately maintaining and revitalizing the facilities it plans to
retain. Available information indicates that DOD‘s facilities continue
to deteriorate because of insufficient funding for their sustainment,
restoration, and modernization. According to DOD, its facilities have
been neglected and modernization efforts have been postponed for far
too long. Our recent review of the physical condition of recruit
barracks confirmed DOD‘s assertion that its facilities have been long
neglected and underfunded. We found that, to varying degrees, most
barracks were in need of significant repair. The most prevalent
problems across the services included the lack of, or inadequate,
heating and air conditioning; inadequate ventilation, particularly in
bathing areas; and plumbing-related deficiencies, such as leaks and
clogged drains. Inspection of a parking ramp in January 2002 revealed
water damage that affects where a C-130 aircraft can park (see fig. 6).
With limited funds to repair the ramp at an estimated $40,000, base
officials concentrate on higher-priority items, leaving the ramp
problem unresolved, as shown at the time of our visit in August 2002.
DOD officials stated they hope to repair the ramp in February 2003 with
fiscal year 2002 end-of-year funds.
Figure 6: Parking Runway Ramp at Dobbins Air Reserve Base, Georgia
(August 2002):
[See PDF for image] - graphic text:
[End of figure] - graphic text:
Similar deteriorated conditions exist across the range of DOD‘s
infrastructure categories. In DOD‘s recent Installations‘ Readiness
Report, the military services cited numerous examples of such
conditions affecting their facilities by selected categories:
* Operations and training (includes airfields, piers and wharves,
training ranges and classrooms, recruit facilities, armories, aircraft
operations‘ parking and hangars, refueling hydrants, and flight
simulators): According to the Navy, the age, high usage, and
overloading of runways, taxiways, and aprons are causing rapid
deterioration at all air stations, resulting in significant foreign
object damage, unacceptable risks to safety of personnel and damage to
aircraft, and restricted air operations.
* Mobility (includes facilities directly related to mobilization of
forces, including staging areas and transportation systems): According
to the Air Force, several of its facilities used for mobility purposes
do not have adequate ventilation systems, lighting, communications
support, restrooms, or passenger or cargo processing areas. This
results in inefficient, time-consuming operations and degrades
readiness capability.
* Maintenance and production (includes vehicle and avionics maintenance
shops, tactical equipment shops, aircraft maintenance hangars,
foundries, and ammunition demilitarization facilities): According to
the Navy, several maintenance hangars and aircraft intermediate-
maintenance facilities have extensive structural, roof, and mechanical
and electrical system deterioration due mainly to age, environment, and
normal wear. In some cases, hangar-bay coatings, separating from
ceilings and walls, are falling onto exposed equipment, personnel,
and aircraft.
* Research, development, testing, and evaluation (includes test
chambers, laboratories, and research buildings): According to the Army,
many of its research, development, testing, and evaluation facilities
are deteriorating at an increasingly accelerated rate. As maintenance
funding for these facilities is scarce, little or no routine or
preventive maintenance is performed on these facilities.
* Supply (includes warehouses, hazardous material storage, and
ammunition storage): According to the Navy, many of its deteriorated
weapons magazines do not meet explosive safety requirements. Some
magazines and explosive production buildings are operating under
waivers and exemptions.
* Medical (includes hospitals and medical and dental clinics):
According to the Army, several of its medical facilities do not meet
standards. For example, the main health-care delivery facility at
Walter Reed Army Medical Center, Washington, D.C., has aging mechanical
systems that must be repaired or replaced. At other Army installations,
medical facilities also do not meet quality standards due to the poor
condition of bathrooms, utilities, and heating and
air-conditioning systems.
* Administrative (includes office space and computer facilities):
According to the Navy, the majority of the Atlantic Fleet‘s
administrative facility inventory consists of inefficient temporary and
semipermanent structures. Typical deficiencies include inadequate
plumbing, air-conditioning, fire protection, and electrical systems and
general deterioration of finishes due to age and wear.
* Utilities and ground improvements (includes power production,
distribution and conservation systems, water and sewage systems, roads
and bridges, water pollution abatement, wastewater treatment
facilities, and fuel storage tanks and containment areas): According to
the Navy, the utilities at its Pacific Missile Range Facility, Hawaii,
only minimally support multiple missile launch operations. To improve
operations, it needs to upgrade an existing generator; replace the
control, power, grounding, and lightning protection systems; install
voltage regulators to correct stability problems; replace the
communication, video, and surveillance systems; and add an intrusion
detection system.
Key Actions Needed:
Much work remains for DOD to rationalize and transform its support
infrastructure to improve operations, achieve efficiencies, and allow
it to concentrate its resources on the most critical needs. DOD
organizations throughout the department need to continue reengineering
their business processes and striving for greater administrative
efficiency. As we have previously recommended, DOD needs to develop a
plan to better integrate, guide, and sustain the implementation of its
diverse business transformation initiatives in an integrated
fashion.[Footnote 28] Although DOD issued a strategic plan for
facilities in August 2001, the plan provides only a framework for
improving facilities and does not address all facility-related issues
that DOD faces.
Infrastructure problems are not that much different in civilian
agencies than they are in the military. The infrastructure problems in
civilian agencies also suggest the possible relevance of a civilian
facility closure and realignment process. Issues related to civilian
facilities will be covered under a new high-risk, governmentwide
designation called ’Federal Property.“:
Confront and Transform Pervasive, Decades-Old Financial Management
Problems to Improve Financial Accountability:
In the summer of 2001, the President emphasized the need for improved
financial accountability throughout the entire federal government.
Additionally, the Secretary of Defense has recently included improving
DOD‘s financial management as one of his top 10 priorities.[Footnote
29] As we have previously reported, accurate financial information is
crucial to making sound decisions and controlling assets so that DOD‘s
mission and goals are efficiently and effectively accomplished.
However, DOD continues to face financial management problems that are
pervasive, complex, long-standing, and deeply rooted in virtually all
its business operations. DOD‘s financial management deficiencies
adversely affect DOD‘s ability to control costs, ensure basic
accountability, anticipate future costs and claims on the budget (such
as for health care, weapons systems, and environmental liabilities),
measure performance, maintain control of funds, help prevent fraud, and
address pressing management issues. For example, we recently reported
on fundamental flaws in DOD‘s systems, processes, and overall internal
control environment related to:
* government travel card delinquency rates for the Army and the Navy
that nearly doubled those of federal civilian agencies;
* pervasive purchase and travel card breakdowns that resulted in
numerous instances of potentially fraudulent, improper, and abusive
transactions and increased DOD‘s vulnerability to theft and misuse of
government property;
* adjustments to DOD‘s closed appropriations that resulted in about
$615 million in adjustments that should not have been made, including
$146 million that was illegal;
* tracking and reporting on the status of earmarked funds that resulted
in DOD being unable to ensure the Congress that the $1.1 billion in
funds it received for spare parts was used for, and only for,
that purpose;
* managing and reporting on the funding associated with the Air Force‘s
contracted depot maintenance that resulted in understating the dollar
value of year-end carryover work by tens of millions of dollars; and:
* accountability over critical items, such as chemical and biological
protective garments, that resulted in DOD‘s excessing and selling
unused garment sets for about $3 each, while simultaneously procuring
hundreds of thousands of similar garment sets for over $200 per set.
Taken together, DOD‘s financial management deficiencies represent the
single largest obstacle to achieving an unqualified opinion on the
U.S. government‘s consolidated financial statements. To date, none of
the military services or major DOD components have passed the test of
an independent financial audit.
Overhauling DOD‘s financial management operations represents a
major management challenge that goes far beyond financial accounting
to the very fiber of the department‘s range of business operations and
management culture. Administrations over the past 12 years have
attempted to address these problems in various ways but have largely
been unsuccessful despite good intentions and significant effort. Since
1995, DOD‘s financial management has been on our list of high-risk
areas vulnerable to waste, fraud, abuse, and mismanagement. With the
events of September 11, 2001, and the federal government‘s short-and
long-term budget challenges, it is more important than ever that DOD
effectively transform its deficient business operations to ensure that
it gets the most from every dollar spent.
Underlying Causes of Financial Management Reform Create Challenges:
As we testified in March 2002 and highlighted in our more recent
reports, four underlying causes of problems have impeded past reform
efforts at DOD.
* The lack of accountability and sustained top-level leadership hinders
DOD‘s ability to meet its performance goals. Major improvement
initiatives must have the direct, active support and involvement of the
Secretary and Deputy Secretary of Defense to ensure that daily
activities throughout the department remain focused on achieving
shared, agencywide outcomes and success. Furthermore, sustaining top
leadership‘s commitment to performance goals is a particular challenge
for DOD because the average tenure of DOD‘s top political appointees is
only 1.7 years. Based upon our survey of best practices of world-class
financial management organizations, it is clear that strong executive
leadership is essential to (1) making financial management an
entitywide priority, (2) redefining the role of finance, (3) providing
meaningful information to decision makers, and (4) building a team of
people that delivers results.
* Cultural resistance to change and stovepiped operations have impeded
DOD‘s ability to implement broad-based management reforms. We found the
effectiveness of the Defense Management Council, established in 1997,
was impaired because members were not able to put aside their
particular military services‘ or DOD agencies‘ interests to focus on
departmentwide approaches. The results of DOD‘s past stovepiped
approaches to financial management reforms are perhaps most evident in
its current business systems environment. DOD‘s recent estimate
includes 1,700 systems and system development projects--many of which
were developed in piecemeal fashion and evolved to accommodate
different organizations, each with its own policies and procedures.
* Lack of clear, linked goals and performance measures impedes DOD‘s
ability to attain strategic goals with the risk that units are
operating autonomously, rather than collectively. In our assessment of
DOD‘s fiscal year 2000 Financial Management Improvement Plan--its most
recent plan--we found that the plan presented the military services‘
and DOD components‘ individual improvement initiatives but did not
clearly articulate how their individual efforts would result in a
collective, integrated DOD-wide approach to financial management
improvement. In addition, the plan did not include performance measures
to assess DOD‘s progress in resolving financial management problems.
Furthermore, while DOD plans to invest billions of dollars in
modernizing its financial management systems, it is in the initial
stages of developing an overall blueprint, or enterprise architecture,
to guide and direct these investments.
* Lack of incentives to change existing ’business-as-usual“ processes,
systems, and structures contributes to DOD‘s inability to carry out
needed fundamental reform. Traditionally, DOD has focused more on
justifying its need for more funding and moving programs and operations
through the process than on achieving better program outcomes. It does
not (1) reward behaviors that contribute to DOD-wide and congressional
goals, (2) develop motivational incentives for decision makers to guide
them toward better program outcomes, or (3) provide congressional focus
on more results-oriented and resource-allocation decisions.
Key Actions Needed:
On September 10, 2001, the Secretary of Defense recognized the
far-reaching nature of DOD‘s financial management problems and
announced a broad initiative intended to ’transform the way the
department works and what it works on.“ This new broad-based business
transformation initiative, led by the Senior Executive Council and the
Business Initiative Council, incorporates a number of defense reform
initiatives begun under previous administrations but also encompasses
additional fundamental business reform proposals. The goals of DOD‘s
current transformation initiatives are more far-reaching,
comprehensive, and have more long-term application than any such
efforts in the past. In announcing his initiative, the Secretary
recognized that transformation would be difficult and expected the
needed changes would take 8 or more years to complete. The Secretary‘s
initiative is consistent with the findings of an independent study he
commissioned that concluded DOD would have to undergo ’a radical
financial management transformation“ and that it would take more than a
decade to achieve.
Our experience has shown that several key elements, collectively,
would enable DOD to effectively address the underlying causes of its
long-standing financial management problems. These elements include:
* addressing the financial management challenges as part of a
comprehensive, integrated, DOD-wide business process reform;
* providing for sustained leadership by the Secretary of Defense and
resource control to implement needed financial management reforms;
* establishing clear lines of responsibility, authority, and
accountability for such reform tied to the Secretary;
* incorporating results-oriented performance measures and monitoring
tied to financial management reforms;
* establishing an enterprise system architecture to guide and direct
financial management modernization investments;
* ensuring effective oversight and monitoring; and:
* providing appropriate incentives or consequences for action
or inaction.
Beginning with the Secretary‘s recognition of a need for a fundamental
transformation of DOD‘s business processes, and building on some of the
work begun under past administrations, DOD has taken a number of
positive actions in many of these key areas. One ongoing action is the
current effort to develop a DOD enterprise architecture that is
intended to prescribe a blueprint for operational and technological
changes in its financial and related business system operations. At the
same time, the challenges remaining in each of these key areas
are daunting.
Effectively Manage Information Technology Investments to Transform
Business Functions:
To help transform its business functions, DOD has invested heavily in
modernizing its information technology environment, and its plans call
for continued heavy investments. However, its success to date has been
limited, and its future is fraught with risk because of long-standing
and pervasive information technology modernization management
weaknesses. As we have reported, these weaknesses include a lack of
(1) integrated enterprise architectures to effectively promote
interoperability and avoid duplication among systems;
(2) institutional information technology investment management
practices to effectively minimize the inherent risk in very large,
multiyear projects and to provide DOD executives with the information
needed to make informed investment choices; and (3) institutionalized
systems acquisition processes to allow consistent delivery of promised
capabilities, on time and within budget. Compounding these
modernization management weaknesses are information security
weaknesses that limit DOD‘s ability to ensure that current and future
systems are not compromised. We have made a series of recommendations
to strengthen DOD‘s ability to successfully modernize and secure its
information technology assets.
DOD acknowledges that it needs to improve its management of information
technology and has agreed to implement most of the recommendations we
have made over the last 2 years. However, progress has been
inconsistent, and it is unlikely that sufficient management reform of
information technology will occur in time to ensure that DOD‘s planned
information technology investment of $26 billion in fiscal year 2003
will be spent effectively and efficiently. For these reasons, we are
again designating DOD‘s systems modernization efforts as high risk.
Further, the state of DOD‘s information security continues to be a
major reason for us to again designate information security as a
governmentwide high-risk area.
Effective Management of Systems Modernization Is a
Continuing Challenge:
Since the 1990s, DOD has spent billions of dollars each year attempting
to leverage the vast power of modern technology to replace outdated
ways of doing business. While we recognize that modernization of
information technology is a crucial enabler of such organizational
transformation, successful modernization requires a level of
information technology management capability that the department has
yet to achieve. This capability is embodied in the best information
technology management practices of successful public-and private-
sector organizations, as well as information technology management
guidance issued by GAO, the Chief Information Officers Council, and the
Office of Management and Budget.
DOD has made some progress in implementing the recommendations that we
have made aimed at improving information technology management
practices. Nevertheless, DOD remains far from where it needs to be in
order to effectively and efficiently manage something of the size and
significance of its systems modernization. Since January 2001, when we
last reported on DOD management challenges, both we and the DOD
Inspector General have continued to report on a variety of
long-standing management problems in modernizing information
technology. Because of these problems, three of which we briefly
describe here, we first designated DOD‘s management of information
technology modernization as high risk in 1995. It remains so today.
First, DOD‘s lack of an integrated enterprise architecture for its
financial and related business functions continues to be a major
obstacle. As we reported in 2001, without such a blueprint to guide and
constrain DOD‘s investments in revamped business operations and
modernized systems, the military services and defense agencies find
themselves with duplicative processes and systems that are
unnecessarily costly to maintain and do not optimize mission
performance. Further, DOD lacks a corporate focus for controlling its
information technology budget and making informed decisions about
services‘ and agencies‘ ongoing and planned modernization projects. We
also reported that certain DOD components, such as the Defense
Logistics Agency and the Defense Information Systems Agency, were
investing billions of dollars in information technology modernization
projects with no agency-specific architectures aligned with a
departmental architecture to guide and constrain the components‘
respective investments.
Moreover, we reported that DOD did not have programs in place for
creating this needed set of integrated architectures. Accordingly, we
made a series of recommendations to (1) assist DOD and its components
in developing and maintaining enterprise architectures in support of
their modernization efforts and (2) control spending on information
technology projects throughout the department. In particular, we
recommended that DOD centralize the responsibility and authority for
its project investments and, until a financial management architecture
is developed, limit its components‘ investments to:
* deployment of systems that involve no additional development or
acquisition cost,
* stay-in-business maintenance needed to keep existing
systems operational,
* management controls needed to effectively invest in modernized
systems, and:
* new systems or existing system changes that are congressionally
directed or are relatively small, cost-effective, and low risk.
In its written comments, DOD stated that it would consider our
recommendations as part of its efforts to improve financial
management.[Footnote 30]
A second major hurdle in DOD‘s quest to modernize its information
technology systems is its lack of effective investment management
practices, both institutional and project-specific. For example, we
reported that while the Defense Logistics Agency had made progress in
adopting a portfolio-based approach to making informed decisions among
competing agency investment options, critical investment management
activities that are practiced by leading public and private
organizations, and are embodied in federal guidance, were missing.
Similarly, we reported that the Defense Information Systems Agency had
not yet established most of these investment management best practices.
At the same time, our reviews of specific billion-dollar DOD system
acquisition projects, including the Defense Logistic Agency‘s Business
Systems Modernization, DOD‘s Standard Procurement System, and
DOD‘s Composite Health Care System II, showed additional investment
management shortcomings. Such shortcomings included not economically
justifying information technology projects on the basis of reliable
analyses of benefits, costs, and risks and not reducing project risk by
investing in the projects incrementally, both of which are practiced by
successful public-and private-sector organizations and advocated by
federal guidance. Similarly, the DOD Inspector General reported on
investment management problems with DOD‘s Joint Personnel Adjudication
System. Again, we made a series of recommendations to address
DOD‘s investment management weaknesses. DOD generally agreed
with our recommendations.[Footnote 31]
A third significant weakness is immature software and systems
acquisition processes, which are key determinants of the quality of
software-intensive information technology systems. Our work continues
to show that DOD‘s implementation of mature acquisition management
processes is uneven, as are its proactive efforts to improve these
processes. For example, our review of the Defense Logistics Agency‘s
system acquisition processes showed that one major system was following
mature processes, while another was not. Similarly, our review of
departmentwide software and system process improvement activities
showed that some DOD components, such as the Army and the Navy, had
active programs while others, such as the Defense Logistics Agency, did
not. We made recommendations to correct each of these weaknesses. DOD
generally agreed with our recommendations.[Footnote 32]
DOD recognizes the need to improve management of its systems
modernization efforts. To this end, it has taken some steps to
implement our recommendations addressing the weaknesses we identified.
For example, DOD has begun to develop a departmentwide enterprise
architecture for its financial and related operations, including
ensuring alignment of this architecture with others in DOD. It also has
revised its acquisition guidance to require that investment decisions
for major projects be made incrementally to better ensure each segment
delivers measurable benefits. Nevertheless, much remains to be
accomplished before DOD will have effectively mitigated the risks it
faces in modernizing its systems.
Information Security Remains a Major Concern:
The national defense, like many of the U.S. government‘s missions,
depends on the security of computer operations at a time when
dramatic increases in computer connectivity are revolutionizing both
communications and operations. This interconnectivity poses
significant risks to both DOD computer systems and the operations
and infrastructures they support. We designated information security as
a governmentwide high-risk area in 1997, and it remains so today. The
DOD Inspector General noted in 2001 that improvements were needed
to better manage security. DOD also acknowledged in its fiscal
year 2000 performance report[Footnote 33] that its systems and networks
are more vulnerable than officials would like, and as we have reported,
its information assurance[Footnote 34] program has had problems in
meeting its goals, such as poor coordination of technology
and operations.
Security assessments continue to identify weaknesses that could
seriously jeopardize DOD‘s operations and compromise the
confidentiality, integrity, or availability of sensitive information.
For example, in June 2002, we reported that the U.S. Army Corps of
Engineers had made substantial progress in resolving systems security
weaknesses identified in prior years in its financial management system
but that new weaknesses had been found. Specifically, the Corps had
not adequately limited user access, developed adequate systems software
controls, documented software changes, segregated duties, or addressed
continuity needs.
The DOD Inspector General also reported on information security
weaknesses in several programs during fiscal year 2001. Specifically,
the Inspector General found security lapses relating to access to data,
risk assessments, sensitive data identification, access controls,
password management, audit logs, application development and change
controls, segregation of duties, service continuity, and system
software controls, among others. In addition, both the Army Audit
Agency and Air Force Audit Agency reported similar problems.
Weaknesses in departmentwide information security were also a
problem. In March 2001 we reported DOD had made limited progress
in implementing its information assurance program. Specifically, DOD
had not tested its draft readiness assessment metrics; implemented
its proposed actions to enhance its human resources; defined the
organizations, policies, and procedures for monitoring and managing
security; or consistently planned and coordinated security management
technologies and operations throughout DOD. Further, management
weaknesses such as the lack of a unified mission and performance goals
and measures, unreliable financial and performance data, and no plan to
leverage technology also limited progress in program implementation. We
also noted weaknesses in attempts to catalog security activities and
address standards, acquisition support, and research. Accordingly, we
recommended a number of actions to improve departmentwide information
security management.
DOD has established computer incident response teams throughout DOD,
but improvements are needed. Specifically, DOD has not coordinated
resource availability, integrated data from a variety of systems and
sensors, periodically reviewed systems and networks for weaknesses,
improved unit reporting on compliance with vulnerability alert tasks,
ensured that components‘ responses to heightened security conditions
are consistent and appropriate, or developed departmentwide performance
measures to assess response capabilities. Accordingly, we made
recommendations to improve the effectiveness of its computer incident
response capabilities. The DOD Inspector General also noted the need
for improvement in intrusion detection and response.
In response to our recommendations on departmentwide information
security management and computer incident response capabilities, DOD
is correcting security weaknesses by drafting and obtaining approval of
an information security strategic plan, developing policies that
establish standards, assigning responsibilities, and expanding
coordination of security activities by executives and department staff.
In addition, the DOD Inspector General reports that DOD has implemented
a number of corrective actions and made progress in meeting the
information security challenge.
However, DOD‘s fiscal year 2000 performance report, issued in
March 2001, did not provide any data showing measurable progress for
improving information security. Further, DOD has made limited progress
on our recommendation to establish a performance-based management
approach capable of assessing progress in meeting DOD‘s goals. The DOD
Inspector General also agreed that, despite DOD‘s progress,
improvements are still needed.
Key Actions Needed:
To its credit, DOD has acknowledged that it needs to improve both its
information technology modernization management capability and its
information security. As we have reported, and as DOD‘s past success in
overcoming the year 2000 computing challenge shows, the key to
effecting meaningful change is executive management leadership and
commitment and use of a proven management framework. Accordingly, DOD
needs to (1) treat these areas as management priorities and
(2) implement frameworks for modernizing and securing systems that are
grounded in legislative requirements, federal guidance, and the
practices and successes of leading public-and private-sector
institutions. We plan to continue working with the Congress and DOD to
improve these crucial information technology areas.
Improve DOD‘s Ability to Acquire Weapon Systems in a Cost-Effective and
Timely Way:
Acquiring high performance weapons is central to DOD‘s ability to
fight and win wars. In fiscal year 2002, DOD spent about $110 billion
to research, develop, and acquire a wide array of weapon systems.
These investments are expected to grow substantially, to an estimated
$157 billion by fiscal year 2007, as DOD pushes to transform itself to
meet a new and challenging range of threats. While DOD‘s acquisition
process has produced weapons that provide superior capability, it also
routinely yields undesirable outcomes that constrain DOD‘s ability to
modernize--higher costs, later fielding than planned, and less
performance than expected. As we reported in January 2001, these
undesirable outcomes often occur because of (1) unrealistic program
cost and schedule estimates, (2) the use of immature technologies in
launching product development, (3) design and manufacturing problems
that are discovered late in test and evaluation, and (4) the failure to
consider joint solutions and broader mission requirements when
proposing systems.
We have reported that weapon systems acquisition has been a high-risk
area since 1990, and it continues to remain on our high-risk list. DOD
has undertaken a number of policy-level reforms to address long-
standing problems with its acquisition process. However, while there
have been individual successes, reforms have not produced consistent
improvements in program outcomes. Those problems have proven resistant
to reform in part because underlying incentives in the competition for
funds have not changed. Over the past 2 years, DOD has made significant
policy changes that have shaped a more knowledge-based acquisition
process that reflects best practices. These are constructive changes
for which the long-term effect on individual programs remains to
be seen.
Cost and Schedule Increases Continue to Erode Buying Power:
Our reviews have consistently found that DOD‘s weapons system
acquisitions take a much longer time and cost much more than originally
anticipated, causing disruptions to the department‘s overall investment
strategy and significantly reducing its buying power. When an
acquisition program needs more money than planned, it comes at the
expense of delaying or canceling other programs. This loss of buying
power means that less overall modernization or transformation gets
accomplished. The ability to execute a program more predictably within
cost and schedule estimates would lessen the need to offset cost
increases by disrupting other programs.
To illustrate this problem, we compared the development costs, in the
aggregate, of eight major weapon programs.[Footnote 35] As shown in
figure 7, DOD estimated that in fiscal year 1998 it would cost
$47 billion to complete the development of these eight programs;
however, by fiscal year 2003 the estimated cost of completing them had
grown to about $72 billion. This means an additional $25 billion (more
than 50 percent above the fiscal year 1998 estimates) would be required
to develop the same programs.
Figure 7: Cumulative Effect of Cost Growth on Development of Eight
Weapon System Programs:
[See PDF for image] - graphic text:
[End of figure] - graphic text:
Individual examples of cost and schedule increases that we have
continued to report include the following:
* Since the Air Force started the Airborne Laser Program in 1996, the
estimated development costs have risen by about 50 percent, from
$2.5 billion to $3.7 billion (as of August 2001), and the projected
fielding of the system has been extended by 4 years, from 2006 to 2010.
* Since the Army‘s Comanche Helicopter Program‘s first cost estimate
in 1985, the research and development price tag has almost quadrupled
to $41 billion and the time to obtain an initial operational capability
has increased from 9 to 21 years. The program is undergoing another
major restructuring, which may result in further cost increases.
* Since the Navy‘s Extended Range Guided Munition Program began in
1996, estimated program acquisition costs have increased more than
50 percent, from $386 to $600 million, while estimated development time
has more than doubled, from about 4 to 10 years.
One of the main reasons why program costs and schedules are routinely
underestimated is because the acquisition process tends to assert
pressures on program managers to promise more than they can deliver and
to push programs forward without sufficient knowledge about a weapon‘s
technology, design, and production. The intense competition to get
programs approved and funded encourages setting requirements that will
make the proposed weapon system stand out from others. In addition,
organizations that establish requirements often aim for the most
capability possible, since it may be many years before they get another
opportunity to acquire a new weapon system of the same type. These
factors make it difficult to know what resources will be needed to meet
requirements before launching a program. Furthermore, within this
process, the systems engineering that is necessary to identify
potential gaps between program requirements and the resources needed to
meet them is not usually done until after programs are launched and
cost and schedule targets have been set.
Product Development Is Often Started with Immature Technologies:
Given the complexity of modern weapons, some problems associated
with technology development can be expected, but many problems can
be predicted and avoided. One such problem is for a new program to
rely on fledgling technologies for high performance, only to report
late in development that not enough time or money has been estimated to
mature the technologies and incorporate them into an overall design.
Many weapon programs move forward with immature technologies because
the developers do not understand the level of effort needed to develop
the technologies or, if they do, they defer the effort until later
because of institutional pressures to gain program funding. In many of
our reviews, we have found major weapon systems at risk of not being
able to meet program objectives because critical technologies were
immature and software development was not effectively managed. Some
recent examples of our findings are as follows:
* DOD‘s most expensive aircraft program, the Joint Strike Fighter
Program, which is expected to cost about $200 billion to develop and
procure, is at risk of not meeting its cost and requirements goals
because critical technologies, like the integrated flight propulsion
control system and the radar, were not matured to acceptable levels
when the program entered product development. Consequently, program
managers will need to continue developing those technologies at the
same time they are concentrating on production and integration issues.
* A primary reason why the Air Force was unable to meet the Airborne
Laser Program‘s original cost and schedule goals was because it did
not fully understand the level of effort required to develop the
critical technologies that the system design depends on. These
technologies were immature when the program was launched and several of
them, including the optics and the laser, remain so today. This makes
it difficult to estimate how long it will take and how much it will
cost to develop and produce the system.
* The Space-Based Infrared System-Low satellite system, which is
intended to detect and track ballistic missiles, has also experienced
significant risk of cost increases and scheduling changes because of
problems in developing critical technologies and software. The program
office has determined that five of six critical technologies are at
risk of not being available when they are needed. In addition, the
development of key software needed to support the program would not
have been completed until several years after the first satellites were
to be launched, thus increasing the risk that the software will not be
available when needed or perform as required. In recognition of these
problems, DOD restructured the program to focus on research and
development of the critical technologies.
Many Design and Manufacturing Problems Are Discovered Late in Test
and Evaluation:
The ultimate goal of testing and evaluation is to make sure a weapon
system works as intended before it is fielded to users. When it is done
early enough in development, testing and evaluation can provide a
program manager with an opportunity to validate the technology‘s
design and to identify and effectively correct problems. Ideally, the
testing process goes through several phases: early laboratory testing,
testing of components and subsystems, testing of the complete system,
and finally trial use under realistic operational conditions. To be of
value, test results at each phase must be credible and used to improve
the product.
Our work over the past several years continues to show that weapon
system programs suffer from late or incomplete test and evaluation.
Design and quality problems with weapon systems are discovered late in
the development cycle when they are difficult and costly to resolve.
Often, tests of a full system, such as a missile launch, become the
vehicle for discovering problems that could have been found earlier and
corrected less expensively. When problems are revealed late in
development, the response can take several forms: extending schedules
to increase the investment in more prototypes and testing, terminating
the program, or redesigning and modifying weapons that have already
made it to the field. The most frequent corrective action is to
restructure the development program by adding time and money so that
the weapons can be redesigned and retested before production or so that
weapons already in production can be redesigned and retrofitted.
In DOD, strong pressures and incentives can work against revealing
problems during the testing and evaluation process. We have seen
numerous instances where test results have turned into scorecards to
show decision makers that the program was ready to proceed to the next
acquisition phase or to receive the next funding increment. As a
result, testing operated in a penalty environment. If the program did
not pass the tests, it might look less attractive and be more
vulnerable to funding cuts. Thus, managers had incentives to postpone
difficult tests or modify tests by reducing the requirements and
demonstrating enough progress to continue the program. Some key
examples of our recent findings are as follows:
* In our review of the Marine Corps V-22 Aircraft Program, which is
already in low-rate initial production, we learned that DOD planned to
proceed with a full-rate production decision without knowing whether
(1) the new technology could meet the Marine Corps‘s requirements;
(2) the design would work as required; or (3) the design could be
produced within the program‘s cost, schedule, and quality targets. This
knowledge is lacking because developmental testing was deleted,
deferred, or inappropriately simulated in order to meet cost and
schedule goals. In addition, testing was based on reduced
system requirements.
* We found that many of the Navy‘s Space and Naval Warfare Systems
Command information technology systems were being procured and fielded
in large quantities during initial low-rate production and before
completing operational testing. Program managers were doing this
because of a desire to meet user demands for information system
improvements. However, several of the systems that were purchased
prior to operational testing experienced performance,
interoperability, and suitability problems that adversely affected
the fleet.
* In reviews of the Air Force‘s F-22 program, we found continuing
problems with the assembly and delivery of development-test aircraft
and the flight-test program. The Air Force extended the development
test program, delayed the beginning of operational testing, and
reduced the content of the test program. As a result, some additional
development flight-testing is planned to take place concurrently with
operational testing.
DOD Does Not Fully Consider Joint Solutions and Broader
Mission Requirements:
DOD‘s acquisition policies require that analyses of mission needs,
costs, and weapon system alternatives match the valid needs of users
before substantial resources are committed to a particular program.
However, we have found that, while the services conduct considerable
analyses in justifying major acquisitions, these analyses are often
narrowly focused and do not fully consider alternative solutions, such
as a joint acquisition of a system with other services. In addition,
DOD often has not considered how individual systems are tied together
to meet broader mission needs, including joint operations. Further,
lacking complete and accurate overall life-cycle cost information for
weapon systems impairs DOD and congressional decision makers‘ ability
to make fully informed judgments on funding comparable weapon systems.
As a result, there is no assurance that DOD and the services are
avoiding costly duplication of systems, investing in the most cost-
effective and affordable solutions, and optimizing mission performance.
Furthermore, since the services plan, acquire, and operate systems to
meet their own operational concepts, there is no guarantee that fielded
systems will operate effectively together. Examples of our findings are
as follows:
* While DOD has considerable capability to identify and strike most
fixed targets, it has limited ability to rapidly identify and strike
time-critical targets, such as mobile surface-to-air missile sites.
This limited ability is largely because the command, control,
communications, intelligence, surveillance, and reconnaissance systems
involved in the sensor-to-shooter process have limited
interoperability. The systems are often based on different
architectures and technical standards and use different frequencies and
data formats. Thus, the systems cannot share information directly and
must be patched together, making the response time too slow to
successfully defeat mobile targets.
* In response to a fiscal year 2000 congressional directive, DOD
developed an antiarmor munitions master plan to support the military
services‘ efforts to acquire new antiarmor weapons. Instead of
determining how shortfalls in capabilities would be addressed from a
joint perspective, the plan presented individual military service-level
assessments. The military services did not consider each other‘s weapon
capabilities or the impact of new systems in a joint warfighting
environment. As a result, there is no assurance that the mix and
quantities of new weapons being acquired, at an estimated cost of
$14 billion, provide the most cost-effective solutions for
increasing capabilities.
* DOD and the military services have been working for many years to
develop combat identification systems to prevent friendly fire in joint
and coalition operations. These systems, which are being developed by
many different entities within DOD and the military services, will be
installed on a broad array of equipment and used in a wide range of
military operations. DOD‘s efforts in developing improved capabilities
have been hampered, however, because it has not developed a
well-defined enterprise architecture and management framework
to ensure that new combat identification systems are compatible,
not duplicative, and supportive of overall department goals.
DOD Could Benefit from a Knowledge-based Acquisition Process Used by
Leading Commercial Firms:
DOD would like to get the most out of its investments, and it has
long-standing goals to develop weapons in half the traditional time and
within budget. However, problems that work against delivering new
weapons within estimates have proven resistant to reform. Promising
solutions for DOD can be drawn from the best commercial product
development efforts. We have conducted an extensive body of work in
recent years that has consistently shown that leading commercial firms
are getting the kinds of outcomes from their development of new
products that DOD seeks. Specifically, these firms are developing
increasingly sophisticated products in significantly less time and at a
lower cost than their predecessors.
They do so by ensuring that a high level of knowledge exists about the
product at key junctures during development. Such a knowledge-based
process enables decision makers to be reasonably certain about critical
facets of the product under development when they need it. The process
can also help offset pressures on program managers to overpromise on
cost and schedule estimates. The process is essential to getting better
cost, schedule, and performance outcomes.
The process followed by leading firms can be broken down into
three cumulative knowledge points:
* at program launch, when a match must be made between the customer‘s
needs and the available resources--technology, time, and funding;
* midway through development, when the product‘s design must
demonstrate its ability to meet performance requirements; and:
* at production start, when it must be shown that the product can be
manufactured within cost, schedule, and quality targets.
As illustrated in figure 8, the attainment of each successive knowledge
point builds on the preceding one. While the knowledge itself builds
continuously without clear lines of demarcation, the attainment of
knowledge points is sequential. In other words, production maturity
cannot be attained if the design is not mature and design maturity
cannot be attained if the key technologies are not mature. Allowing
technology development to spill over into product development puts an
extra burden on program managers and provides a weak foundation for
making product development estimates. It is perhaps the most
significant problem in weapon system programs.
Figure 8: Knowledge Achieved at Key Points in Product Development
Reduces the Risk of Unknowns:
[See PDF for image] - graphic text:
Note: GAO‘s analysis of best product development practices.
[End of figure] - graphic text:
For the most part, all three knowledge points are eventually attained
on a completed product, including weapon systems. The key difference
with a best practices approach is how knowledge is built and how early
in the development cycle each knowledge point is attained. When
knowledge is built more slowly than those points suggest, programs
invite greater cost, schedule, and performance risk because problems
are more likely to be discovered late in the process and be more
difficult and costly to correct.
We have found that when DOD programs employed similar practices, they
experienced outcomes similar to leading firms. Programs like the Joint
Air-to-Surface Standoff Missile, which mature technology before going
into product development and stabilize the design by releasing the vast
majority of engineering drawings midway through development, have
experienced minimal cost increases and scheduling delays. Conversely,
problems occur in programs when best practices are not followed. We
know of several cases where programs are launched well before key
technologies are mature, manufacturing of prototypes is done before the
design is stable, and production is begun before reliable manufacturing
processes are in place. The outcomes from these problems include
increases in cost and schedule and degradations in performance
and quality.
DOD wants the kinds of outcomes commercial companies have achieved and
thus has revised its 5000 series of acquisition regulations to reform
its acquisition process to attain them. Revisions have focused
primarily on (1) making sure technologies are demonstrated to a high
level of maturity before beginning a weapon system program and
(2) taking an evolutionary, or phased, approach to developing a system.
Separating technology development from a weapon system development
program would help curb incentives to overpromise the capabilities of a
new weapon system and to rely on immature technologies. Also, an
evolutionary approach to developing requirements and making
improvements to a system‘s capabilities is different from the
historical approach of trying to deliver all desired capabilities in
one ’big bang.“ In addition, it has been reported that DOD plans to
begin using program cost estimates from the Office of the Secretary of
Defense‘s Cost Analysis Improvement Group, rather than those prepared
by the military services, which may lead to more realistic cost
estimates when pricing programs.
While DOD‘s policy changes are a positive step, implementation on
individual programs will be a challenge. As discussed earlier, we
continue to find major weapon programs (e.g., Joint Strike Fighter,
Airborne Laser, Comanche, and Space-Based Infrared System-Low) at
considerable risk of meeting cost, schedule, and performance objectives
because critical technologies were less mature at program start than
best practices recommend. There have been some successes with
evolutionary acquisitions, such as the Tactical Unmanned Aerial Vehicle
program, but so far they are exceptional cases in that they required
significant intervention from top leadership in the services and DOD.
It would be premature to interpret this progress as evidence that
systemic change has occurred across DOD acquisitions. Nonetheless, DOD
has continued to make policy reforms, and it has recently issued a new
version of the 5000 series of acquisition guidance. According to DOD
officials, the objective of the new guidance is to foster greater
efficiency, flexibility, and innovation in developing and acquiring
weapon systems.
Key Actions Needed:
As we have recommended, DOD leadership could improve the acquisition of
weapon systems by requiring that individual program decision makers:
* Separate technology development from product development and
ensure that key technologies are mature before programs proceed into
product development. DOD‘s use of evolutionary acquisition should
help decision makers to make the right trade-offs necessary to make
this separation.
* Plan product development such that design and manufacturing knowledge
points are attained in accordance with best practices.
* Conduct test and evaluation in such a way that the burden of
component and subsystem testing does not get deferred until system
level testing late in the development cycle.
* Establish weapon requirements that routinely consider the full range
of alternative solutions, including joint mission needs and aggregate
capabilities, to ensure that cost-effective systems are developed.
DOD has generally concurred with our recommendations and incorporated
best practices into its acquisition policies.[Footnote 36] As we have
recommended, policy changes must be supported by a better environment
for starting and managing weapon system development programs. Such an
environment should more closely approximate a knowledge-based product
development process, which provides incentives and funding to capture
knowledge early for decision making and uses realistic assumptions in
establishing system cost and schedule estimates.
Improve Processes and Controls to Reduce Contract Risk:
DOD spent nearly $163 billion in fiscal year 2001 for goods and
services to equip, maintain, and support its military forces and has
long been the largest purchaser in the federal government. The
acquisition environment in which DOD operates, however, has changed
significantly over the past decade. For example, DOD now purchases more
services than supplies and equipment; DOD‘s acquisition workforce is
half the size it was a decade ago; DOD increasingly buys goods and
services using contracts awarded and managed by other federal agencies;
and changes to laws and regulations have simplified the acquisition
process. As we reported in 2001, these environmental changes contribute
to the significant contract management-related challenges DOD faces,
particularly in regard to (1) improving its acquisition of services,
(2) ensuring the appropriate use of contracting techniques and
approaches, (3) overcoming long-standing contract payment issues, and
(4) managing its health-care contracts. Underlying these challenges is
DOD‘s need to address serious imbalances in the skills and experiences
of its remaining workforce and the potential loss of highly specialized
knowledge as its acquisition specialists retire. DOD‘s acquisition
workforce issue is part of a broader human capital crisis that is
confronting the federal government as a whole.
Individually, the problems in these areas undermine DOD‘s ability to
ensure that it is acquiring the goods and services needed to meet the
warfighters‘ needs as efficiently as possible. Collectively, these
problems point to the complexity inherent in DOD‘s current contract
management processes and the challenges in embracing new or alternative
approaches within a changing acquisition environment. DOD and other
federal agencies are taking actions to address these issues. Most of
these actions, however, are at the early stages of implementation. It
is uncertain whether the corrective actions can be fully and
successfully implemented in the near term. Consequently, we continue to
identify DOD‘s contract management as a high-risk area, as we have
since 1992.
Management of DOD‘s Acquisition of Services Is Not Effective:
DOD spent more than $77 billion in fiscal year 2001 for a wide range
of services, including professional and administrative support,
information technology, utilities, medical services, and operation of
government-owned facilities. However, our work, and the work of
DOD‘s Inspector General, has found that spending on services is not
being managed effectively. Too often, requirements are not clearly
defined, alternatives are not fully considered, vigorous price analyses
are not performed, and contractors are not adequately overseen.
Additionally, there is only limited visibility or control at the DOD or
military department level, and information systems that provide
reliable data and are capable of being used as a management tool are
lacking; and it has few enterprisewide contracting-related performance
metrics. Furthermore, DOD lacks a strategic plan that integrates or
coordinates ongoing initiatives or that provides a road map for
identifying or prioritizing future service contracting-
related efforts.
The experiences of leading private-sector companies to reengineer their
approach to acquiring services offer DOD both valuable insights and a
general framework that could serve to guide DOD‘s efforts. In January
2002, we reported that our work at six leading companies found that
each had reengineered its approach to acquiring services to stay
competitive, reduce costs, and improve service levels. These changes
generally began with a corporate decision to pursue a more strategic
approach to acquiring services. Taking a strategic approach involves
a range of activities from developing a better picture of what the
company was spending on services to taking an enterprisewide approach
to procuring services and developing new ways of doing business
(see fig. 9). Pursuing such an approach clearly paid off, as the
companies found that they could save millions of dollars and improve
the quality of services received.
Figure 9: Key Elements of Strategic Approach Taken by
Leading Companies:
[See PDF for image] - graphic text:
Note: GAO‘s analysis of strategic approaches taken by leading
companies.
[End of figure] - graphic text:
Once top leaders were committed to taking this approach, companies
took a hard look at how much they were spending on services and from
whom. With this knowledge, they could identify opportunities to
leverage their buying power, reduce costs, and better manage their
suppliers. The companies also instituted a series of structural,
process, and role changes aimed at moving away from a fragmented
acquisition process to a more efficient and effective enterprisewide
process. For example, the companies we studied often established or
expanded the role of corporate procurement organizations to help
business managers acquire key services and made extensive use of cross-
functional teams to help the companies better identify service needs,
select providers, and manage contractor performance.
DOD already has in place certain elements critical to taking a
strategic approach, such as the commitment by senior DOD leadership to
improve practices for acquiring services and to adopt best commercial
practices. For example, DOD issued new policy in May 2002 that was
intended to elevate the importance and awareness of major purchases of
services to the same level as purchases of major defense systems.
However, DOD still faces a long journey, as it needs to take on the
more difficult tasks of developing a reliable and accurate picture of
service spending across DOD; determine what structures, mechanisms, and
metrics can be employed to foster a strategic approach; and tailor
those structures to meet DOD‘s unique requirements. We are continuing
our work to identify how specific best practices can be applied to the
DOD environment and are monitoring DOD‘s efforts to implement a more
strategic approach to buying services.
DOD Missed Opportunities in Contracting to Enhance Acquisition Savings
and Outcomes and Reduce Burdens:
The past decade heralded numerous changes in the way DOD bought goods
and services, as the Congress and the executive branch looked for ways
to streamline the acquisition process, reduce procurement lead times,
decrease costs, and attract firms that traditionally chose not to work
for the government. Several trends emerged in DOD‘s contracting
business, including (1) a greater reliance on contracts awarded and
managed by other agencies, (2) dramatic increases in the use of
government purchase and travel cards, (3) an increased reliance on
noncost-based pricing approaches, (4) expanded use of
performance-based contracting approaches, and (5) the growth of ’other
transactions“ for research and prototype projects. Unfortunately, our
work often found federal implementing regulations to be unclear, DOD‘s
guidance and internal controls were inadequate, and acquisition
personnel improperly trained or unaware of new processes and
procedures. Consequently, DOD missed out on opportunities to generate
savings, reduce administrative burdens, and enhance outcomes for its
acquisitions. Some of these examples are as follows:
* Since early 2000, both the Inspector General and we have found
continuing problems with DOD‘s use of the General Services
Administration‘s Federal Supply Schedule program and, more generally,
multiple-award task order contracts. In March 2000, we reported that
DOD contracting officers often did not receive competing proposals and
used broadly defined work descriptions for orders to acquire
information technology goods and services. Subsequently, in
November 2000, we reported that DOD contracting officers did not
consistently follow procedures intended to promote competition, ensure
fair and reasonable prices, or conduct a meaningful price analysis when
using the program. Many DOD contracting officers were unaware of the
General Services Administration‘s procedures for buying services when
using the program, and federal regulations did not even mention such
procedures. More recently, in September 2001,[Footnote 37] the DOD
Inspector General concluded that 304 of the 423--or 72 percent--task
orders it had reviewed were awarded on a sole-source or directed-source
basis and 264 were improperly supported.
* Over the past 2 years, we have found that DOD‘s purchase and travel
card programs were plagued by a weak overall control environment and
breakdowns in key internal control activities, leaving DOD vulnerable
to potentially fraudulent, wasteful, or abusive purchases. For example,
in July 2002, we issued reports on the Army‘s purchase and travel card
programs, which the Army uses extensively. In fiscal year 2001, about
109,000 Army purchase cardholders made about 4.4 million transactions
valued at over $2.4 billion, while the Army‘s 430,000 individual travel
card accounts had incurred about $619 million in related travel
card charges. However, the Army‘s purchase card guidance did not
adequately identify and direct the implementation of needed actions and
control activities, while DOD and Army memoranda were inadequate to
manage the purchase card program. The Army‘s travel card program was
also hampered by a weak overall control environment, flawed policies
and procedures, and a lack of adherence to valid policies and
procedures, thereby contributing to significant delinquencies and
charge-offs and fraud and abuse relating to Army employee
account balances.
* Several reports issued since 1999 have indicated that inadequate
guidance and poor training played a role in when DOD personnel did not
use sound techniques to obtain the best prices for DOD. These
situations are largely in areas where DOD cannot, or chooses not to,
rely on cost-based pricing techniques for contracts awarded without
competition.[Footnote 38] For example, in June 1999 we reported that
contracting officers often performed price analyses that were too
limited to ensure that the prices were fair and reasonable in our
review of 65 sole-source purchases of commercial items. In several
cases, contracting officers did not use historical pricing information
contained in contract files or require the sellers to provide certain
information, such as sales data, to support their offered prices.
In April 2002, we reported that DOD was waiving the requirement for
contractors to submit certified cost or pricing data, a key requirement
meant to ensure that the government has the data it needs to
effectively negotiate with the contractor in contracts awarded without
competition. We found that for 20 waivers, with a total value of
$4.4 billion, issued by DOD in fiscal year 2000, there was a wide
variation in the quality of the data and analyses being used by DOD
contracting officers to determine if the price was fair and reasonable.
DOD did not have adequate guidance that would help contracting officers
decide whether a waiver should be granted, help determine what type of
data and analyses are acceptable, and determine what kind of expert
assistance should be obtained. The DOD Inspector General identified
similar problems in a May 2001 report,[Footnote 39] concluding that the
lack of planning, shortages in staffing, and the absence of senior
leadership oversight contributed to poor pricing analysis and the
inappropriate use of waivers in a significant number of
contracts reviewed.
* As part of our recent review of the government‘s use of performance-
based contracts[Footnote 40]--a key administration initiative--we
found that DOD, like other agencies we reviewed, had achieved mixed
success in incorporating four basic performance-based attributes into
its contracts.[Footnote 41] For example, only three of the five DOD
contracts in our review that were for commercial-type services clearly
exhibited all four performance-based attributes. We found that DOD
strived to build in the attributes for the five contracts that were for
more complex, government-unique services; however, DOD found it needed
to maintain a strong role in specifying how the work should be done as
well as overseeing the work. We recommended that the Administrator of
the Office of Federal Procurement Policy clarify existing guidance to
ensure that performance-based contracting is appropriately used,
particularly when acquiring more unique and complex services that
require strong government oversight.
* In April 2000, we reported that DOD needed better guidance to assist
DOD personnel in using its ’other transaction“ authority for prototype
projects--a new tool that embodied alternative approaches to standard
contracts. We found that DOD had provided only limited guidance to
defense components, in part, because it did not want to unduly restrict
the authority‘s usage. As a result, DOD did not provide specific
objectives or criteria for using the authority, define what constituted
a prototype project, or establish metrics to assess whether the
expected benefits were actually achieved. Furthermore, we found that
the services relied on a model agreement that may have led to
agreements that did not address all relevant issues or include
appropriate terms and conditions. DOD issued new guidance in December
2000 that laid out the conditions for using prototype agreements and
provided a framework to tailor the terms and conditions appropriate for
each agreement. In October 2002, we reported that this updated guidance
complied with our earlier recommendation and should assist
DOD personnel.[Footnote 42]
DOD Has Difficulty in Overcoming Long-Standing Contract Payment Issues:
Ensuring prompt, proper, and accurate payments--whether for the
delivery of goods and services, for financing the construction of
facilities or the production of major weapon systems, or for
accomplishment of particular events or milestones on production
contracts--is a key element of a sound contract management process. Yet
for DOD, completing such basic tasks has long been a challenge. DOD‘s
financial management procedures and practices do not fully meet federal
accounting standards and financial system requirements or its own
accounting policy. As a result, DOD managers do not have important
information needed for effective financial management, leading DOD to
overpay contractors by billions of dollars over the past 8 years.
We first reported on contractor overpayments in 1994. The report,
and those issued subsequently, noted that (1) contractors were
refunding hundreds of millions of dollars to DOD each year, for a total
of about $6.7 billion between fiscal year 1994 and 2001; (2) DOD made
overpayments due to duplicate invoices and paid invoices without
properly and accurately recovering progress payments; (3) contract
administration actions had resulted in significant contractor debt or
overpayments; (4) DOD and contractors were not aggressively pursuing
the timely resolution of overpayments or underpayments when they were
identified; and (5) DOD did not have statistical information on the
results of contract reconciliation.
In May 2002, we reported that DOD has various short-term corrective
actions underway that appear to be having positive results. These
actions include redoubling efforts to reconcile contracts, a recovery
audit program intended to identify overpayments and ensure that
contractors have adequate internal controls to promptly identify and
report overpayments, and improved procedures to better identify
potential duplicate payments before the invoices are paid. However,
cost increases, performance issues, or schedule delays have beset two
of DOD‘s key long-term initiatives: the Defense Procurement Payment
System, which is intended to be DOD‘s standard contract payment system,
and the Standard Procurement System, which is intended to be DOD‘s
single, standard system to support contracting functions and interface
with financial management functions, such as payment processing.
Both the DOD Inspector General and we have reported on performance
problems and schedule delays in the Defense Procurement Payment System.
For example, the Inspector General concluded in September 2001 that the
system would not fully eliminate DOD‘s disbursement and contract
accounting problems because DOD will still need to make manual payments
for which there is a greater risk of errors being made. In May 2002, we
reported that the system‘s implementation would be delayed by more than
2 years, from August 2001 to October 2003.
We have raised concerns about DOD‘s approach to acquiring the
Standard Procurement System on a number of occasions. In July 2001,
we questioned whether further investment in the system was justified
given that DOD did not have a credible cost and benefits analysis, it
had not effectively addressed the inherent risks associated with
developing the system, and it had not met key program commitments used
to justify the system. For example, DOD had committed itself to
implementing a commercially available contract management system;
however, because it had modified so much of the foundational commercial
product, the system had evolved into a customized DOD system.
Furthermore, the system had slipped by 3½ years in its target date for
full implementation and its projected life-cycle costs had increased
from about $3 billion to $3.7 billion. We reiterated our concerns in
February 2002, noting that although DOD had taken some positive steps,
(1) it still did not have definitive plans for how and when to justify
future system releases or major enhancements to existing releases, (2)
it was considering making changes to the software that could compound
existing problems and further increase costs, and (3) not all defense
components had agreed to adopt the system.[Footnote 43]
Managing DOD‘s Contracts for Health Care:
DOD‘s challenges in contract management are further illustrated in
the difficulties it has experienced in implementing contracts under its
health-care program, TRICARE. This program, implemented in 1994,
currently offers over 8 million eligible beneficiaries a choice of
three options through which they can receive health care from either
military treatment facilities or civilian providers. Care from civilian
providers is arranged and paid for by TRICARE contractors. In fiscal
year 2002, approximately $5 billion was budgeted for TRICARE contracts.
Beginning in 1994, DOD sequentially awarded 7 contracts covering
11 geographic TRICARE regions. Each contract was originally awarded for
a base period and 5 option years. Each contract has been or is expected
to be extended beyond the base period because of DOD‘s difficulties in
designing a new approach for the next round of contracts. In May 2001,
we reported that DOD‘s contracting approach for TRICARE was overly
complicated and prescriptive and limited innovation and competition. We
also reported that numerous adjustments to the contracts had created an
unstable program.[Footnote 44]
In August 2002, DOD released a solicitation for its next generation
of TRICARE contracts, called T-Nex. DOD plans to implement these
contracts sequentially over the next 2 years. This new approach
attempts to address some of our concerns with the current contracts,
including complexity, numerous contract adjustments, and
prescriptiveness. Additionally, T-Nex represents a major overhaul of
the current structure. DOD has reduced the number of geographic regions
from 11 to 3 and has segregated functions that were previously
incorporated in the current contracts. For example, DOD has segregated
health-care delivery, marketing and education, and retail pharmacy into
separate solicitations.
The successful implementation of this approach depends largely on DOD‘s
ability to attract sufficient competition and ensure a smooth and
seamless transition for its beneficiaries. However, the reduction in
the numbers of regions and contracts may hinder a smooth transition.
For example, under the new regional structure contractors will be
required to develop provider networks over a greater geographic area.
DOD will also face challenges in integrating the new contracts into a
cohesive and seamless program for beneficiaries while maintaining the
existing contracts. Nonetheless, DOD has heeded our earlier
recommendation to allow for a longer transition period of 10 months.
Whether DOD can successfully launch the new approach and whether the
new approach will control costs, ensure quality, and minimize
disruption to beneficiaries remain to be seen.
DOD also faces continuing challenges in coordinating with the Veterans
Administration (VA) to jointly contract for health-care supplies. Since
the early 1980s, the Congress has urged DOD and VA to achieve greater
efficiencies through improved acquisition processes and increased
sharing of medical resources. Last year we reported that DOD and VA had
saved over $170 million annually by jointly procuring pharmaceuticals.
They achieved these savings by agreeing on, or ’standardizing,“
particular drugs that their facilities would purchase and then
contracting with the manufacturers of these drugs for discounts based
on their combined larger volume. However, DOD and VA have not achieved
many savings by jointly contracting for medical and surgical supplies.
This lack of progress has, in part, been the result of their different
approaches to standardizing medical and surgical supplies. DOD reports
that it is discussing with VA ways to overcome these differences to
develop joint ventures for medical and surgical supplies. Nevertheless,
DOD has opted to follow a regional approach to standardization and VA
has opted for a national approach; opportunities for national joint
procurement will be more difficult to achieve. In addition, neither
department has accurate, reliable, or comprehensive procurement
information, a basic requirement for identifying potential medical and
surgical items to standardize.[Footnote 45]
Problems Hamper DOD‘s Efforts to Improve the Acquisition Workforce:
Properly managing the $163 billion worth of goods and services it
purchased in fiscal year 2001 requires that DOD have the right skills
and capabilities in its workforce. In the past decade, DOD has
downsized its acquisition workforce[Footnote 46] by half to respond to
acquisition reforms, base realignment and closures, and congressional
direction. At the same time, DOD, like other agencies, is facing
growing public demands for better and more economical delivery of
products and services. Moreover, the ongoing technological revolution
and acquisition reforms require a workforce with new knowledge, skills,
and abilities and a transition from a role of technician to that of
business manager. Consequently, DOD now faces,
in its opinion, serious imbalances in the skills and experience of its
remaining workforce and the potential loss of highly specialized
knowledge if many of its acquisition specialists retire.[Footnote 47]
DOD has initiated a substantial strategic planning effort that seeks to
identify the competencies needed for the future and address what
reshaping of the workforce will be needed to achieve the desired mix,
but it has encountered a number of problems that have hampered
this effort.
Reshaping a workforce is a challenge for any agency. As we have
previously reported, because mission requirements, client demands,
technologies, and other environmental influences change rapidly, a
performance-based agency must continually monitor its staffing needs.
It must identify the best strategies for filling its talent needs
through recruiting and hiring and follow up with the appropriate
investments in training and development. In addition, the agency must
match the right people to the right jobs and, in the face of finite
resources, be prepared to employ matrix management principles,
maintaining the flexibility to redeploy its human capital and
realigning its structures and work processes to maximize economy,
efficiency, and effectiveness.
We recently reported that DOD has made progress in laying a foundation
for reshaping its acquisition workforce. As shown in figure 10, DOD
recognizes that it will take a considerable amount of time just to lay
a good foundation for strategic planning, with specific outcomes taking
years to achieve.
Figure 10: DOD‘s Framework for Developing a Mature Human Capital
Strategic Planning System:
[See PDF for image] - graphic text:
Note: HR is human resources.
[End of figure] - graphic text:
Part of this long-term effort will involve making a cultural shift as
well as developing better data to manage risk by spotlighting areas for
attention before crises develop and to identify opportunities for
improving results. DOD has worked to identify and address problems that
have been hampering this effort. These problems include a lack of
(1) accurate, accessible, and current workforce data; (2) mature models
to forecast future workforce requirements; (3) a link between DOD‘s
planning and budgeting processes; and (4) specific planning guidance.
One of DOD‘s ongoing initiatives to address various workforce size and
structure issues is the Acquisition Workforce Personnel Demonstration
Project. The demonstration project started in February 1999, and it is
to experiment with various concepts in workforce management, such as
those pertaining to recruiting, hiring, and retention. For example, the
demonstration project is testing broadbanding[Footnote 48] concepts
that are intended to allow managers to set pay and facilitate pay
progression. Broadbanding would allow managers to recruit candidates at
differing pay rates and to assign employees within broad job
descriptions consistent with the needs of the organization and the
skills and abilities of the employee. However, participation in the
project has been fairly limited. As of September 2001, only
5,300 acquisition personnel--out of a maximum of 95,000 allowed by
statute--were participating in the project. A DOD official indicated
that DOD intends to significantly increase project participation over
the next several years.
Key Actions Needed:
With the events of September 11, and the federal government‘s short-and
long-term budget challenges, it is more important than ever that DOD
effectively transform its business processes to ensure that it gets the
most from every dollar spent. At the same time, it should be recognized
that DOD‘s contract management-related challenges are both difficult
and deep-rooted and will not be resolved overnight. Two common elements
that pervade discussions of ways to address DOD‘s key contract
management-related challenges--service contracting, contract payment,
and human capital--are the need for (1) sustained executive leadership
and (2) a strategic, integrated, and enterprisewide approach. In
addition, ensuring that these efforts achieve their intended results
will require the Congress‘s continued involvement and support. For
example, the Congress passed legislation in 2001 requiring that DOD
establish a management structure to enhance the acquisition of services
and to collect data on the purchase of services, which could provide
DOD with additional means to take a more strategic approach to
acquiring services. Lastly, there remains a continuing need to provide
the framework and tools for acquisition personnel to make sound
business decisions in obtaining high-quality goods and services at good
prices and in a timely manner.
Provide Logistics Support That Responds to the Needs of the Warfighter
at an Affordable Cost:
DOD spent an estimated $88.2 billion in fiscal year 2001 for logistics
support activities;[Footnote 49] and despite decreasing force
structure, logistics support costs have continued to increase.
Logistics is a complex, multidisciplined function that relates to all
aspects of operating and supporting military systems. Weapon systems
and the personnel who operate them cannot perform military missions
without support systems that keep the weapon systems operating and
armed and the personnel supplied with essential supplies. We have
reported long-standing problems in DOD‘s logistics processes, systems,
and operations. As we reported in January 2001, these problems have
resulted in decreasing the quality and timeliness of logistics support
to operational forces and/or increasing support costs. To its credit,
at any one time, various DOD activities have about 400 logistics
improvement initiatives ongoing. However, the reported logistics
problems seem to transcend time and continue to challenge logistics
providers‘ efforts to achieve their goal of providing timely support to
the warfighter in a cost-effective manner. Furthermore, long-standing
problems continue with regard to the acquisition, management, and
distribution of spare and repair parts, an area that we have designated
as high risk since 1990.
DOD‘s Efforts to Address Long-Standing Problems of Quality, Timeliness,
and Cost of Logistics Support Have Shortcomings:
In 2000, we reported that DOD was attempting to reengineer and
modernize its logistics program to increase efficiency, improve
performance, and reduce system operation costs. We have reported that
inadequate integration and coordination of logistics processes,
systems, and operations had occurred within DOD--decreasing the
effectiveness of jointly operated forces in a theater of operations and
increasing the cost. We have recommended the development of an adequate
overarching logistics strategy to effectively guide the military
components development of an efficient and effective logistics system.
However, DOD‘s efforts in this direction are not comprehensive and do
not continue previous efforts.
DOD took a positive step in dealing with its logistics planning
shortfall when it developed a logistics strategic plan and directed the
services and the defense commands to develop implementing plans that
reflected the vision, objectives, and metrics of the departmentwide
plan. While we identified shortcomings in the departmentwide plan and
those developed by the components to implement it, we also recognized
that this planning effort was a step toward improving the economy and
efficiency of the logistics support systems and developing a more
coordinated and cohesive logistics operation.
In December 2002, we reported that DOD had restructured its logistics
improvement initiatives and, as a part of this effort, had discontinued
its strategic planning initiative.[Footnote 50] In implementing its
2001 Future Logistics Enterprise, DOD is focusing its efforts over the
next few years in six key areas:
* Pursue depot maintenance public-private partnerships to achieve
greater facility utilization, realize greater investment in organic
depots, and reduce cost by empowering DOD depots to develop
partnerships with the commercial sector.
* Use condition-based maintenance to increase the operational
availability and readiness of weapon systems by improving the services‘
ability to predict failures and maintenance requirements using more
accurate condition data, thereby reducing unnecessary maintenance.
* Adopt a total life-cycle approach to weapon system management by
reengineering the life-cycle management of DOD systems to achieve
effective performance and optimum readiness while reducing operations
and support costs.
* Pursue end-to-end distribution to streamline supply support to the
warfighter by providing materiel, including items to be shipped, from
the source of supply or point of origin to the point of use or
disposal, as defined by the combatant commander.
* Establish an executive agents determination process to assign
responsibility to a service or defense agency for providing common
services and improve planning to ensure that the needed resources
are available to support the responsible agent.
* Enhance enterprise integration by building on service and Defense
Logistics Agency software integration efforts and reduce information
system support costs by streamlining and changing current DOD business
processes and practices so that they are supported by commercially
available software.
Many details for implementing the Future Logistics Enterprise
initiatives have yet to be worked out. During our review[Footnote 51]
of the current status of this effort, we found that the new initiatives
should result in improvements to the quality of logistics support in
the areas addressed. However, the new initiatives are not comprehensive
(for example, they do not address critical shortages in strategic
mobility assets), and they do not continue prior efforts in developing
and implementing a coordinated and comprehensive logistics
strategic plan.
We continue to believe that the development and implementation of a
comprehensive and coordinated logistics support planning process, as
we and the Congress have encouraged in the past, is essential to DOD‘s
ability to improve the quality and the cost-effectiveness of all
logistics support processes, systems, and operations, especially those
pertaining to supply support.
Inventory Management Continues to Be High Risk:
Since 1990, we have consistently identified DOD‘s management of
secondary inventories (spare and repair parts, clothing, medical
supplies, and other items to support the operating forces) as a high-
risk area because levels of inventory were too high and management
systems and procedures were ineffective and wasteful. Many of these
same weaknesses regarding excess inventories and the lack of economy,
efficiency, and effectiveness in the department‘s inventory management
practices still exist today.
As discussed in the previous section, the long-term solution to these
problems necessitates that DOD reengineer its entire logistics
operations, to include the development of a long-range strategic vision
and a departmentwide, coordinated approach for logistics management. In
the short term, however, we have made a number of recommendations in
recent years directed at correcting specific long-standing weaknesses
in the supply system. Specifically, we recommended that DOD (1) reduce
excess inventories, (2) eliminate material purchases for which no valid
requirement exists, (3) establish better controls and visibility over
material shipped to and from military activities, (4) address key spare
parts shortages, (5) better track how it spends its funds for spare
parts, (6) correct information systems weaknesses, and (7) adopt
specific industry-proven best practices for improving inventory
management. DOD concurred with our recommendation to develop an
overarching strategy, and it is planning to reengineer and transform
its logistics system.
While figure 11 shows that DOD‘s inventory value for the last 10 years
has generally declined, we reported that almost half of its
$63.3 billion inventory as of September 2001 exceeded war reserve or
current operating requirements. DOD had this excess partly because
demands decreased, fluctuated, or did not materialize; items became
obsolete or were phased out of service; and some of the initial
requirements and demand forecasts were not accurate. We reported in May
2001, however, that DOD does not have a sound basis for determining
which of these excess items should be retained or disposed of. Several
military services had developed models for making this determination
but were not using them. Consequently, the services cannot guarantee
that they are retaining the right items or the right amount. We also
reported that DOD‘s quantities of excess ammunition continue to
increase. Specifically, we reported in April 2001 that excess
ammunition had increased from 354,000 tons in 1993 to 493,000 tons
in 2000.
Figure 11: Value of DOD‘s Secondary Inventory, Fiscal Years 1992-2001:
[See PDF for image] - graphic text:
Note: Based on DOD‘s latest acquisition cost method of value; data
taken from DOD‘s Supply System Inventory Report, September 30, 2001.
[End of figure] - graphic text:
As of September 30, 2001, DOD records showed that the department had
inventory on order valued at about $1.6 billion that would not have
been ordered based on current requirements. We have issued several
reports in the past few years highlighting weaknesses in DOD‘s
requirements determination processes for materials and its procedures
for canceling orders for items that are no longer needed. For example,
we reported in May 2001 that the Army was unable to accurately identify
its requirements for war reserve spare parts because (1) it was not
using the best available data concerning the rate at which spares would
be consumed during wartime and (2) a potential mismatch existed between
how the Army determines spare parts requirements for war reserves and
how the Army plans to repair equipment on the battlefield. We also
reported in April 2001 that because DOD had not resolved a number of
key issues in its requirements determination process for ammunition,
the services‘ munitions requirements were uncertain, which could affect
munitions planning, programming, budgeting, and industrial production
base decisions.
We reported similarly in May 2001 and July 2002 that the Army still did
not use current data from industry for assessing wartime spare parts
requirements and based its requirements determination on historical
parts procurement data. DOD partially concurred with our findings and
recommendations. We also reported in June 2000 that DOD was unable
to efficiently and effectively cancel orders for material it no longer
needed because the military services do not (1) use the same criteria
for determining the amount of excess inventory on order that should be
canceled, (2) consistently use their computer models for determining
whether it is more economical to cancel orders or not, and (3) review
orders of excess inventory for cancellation frequently enough to avoid
contractor cancellation costs. We recommended that DOD review and
improve its processes for identifying and canceling excess inventory
on order.
One of DOD‘s more serious and long-standing inventory management
weaknesses that we have been reporting on for over a decade is DOD‘s
inability to maintain adequate accountability over material being
shipped between contractor facilities and DOD activities or between DOD
activities. We reported in July 2002, for example, that the Air Force
had not properly controlled or maintained effective accountability over
material reportedly valued at about $567 million that had been shipped
to contractors for repair or use in the repair process.[Footnote 52]
Specifically, contractors receiving shipped material had not properly
recorded the receipts or routinely reported shipment discrepancies.
Furthermore, Air Force procedures for following up on shipments
that contractors had not confirmed as received were ineffective,
leaving the status of the shipments uncertain. We recommended that
the Air Force strengthen its procedures for controlling shipments of
material and following up on shipment discrepancies. We have reported
similar weaknesses regarding the shipment of chemical and biological
defense equipment that could affect the readiness of overseas Air Force
medical units to operate in a chemically contaminated environment. In
addition, we found weaknesses in the Army‘s and the Navy‘s procedures
for maintaining visibility over shipped material and following up on
shipment discrepancies.
The Navy is to be commended for reconciling many of its shipment
discrepancies in response to our March 1999 report and, as a result,
bringing about $2.5 billion worth of material back under its visibility
and control.
In January 2002, we reported that, because of control weaknesses over
excess DOD material, the Military Affiliate Radio System, the Civil Air
Patrol, and the 12th Congressional Regional Equipment Center had
obtained a reported $34 million worth of items between 1995 and 2000
that they were not eligible to receive. Many of these included items
whose use, storage, and disposal were restricted because of military
technology/applications or items that were hazardous to public health
and safety. We made several recommendations aimed at enhancing internal
controls over DOD‘s disposal of its excess property and the subsequent
accountability for the property. DOD generally concurred with our
recommendations.
Although much of DOD‘s inventory is excess to current requirements, DOD
has experienced equipment readiness problems because of shortages of
key spare parts. We reported in three separate reports in 2001 that the
Army, the Navy, and the Air Force were all experiencing operations
and maintenance problems because of a lack of key spare parts,
specifically aviation spares. While these shortages were caused by a
number of factors, the primary ones that the services cited included
underestimated demands for items, delays in the repair process,
unreliability of parts, inability to obtain parts for aging weapon
systems, and contracting problems.
As shown in table 1, the shortages of key spare parts have directly
contributed to readiness problems. Specifically, table 1 highlights the
nonmission capable rates due to supply problems for selected weapon
systems. Each of the services has a number of initiatives planned or
underway to address these shortages, and we are continuing to monitor
their efforts.
Table 1: Percentage Rates at Which Selected Aircraft Were Reported as
Not Mission Capable due to Supply Problems:
Fiscal year: 1996; Reported not mission capable rates due to supply
problems: Air Force C-5 aircraft: 15.6%; Reported not mission capable
rates due to supply problems: Navy F-14D aircraft: 10.0%; Reported not
mission capable rates due to supply problems: All Navy aircraft: 12.5%.
Fiscal year: 1997; Reported not mission capable rates due to supply
problems: Air Force C-5 aircraft: 15.2; Reported not mission capable
rates due to supply problems: Navy F-14D aircraft: 11.7; Reported not
mission capable rates due to supply problems: All Navy aircraft: 12.4.
Fiscal year: 1998; Reported not mission capable rates due to supply
problems: Air Force C-5 aircraft: 16.8; Reported not mission capable
rates due to supply problems: Navy F-14D aircraft: 12.4; Reported not
mission capable rates due to supply problems: All Navy aircraft: 12.9.
Fiscal year: 1999; Reported not mission capable rates due to supply
problems: Air Force C-5 aircraft: 17.3; Reported not mission capable
rates due to supply problems: Navy F-14D aircraft: 11.1; Reported not
mission capable rates due to supply problems: All Navy aircraft: 12.1.
Fiscal year: 2000; Reported not mission capable rates due to supply
problems: Air Force C-5 aircraft: 18.1; Reported not mission capable
rates due to supply problems: Navy F-14D aircraft: 7.6; Reported not
mission capable rates due to supply problems: All Navy aircraft: 12.9.
Source: Navy and Air Force.
Note: GAO‘s analysis of Navy and Air Force data based on work completed
in July 2001.
[End of table]
Another contributing factor to shortages of key spare parts is
defective parts received from contractors. We reported in August 2001
that the Navy was not adequately monitoring or reporting defective
spare parts and that, as a result, contractors were not fully
reimbursing it for these defective items. We attributed these
weaknesses, to a large extent, to a lack of management attention,
limited training and incentives to report deficiencies, and competing
priorities for staff resources.
We reported in May 2001 that, because of the shortages of key spares
and the related impact on readiness, each of the services had resorted
to extensively cannibalizing parts from other equipment to obtain
needed spares. We pointed out that cannibalizations increased
maintenance costs by increasing mechanics‘ workload, adversely
affecting morale and personnel retention, and sometimes taking
expensive aircraft out of service for long periods of time. We made a
number of recommendations aimed at establishing standardized,
comprehensive, and reliable cannibalization data collection procedures
and at developing strategies to reduce the amount of time spent on
cannibalizations. DOD concurred with our recommendations and stated
that consistent, complete, and accurate reporting by the services of
all types of maintenance actions, not just cannibalizations, is
essential to effective management oversight of logistics
support processes.
In an attempt to alleviate these spares shortages, the Congress
provided DOD with a $1.1 billion supplemental appropriation in fiscal
year 1999 specifically earmarked for spare parts purchases. However,
DOD‘s financial reports do not provide the Congress with reasonable
assurance about the amount of funds being spent on spare parts.
Specifically, we reported in June 2001 that the $1.1 billion earmarked
for spare parts in fiscal year 1999 had been placed in the military
services‘ operation and maintenance accounts and that DOD did not
separately track the use of these funds. Consequently, the funds could
have been used for other purposes. We recommended that DOD annually
develop detailed financial management information on the uses of spare
parts funding. In an October 2002 follow-up report, we reported that
the financial reports that DOD had submitted in response to our earlier
recommendation did not provide an accurate and complete picture of
spare parts funding because the reports generally presented estimated,
not actual, expenditures by the military services. DOD presented these
estimates, which were derived from various service computations,
modeling, and historical data, because the services do not have
reliable expenditure data or a central tracking system to compile the
needed information on their actual spending by commodity.
We recommended that DOD (1) improve its guidance for preparing these
reports to ensure that the services provide actual and complete data on
spare parts spending and (2) require the services to fully comply with
its reporting guidance. In written comments, DOD stated that to have a
comprehensive picture of spare parts spending, information on spare
parts purchased with working capital funds and other investment
accounts needs to be reported. DOD offered to work with the Congress to
facilitate this kind of analysis. In addition, DOD agreed that the
services need to explain deviations between programmed and actual
spending but believed that reporting spare parts quantities purchased,
as required by the financial management regulation, would not add
significant value to the information being provided to the Congress
because of the wide range in the unit costs for parts.[Footnote 53]
One primary factor contributing to DOD‘s inventory management
weaknesses is its outdated and ineffective management information
systems. While DOD has a number of initiatives planned or underway to
modernize its supply support management information systems, it lacks
an overall information technology enterprise architecture to guide and
constrain its investments. We reported in January 2002, for example,
that the Defense Logistics Agency lacks (1) a mature software
acquisition process across the agency and (2) a software process
improvement program to effectively strengthen its corporate software
acquisition processes. We also reported in March 2002 that because
information technology investment has only recently become an area of
management focus and commitment at the agency, the agency‘s ability to
effectively manage investments is limited. Consequently, we continue to
question the agency‘s ability to make informed and prudent investment
decisions regarding information technology. We recommended that the
agency develop a well-defined process improvement plan and controls to
ensure the establishment of a mature investment management capability.
DOD generally concurred with our recommendation.
We have issued a number of reports in recent years recommending
that DOD apply commercial best practices to its logistics operations.
We reported in February 2002, for example, that it estimates a
$59-billion-a-year expenditure for logistics support to operate and
sustain weapon systems, but it believes that better logistics support
practices could reduce these costs by as much as 20 percent. In
March 2002, we issued a Best Practices Executive Guide, which described
fundamental practices and procedures used in the private sector to
achieve consistent and accurate physical counts of inventory and
related property. DOD responded that it is attempting to improve its
logistics support through its new Future Logistics
Enterprise Initiative.
Key Actions Needed:
Our recent reports have consistently highlighted the need for DOD to
reengineer its logistics programs and apply best commercial practices
to its logistics operations as a long-term solution to its inventory
management weaknesses. In these reports, we recommended that DOD
develop an overarching plan that integrates the individual service and
defense agency logistics reengineering plans to include an investment
strategy for funding reengineering initiatives and details for how DOD
plans to achieve its final logistics system end state. DOD recognizes
its inventory management weaknesses and has begun corrective actions.
In the September 2001 Quadrennial Defense Review, the Secretary of
Defense also highlighted the need to transform the U.S. military and
the DOD establishment. The Secretary‘s report stated that, without
change, the current DOD program will only become more expensive to
maintain over time. In testimony delivered in June 2002 before the
House Subcommittee on National Security, Veterans Affairs, and
International Relations, Committee on Government Reform, we presented
two case studies that clearly demonstrated the need for DOD to reform
its business operations. In this testimony, we provided our views of
the underlying or root cause of DOD‘s long-standing inability to
successfully reform its business operations, including a lack of
sustained top-level leadership, cultural resistance to change, and
military service parochialism. In addition, we identified the need for
DOD to approach its broad array of management challenges using an
integrated, enterprisewide approach.
In the short term, we recommend that DOD address the long-standing
weaknesses that are limiting the economy and efficiency of its
logistics operations. Specifically, we recommend that DOD establish
better controls and visibility over material shipments, take actions to
address shortages of key spare parts, better track how it is spending
its funds for spare parts, and develop a departmentwide strategy for
information technology investment.
Sustained Visible Leadership and Commitment to Reform Is Necessary:
In spite of numerous initiatives and plans to transform DOD‘s business
processes, much remains to be done as evidenced by the six management
areas that are included on our high-risk list. Over the years, various
administrations have tried to overcome these challenges, with varying
degrees of success. At the same time, our work over the years, most
prominently in the Performance and Accountability and High-Risk Series,
has amply documented that many federal agencies, including DOD,
suffer from a range of long-standing management problems and a lack of
attention to basic stewardship responsibilities. Successfully
addressing these challenges will require concerted action and sustained
top-level attention over a period of years that span from one
administration to the next. The common thread that is needed to tie
DOD‘s efforts together is sound strategic planning that recognizes the
integrated nature of DOD‘s management processes and related solutions;
the importance of continuity in leadership to achieve process
improvements; and an agreement between the executive and legislative
branches of government on planned actions and desired results. As we
discussed earlier, one option for DOD to address the challenges it
faces would be to establish a full-time chief management officer
position with long-term ’good government“ responsibilities that are
professional and nonpartisan in nature. These responsibilities,
described in a special GAO Roundtable report,[Footnote 54]
could include:
* strategic planning,
* organizational alignment,
* core values stewardship,
* human capital strategy,
* performance management,
* communications and information technology management,
* financial management,
* acquisition management,
* knowledge management,
* matrix management, and:
* change management.
DOD, with its long-standing management problems in key operational
areas, could be a good first candidate, using its risk-based approach,
to try such a concept.
[End of section]
GAO Contacts:
Subjects covered in this report: Strengthen strategic planning and
budgeting to achieve desired mission outcomes; Contact persons: Sharon
L. Pickup, Director, Defense Capabilities and Management; (202) 512-
9619; pickups@gao.gov.
Subjects covered in this report: Hire, support, and retain military and
civilian personnel with the skills to meet mission needs; Contact
persons: Derek B. Stewart, Director, Defense Capabilities and
Management; (202) 512-5559; stewartd@gao.gov.
Subjects covered in this report: Overcome support infrastructure
inefficiencies to reduce costs and improve operations; Contact persons:
Barry W. Holman, Director, Defense Capabilities and Management; (202)
512-5581; holmanb@gao.gov.
Subjects covered in this report: Confront pervasive, decades-old
financial management problems to improve financial accountability;
Contact persons: Gregory D. Kutz, Director, Financial Management and
Assurance; Defense, State, and NASA Financial Management; (202) 512-
9505; kutzg@gao.gov.
Subjects covered in this report: Effectively manage information
technology investments; Contact persons: Joel C. Willemssen, Managing
Director; Information Technology; (202) 512-6408; willemssenj@gao.gov.
Subjects covered in this report: Improve DOD‘s ability to acquire
weapon systems in a cost-effective and timely way; ; Improve processes
and controls to reduce contract risk; Contact persons: Jack L. Brock,
Jr., Managing Director; Acquisition and Sourcing Management; (202) 512-
4841; brockj@gao.gov.
Subjects covered in this report: Provide logistics support that
responds to the needs of the warfighter at an affordable cost; Contact
persons: William M. Solis, Director, Defense Capabilities and
Management; (202) 512-8365; solisw@gao.gov.
[End of table]
[End of section]
Related GAO Products:
Strategic Planning:
Quadrennial Defense Review: Future Review Can Benefit from
Better Analysis and Changes in Timing and Scope. GAO-03-13.
Washington, D.C.: November 4, 2002.
Department of Defense: Status of Achieving Outcomes and
Addressing Major Management Challenges. GAO-01-783. Washington, D.C.:
June 25, 2001.
Major Management Challenges and Program Risks: Department of Defense.
GAO-01-244. Washington, D.C.: January 2001.
Future Years Defense Program: Risks in Operation and Maintenance and
Procurement Programs. GAO-01-33. Washington, D.C.: October 5, 2000.
Force Structure: Air Force Expeditionary Concept Offers Benefits but
Effects Should Be Assessed. GAO/NSIAD-00-201. Washington, D.C.:
August 15, 2000.
Force Structure: Army Is Integrating Active and Reserve Combat Forces,
but Challenges Remain. GAO/NSIAD-00-162. Washington, D.C.:
July 18, 2000.
Contingency Operations: Providing Critical Capabilities Poses
Challenges. GAO/NSIAD-00-164. Washington, D.C.: July 6, 2000.
Observations on the Department of Defense‘s Fiscal Year 1999
Performance Report and Fiscal Year 2001 Performance Plan. GAO/NSIAD-00-
188R. Washington, D.C.: June 30, 2000.
Future Years Defense Program: Funding Increase and Planned Savings
in Fiscal Year 2000 Program Are at Risk. GAO/NSIAD-00-11.
Washington, D.C.: November 22, 1999.
Military Operations: Impact of Operations Other Than War on the
Services Varies. GAO/NSIAD-99-69. Washington, D.C.: May 24, 1999.
Human Capital:
Military Personnel: Active Duty Benefits Reflect Changing Demographics,
but Opportunities Exist to Improve. GAO-02-935. Washington, D.C.:
September 18, 2002.
Reserve Forces: DOD Actions Needed to Better Manage Relations
between Reservists and Their Employers. GAO-02-608. Washington, D.C.:
June 13, 2002.
Military Personnel: Active Duty Benefits Reflect Changing Demographics,
but Continued Focus Needed. GAO-02-557T. Washington, D.C.: April 11,
2002.
Defense Infrastructure:
Defense Infrastructure: Most Recruit Training Barracks Have Significant
Deficiencies. GAO-02-786. Washington, D.C.: June 13, 2002.
Military Base Closures: Progress in Completing Actions from Prior
Realignments and Closures. GAO-02-433. Washington, D.C.: April 5, 2002.
Military Base Closures: DOD‘s Updated Net Savings Estimate Remains
Substantial. GAO-01-971. Washington D.C.: July 31, 2001.
Financial Management:
Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential
Fraud and Abuse. GAO-02-863T. Washington, D.C.: July 17, 2002.
Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud,
Waste, and Abuse. GAO-02-732. Washington, D.C.: June 27, 2002.
DOD Management: Examples of Inefficient and Ineffective Business
Processes. GAO-02-873T. Washington, D.C.: June 4, 2002.
DOD Financial Management: Important Steps Underway but Reform Will
Require a Long-Term Commitment. GAO-02-784T. Washington, D.C.: June 4,
2002.
DOD Financial Management: Integrated Approach, Accountability,
Transparency, and Incentives Are Keys to Effective Reform. GAO-02-537T.
Washington, D.C.: March 20, 2002.
Purchase Cards: Continued Control Weaknesses Leave Two Navy Units
Vulnerable to Fraud and Abuse. GAO-02-506T. Washington, D.C.:
March 13, 2002.
DOD Financial Management: Integrated Approach, Accountability,
Transparency, and Incentives Are Keys to Effective Reform. GAO-02-497T.
Washington, D.C.: March 6, 2002.
Canceled DOD Appropriations: $615 Million of Illegal or Otherwise
Improper Adjustments. GAO-01-697. Washington, D.C.: July 26, 2001.
Information Management and Technology:
Information Technology: Greater Use of Best Practices Can Reduce Risk
in Acquiring Defense Health Care System. GAO-02-345. Washington, D.C.:
September 26, 2002.
DOD Systems Modernization: Continued Investment in the Standard
Procurement System Has Not Been Justified. GAO-01-682.
Washington, D.C.: July 31, 2002.
Information Security: Corps of Engineers Making Improvements, but
Weaknesses Continue. GAO-02-589. Washington, D.C.: June 10, 2002.
Information Technology: Defense Information Systems Agency Can Improve
Investment Planning and Management Controls. GAO-02-50. Washington,
D.C.: March 15, 2002.
Information Technology: DLA Needs to Strengthen Its Investment
Management Capability. GAO-02-314. Washington, D.C.: March 15, 2002.
Information Technology: Inconsistent Software Acquisition Processes
at the Defense Logistics Agency Increase Project Risks. GAO-02-9.
Washington, D.C.: January 10, 2002.
Information Technology: DLA Should Strengthen Business Systems
Modernization Architecture and Investment Activities. GAO-01-631.
Washington, D.C.: June 29, 2001.
Information Technology: Architecture Needed to Guide Modernization of
DOD‘s Financial Operations. GAO-01-525. Washington, D.C.: May 17, 2001.
DOD Information Technology: Software and Systems Process Improvement
Programs Vary in Use of Best Practices. GAO-01-116. Washington, D.C.:
March 30, 2001.
Information Security: Challenges to Improving DOD‘s Incident Response
Capabilities. GAO-01-341. Washington, D.C.: March 29, 2001.
Acquisition Reform:
Missile Defense: Knowledge-Based Decision Making Needed to Reduce Risks
in Developing Airborne Laser. GAO-02-631. Washington, D.C.: July 12,
2002.
Tactical Aircraft: F-22 Delays Indicate Initial Production Rates Should
Be Lower to Reduce Risks. GAO-02-298. Washington, D.C.: March 5, 2002.
Defense Acquisitions: Steps to Improve the Crusader Program‘s
Investment Decisions. GAO-02-201. Washington, D.C.: February 25, 2002.
Joint Warfighting: Attacking Time-Critical Targets. GAO-02-204R.
Washington, D.C.: November 30, 2001.
Joint Strike Fighter Acquisition: Mature Critical Technologies Needed
to Reduce Risks. GAO-02-39. Washington, D.C.: October 19, 2001.
Defense Manufacturing Technology Program: More Joint Projects
and Tracking of Results Could Benefit Program. GAO-01-943.
Washington, D.C.: September 28, 2001.
Defense Acquisitions: Actions to Improve Navy SPAWAR Low-Rate Initial
Production Decisions. GAO-01-735. Washington, D.C.: August 7, 2001.
Combat Identification Systems: Strengthened Management Efforts
Needed to Ensure Required Capabilities. GAO-01-632. Washington, D.C.:
June 25, 2001.
Defense Acquisitions: Higher Level DOD Review of Antiarmor Mission and
Munitions Is Needed. GAO-01-607. Washington, D.C.: June 8, 2001.
Defense Acquisitions: Comanche Program Objectives Need to Be Revised to
More Achievable Levels. GAO-01-450. Washington, D.C.: June 7, 2001.
Defense Acquisitions: Space-Based Infrared System-low at Risk
of Missing Initial Deployment Date. GAO-01-6. Washington, D.C.:
February 28, 2001.
Defense Acquisitions: Readiness of the Marine Corps‘ V-22 Aircraft for
Full-Rate Production. GAO-01-369R. Washington, D.C.: February 20, 2001.
Best Practices:
Best Practices: Capturing Design and Manufacturing Knowledge Early
Improves Acquisition Outcomes. GAO-02-701. Washington, D.C.:
July 15, 2002.
Defense Acquisitions: DOD Faces Challenges in Implementing Best
Practices. GAO-02-469T. Washington, D.C.: February 27, 2002.
Best Practices: Better Matching of Needs and Resources Will Lead to
Better Weapon System Outcomes. GAO-01-288. Washington, D.C.:
March 8, 2001.
Best Practices: A More Constructive Test Approach Is Key to Better
Weapon System Outcomes. GAO/NSIAD-00-199. Washington, D.C.:
July 31, 2000.
Contracting:
Defense Acquisitions: DOD Has Implemented Section 845 Recommendations
but Reporting Can Be Enhanced. GAO-03-150. Washington, D.C.: October 9,
2002.
Contract Management: Guidance Needed for Using Performance-Based
Service Contracting. GAO-02-1049. Washington, D.C.: September 23, 2002.
Travel Cards: Control Weaknesses Leave Army Vulnerable to Potential
Fraud and Abuse. GAO-02-863T. Washington, D.C.: July 17, 2002.
Purchase Cards: Control Weaknesses Leave Army Vulnerable to Fraud,
Waste, and Abuse. GAO-02-844T. Washington, D.C.: July 17, 2002.
VA and Defense Health Care: Potential Exists for Savings through
Joint Purchasing of Medical and Surgical Supplies. GAO-02-872T.
Washington, D.C.: June 26, 2002.
DOD Contract Management: Overpayments Continue and Management and
Accounting Issues Remain. GAO-02-635. Washington, D.C.: May 30, 2002.
Acquisition Workforce: Department of Defense‘s Plans to Address
Workforce Size and Structure Challenges. GAO-02-630. Washington, D.C.:
April 30, 2002.
Contract Management: DOD Needs Better Guidance on Granting Waivers for
Certified Cost or Pricing Data. GAO-02-502. Washington, D.C.: April
22, 2002.
Best Practices: Taking A Strategic Approach Could Improve DOD‘s
Acquisition of Services. GAO-02-230. Washington, D.C.: January 18,
2002.
DOD Systems Modernization: Continued Investment in the Standard
Procurement System Has Not Been Justified. GAO-01-682.
Washington, D.C.: July 31, 2001.
DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly
Buying and Mailing Out Drugs. GAO-01-588. Washington, D.C.:
May 25, 2001.
Defense Health Care: Lessons Learned from TRICARE Contracts and
Implications for the Future. GAO-01-742T. Washington, D.C.: May 17,
2001.
Contract Management: Not Following Procedures Undermines Best Pricing
Under GSA‘s Schedule. GAO-01-125. Washington, D.C.: November 28, 2000.
Human Capital: A Self-Assessment Checklist for Agency Leaders. GAO/OCG-
00-14G. Washington, D.C.: September 2000.
Acquisition Reform: DOD‘s Guidance on Using Section 845 Agreements
Could Be Improved. GAO/NSIAD-00-33. Washington, D.C.: April 7, 2000.
Contract Management: Few Competing Proposals for Large DOD Information
Technology Orders. GAO/NSIAD-00-56. Washington, D.C.: March 20, 2000.
Defense Health Care: Claims Processing Improvements Are Under Way but
Further Enhancements Are Needed. GAO/HEHS-99-128. Washington, D.C.:
August 23, 1999.
Contract Management: DOD Pricing of Commercial Items Needs Continued
Emphasis. GAO/NSIAD-99-90. Washington, D.C.: June 24, 1999.
Logistics Reengineering:
Defense Management: New DOD Management Reform Program Still Evolving.
GAO-03-58. Washington, D.C.: December 15, 2002.
Defense Inventory: Better Reporting on Spare Parts Spending Will
Enhance Congressional Oversight. GAO-03-18. Washington, D.C.:
October 24, 2002.
Defense Logistics: Improving Customer Feedback Program Could Enhance
DLA‘s Delivery of Services. GAO-02-776. Washington, D.C.: September 9,
2002.
Defense Inventory: Improved Industrial Base Assessments for Army
War Reserve Spares Could Save Money. GAO-02-650. Washington, D.C.: July
12, 2002.
Defense Inventory: Air Force Needs to Improve Control Over Shipments to
Repair Contractors. GAO-02-617. Washington, D.C.: July 1, 2002.
DOD Management: Examples of Inefficient and Ineffective Business
Processes. GAO-02-873T. Washington, D.C.: June 25, 2002.
Defense Inventory: Trends in Services‘ Spare Parts Purchased from the
Defense Logistics Agency. GAO-02-452. Washington, D.C.: April 30, 2002.
Information Technology: DLA Needs to Strengthen Its Investment
Management Capability. GAO-02-314. Washington, D.C.: March 15, 2002.
Defense Logistics: Opportunities to Improve the Army‘s and Navy‘s
Decision-Making Process for Weapons Systems Support. GAO-02-306.
Washington, D.C.: February 28, 2002.
Defense Inventory: Control Weaknesses Leave Restricted and Hazardous
Excess Property Vulnerable to Improper Use, Loss, and Theft. GAO-02-75.
Washington, D.C.: January 25, 2002.
Military Aircraft: Services Need Strategies to Reduce Cannibalizations.
GAO-02-86. Washington, D.C.: November 21, 2001.
Defense Logistics: Actions Needed to Overcome Capability Gaps in the
Public Depot System. GAO-02-105. Washington, D.C.: October 12, 2001.
Defense Logistics: Strategic Planning Weaknesses Leave Economy,
Efficiency, and Effectiveness of Future Support Systems at Risk.
GAO-02-106. Washington, D.C.: October 11, 2001.
Defense Logistics: Air Force Lacks Data to Assess Contractor Logistics
Support Approaches. GAO-01-618. Washington, D.C.: September 7, 2001.
Defense Inventory: Navy Spare Parts Quality Deficiency Reporting
Programs Needs Improvement. GAO-01-923. Washington, D.C.:
August 16, 2001.
Army Inventory: Parts Shortages Are Impacting Operations and
Maintenance Effectiveness. GAO-01-772. Washington, D.C.: July 31, 2001.
Navy Inventory: Parts Shortages Are Impacting Operations and
Maintenance Effectiveness. GAO-01-771. Washington, D.C.: July 31, 2001.
Air Force Inventory: Parts Shortages Are Impacting Operations and
Maintenance Effectiveness. GAO-01-587. Washington, D.C.: June 27, 2001.
Defense Inventory: Information on the Use of Spare Parts Funding Is
Lacking. GAO-01-472. Washington, D.C.: June 11, 2001.
Defense Inventory: Approach for Deciding Whether to Retain or
Dispose of Items Needs Improvement. GAO-01-475. Washington, D.C.:
May 25, 2001.
Military Aircraft: Cannibalizations Adversely Affect Personnel and
Maintenance. GAO-01-93T. Washington, D.C.: May 22, 2001.
Defense Inventory: Army War Reserve Spare Parts Requirements Are
Uncertain. GAO-01-425. Washington, D.C.: May 10, 2001.
Defense Inventory: Process for Canceling Inventory Orders Needs
Improvement. GAO/NSIAD-00-160. Washington, D.C.: June 30, 2000.
Defense Logistics: Actions Needed to Enhance Success of Reengineering
Initiatives. GAO/NSIAD-00-89. Washington, D.C.: June 23, 2000.
Defense Inventory: Opportunities Exist to Expand the Use of Defense
Logistics Agency Best Practices. GAO/NSIAD-00-30. Washington, D.C.:
January 26, 2000.
[End of section]
Performance and Accountability and High-Risk Series:
Major Management Challenges and Program Risks: A Governmentwide
Perspective. GAO-03-95.
Major Management Challenges and Program Risks: Department of
Agriculture. GAO-03-96.
Major Management Challenges and Program Risks: Department of Commerce.
GAO-03-97.
Major Management Challenges and Program Risks: Department of Defense.
GAO-03-98.
Major Management Challenges and Program Risks: Department of Education.
GAO-03-99.
Major Management Challenges and Program Risks: Department of Energy.
GAO-03-100.
Major Management Challenges and Program Risks: Department of Health and
Human Services. GAO-03-101.
Major Management Challenges and Program Risks: Department of Homeland
Security. GAO-03-102.
Major Management Challenges and Program Risks: Department of Housing
and Urban Development. GAO-03-103.
Major Management Challenges and Program Risks: Department of the
Interior. GAO-03-104.
Major Management Challenges and Program Risks: Department of Justice.
GAO-03-105.
Major Management Challenges and Program Risks: Department of Labor.
GAO-03-106.
Major Management Challenges and Program Risks: Department of State.
GAO-03-107.
Major Management Challenges and Program Risks: Department of
Transportation. GAO-03-108.
Major Management Challenges and Program Risks: Department of the
Treasury. GAO-03-109.
Major Management Challenges and Program Risks: Department of Veterans
Affairs. GAO-03-110.
Major Management Challenges and Program Risks: U.S. Agency for
International Development. GAO-03-111.
Major Management Challenges and Program Risks: Environmental Protection
Agency. GAO-03-112.
Major Management Challenges and Program Risks: Federal Emergency
Management Agency. GAO-03-113.
Major Management Challenges and Program Risks: National Aeronautics and
Space Administration. GAO-03-114.
Major Management Challenges and Program Risks: Office of Personnel
Management. GAO-03-115.
Major Management Challenges and Program Risks: Small Business
Administration. GAO-03-116.
Major Management Challenges and Program Risks: Social Security
Administration. GAO-03-117.
Major Management Challenges and Program Risks: U.S. Postal Service.
GAO-03-118.
High-Risk Series: An Update. GAO-03-119.
High-Risk Series: Strategic Human Capital Management. GAO-03-120.
High-Risk Series: Protecting Information Systems Supporting the Federal
Government and the Nation‘s Critical Infrastructures. GAO-03-121.
High-Risk Series: Federal Real Property. GAO-03-122.
FOOTNOTES
[1] The first Quadrennial Defense Review was submitted to the Congress
in May 1997.
[2] The Congress first mandated the 1997 Quadrennial Defense Review in
the National Defense Authorization Act for Fiscal Year 1997, and the
National Defense Authorization Act for Fiscal Year 2000 created a
permanent requirement for DOD to conduct such a review every 4 years.
The legislation requires DOD to report on various topics, including the
type of force structure best suited to implement the defense strategy,
the effect of new technologies on force structure, and the key
assumptions used in the review.
[3] U.S. General Accounting Office, Quadrennial Defense Review: Future
Reviews Can Benefit from Better Analysis and Changes in Timing and
Scope, GAO-03-13 (Washington, D.C.: Nov. 4, 2002).
[4] We reported that DOD discussed the importance of human resources in
achieving DOD‘s performance objectives; summarized how DOD‘s
performance metrics responded to each of the eight management
challenges; and more effectively presented information data
verification, presentation, and content in the fiscal year 2000
performance report.
[5] At the time of our report, the selected outcomes were as follows:
(1) technological superiority is maintained in key warfighting
capabilities; (2) U.S. military forces are adequate in number, well
qualified, and highly motivated; (3) combat readiness is maintained at
desired levels; (4) infrastructure and operating procedures are more
efficient and cost-effective; (5) availability and/or use of illegal
drugs are reduced; and (6) fewer erroneous payments are made to
contractors.
[6] Results for fiscal year 2001 were to use standards established by a
February 2000 performance plan submitted to the Congress with the
Clinton administration‘s last budget.
[7] U.S. General Accounting Office, Defense Budget: Need to Strengthen
Guidance and Oversight of Contingency Operation Costs, GAO-02-450
(Washington, D.C.: May 21, 2002).
[8] Department of Defense, Transforming Department of Defense Financial
Management: A Strategy for Change (Washington, D.C.: Apr. 13, 2001).
Recognizing the need for improved financial data to effectively manage
DOD‘s vast operations, the Secretary of Defense commissioned an
independent study to recommend a strategy for financial
management improvements.
[9] Public Law 107-314, December 2, 2002.
[10] Benefits represent the indirect compensation above and beyond a
servicemember‘s basic pay. The U.S. Bureau of Labor Statistics defines
a benefit as ’non-wage compensation provided to employees.“ We use the
term to include such benefits as retirement, health care, and
educational assistance, as well as certain programs and services that
support servicemembers and their families, including child care,
spousal employment assistance, and relocation assistance.
[11] Our estimate may understate the total amount appropriated for
military compensation because funds for certain benefits are aggregated
into higher-level budget categories and therefore are not visible in
the budget.
[12] This figure includes enlistee‘s pay and allowances as well as the
cost of the services‘ recruiting and training infrastructure.
[13] Pub. L. 106-65, sec. 641, Oct. 5, 1999; Pub. L. 106-398, sec. 752,
Oct. 30, 2000.
[14] ’Reserve forces“ or ’reservists“ refers to the collective forces
of the Army National Guard, the Air National Guard, the Army Reserve,
the Naval Reserve, the Marine Corps Reserve, the Air Force Reserve, and
the Coast Guard.
[15] We use the term ’operational tempo“ to mean the total days
reservists spend participating in normal drills, training, and
exercises, as well as domestic and overseas operational missions.
[16] 5 U.S.C. §552a.
[17] Pub. L. 103-353, Oct. 13, 1994, 38 U.S.C. §§4301-4333 grants
servicemembers reemployment rights following military duty and
addresses the rights and responsibilities of both reservists and
their employers.
[18] U.S. General Accounting Office, Financial Management: DOD
Improvement Plan Needs Strategic Focus, GAO-01-764 (Washington, D.C.:
Aug. 17, 2001).
[19] U.S. General Accounting Office, Reserve Forces: DOD Actions Needed
to Better Manage Relations between Reservists and Their Employers, GAO-
02-608 (Washington, D.C.: June 13, 2002).
[20] DOD defines infrastructure as those activities that provide
support services to mission programs, such as combat units.
[21] U.S. Department of Defense, Annual Report to the President and the
Congress for Fiscal Year 2002 (Washington, D.C.: Aug. 15, 2002).
[22] The Future Years Defense Plan, or FYDP, is the official document
that summarizes the force levels and funding associated with specific
programs that the Secretary of Defense would like the Congress to
approve. It presents estimated appropriation needs for the budget year
for which funds are being requested from the Congress and at least the
4 years following it.
[23] Forty-four percent is significantly less than the proportion of
planned infrastructure funding reported by DOD in our high-risk series
issued in January 2001. Since then, DOD has adjusted its cost data for
definitional or accounting changes. The principal adjustments were
required by the Army and Air Force reclassifications that moved
significant resources from infrastructure to mission categories. These
readjustments would have the effect of decreasing the percentage of
funding for infrastructure.
[24] Membership on the Senior Executive Council includes the Secretary
of Defense (chair); the Deputy Secretary of Defense; the Under
Secretary of Defense for Acquisition, Technology, and Logistics; and
the Secretaries of the Army, Navy, and Air Force. Membership on the
Business Initiative Council is similar to the Senior Executive Council
and includes the Under Secretary of Defense for Acquisition,
Technology, and Logistics; the Secretaries of the Army, Navy, and Air
Force; and the Vice Chairman of the Joint Chiefs of Staff. The
Comptroller and the Under Secretary for Personnel and Readiness were
recently added. The Executive Steering Committee is composed of
designated service three-star flag and general officers, selected
executives from the Office of the Secretary of Defense, and a Joint
Chiefs warfighter liaison.
[25] Under the A-76 process, agencies conduct competitions to determine
whether the public or private sector will perform selected commercial
activities and functions.
[26] Commercial Activities Panel, Improving the Sourcing Decisions of
the Government, CAP-02-01 (Washington, D.C.: Apr. 30, 2002).
[27] On November 19, 2002, the Office of Management and Budget issued a
proposed revision of Circular A-76.
[28] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Defense, GAO-01-244 (Washington, D.C.:
Jan. 2001).
[29] Financial management systems are to enable agencies to prepare,
execute, and report on their budgets in accordance with the
requirements of Office of Management and Budget Circular No. A-11
(Preparation and Submission of Budget Estimates), Office of Management
and Budget Circular No. A-34 (Instructions on Budget Execution), and
other applicable Office of Management and Budget circulars
and bulletins.
[30] U.S. General Accounting Office, Information Technology:
Architecture Needed to Guide Modernization of DOD‘s Financial
Operations, GAO-01-525 (Washington, D.C.: May 17, 2001); Information
Technology: DLA Should Strengthen Business Systems Modernization
Architecture and Investment Activities, GAO-01-631 (Washington, D.C.:
June 29, 2001); Information Technology: Defense Information Systems
Agency Can Improve Investment Planning and Management Controls, GAO-02-
50 (Washington, D.C.: June 29, 2001).
[31] GAO-01-631; U.S. General Accounting Office, Information
Technology: Greater Use of Best Practices Can Reduce Risk in Acquiring
Defense Health Care System, GAO-02-345 (Washington, D.C.:
Sept. 6, 2002).
[32] U.S. General Accounting Office, Information Technology:
Inconsistent Software Acquisition Processes at the Defense Logistics
Agency Increase Project Risks, GAO-02-9 (Washington, D.C.:
Jan. 10, 2002); DOD Information Technology: Software and Systems
Process Improvement Programs Vary in Use of Best Practices, GAO-01-116
(Washington, D.C.: Mar. 30, 2001).
[33] Department of Defense, Government Performance and Results Act, FY
2000 Performance Report (March 2001).
[34] The DOD term ’information assurance“ encompasses the range of
security activities and functions used to protect DOD information
and systems.
[35] The eight weapon systems are the Joint Strike Fighter, Comanche,
Space Based Infrared System-High, F-22, V-22, AAAV, DDG-51, and
SSN-774.
[36] Related reports on acquisition reform and best practices are
listed in the ’Related GAO Products“ section of this report.
[37] Office of the Inspector General, Department of Defense, Multiple
Award Contracts For Services, Report No. D-2001-189 (Arlington, Va:
September 2001).
[38] The federal government generally seeks to award its contracts
through competition. However, in instances in which it cannot rely on
competition to get the best prices and values, such as when there is
only a single source for products and services, contractors normally
provide cost or pricing data supporting their proposed prices and
certify that the data submitted are accurate, complete, and current.
This requirement, established by the Truth in Negotiations Act, allows
the government to pursue remedies, such as a reduction in contract
price, should it later discover that the contractor submitted data that
were not accurate, complete, or current. Contractors offering
commercial items are generally exempt from this requirement, although
the government can ask for other types of data to evaluate the
reasonableness of the prices offered.
[39] Office of the Inspector General, Department of Defense,
Contracting Officer Determinations of Price Reasonableness When Cost or
Pricing Data Were Not Obtained, Report No. D-2001-129 (Arlington, Va:
May 30, 2001).
[40] U.S. General Accounting Office, Contract Management: Guidance
Needed for Using Performance-Based Service Contracting, GAO-02-1049
(Washington, D.C.: Sept. 23, 2002).
[41] These attributes describe desired outcomes rather than how the
services should be performed, set measurable performance standards,
describe how the contractor‘s performance will be evaluated, and
identify positive and negative incentives, as appropriate.
[42] U.S. General Accounting Office, Defense Acquisitions: DOD Has
Implemented Section 845 Recommendations but Reporting Can Be Enhanced,
GAO-03-150 (Washington, D.C.: Oct. 9, 2002).
[43] U.S. General Accounting Office, DOD‘s Standard Procurement System:
Continued Investment Has Yet to Be Justified, GAO-02-392T
(Washington, D.C.: Feb. 7, 2002).
[44] U.S. General Accounting Office, Defense Health Care: Lessons
Learned from TRICARE Contracts and Implications for the Future, GAO-01-
742T (Washington, D.C.: May 17, 2001).
[45] U.S. General Accounting Office, VA and Defense Health Care:
Potential Exists for Savings through Joint Purchasing of Medical and
Surgical Supplies, GAO-02-872T (Washington, D.C.: June 26, 2002).
[46] DOD refers to its acquisition workforce as its acquisition,
technology, and logistics workforce.
[47] DOD‘s estimate of personnel eligible to retire includes early
retirement programs and individuals eligible for retirement with
reduced annuities based on March 2001 data from the Defense Manpower
Data Center.
[48] Broadbanding is the replacement of the current General Schedule or
General Manager system with a system consisting of broad ’bands“ of
career paths.
[49] Logistics activities include weapon system maintenance, supply
management, engineering, storage, distribution, and transportation of
military goods.
[50] U.S. General Accounting Office, Defense Management: New Management
Reform Program Still Evolving, GAO-03-58 (Washington, D.C.: Dec. 12,
2002).
[51] GAO-03-58.
[52] U.S. General Accounting Office, Defense Inventory: Air Force Needs
to Improve Control of Shipments to Repair Contractors GAO-02-617
(Washington, D.C.: July 1, 2002).
[53] U.S. General Accounting Office, Defense Inventory: Better
Reporting on Spare Parts Spending Will Enhance Congressional Oversight,
GAO-03-18 (Washington, D.C.: Oct. 24, 2002).
[54] U.S. General Accounting Office, Highlights of a GAO Roundtable:
The Chief Operating Officer Concept: A Potential Strategy To Address
Federal Governance Challenges, GAO-03-192SP (Washington, D.C.: Oct. 4,
2002).
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