Defense Business Transformation
A Full-time Chief Management Officer with a Term Appointment Is Needed at DOD to Maintain Continuity of Effort and Achieve Sustainable Success Gao ID: GAO-08-132T October 16, 2007The Department of Defense (DOD) continues to face significant challenges in resolving its many long-standing business challenges. DOD is solely responsible for eight high-risk areas and shares responsibility for another seven governmentwide areas on GAO's high-risk list. GAO designated DOD's approach to business transformation as high risk in 2005 because (1) DOD's improvement efforts were fragmented, (2) DOD lacked an enterprisewide and integrated business transformation plan, and (3) DOD had not appointed a senior official at the right level with an adequate amount of time and appropriate authority to be responsible for overall business transformation efforts. A recent DOD directive designated the current Deputy Secretary of Defense as DOD's chief management officer (CMO). Successful overall business transformation, however, will require full-time leadership that is focused solely on the integration and execution of these efforts, over the long term, to resolve pervasive weaknesses that have left DOD vulnerable to waste, fraud, and abuse at a time of increasing fiscal constraint. This testimony is based on previous and ongoing GAO work and discusses (1) the impact of DOD's long-standing business challenges on DOD and the warfighter, and (2) the progress DOD has made and actions needed to achieve sustainable success in its business transformation efforts. This testimony also provides an update on DOD-specific high-risk areas.
The persistence and magnitude of DOD's business transformation challenges highlight the fact that the status quo is unacceptable and that, without focused and sustained leadership to guide the overall business transformation effort, the department will continue to waste billions of dollars annually. Within DOD, business transformation is broad, encompassing people, planning, processes, organizational structures, and technology. DOD's pervasive and long-standing business weaknesses adversely affect the department's economy, efficiency, and effectiveness, and have resulted in a lack of adequate accountability across all of its major business areas. Ultimately, these weaknesses affect the department's ability to support the warfighter, including the availability of equipment and weapon systems, the cost and performance of contractors supporting the warfighter, and the assessment of resource requirements. DOD's senior leadership has shown a commitment to transforming the department's business operations. Two critical actions, among others, however, are still needed to change the status quo. DOD has yet to establish (1) a strategic planning process that results in a comprehensive, integrated, and enterprisewide plan or set of plans to help guide transformation, and (2) a senior official who can provide full-time attention and sustained leadership to transformation. Broad-based consensus exists among GAO and others that DOD needs a full-time and term-based senior management official to provide focused and sustained leadership over its overall business transformation efforts, both within and across administrations. Also, various legislative proposals call for senior-level attention to these efforts. While DOD recently assigned CMO duties to the current Deputy Secretary of Defense, this does not ensure full-time attention or continuity of leadership. GAO continues to believe a CMO position should be codified in statute as a separate position, at the right level, and with the appropriate term in office. In the absence of a CMO with these characteristics, and an enterprisewide plan to guide business transformation efforts, it is highly unlikely that DOD will ever get the most out of every taxpayer dollar it invests to better support the warfighter in times of growing fiscal constraint.
GAO-08-132T, Defense Business Transformation: A Full-time Chief Management Officer with a Term Appointment Is Needed at DOD to Maintain Continuity of Effort and Achieve Sustainable Success
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Testimony:
Before the Subcommittee on Federal Financial Management, Government
Information, Federal Services, and International Security, Committee on
Homeland Security and Governmental Affairs, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 3:15 p.m. EDT:
Tuesday, October 16, 2007:
defense business transformation:
A Full-time Chief Management Officer with a Term Appointment Is Needed
at DOD to Maintain Continuity of Effort and Achieve Sustainable
Success:
Statement of David M. Walker Comptroller General of the United States:
GAO-08-132T:
GAO Highlights:
Highlights of GAO-08-132T, a testimony before the Subcommittee on
Federal Financial Management, Government Information, Federal Services,
and International Security, Committee on Homeland Security and
Governmental Affairs, U.S. Senate.
Why GAO Did This Study:
The Department of Defense (DOD) continues to face significant
challenges in resolving its many long-standing business challenges. DOD
is solely responsible for eight high-risk areas and shares
responsibility for another seven governmentwide areas on GAO‘s high-
risk list. GAO designated DOD‘s approach to business transformation as
high risk in 2005 because (1) DOD‘s improvement efforts were
fragmented, (2) DOD lacked an enterprisewide and integrated business
transformation plan, and (3) DOD had not appointed a senior official at
the right level with an adequate amount of time and appropriate
authority to be responsible for overall business transformation
efforts. A recent DOD directive designated the current Deputy Secretary
of Defense as DOD‘s chief management officer (CMO). Successful overall
business transformation, however, will require full-time leadership
that is focused solely on the integration and execution of these
efforts, over the long term, to resolve pervasive weaknesses that have
left DOD vulnerable to waste, fraud, and abuse at a time of increasing
fiscal constraint.
This testimony is based on previous and ongoing GAO work and discusses
(1) the impact of DOD‘s long-standing business challenges on DOD and
the warfighter, and (2) the progress DOD has made and actions needed to
achieve sustainable success in its business transformation efforts.
This testimony also provides an update on DOD-specific high-risk areas.
What GAO Found:
The persistence and magnitude of DOD‘s business transformation
challenges highlight the fact that the status quo is unacceptable and
that, without focused and sustained leadership to guide the overall
business transformation effort, the department will continue to waste
billions of dollars annually. Within DOD, business transformation is
broad, encompassing people, planning, processes, organizational
structures, and technology. DOD‘s pervasive and long-standing business
weaknesses adversely affect the department‘s economy, efficiency, and
effectiveness, and have resulted in a lack of adequate accountability
across all of its major business areas. Ultimately, these weaknesses
affect the department‘s ability to support the warfighter, including
the availability of equipment and weapon systems, the cost and
performance of contractors supporting the warfighter, and the
assessment of resource requirements.
Table: Illustrative Weaknesses in DOD's Business Operations:
Business area: Weapon Systems Acquisition;
Impact on department and warfighter: Weapon development problems have
delayed deliveries to the warfighter by several years on average. It is
a predictable phenomenon that can be remedied with better knowledge at
key decision points. However, standing in the way is a range of long-
standing challenges Congress will have to address.
Business area: Contract Management;
Impact on department and warfighter: While DOD relies heavily on
contractors to undertake major reconstruction projects and provide
support to the military, ineffective contract design, management, and
oversight leads to increased costs and poor outcomes.
Business area: Financial Management;
Impact on department and warfighter: Unreliable cost information
affects DOD's ability to assess resource requirements, control costs,
assess performance, evaluate programs, and set appropriate fees to
recover costs where required.
Source: GAO.
[End of table]
DOD‘s senior leadership has shown a commitment to transforming the
department‘s business operations. Two critical actions, among others,
however, are still needed to change the status quo. DOD has yet to
establish (1) a strategic planning process that results in a
comprehensive, integrated, and enterprisewide plan or set of plans to
help guide transformation, and (2) a senior official who can provide
full-time attention and sustained leadership to transformation. Broad-
based consensus exists among GAO and others that DOD needs a full-time
and term-based senior management official to provide focused and
sustained leadership over its overall business transformation efforts,
both within and across administrations. Also, various legislative
proposals call for senior-level attention to these efforts. While DOD
recently assigned CMO duties to the current Deputy Secretary of
Defense, this does not ensure full-time attention or continuity of
leadership. GAO continues to believe a CMO position should be codified
in statute as a separate position, at the right level, and with the
appropriate term in office. In the absence of a CMO with these
characteristics, and an enterprisewide plan to guide business
transformation efforts, it is highly unlikely that DOD will ever get
the most out of every taxpayer dollar it invests to better support the
warfighter in times of growing fiscal constraint.
To view the full product, including the scope and methodology, click on
[hyperlink, http://www.GAO-08-132T]. For more information, contact
Sharon Pickup, at (202) 512-9619 or pickups@gao.gov.
[End of section]
Mr. Chairman and Members of the Subcommittee:
I am pleased to be before this Subcommittee to discuss the status of
the Department of Defense's (DOD) efforts to transform its business
operations and why further action is needed to maintain continuity of
effort, change the status quo, and achieve sustainable success. Since
the first financial statement audit of a major DOD component was
attempted almost 20 years ago, we have reported that weaknesses in
business operations not only adversely affect the reliability of
reported financial data, but also the economy, efficiency, and
effectiveness of DOD's operations. In fact, DOD continues to dominate
our list of high-risk programs designated as vulnerable to waste,
fraud, and abuse of funds, bearing responsibility, in whole or in part,
for 15 of 27 high-risk areas.[Footnote 1] Eight of these areas are
specific to DOD and include DOD's overall approach to business
transformation, as well as business systems modernization, financial
management, the personnel security clearance process, supply chain
management, support infrastructure management, weapon systems
acquisition, and contract management. Collectively, these high-risk
areas relate to DOD's major business operations which directly support
the warfighters, including how they are paid, the benefits provided to
their families, and the availability and condition of equipment they
use both on and off the battlefield.
Given the current security environment and growing longer-range fiscal
imbalance facing our nation, DOD, like other federal agencies, will
increasingly compete for resources in a fiscally constrained
environment in the future. Commitments are clearly growing both abroad,
with our involvement in ongoing operations in Iraq and Afghanistan, as
well as at home, with efforts to provide homeland security. However,
our nation is threatened not only by external security threats, but
also from within by large and growing fiscal imbalances over time due
primarily to our aging population and rising health care costs. Absent
policy changes to cope with rising health care costs and known
demographic trends, a growing imbalance between expected federal
spending and revenues will mean escalating and ultimately unsustainable
federal deficits and debt levels. As I have stated previously, our
nation is on an imprudent and unsustainable fiscal path. Given this
scenario, DOD cannot afford to continue on the course of reduced
efficiencies, ineffective performance, and inadequate accountability in
connection with its business operations. With its annual base budget
approaching $500 billion, along with total reported obligations of
about $462 billion to support ongoing operations and activities related
to the global war on terrorism since the September 11th attacks through
July 2007, the department has clearly been given stewardship over
unprecedented amounts of taxpayer money. DOD must do more to get the
most from every dollar it is given.
Transformation in any organization is a long-term process, especially
in an organization as large and as complex as DOD. I continue to
believe that DOD's senior leadership has shown a commitment to address
long-standing weaknesses and transform its business operations.
Congress, under the leadership of this Subcommittee and others, has
conducted oversight, passed legislation, and codified many of our prior
recommendations, particularly with respect to DOD's modernization of
its business systems.[Footnote 2] Since then, DOD has devoted
substantial resources and made important progress toward establishing
key transformation entities and processes to guide business activities.
DOD's current approach is clearly superior to its prior approach;
however, progress has been inconsistent and a number of challenges
remain. Most importantly, DOD has not taken what could be considered
one of the single most critical steps, which is to provide the full-
time attention and sustained leadership needed to guide business
transformation efforts. To that end, DOD needs a chief management
officer (CMO), codified in statute as a separate position, at the right
level, and with the adequate amount of time and appropriate authority
to be responsible and accountable for its business transformation
efforts.[Footnote 3] As I will discuss later, DOD recently assigned
chief management officer duties specifically to the current Deputy
Secretary of Defense, and therefore it appears these responsibilities
will expire when that individual leaves the department. In my view,
subsuming the duties within the other responsibilities of the current
Deputy Secretary essentially represents the status quo and will not
provide the continuity of effort and full-time focus that is necessary
to effectively further achieve and sustain success in connection with
DOD's overall business transformation effort.
Our work shows that DOD will continue to face difficulty in achieving
better outcomes in its business operations and ultimately optimizing
support to the warfighter until it adopts a better leadership approach
to guide its business transformation efforts. My testimony today will
touch on the various high-risk areas for which DOD is responsible,
paying special attention to the department's overall approach to
business transformation. I will provide perspectives on (1) the impact
DOD's pervasive and long-standing business challenges have on the
department and the warfighter, and (2) the progress DOD has made and
the actions needed to achieve sustainable success in its business
transformation efforts. I will also provide an update on remaining DOD-
specific high-risk areas that highlight the need for continued
attention.
My statement is based on our previous reports and testimonies, as well
as some of our current, ongoing efforts. Our work was performed in
accordance with generally accepted government auditing standards.
Summary:
DOD spends billions of dollars to sustain key business operations
intended to support the warfighter, including systems and processes
related to financial management, weapon systems acquisition, the supply
chain, support infrastructure, and contract management. We have
reported for years on pervasive and long-standing weaknesses in these
areas that adversely affect the economy, efficiency, and effectiveness
of the department, result in the lack of accountability and substantial
waste, and impede efforts to effectively support the warfighter.
Specific illustrative examples of these problems include the following:
* Financial management. Continuing weaknesses in DOD's ability to
properly record transactions and reconcile its disbursement activities
have adversely impacted the reliability of DOD's reported cost data.
Unreliable cost information affects DOD's ability to assess resource
requirements, control and reduce costs, assess performance, evaluate
programs, and set appropriate fees to recover costs where required.
* Weapon systems acquisition. DOD's planned investment in new weapons
has doubled from $750 billion in 2001 to $1.5 trillion today. Yet, the
problems remain the same: development time typically grows by 20
percent and development costs typically grow by 30 percent reducing
qualities and delaying delivery to the warfighter. It is a fixable
problem that will, among other things, require a commitment to
following a knowledge-based approach to major systems design,
development, and production.
* Supply chain management. U.S. ground forces experienced shortages of
critical supply items, such as tires and body armor, while the Air
Force simultaneously invested billions of dollars on inventory that was
not needed for requirements.
* Contract management. While DOD relies extensively on contractors to
undertake major reconstruction projects and provide logistical support
to the military, ineffective contract design, management, and oversight
leads to increased costs and poor contract outcomes.
Overall, these long-standing weaknesses in DOD's business areas have
(1) resulted in a lack of reliable information needed to make sound
decisions and report accurately on its operations; (2) hindered
operational efficiency; (3) adversely affected mission performance; and
(4) left the department vulnerable to significant amounts of fraud,
waste, abuse, and mismanagement.
Transforming DOD's business operations is an absolute necessity in the
context of an increasingly demanding security environment and the
pressures of our nation's long-term fiscal outlook. Further, the
current deployment of tens of thousands of servicemembers, civilians,
and contractor personnel to support ongoing operations overseas
provides an even greater sense of urgency for the department to
aggressively address weaknesses in its business operations and achieve
transformation goals in the near and long term. DOD's senior leadership
has demonstrated a commitment to transforming the department's business
operations, and has taken many steps in the last few years to further
this effort. For example, DOD has made progress in creating
transformational entities to guide its efforts, such as the Defense
Business Systems Management Committee and the Business Transformation
Agency, as well as the development of plans and other tools. However,
two critical actions, among others, are still needed to put DOD on a
sustainable path to success. DOD has yet to establish (1) a strategic
planning process that results in a comprehensive, integrated, and
enterprisewide plan or set of plans to help guide transformation and
(2) a senior official who can provide full-time attention and sustained
leadership to the overall business transformation effort. Broad-based
consensus exists among GAO and others that DOD needs a full-time and
term-based senior management official to provide focused and sustained
leadership over business transformation efforts, although differing
views exist concerning specific characteristics of the position.
Various legislative proposals before the Congress call for senior-level
attention to business transformation, and we continue to believe a CMO
at DOD should be codified in statute as a separate position, at the
right level, and with the appropriate term in office to provide full-
time focus and sustained leadership over the long term, both within and
across administrations. While DOD has recently designated the current
Deputy Secretary of Defense as the department's CMO and assigned
related duties to this individual, this step essentially perpetuates
the status quo and does not ensure full-time attention and continuity
of leadership. In the absence of a CMO with an appropriate term who can
provide focused attention and a comprehensive, integrated, and
enterprisewide plan to guide its transformation efforts, it is highly
unlikely that DOD will ever get the most out of every dollar it invests
to better support the warfighter in times of growing fiscal
constraints.
In addition to DOD's overall approach to business transformation,
ensuring effective transformation of other areas within DOD that we
have identified as high-risk will require continued attention and
sustained leadership over a number of years to be successful. For
example, DOD continues to be challenged in its efforts to transform its
financial management systems which are nonintegrated, stovepiped, and
not capable of providing decision makers with accurate and reliable
information, thus adversely affecting the department's ability to
control costs, ensure basic accountability, anticipate future costs,
and measure performance. Further, while progress has been made in DOD's
business systems modernization efforts, DOD has not fully defined and
consistently implemented the full range of management controls needed
to effectively and efficiently ensure that its business systems
investments are the right solutions for addressing its business needs.
While DOD has made some progress in addressing its supply chain
management problems, the department faces many significant challenges
in successfully implementing its changes and measuring performance. In
the area of weapon systems acquisition, recurring problems with cost
overruns and scheduled delays have resulted in a reduction on return on
investment at a time when the nation's fiscal imbalance is growing.
Furthermore, our work has found that DOD is unable to ensure that it is
using sound business practices to acquire the goods and services needed
to meet the warfighters' needs, creating unnecessary risks and paying
higher prices than justified, and its long-standing problems with
contract design, management, and oversight have become more prominent
as DOD's reliance on contractors to provide services continues to grow.
Background:
DOD is one of the largest and most complex organizations in the world.
Overhauling its business operations will take many years to accomplish
and represents a huge and possibly unprecedented management challenge.
Execution of DOD's operations spans a wide range of defense
organizations, including the military services and their respective
major commands and functional activities, numerous large defense
agencies and field activities, and various combatant and joint
operational commands that are responsible for military operations for
specific geographic regions or theaters of operation. To support DOD's
operations, the department performs an assortment of interrelated and
interdependent business functions--using thousands of business systems--
related to major business areas such as weapon systems management,
supply chain management, procurement, health care management, and
financial management. The ability of these systems to operate as
intended affects the lives of our warfighters both on and off the
battlefield.
To address long-standing management problems, we began our high-risk
series in 1990 to identify and help resolve serious weaknesses in areas
that involve substantial resources and provide critical services to the
public. Historically, high-risk areas have been designated because of
traditional vulnerabilities related to their greater susceptibility to
fraud, waste, abuse, and mismanagement. As our high-risk program has
evolved, we have increasingly used the high-risk designation to draw
attention to areas associated with broad-based transformation needed to
achieve greater economy, efficiency, effectiveness, accountability, and
sustainability of selected key government programs and operations. DOD
has continued to dominate the high-risk list, bearing responsibility,
in whole or in part, for 15 of our 27 high-risk areas. Of the 15 high-
risk areas, the 8 DOD-specific high-risk areas cut across all of DOD's
major business areas. Table 1 lists the 8 DOD- specific high-risk areas
and the year in which each area was designated as high risk. In
addition, DOD shares responsibility for 7 governmentwide high-risk
areas.[Footnote 4]
Table 1: Years When Specific DOD Areas on GAO's 2007 High-Risk List
Were First Designated as High Risk:
DOD Area: DOD approach to business transformation;
Year designated as high risk: 2005.
DOD Area: DOD personnel security clearance program;
Year designated as high risk: 2005.
DOD Area: DOD support infrastructure management;
Year designated as high risk: 1997.
DOD Area: DOD business systems modernization;
Year designated as high risk: 1995.
DOD Area: DOD financial management;
Year designated as high risk: 1995.
DOD Area: DOD contract management;
Year designated as high risk: 1992.
DOD Area: DOD supply chain management;
Year designated as high risk: 1990.
DOD Area: DOD weapon systems acquisition;
Year designated as high risk: 1990.
Source: GAO.
[End of table]
GAO designated DOD's approach to business transformation as high risk
in 2005 because (1) DOD's improvement efforts were fragmented, (2) DOD
lacked an enterprisewide and integrated business transformation plan,
and (3) DOD had not appointed a senior official at the right level with
an adequate amount of time and appropriate authority to be responsible
for overall business transformation efforts. Collectively, these high-
risk areas relate to DOD's major business operations, which directly
support the warfighter, including how servicemembers get paid, the
benefits provided to their families, and the availability of and
condition of the equipment they use both on and off the battlefield.
DOD's Pervasive and Long-standing Financial Management and Business
Weaknesses Affect the Department's Efficiency and Effectiveness and
Ultimately Impact DOD's Ability to Support the Warfighter:
The persistence and magnitude of DOD's business transformation
challenges underscore the fact that the status quo is unacceptable, and
without focused and sustained leadership to guide business
transformation, the department will continue to waste billions of
dollars every year. Within DOD, business transformation is broad,
encompassing people, planning, processes, organizational structures,
and technology in all of DOD's major business areas. DOD spends
billions of dollars to sustain key business operations intended to
support the warfighter. DOD's pervasive and long-standing weaknesses in
its financial management and business operations adversely affect the
economy, efficiency, and effectiveness of DOD's operations, and have
resulted in a lack of adequate accountability across all the
department's major business areas. Every dollar that DOD could save
through improved economy and efficiency of its operations is important
to the fiscal well-being of our nation, and ultimately can be used to
support the needs of the warfighter. DOD's high-risk areas have real
world implications for our men and women in uniform, including how the
future needs of ongoing operations are estimated, the availability and
condition of the equipment they use both on and off the battlefield,
and the performance of contractors paid to provide logistical support
to servicemembers in theater, as the following examples illustrate:
* Financial management. Continuing material weaknesses in DOD's
business processes, systems, and controls have adversely affected the
reliability of the department's reported financial information and the
department's ability to manage its operations. To its credit, the
department initiated the "Check It" Campaign in July 2006 to raise
awareness throughout the department on the importance of effective
internal management controls. However, until the impact of this
campaign and other efforts, including its financial improvement and
audit readiness (FIAR) effort, begin to significantly transform and
improve DOD's business operations, the department will continue to
suffer weaknesses in the reliability and usefulness of its management
information as illustrated by the examples below.
- The lack of reliable asset information, including cost, location, and
condition, necessary to effectively (1) safeguard assets from physical
deterioration, theft, or loss; (2) account for the acquisition and
disposal of these assets; (3) ensure that the assets are available for
use when needed; (4) prevent unnecessary storage and maintenance costs,
or purchase of assets already on hand; and (5) determine the full costs
of programs that use these assets.
- DOD's inability to estimate with assurance key components of its
environmental and disposal liabilities and support a significant amount
of its estimated military postretirement health benefits liabilities
included in federal employee and veteran benefits payable. Problems in
accounting for liabilities affect the determination of the full cost of
DOD's current operations and the extent of its liabilities. Also,
improperly stated environmental and disposal liabilities and weak
internal control supporting the process for their estimation affect the
department's ability to determine priorities for cleanup and disposal
activities and to appropriately consider future budgetary resources
needed to carry out these activities.
- Continuing weaknesses in DOD's ability to properly record
transactions and reconcile its disbursement activities have adversely
impacted the reliability of DOD's reported cost data. Unreliable cost
information affects DOD's ability to control and reduce costs, assess
performance, evaluate programs, and set appropriate fees to recover
costs where required. Improperly recorded disbursements could result in
misstatements in the financial statements and in certain data provided
by DOD for inclusion in The Budget of the United States Government
concerning obligations and outlays. Further, inadequacies in DOD's
systems and processes for recording and reporting obligation data
related to ongoing operations in support of the global war on terrorism
have contributed to uncertainty regarding the reliability of reported
costs. Our reviews found a number of problems, including long-standing
deficiencies in DOD's financial management and business systems,
incorrectly categorized or omitted obligations, and the reporting of
large amounts of obligations in miscellaneous "other"
categories.[Footnote 5] Without transparent and accurate cost
reporting, neither DOD nor Congress can reliably know how much the war
is costing, examine details on how funds are spent, or have historical
data useful in considering future needs. DOD has taken positive steps
in response to our recommendations intended to improve the reliability
and accuracy of its cost reports, and therefore cost reporting
continues to evolve.
- These financial management problems continue to be exacerbated by the
department's inability to implement business systems with the desired
capability. For example, the Army's Logistics Modernization Program has
been beset with problems virtually since its initial implementation in
July 2003. For instance, as we reported in July 2007, the program
cannot accurately recognize revenue and bill customers, and its
inability to implement effective business processes has adversely
affected the reliability of its financial reports.[Footnote 6]
* Weapon systems acquisition. DOD weapon system programs typically take
longer to field and cost more to buy than planned, placing additional
demands on available funding. For example, we reviewed 27 weapon
programs that were in the research, development, test and evaluation
phase and noted that since development began the costs had increased by
almost $35 billion, or 33.5 percent, over the first full estimate. The
same programs have also experienced an increase in the time needed to
develop capabilities. The consequence of cost and acquisition cycle
time growth is often manifested in a reduction of the buying power of
the defense dollar. As costs rise and key schedule milestones are
delayed, programs are sometimes forced to reduce quantities, resulting
in a reduction in buying power and a reduction in capability delivered
to the warfighter. It is a predictable and recurring phenomenon that
can be remedied with more attention to separating wants from needs and
better knowledge at key decision points. With a weapon investment
portfolio of $1.5 trillion, DOD cannot settle for the same kind of
outcomes it has gotten in the past.
* Supply chain management. Systemic deficiencies in DOD's supply
support for U.S. ground forces have led to critical supply shortages
during war operations. At the outset of Operation Iraqi Freedom and
periodically throughout the campaign, DOD has experienced difficulties
in providing U.S. ground forces with critical items such as tires, body
armor, and Meals-Ready-to-Eat.[Footnote 7] In addition, our review of
the Air Force's inventory management practices found problems that
hindered its ability to efficiently and effectively maintain its spare
parts inventory for military equipment.[Footnote 8] For example, we
found that from fiscal years 2002 through 2005, an average of 52
percent ($1.3 billion) of the Air Force's secondary on-order inventory
was not needed to support on-order requirements. Furthermore, we also
reported that the Army plans to invest about $5 billion over the next
several years to develop and implement business systems to better track
inventory items without a clear, integrated strategy, Armywide
enterprise architecture, or concept of operations to guide this
investment. Challenges remain in coordinating and consolidating
distribution and supply support in theater, which could lead to similar
types of supply problems experienced in Operation Iraqi Freedom in
future military operations.
* Contract management. DOD has relied extensively on contractors to
undertake major reconstruction and logistical support to its troops in
Iraq. Service contracts have grown by nearly 80 percent in a decade,
both at home and abroad. In some cases, contractors have begun work
without the key terms and conditions of contracts, including projected
costs, being defined within required time frames. Problems with poor
planning, insufficient leadership and guidance, inadequate numbers of
trained contracting personnel, and limited oversight contribute to
ineffective contract management controls.[Footnote 9] For example, a
program official for the Logistics Civil Augmentation Program (LOGCAP)-
-DOD's largest support contract--noted that if adequate staffing had
been in place, the Army could have realized substantial savings through
more effective reviews of new requirements.[Footnote 10] Furthermore,
we recently found that sole-source contracts for security contractors
on installations were found to be 25 percent higher than past contracts
awarded competitively.[Footnote 11] In addition, DOD does not have a
sufficient number of oversight personnel, in deployed locations and
elsewhere, which precludes its ability to obtain reasonable assurance
that contractors are meeting contract requirements efficiently and
effectively at each location where work is being performed. For
example, officials responsible for contracting with the Multi-National
Force--Iraq (MNF-I) stated that they did not have enough contract
oversight personnel and quality assurance representatives to allow MNF-
I to reduce the Army's use of the LOGCAP contract by awarding more
sustainment contracts for base operations support in Iraq.[Footnote 12]
Further, a lack of training for military commanders hinders their
ability to adequately plan for the use of contractor support and
inhibits the ability of contract oversight personnel to manage and
oversee contracts and contractors who support deployed forces.
As these examples point out, weaknesses in DOD's business operations
span most of the department's major business areas and negatively
impact the department's efficiency and effectiveness and affect its
ability to support the warfighter. Overall, these long-standing
weaknesses in DOD's business areas have (1) resulted in a lack of
reliable information needed to make sound decisions and report
accurately on its operations; (2) hindered its operational efficiency;
(3) adversely affected mission performance; and (4) left the department
vulnerable to fraud, waste, abuse, and mismanagement.
DOD Has Made Progress in Addressing Its Business Transformation
Efforts, but Critical Actions are Needed to Provide Comprehensive,
Integrated, and Strategic Planning and Focused and Sustained
Leadership:
Due to the impact of the department's business weaknesses on both the
department and the warfighter, DOD's leaders have demonstrated a
commitment to making the department's business transformation a
priority and have made progress in establishing a management framework
for these efforts. For example, the Deputy Secretary of Defense has
overseen the establishment of various management entities and the
creation of plans and tools to help guide business transformation at
DOD. However, our analysis has shown that these efforts are largely
focused on business systems modernization and that ongoing efforts
across the department's business areas are not adequately integrated.
Furthermore, key characteristics of the management framework have yet
to be institutionalized or defined in directives. In addition, DOD
lacks two crucial features that are integral to successful
organizational transformation--(1) a strategic planning process that
results in a comprehensive, integrated, and enterprisewide plan or
interconnected plans, and (2) a senior leader who is responsible and
accountable for business transformation and who can provide full-time
focus and sustained leadership.
DOD Has Made Progress in Addressing Its Business Transformation
Challenges:
DOD's senior leadership has shown commitment to transforming the
department's business operations, and DOD has taken a number of
positive steps to begin this effort. In fact, because of the impact of
the department's business operations on its warfighters, DOD recognizes
the need to continue working toward transformation of its business
operations and provide transparency in this process. The department has
devoted substantial resources and made important progress toward
establishing key management structures and processes to guide business
systems investment activities, particularly at the departmentwide
level, in response to congressional legislation that codified many of
our prior recommendations related to DOD business systems modernization
and financial management.[Footnote 13]
Specifically, DOD has made progress in establishing a management
framework for business transformation by creating various governance
and management entities and developing plans and tools to help guide
transformation. In the past few years, DOD has established the Defense
Business Systems Management Committee, investment review boards, and
the Business Transformation Agency to manage and guide business systems
modernization. The Defense Business Systems Management Committee and
investment review boards were statutorily required by the Ronald W.
Reagan National Defense Authorization Act for Fiscal Year 2005 to
review and approve the obligation of funds for defense business systems
modernization, depending on the cost and scope of the system in review.
The Business Transformation Agency was created to support the top-level
management body, the Defense Business Systems Management Committee, and
to advance DOD-wide business transformation efforts.
Additionally, DOD has developed a number of tools and plans to enable
these management entities to help guide business systems modernization
efforts. The tools and plans include the business enterprise
architecture and the enterprise transition plan. The business
enterprise architecture is a tool or blueprint intended to guide and
constrain investments in DOD organizations and systems as they relate
to business operations. It provides a thin layer of corporate policies,
capabilities, standards, and rules and focuses on providing tangible
outcomes for a limited set of enterprise-level (DOD-wide) priorities.
The enterprise transition plan is currently considered the highest
level plan for DOD business transformation. According to DOD, the
enterprise transition plan is intended to summarize all levels of
transition planning information (milestones, metrics, resource needs,
and system migrations) as an integrated product for communicating and
monitoring progress, resulting in a consistent framework for setting
priorities and evaluating plans, programs, and investments.
Our analysis of these tools, plans, and meeting minutes of the various
transformational management entities shows that these efforts are
largely focused on business systems modernization, and that this
framework has yet to be expanded to encompass all of the elements of
the overall business transformation. Furthermore, DOD has not clearly
defined or institutionalized in directives the interrelationships,
roles and responsibilities, or accountability for the various entities
that comprise its management framework for overall business
transformation. For example, opinions differ within DOD as to which
senior governance body will serve as the primary body responsible for
overall business transformation. Some officials stated that the Defense
Business Systems Management Committee would serve as the senior-most
governance entity, while others stated that the Deputy's Advisory
Working Group, a group that provides departmentwide strategic direction
on various issues, should function as the primary decision-making body
for business transformation. Additionally, opinions differ between the
two entities regarding the definition of DOD's key business areas, with
the Defense Business Systems Management Committee and the Business
Transformation Agency using a broader definition of business processes
than that of the Deputy Advisory Working Group and its supporting
organizations. Until such differences are resolved and the department
institutionalizes a management framework that spans all aspects of
business transformation, DOD will not be able to integrate related
initiatives into a sustainable, enterprisewide approach and to resolve
weaknesses in business operations.
Critical Actions Are Needed to Provide Comprehensive, Integrated, and
Strategic Planning and Focused and Sustained Leadership for DOD's
Overall Business Transformation Efforts:
As we have testified and reported for years, a successful, integrated,
departmentwide approach to addressing DOD's overall business
transformation requires two critical elements: a comprehensive,
integrated, and enterprisewide plan and an individual capable of
providing full-time focus and sustained leadership both within and
across administrations, dedicated solely to the integration and
execution of the overall business transformation effort.
DOD Lacks a Strategic Planning Process That Results in a Comprehensive,
Integrated, and Enterprisewide Plan or Set of Plans:
DOD continues to lack a comprehensive, integrated, and enterprisewide
plan or set of linked plans for business transformation that is
supported by a comprehensive planning process, and guides and unifies
its business transformation efforts. Our prior work has shown that this
type of plan should help set strategic direction for overall business
transformation efforts and all key business functions; prioritize
initiatives and resources; and monitor progress through the
establishment of performance goals, objectives, and rewards.[Footnote
14] Furthermore, an integrated business transformation plan would be
instrumental in establishing investment priorities and guiding the
department's key resource decisions.
While various plans exist for different business areas, DOD's various
business-related plans are not yet integrated to include consistent
reporting of goals, measures, and expectations across institutional,
unit, and individual program levels. Our analysis shows that plan
alignment and integration currently focuses on data consistency among
plans, meaning that plans are reviewed for errors and inconsistencies
in reported information, but there is a lack of consistency in goals
and measurements among plans. For example, our analysis of the March
2007 enterprise transition plan showed that the goals and objectives in
that plan were not clearly linked to the goals and objectives in the
most recent Quadrennial Defense Review, which is DOD's highest-level
strategic plan. Additionally, the enterprise transition plan is not
based on a strategic planning process. For example, it does not provide
a complete assessment of DOD's progress in overall transformation
efforts aside from business systems modernization. The plan also does
not contain results-oriented goals and measures that assess overall
business transformation. Other entities such as the Institute for
Defense Analyses, the Defense Science Board, and the Defense Business
Board have similarly reported the need for DOD to develop an
enterprisewide plan to link strategies across the department for
transforming all business areas and thus report similar findings as our
analysis. DOD officials recognize that the department does not have an
integrated plan in place, although they have stated that their
intention is to expand the scope of the enterprise transition plan to
become a more robust enterprisewide planning document and to evolve
this plan into the centerpiece strategic document. DOD updates the
enterprise transition plan twice a year, once in March as part of DOD's
annual report to Congress and once in September, and DOD has stated the
department's goal is to evolve the plan to that of a comprehensive, top-
level planning document for all business functions. DOD released the
most recent enterprise transition plan update on September 28, 2007,
and we will continue to monitor developments in this effort.
DOD Lacks a Full-time and Term-based Senior Management Official to
Provide Focus and Sustained Leadership for the Overall Business
Transformation Effort:
DOD has not established a full-time and term-based leadership position
dedicated solely to the business transformation effort. We have long
advocated the importance of establishing CMO positions in government
agencies, including DOD, and have previously reported and testified on
the key characteristics of the position necessary for success.[Footnote
15] In our view, transforming DOD's business operations is necessary
for DOD to resolve its weaknesses in the designated high-risk areas,
and to ensure the department has sustained leadership to guide its
business transformation efforts. Specifically, because of the
complexity and long-term nature of business transformation, DOD needs a
CMO with significant authority, experience, and a term that would
provide sustained leadership and the time to integrate its overall
business transformation efforts. Without formally designating
responsibility and accountability for results, reconciling competing
priorities among various organizations and prioritizing investments
will be difficult and could impede the department's progress in
addressing deficiencies in key business areas.
Furthermore, a broad-based consensus exists among GAO and others that
the status quo is unacceptable and that DOD needs a full-time and term-
based senior management official to provide focused and sustained
leadership for its overall business transformation efforts, although
differing views exist concerning the specifics of the position, such as
term limit and the level of the position within the department.
Congress directed DOD to commission studies of the feasibility and
advisability of establishing a deputy secretary of defense for
management to oversee the department's business transformation process.
As part of this effort, the Defense Business Board and the Institute
for Defense Analyses both supported the need for a senior executive to
be responsible for DOD's overall business transformation
efforts.[Footnote 16] Additionally, this matter is now before Congress
as it prepares to deliberate on pending legislation that calls for
statutorily establishing a CMO at DOD. Both the current House and
Senate versions of the Fiscal Year 2008 Defense Authorization
legislation contain provisions for assigning responsibility for DOD's
business transformation efforts to a senior-level position within the
department, although the versions differ in certain details. The Senate
version calls for the Deputy Secretary of Defense to take on the
additional duties of the CMO position while also establishing a Deputy
CMO position at the Executive Level III; the House version would
require the Secretary of Defense to assign CMO duties to a senior
official at or above the under secretary level.
DOD has recently taken action on the issue of establishing a CMO
position at DOD; however, we believe this action does not go far enough
to change the status quo and ensure sustainable success. We recognize
the commitment and elevated attention that the Deputy Secretary of
Defense and other senior leaders have clearly shown in addressing
deficiencies in the department's business operations. For example, the
Deputy Secretary has overseen the creation of various business-related
entities, such as the Defense Business Systems Management Committee and
the Business Transformation Agency, and has been closely involved in
monthly meetings of both the Defense Business Systems Management
Committee and the Deputy's Advisory Working Group, a group that
provides departmentwide strategic direction on various issues. Most
recently, DOD issued a directive on September 18, 2007, that assigned
CMO responsibilities to the current Deputy Secretary of
Defense.[Footnote 17] In our view, subsuming the duties within the
responsibilities of the individual currently serving as the Deputy
Secretary represents the status quo and will not provide full-time
attention or continuity as administrations change. While the Deputy
Secretary may be at the right level, the substantial demands of the
position make it exceedingly difficult for the incumbent to maintain
the focus, oversight, and momentum needed to resolve business
operational weaknesses, including the high-risk areas. Furthermore, the
assignment of CMO duties to an individual with a limited term in the
position does not ensure continuity of effort or that sustained success
will be ensured both within and across administrations.
In the interest of the department and the American taxpayers, we
maintain that the department needs a separate, full-time CMO position
over the long term in order to devote the needed focus and continuity
of effort to transform its key business operations and avoid billions
more in waste each year. Therefore, we continue to believe that the CMO
position at DOD should be:
* Codified in statute as a separate and full-time position. The CMO
should be a separate position from the Deputy Secretary of Defense in
order to provide full-time attention to business transformation. The
CMO would be responsible and accountable for planning, integrating, and
executing DOD's overall business transformation effort. The CMO also
would develop and implement a strategic plan for overall business
transformation. It should become a permanent position to ensure
continuity of business transformation efforts, with the specific duties
authorized in statute.
* Designated as an Executive Level II appointment. The CMO should be at
Executive Level II and report directly to the Secretary of Defense so
that the individual in this position has the stature needed to
successfully address integration challenges, adjudicate disputes, and
monitor progress on overall business transformation across defense
organizations.
* Subject to an extended term appointment. The CMO's appointment could
span administrations to ensure transformation efforts are sustained
across administrations. Because business transformation is a long-term
and complex process, a term of at least 5 to 7 years is recommended to
provide sustained leadership and accountability.
In the absence of a CMO with these characteristics to focus solely on
the integration and execution of business transformation efforts, and
an enterprisewide plan to guide these efforts, it is highly unlikely
that DOD will ever resolve its pervasive weaknesses and get the most
out of every dollar it invests in these times of growing fiscal
constraint to better support the warfighter. Transforming DOD's
business operations is an absolute necessity in the context of an
increasingly demanding security environment and the pressures of our
nation's long-term fiscal outlook. Further, the current deployment of
tens of thousands of servicemembers, civilians, and contractor
personnel to support ongoing operations provides an even greater sense
of urgency for the department to aggressively address weaknesses in its
business operations and achieve transformation goals in the near and
long term.
DOD-Specific High-Risk Areas Highlight the Need for Further Change and
Transformation in the Department:
I would like to discuss the remaining seven programs and activities
within DOD that have been designated as high risk. Some of these areas
have remained on the high-risk list for nearly 20 years and have
continued to be a challenge for DOD, while others have newly emerged as
a challenge for the department in more recent years. The remaining high-
risk areas include DOD's financial management, business systems
modernization, personnel security clearance program, support
infrastructure management, supply chain management, weapon systems
acquisition, and contract management. Each area was added to our high-
risk list due to weaknesses that make DOD more vulnerable to waste,
fraud, and abuse. DOD has made progress in addressing each of these
areas, but serious challenges remain that will require continued
attention and sustained leadership over a number of years to achieve
success.
DOD Financial Management:
DOD's pervasive financial and related business management and system
deficiencies adversely affect its ability to assess resource
requirements; control costs; ensure basic accountability; anticipate
future costs and claims on the budget; measure performance; maintain
funds control; prevent and detect fraud, waste, and abuse; and address
pressing management issues. Therefore, we first designated DOD
financial management as high risk in 1995.
A major component of DOD's business transformation effort is the
defense Financial Improvement and Audit Readiness (FIAR) Plan,
initially issued in December 2005 and updated periodically pursuant to
section 376 of the National Defense Authorization Act for Fiscal Year
2006.[Footnote 18] Section 376 limited DOD's ability to obligate or
expend funds for fiscal year 2006 on financial improvement activities
until the department submitted a comprehensive and integrated financial
management improvement plan to the congressional defense committees.
Section 376 required the plan to (1) describe specific actions to be
taken to correct deficiencies that impair the department's ability to
prepare timely, reliable, and complete financial management information
and (2) systematically tie these actions to process and control
improvements and business systems modernization efforts described in
the business enterprise architecture and transition plan. The John
Warner National Defense Authorization Act for Fiscal Year 2007
continued to limit DOD's ability to obligate or expend funds for
financial management improvement activities until the Secretary of
Defense submits a determination to the committees that the activities
are consistent with the plans required by section 376.[Footnote 19]
DOD intends the FIAR Plan to provide DOD components with a framework
for resolving problems affecting the accuracy, reliability, and
timeliness of financial information, and obtaining clean financial
statement audit opinions. In its June 2007 FIAR Plan update, DOD
introduced a change in its audit strategy in which it moved from a line
item approach to a segment approach for addressing its financial
management weaknesses and achieving auditability. According to the
limited information provided in the June update, DOD has loosely
defined a segment as a business process (Civilian Pay), financial
statement line item (Cash and Other Monetary Assets), group of related
financial statement line items (Fund Balance with Treasury, Accounts
Payable, and Accounts Receivable), or a sub-line (Military Equipment).
According to DOD officials, the FIAR Plan and the enterprise transition
plan are key efforts in improving financial information for decision
makers and obtaining unqualified (clean) audit opinions on their annual
financial statements. According to the DOD FIAR Director, the September
2007 FIAR Plan update, which the department intends to release by mid-
October 2007, and the March 2008 update of the FIAR Plan, are expected
to provide more details on DOD's new audit strategy and respective
changes in its business rules and oversight process for ensuring that
its goals are achieved. We cannot comment on specific changes in DOD's
audit strategy until we have had an opportunity to review these more
substantive updates of the FIAR Plan.
We will continue to monitor DOD's efforts to transform its business
operations and address its financial management deficiencies as part of
our continuing DOD business enterprise architecture work and our
oversight of DOD's financial statement audit.
Furthermore, the department invests billions of dollars annually to
operate, maintain, and modernize its over 2,900 business systems,
including financial management systems. Despite this significant
investment, the department is severely challenged in implementing
business systems on time, within budget, and with the promised
capability. As previously reported,[Footnote 20] many of the
department's business systems are nonintegrated, stovepiped, and not
capable of providing department management and Congress with accurate
and reliable information on DOD's day-to-day operations. Effective
process improvement and information technology investment management
and oversight will be critical to the department's success in
transforming its business management systems and operations. Many of
the problems related to DOD's inability to effectively implement its
business systems on time, within budget, and with the promised
capability can be attributed to its failure to implement the
disciplined processes necessary to reduce the risks associated with
these projects to acceptable levels.[Footnote 21] Disciplined processes
have been shown to reduce the risks associated with software
development and acquisition efforts and are fundamental to successful
systems acquisition.
DOD Business Systems Modernization:
DOD is still not where it needs to be in managing its departmentwide
business systems modernization. Until DOD fully defines and
consistently implements the full range of business systems
modernization management controls (institutional and program-
specific), it will be not be positioned to effectively and efficiently
ensure that its business systems and information technology services
investments are the right solutions for addressing its business needs,
that they are being managed to produce expected capabilities
efficiently and cost effectively, and that business stakeholders are
satisfied.
For decades, DOD has been challenged in modernizing the thousands of
timeworn business systems. We designated DOD's business systems
modernization program as high risk in 1995. Since then, we have made
scores of recommendations aimed at strengthening DOD's institutional
approach to modernizing its business systems, and reducing the risks
associated with key business system investments. In addition, in recent
legislation, Congress included provisions that are consistent with our
recommendations, such as in the Ronald W. Reagan National Defense
Authorization Act for Fiscal Year 2005. In response, the department has
taken, or is taking, actions to implement both our recommendations and
the legislative requirements, and as a result has made progress in
establishing corporate management controls, such as its evolving
business enterprise architecture (BEA), corporate investment management
structures and processes, increased business system life- cycle
management discipline on its largest business system investments, and
leveraging highly skilled staff on its largest business system
investments.
However, much more remains to be accomplished to address this high-risk
area, particularly with respect to ensuring that effective corporate
approaches and controls are extended to and employed within each of
DOD's component organizations (military departments and defense
agencies). To this end, our recent work has highlighted challenges that
the department still faces in "federating" (i.e., extending) its
corporate BEA to its component organizations' architectures, as well as
in establishing institutional structures and processes for selecting,
controlling, and evaluating business systems investments within each
component organization. Beyond this, making sure that effective system
acquisition management controls are actually implemented on each and
every business system investment also remains a formidable challenge,
as our recent reports on management weaknesses associated with
individual programs have disclosed.[Footnote 22] Among other things,
these reports have identified program-level weaknesses relative to
architecture alignment, economic justification, and performance
management.
More specifically, we recently reported[Footnote 23] that DOD has
continued to take steps to comply with legislative requirements and
related guidance pertaining to its business systems modernization high-
risk area, and that these steps addressed several of the missing
elements that we previously identified relative to, for example, its
BEA, enterprise transition plan, business system investment management,
and business systems budgetary disclosure. However, we reported that
additional steps were still needed to fully comply with legislative
requirements and relevant guidance.
* The latest version of the BEA does a good job of defining DOD-wide
corporate policies, capabilities, rules, and standards, which are
essential to meeting the act's requirements. However, this version had
yet to be augmented by the DOD component organizations' subsidiary
architectures, which are also necessary to meeting statutory
requirements and the department's goal of having a federated family of
architectures. Compounding this are our reports showing the military
departments' architecture programs were not mature and the strategy
that the department had developed for federating its BEA needed more
definition to be executable.[Footnote 24] To address these limitations,
we made recommendations aimed at ensuring that DOD's federated BEA
provides a more sufficient frame of reference to optimally guide and
constrain DOD-wide system investments. DOD agreed with these
recommendations and has since taken some actions, such as developing an
updated draft of its federation strategy, which according to DOD
officials, addresses our recommendations but has yet to be released.
* The March 2007 enterprise transition plan continued to identify more
systems and initiatives that are to fill business capability gaps and
address DOD-wide and component business priorities, and it continues to
provide a range of information for each system and initiative in the
plan (e.g., budget information, performance metrics, and milestones).
However, this version still does not include system investment
information for all the defense agencies and combatant commands.
Moreover, the plan does not sequence the planned investments based on a
range of relevant factors, such as technology opportunities,
marketplace trends, institutional system development and acquisition
capabilities, legacy and new system dependencies and life expectancies,
and the projected value of competing investments. According to DOD
officials, they intend to address such limitations in future versions
of the transition plan as part of their plans for addressing our prior
recommendations.[Footnote 25] DOD recently released its September 2007
version of the plan which, according to DOD, continues to provide time-
phased milestones, performance metrics, and statement of resource needs
for new and existing systems that are part of the BEA and component
architectures, and includes a schedule for terminating old systems and
replacing them with newer, improved enterprise solutions. We have yet
to review the updated transition plan.
* The department has established and has begun to implement
legislatively directed investment review structures and
processes.[Footnote 26] However, it has yet to do so in a manner that
is fully consistent with relevant guidance.[Footnote 27] Specifically,
the department has yet to fully define a range of policies and
procedures needed to effectively execute both project-level and
portfolio-based information technology investment management practices.
For example, while DOD has established an enterprisewide information
technology investment board that is responsible for defining and
implementing its business systems investment governance process, it has
not fully defined the policies and procedures needed for oversight of
and visibility into operations and maintenance-focused investments.
Accordingly, we made recommendations aimed at improving the
department's ability to better manage the billions of dollars it
invests annually in its business systems. DOD largely agreed with these
recommendations and has since undertaken several initiatives to
strengthen business system investment management. For example, it has
drafted and intends to shortly begin implementing a new Business
Capability Lifecycle approach that is intended to consolidate
management of business system requirements, acquisition, and compliance
with architecture disciplines into a single governance process.
Further, it has established an Enterprise Integration directorate in
the Business Transformation Agency to support the implementation of
Enterprise Resource Planning systems by ensuring that best practices
are leveraged and BEA-related business rules and standards are adopted.
* The department has continued to review and approve business systems
as directed in legislation. As of March 2007, the department reported
that its senior investment review body had approved 285 such systems.
However, the military departments reported that their review and
approval processes were still evolving and that additional work was
needed for them to mature. Because of the importance of the military
departments' investment management structures and processes, we have
ongoing work to determine their maturity.
Beyond having a well-defined federated architecture for the business
mission area and business systems investment management policies and
procedures across the department, the more formidable challenge facing
DOD is how well it can implement these and other acquisition management
controls for each and every business system investment and information
technology services outsourcing program. In this regard, we have
continued to identify program-specific weaknesses.
Most recently, for example, we reported that the Army's approach for
investing about $5 billion over the next several years in its General
Fund Enterprise Business System, Global Combat Support System-Army
Field/Tactical,[Footnote 28] and Logistics Modernization Program did
not include alignment with Army enterprise architecture or use of a
portfolio-based business system investment review process. [Footnote
29] Moreover, we reported that the Army did not have reliable
processes, such as an independent verification and validation function,
or analyses, such as economic analyses, to support its management of
these programs. We concluded that until the Army adopts a business
system investment management approach that provides for reviewing
groups of systems and making enterprise decisions on how these groups
will collectively interoperate to provide a desired capability, it runs
the risk of investing significant resources in business systems that do
not provide the desired functionality and efficiency.
We also reported that the Navy's approach for investing in both system
and information technology services, such as the Naval Tactical Command
Support System (NTCSS)[Footnote 30] and Navy Marine Corps Intranet
(NMCI),[Footnote 31] did not include effective program performance
management. For NTCSS, we reported that, for example, earned value
management, which is a means for determining and disclosing actual
performance against budget and schedule estimates, and revising
estimates based on performance to date, had not been implemented
effectively. We also reported that complete and current reporting of
NTCSS progress and problems in meeting cost, schedule, and performance
goals had not occurred, leaving oversight entities without the
information needed to mitigate risks, address problems, and take
corrective action. We concluded that without this information, the Navy
cannot determine whether NTCSS, as it was defined and was being
developed, was the right solution to meet its strategic business and
technological needs. For NMCI, we reported that performance management
practices, to include measurement of progress against strategic program
goals and reporting to key decision makers on performance against
strategic goals and other important program aspects, such as examining
service-level agreement satisfaction from multiple vantage points and
ensuring customer satisfaction, had not been adequate. We concluded
that without a full and accurate picture of program performance, the
risk of inadequately informing important NMCI investment management
decisions was increased.
DOD Personnel Security Clearance Program:
We first designated DOD's personnel security clearance program as a
high-risk area in January 2005. The designation followed about 20 years
of our reports documenting delays in determining clearance eligibility
and other clearance-related challenges. The type of information
accessed by individuals with clearances and the scope of DOD's
clearance program are two factors to consider in understanding the risk
present in this area. For example, personnel with clearances can gain
access to classified information that could cause damage to U.S.
national defense and foreign relations through unauthorized disclosure.
In our 1999 report, we noted that the damage had included intelligence
personnel being killed, critical information being compromised, and
U.S. military forces being put at risk.[Footnote 32] Furthermore,
problems with DOD's program have effects outside of the department. DOD
is responsible for about 2.5 million security clearances issued to
servicemembers, DOD civilians, and industry personnel who work on
contracts for DOD and 23 other federal agencies.
Our reports have documented a wide variety of problems present in DOD's
clearance program. Some of the problems that we noted in our 2007 high-
risk report included (1) DOD's consistently inaccurate projections of
clearance requests and their negative effects on workload planning and
funding, (2) incomplete and delayed investigative reports from the
Office of Personnel Management (OPM)--DOD's primary provider of
clearance investigations, and (3) DOD personnel (namely, adjudicators)
granting clearance eligibility despite data missing from the
investigative reports used to make such determinations. While some of
those findings were reported on data which are now over 1 ½ years old,
our May 2007 testimony noted that problems continue to exist such as
OPM not fully counting all of days required for investigations and
limited information being provided to Congress on reinvestigations for
clearance updating. Delays in determining initial clearance eligibility
can increase the cost of performing classified work, and delays in
updating clearances may increase the risk to national security.
Additionally, incomplete investigative or adjudicative reports could
undermine governmentwide efforts to achieve clearance reciprocity
(e.g., an agency accepting a clearance awarded by another agency).
High-level attention has been focused on improving the personnel
security clearance processes in DOD and governmentwide. Since June
2005, the Office of Management and Budget's (OMB) Deputy Director of
Management has been responsible for improving the governmentwide
processes. During that time, OMB has overseen, among other things, the
issuance of reciprocity standards, the growth of OPM's investigative
workforce, and greater use of OPM's automated clearance-application
system. An August 9, 2007, memorandum from the Deputy Secretary of
Defense indicates that DOD's clearance program is drawing attention at
the highest levels of the department. Specifically, streamlining
security clearance processes is one of the 25 DOD transformation
priorities identified in the memorandum. Another indication of high-
level involvement in addressing clearance problems is a memorandum of
agreement that seeks to develop, in phases, a reformed DOD and
intelligence community security clearance process that allows granting
high-assurance security clearances in the least time at the lowest
reasonable cost. While the Office of Director of National Intelligence
and the Office of the Under Secretary of Defense posted a request for
information on the Federal Business Opportunities' website for August 7
through September 4, 2007, the request indicated that they plan to
deliver "a transformed, modernized, and reciprocal security clearance
process that is universally applicable" to DOD, the intelligence
community, and other U.S. government agencies no later than December
31, 2008.
DOD Support Infrastructure Management:
Since 1997, we have identified DOD's management of its support
infrastructure as a high-risk area because infrastructure costs
continue to consume a larger than necessary portion of its budget. We
have frequently reported in recent years on the long-term challenges
DOD faces in managing its portfolio of facilities, halting the
degradation of facilities, and reducing unneeded infrastructure to free
up funds to better maintain enduring facilities and meet other needs.
DOD officials have likewise been concerned for several years that much
of the department's infrastructure is outdated, inadequately
maintained, and that DOD has more infrastructure than needed, which
affects its ability to devote more funds to weapon systems
modernization and other needs the department deems critical.
Inefficient management practices and outdated business processes also
have contributed to the problem.
While DOD has made progress and expects to continue making improvements
in its support infrastructure management, DOD officials recognize they
must achieve greater efficiencies. To its credit, the department has
continued to give high-level emphasis to reforming its support
operations and infrastructure, including continued efforts to reduce
excess infrastructure, promote transformation, and foster jointness
through the base realignment and closure (BRAC) process. Also, DOD is
updating its Defense Installations Strategic Plan to better address
infrastructure issues, and has revised its installations readiness
reporting to better measure facility conditions, established core real
property inventory data requirements to better support the needs of
real property asset management, and continued to modify its suite of
analytical tools to better forecast funding requirements for the
sustainment and restoration of facilities. It also has achieved
efficiencies through demolishing unneeded buildings at military
installations and privatizing military family housing.
Our work examining DOD's management of its facilities infrastructure
shows that much work remains for DOD to fully rationalize and transform
its support infrastructure to improve operations, achieve efficiencies,
and allow it to concentrate its resources on the most critical needs.
For example, we have reported that the cleanup of environmental
contamination on unneeded property resulting from prior BRAC rounds has
been a key impediment to the transfer of these properties and could be
an issue in the transfer and reuse of unneeded property resulting from
the 2005 BRAC round.[Footnote 33] Impediments to transfer continue to
be related primarily to a variety of interrelated environmental cleanup
issues, including limited technology to address unexploded ordnance and
protracted negotiations on compliance with environmental regulations.
We have also recently reported that projected savings from past BRAC
rounds have been significantly overstated.[Footnote 34] During recent
visits to installations in the United States and overseas, service
officials continue to report inadequate funding to provide base
operations support and maintain their facilities. They express concern
that unless this is addressed, future upkeep and repair of many new
facilities to be constructed as a result of BRAC, overseas rebasing,
and the Army's move to the modular brigade structure will suffer and
the facilities' condition and base services will deteriorate. We have
also found that DOD's outline of its strategic plan for addressing this
high-risk area had a number of weaknesses and warranted further
clarification and specification. For example, DOD's outline does not
identify DOD's short-and long-term goals or the desired end state for
its facilities infrastructure--information critical for a meaningful
plan. Instead, the outline focuses on completing administrative actions
and producing paper products, and it does not describe how the
completion of these actions and products will directly affect DOD
infrastructure, including major support functions, and ultimately meet
DOD's short-and long-term goals. We will continue to meet with OMB and
DOD officials to discuss the department's efforts in addressing this
high-risk area.
Through future work examining DOD's strategic plan for this area and
through our monitoring of DOD base realignment and closures, overseas
rebasing, and the sustainment and operations of military installations
and facilities, we will be able to determine what other work needs to
be done to assist DOD in its efforts to improve the management of its
support infrastructure. As demands on the military continue to change
and increase, organizations throughout DOD will need to continue
reengineering their business processes and striving for greater
operational effectiveness and efficiency. Having a comprehensive, long-
range plan for its infrastructure that addresses facility requirements,
recapitalization, and maintenance and repair will help DOD provide
adequate resources to meet these requirements and improve facility
conditions and base services.
DOD Supply Chain Management:
The availability of spare parts and other critical supply items that
are procured and delivered through DOD's supply chain network affects
the readiness and capabilities of U.S. military forces, and can affect
the success of a mission. Moreover, the investment of resources in the
supply chain is substantial, amounting to more than $150 billion a year
according to DOD, and supply inventory levels have grown by 35 percent
from $63.3 billion in fiscal year 2001 to $85.6 billion in fiscal year
2006. While DOD has taken a number of positive steps toward improving
its supply chain management, it has continued to experience weaknesses
in its ability to provide efficient and effective supply support to the
warfighter. Consequently, the department has been unable to
consistently meet its goal of delivering the "right items to the right
place at the right time" to support the deployment and sustainment of
military forces. As a result of weaknesses in DOD's management of
supply inventories and responsiveness to warfighter requirements,
supply chain management has been on our high-risk list since 1990. Our
prior work over the last several years has identified three focus areas
that are critical to resolving supply chain management problems:
requirements forecasting, asset visibility, and materiel distribution.
Beginning in 2005, DOD developed a plan to address long-term systemic
weaknesses in supply chain management. Since the January 2007 update of
the high-risk series, DOD has made progress in developing and
implementing supply chain management improvement initiatives in its
supply chain management plan. However, the long-term time frames for
many of these initiatives present challenges to the department in
sustaining progress toward substantially completing their
implementation. The plan also lacks outcome-focused performance
measures for many individual initiatives as well as its three focus
areas: requirements forecasting, asset visibility, and materiel
distribution. Together, these weaknesses limit DOD's ability to fully
demonstrate the results it hopes to achieve through its plan.
Our recent work has also identified problems related to the three focus
areas in DOD's plan. In the requirements area, for example, the
military services are experiencing difficulties estimating acquisition
lead times to acquire spare parts for equipment and weapon systems,
hindering their ability to efficiently and effectively maintain spare
parts inventories for military equipment. In March 2007, we reported
that 44 percent of the services' lead time estimates varied either
earlier or later than the actual lead times by at least 90 days.
Overestimates and underestimates of acquisition lead time contribute to
inefficient use of funds and potential shortages or excesses of spare
parts. Challenges in the asset visibility area include the lack of
interoperability among information technology systems, problems with
container management, and inconsistent application of radio frequency
identification technology, all of which make it difficult to obtain
timely and accurate information on assets in theater. In the materiel
distribution area, challenges remain in coordinating and consolidating
distribution and supply support within a theater. Furthermore, we
recently reviewed DOD's joint theater logistics initiative, which is
aimed at improving the ability of a joint force commander to direct
various logistics functions, including distribution and supply support
activities. Our work raises concerns as to whether DOD can effectively
implement this initiative without reexamining fundamental aspects of
its logistics governance and strategy. In this respect, joint theater
logistics may serve as a microcosm of some of the challenges DOD faces
in resolving supply chain management problems.
DOD Weapon Systems Acquisition:
For more than a decade, we have identified DOD's acquisition of major
weapon systems as high risk. The weapon acquisitions process continues
to produce systems that are the best in the world but cost more than
first promised, take longer to field than first promised, and do less
than first promised. Weapon acquisitions are demanding a larger share
of the DOD budget at a time when the nation's fiscal imbalance is
growing. DOD has doubled its planned investment in new weapon systems
from approximately $750 billion in 2001 to almost $1.5 trillion in
2007. During the same period, the government's total liabilities and
unfunded commitments have increased from about $20 trillion to about
$50 trillion. In this context, DOD simply must maximize its return on
investment to provide needed capabilities to the warfighter and to
provide the best value to the taxpayer. We have found that knowledge at
key decision points is critical in the development of new weapon
systems if they are to meet their promised costs, schedules, and
capabilities--in other words, using a knowledge-based approach to
acquisitions. The link between knowledge and cost is real and
predictable. It provides three choices for decision makers: (1) accept
the status quo, (2) require demonstrations of high knowledge levels
before approving individual programs, or (3) increase cost estimates to
accurately reflect consequences of insufficient knowledge. With over
$880 billion remaining to invest in the current portfolio of major
systems, the status quo is both unacceptable and unsustainable.
The inability to deliver new weapon systems at promised times and costs
has significant consequences for both the taxpayer and the warfighter.
When time and costs increase, quantities often decrease to compensate.
The result is the warfighter gets less capability than planned and the
taxpayer's dollar does not go as far. For example, table 2 depicts the
following programs that experienced both cost increases and quantity
decreases:
Table 2: Examples of Reduced Buying Power (constant 2007 dollars):
Programs: Future Combat Systems;
Initial estimate: $85.5 billion;
Initial quantity: 15 systems;
Latest estimate: $131.7 billion;
Latest quantity: 15 systems;
Percentage of unit cost increase: 54.1.
Programs: V-22 Osprey Aircraft;
Initial estimate: $36.9 billion;
Initial quantity: 913 aircraft;
Latest estimate: $50.0 billion;
Latest quantity: 458 aircraft;
Percentage of unit cost increase: 170.2.
Programs: Evolved Expendable Launch Vehicle;
Initial estimate: $16.0 billion;
Initial quantity: 181 vehicles;
Latest estimate: $28.6 billion;
Latest quantity: 138 vehicles;
Percentage of unit cost increase: 134.7.
Programs: Expeditionary Fighting Vehicle;
Initial estimate: $8.4 billion;
Initial quantity: 1,025 vehicles;
Latest estimate: $13.2 billion;
Latest quantity: 593 vehicles;
Percentage of unit cost increase: 171.
Source: GAO.
[End of table]
DOD knows what to do to achieve more successful outcomes but finds it
difficult to apply the necessary discipline and controls or assign much-
needed accountability. DOD has written into policy an approach that
emphasizes attaining a certain level of knowledge at critical junctures
before managers agree to invest more money in the next phase of weapon
system development. This knowledge-based approach should result in
evolutionary--that is incremental, manageable, and predictable--
development and inserts several controls to help managers gauge
progress in meeting cost, schedule, and performance goals. However, as
we reported in our March 2007 report on selected DOD weapon systems,
DOD has not been employing the knowledge-based approach, proceeds with
lower levels of knowledge at critical junctures, and attains key
elements of product knowledge later in development than specified in
DOD policy. In particular, the department accepts high levels of
technology risk at the start of major acquisition programs. DOD's
acquisition community often takes on responsibility for technology
development and product development concurrently. Without mature
technologies at the outset, a program will almost certainly incur cost
and schedule problems. Without mature technologies, it is difficult to
know whether the product being designed and produced will deliver the
desired capabilities or, alternatively, if the design allows enough
space for technology integration. Our work has shown that very few DOD
programs start with mature technologies.
We continue to annually assess DOD's weapon system acquisition
programs, and the breadth of our work gives us insights into a broad
range of programs as well as the overall direction of weapon system
acquisitions. In examining our defense work, we have observed 15
systemic acquisition challenges facing DOD--which we have included as
appendix I to my statement. DOD is depending on the weapons currently
under development to transform military operations for the 21st
century. As we have recently reported, the complexity of DOD's
transformational efforts is especially evident in the development of
several megasystems or major weapon systems that depend on the
integration of multiple systems--some of which are developed as
separate programs--to achieve desired capabilities.[Footnote 35] This
strategy often requires interdependent programs to be developed
concurrently and to be closely synchronized and managed, as they may,
for example, depend on integrated architectures and common standards as
a foundation for interoperability. If dependent systems are not
available when needed, then a program could face cost increases,
schedule delays, or reduced capabilities. Furthermore, the larger scope
of development associated with these megasystems produces a much
greater fiscal impact when cost and schedule estimates increase.
The current fiscal environment also presents challenges for DOD's plans
to transform military operations. As the nation begins to address long-
term fiscal imbalances, DOD is likely to encounter considerable
pressure to reduce its investment in new weapons. Within DOD's own
budget, investment in new weapon systems competes with funds needed to
replace equipment and sustain military operations in Iraq and
Afghanistan. The nation's long-term fiscal imbalances also will likely
place pressure on DOD's planned investment in major weapon systems. As
entitlement programs like Social Security, Medicare, and Medicaid
consume a growing percentage of available resources, discretionary
programs--including defense--face competition for the increasingly
scarce remaining funds. Sustaining real, top-line budget increases in
any discretionary program will be difficult in this constrained
resource environment. DOD budget projections conform to this tightening
framework by offsetting growth in procurement spending with reductions
in research and development, personnel, and other accounts. The minimal
real increases projected in defense spending through fiscal year 2011
depend on these offsets. However, these projections do not reflect
recent experience, nor do they take into account higher than
anticipated cost growth and schedule delays, which can compound the
fiscal impact and affordability of DOD's planned investment.
Program approvals in DOD have also shown a decided lack of restraint.
DOD's requirements process generates more demand for new programs than
fiscal resources can support. DOD compounds the problem by approving so
many highly complex and interdependent programs. Once too many programs
are approved, the budgeting process must broker trades to stay within
realistic funding levels, Because programs are funded annually and
departmentwide, cross-portfolio priorities have not been established,
competition for funding continues over time, forcing programs to view
success as the ability to secure the next funding increment rather than
delivering capabilities when and as promised. DOD recognizes this
dilemma and has embraced best practices in its policies, instilled more
discipline in requirements setting, strengthened training for program
managers, and reorganized offices that support and oversee programs.
However, this intention has not been fully implemented and it has not
had a material effect on weapon system programs. To translate policy
into better programs, several additional elements are essential,
including having a sound business case for each program that focuses on
real needs and embodies best practices, sound business arrangements,
and clear lines of responsibility and accountability.
DOD Contract Management:
DOD's management of its contracts has been on our high-risk list since
1992. Our work has found that DOD is unable to ensure that it is using
sound business practices to acquire the goods and services needed to
meet warfighters' needs, creating unnecessary risks of paying higher
prices than justified. DOD's long-standing problems with contract
management have become more prominent as DOD's reliance on contractors
to provide services continues to grow.
Recently, I have been quite vocal about the large and growing long-
range structural deficits the federal government faces. Given this
fiscal reality, it is imperative that DOD gets the best return it can
on not only major weapon systems, but also on its investments in goods
and services. In our recent testimony we noted that within the federal
government, DOD is the largest purchaser of a variety of goods and
services.[Footnote 36] In fiscal year 2006 DOD spent about $297
billion, or 71 percent of the more than $400 billion spent by the
federal government, on goods and services to equip and support the
military forces, but is not able to ensure it is using sound business
practices to acquire the goods and services needed to meet the
warfighters' needs.
In November 2006, we reported that DOD's approach to managing service
acquisitions has tended to be reactive and has not fully addressed the
key factors for success at either the strategic or transactional
level.[Footnote 37] At the strategic level, DOD has yet to set the
direction or vision for what it needs, determine how to go about
meeting those needs, capture the knowledge to enable more informed
decisions, or assess the resources it has to ensure departmentwide
goals and objectives are achieved. Actions at the transactional level
continue to focus primarily on awarding contracts and do not always
ensure that user needs are translated into well-defined requirements or
that postcontract award activities result in expected performance. In
June 2007, we reported that DOD used time-and-materials contracts, one
of the riskiest contract types for the government because they could be
awarded quickly and labor hours or categories can be adjusted if
requirements are unclear or funding uncertain.[Footnote 38] Even though
these contracts call for appropriate government monitoring of
contractor performance, there were wide discrepancies in the rigor with
which monitoring was performed and most of the contract files we
reviewed did not include documented monitoring plans. DOD also used
undefinitized contract actions (UCA) to rapidly fill urgent needs.
While this is permitted in a variety of circumstances, we reported in
June 2007 that DOD did not meet the definitization time frame
requirement of 180 days after award on 60 percent of the 77 UCAs we
reviewed.[Footnote 39] Since DOD tends to obligate the maximum amount
of funding permitted--up to 50 percent of the not-to-exceed amount--
immediately at award of UCAs, contractors may have little incentive to
quickly submit proposals. Lack of timely negotiations contributed
significantly to DOD's decision on how to address $221 million in
questioned costs on the $2.5 billion Restore Iraqi Oil
contract.[Footnote 40] All 10 task orders for this contract were
negotiated more than 180 days after the work commenced. As a result,
the contractor had incurred almost all its costs at the time of
negotiations, which influenced DOD's decision to pay nearly all of the
questioned costs.
Additionally, DOD management and oversight of contractors continues to
be problematic for two reasons: inadequate numbers of trained contract
oversight personnel and second, insufficient training for those
officials responsible for contract oversight.
On multiple occasions, we and others have reported on the challenges
caused by DOD's lack of contract management and oversight personnel.
For example, in our June 2004 report on Iraq contract award procedures,
we found that inadequate acquisition workforce resources presented
challenges to several agencies involved in Iraq reconstruction efforts
and, at times, resulted in inadequate oversight of contractor
activities.[Footnote 41] Similarly, in 2004, we reported that
administrative contracting officers from the Defense Contract
Management Agency, who were responsible for monitoring the LOGCAP
contract in Iraq, believe that they needed an increase in the number of
qualified staff to fully meet their oversight mission.[Footnote 42] In
an April 2005 report, we found that DOD, faced with an urgent need for
interrogation and other services in support of military operations in
Iraq, turned to the Department of the Interior for contract assistance.
However, numerous breakdowns occurred in the issuance and
administration of the orders for these services, including inadequate
oversight of contractor performance.[Footnote 43]
More recently, in December 2006 we reported that DOD does not have
sufficient numbers of contractor oversight personnel at deployed
locations, which limits its ability to obtain reasonable assurance that
contractors are meeting contract requirements efficiently and
effectively.[Footnote 44] For example, an Army official acknowledged
that the Army is struggling to find the capacity and expertise to
provide the contracting support needed in Iraq. In addition, officials
responsible for contracting with MNF-I stated that they did not have
enough contract oversight personnel and quality assurance
representatives to allow MNF-I to reduce the Army's use of the LOGCAP
contract by awarding more sustainment contracts for base operations
support in Iraq. Additionally, a Defense Contract Management Agency
official responsible for overseeing the LOGCAP contractor's performance
at 27 installations in Iraq told us he was unable to personally visit
all 27 locations himself during his 6-month tour in Iraq. As a result,
he was unable to determine the extent to which the contractor was
meeting the contract's requirements at each of those 27 sites.
Moreover, he only had one quality assurance representative to assist
him. The official told us that in order to properly oversee this
contract, he should have had at least three quality assurance
representatives assisting him. The contracting officer's representative
for an intelligence support contract in Iraq told us he was also unable
to visit all of the locations that he was responsible for overseeing.
At the locations he did visit he was able to work with the contractor
to improve its efficiency. However, because he was not able to visit
all of the locations at which the contractor provided services in Iraq,
he was unable to duplicate those efficiencies at all of the locations
in Iraq where the contractor provided support.
Since the mid-1990s, our work has shown the need for better pre-
deployment training for military commanders and contract oversight
personnel on the use of contractor support. Training is essential for
military commanders because of their responsibility for identifying and
validating requirements to be addressed by the contractor. In addition,
commanders are responsible for evaluating the contractor's performance
and ensuring the contract is used economically and efficiently.
Similarly, training is essential for DOD contract oversight personnel
who monitor contractor performance for the contracting officer.
As we reported in 2003, military commanders and contract management and
oversight personnel we met in the Balkans and throughout Southwest Asia
frequently cited the need for better preparatory training.[Footnote 45]
Additionally, in our 2004 review of logistics support contracts, we
reported that many individuals using logistics support contracts such
as LOGCAP were unaware that they had any contract management or
oversight roles.[Footnote 46] Army customers stated that they knew
nothing about LOGCAP before their deployment and that they had received
no pre-deployment training on their roles and responsibilities in
ensuring that the contract was used economically and efficiently. In
July 2005 and again in June 2006, we reported that military units did
not receive any training on private security contractors in Iraq and
the military's roles and responsibilities regarding private security
contractors.[Footnote 47]
In our December 2006 report, we noted that many officials responsible
for contract management and oversight in Iraq stated that they received
little or no training on the use of contractors prior to their
deployment, which led to confusion over their roles and
responsibilities.[Footnote 48] For example, in several instances,
military commanders attempted to direct (or ran the risk of directing)
a contractor to perform work even though commanders are not authorized
to do so. Such cases can result in increased costs to the government.
Mr. Chairman and Members of the Subcommittee, this concludes my
statement. I would be happy to answer any questions you may have at
this time.
GAO Contact:
For questions regarding this testimony, please contact Sharon L. Pickup
at (202) 512-9619 or pickups@gao.gov.
[End of section]
Appendix I: Systemic Acquisition Challenges at the Department of
Defense:
1. Service budgets are allocated largely according to top line
historical percentages rather than Defense-wide strategic assessments
and current and likely resource limitations.
2. Capabilities and requirements are based primarily on individual
service wants versus collective Defense needs (i.e., based on current
and expected future threats) that are both affordable and sustainable
over time.
3. Defense consistently overpromises and underdelivers in connection
with major weapons, information, and other systems (i.e., capabilities,
costs, quantities, and schedule).
4. Defense often employs a "plug and pray approach" when costs escalate
(i.e., divide total funding dollars by cost per copy, plug in the
number that can be purchased, then pray that Congress will provide more
funding to buy more quantities).
5. Congress sometimes forces the department to buy items (e.g., weapon
systems) and provide services (e.g., additional health care for non-
active beneficiaries, such as active duty members' dependents and
military retirees and their dependents) that the department does not
want and we cannot afford.
6. DOD tries to develop high-risk technologies after programs start
instead of setting up funding, organizations, and processes to conduct
high-risk technology development activities in low-cost environments,
(i.e., technology development is not separated from product
development). Program decisions to move into design and production are
made without adequate standards or knowledge.
7. Program requirements are often set at unrealistic levels, then
changed frequently as recognition sets in that they cannot be achieved.
As a result, too much time passes, threats may change, or members of
the user and acquisition communities may simply change their mind. The
resulting program instability causes cost escalation, schedule delays,
smaller quantities, and reduced contractor accountability.
8. Contracts, especially service contracts, often do not have
definitive or realistic requirements at the outset in order to control
costs and facilitate accountability.
9. Contracts typically do not accurately reflect the complexity of
projects or appropriately allocate risk between the contractors and the
taxpayers (e.g., cost plus, cancellation charges).
10. Key program staff rotate too frequently, thus promoting myopia and
reducing accountability (i.e., tours based on time versus key
milestones). Additionally, the revolving door between industry and the
department presents potential conflicts of interest.
11. The acquisition workforce faces serious challenges (e.g., size,
skills, knowledge, and succession planning).
12. Incentive and award fees are often paid based on contractor
attitudes and efforts versus positive results (i.e., cost, quality, and
schedule).
13. Inadequate oversight is being conducted by both the department and
Congress, which results in little to no accountability for recurring
and systemic problems.
14. Some individual program and funding decisions made within the
department and by Congress serve to undercut sound policies.
15. Lack of a professional, term-based Chief Management Officer at the
department serves to slow progress on defense transformation and reduce
the chance of success in the acquisitions/contracting and other key
business areas.
[End of section]
Footnotes:
[1] GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.:
Jan. 31, 2007).
[2] Ronald W. Reagan National Defense Authorization Act for Fiscal Year
2005, Pub. L. No. 108-375, § 332 (2004) (codified in part at 10 U.S.C.
§§ 186 and 2222).
[3] GAO, Defense Business Transformation: Achieving Success Requires a
Chief Management Officer to Provide Focus and Sustained Leadership, GAO-
07-1072 (Washington, D.C.: Sept. 5, 2007).
[4] See GAO-07-1072. DOD shares responsibility for the following seven
governmentwide high-risk areas: (1) disability programs, (2) ensuring
the effective protection of technologies critical to U.S. national
security interests, (3) interagency contracting,
(4) information systems and critical infrastructure, (5) information-
sharing for homeland security, (6) human capital management, and (7)
real property management.
[5] GAO, Global War on Terrorism: DOD Needs to Improve the Reliability
of Cost Data and Provide Additional Guidance to Control Costs, GAO-05-
882 (Washington, D.C.: Sept. 21, 2005) and Global War on Terrorism:
Fiscal Year 2006 Obligation Rates Are Within Funding Levels and
Significant Multiyear Procurement Funds Will Likely Remain Available
for Use in Fiscal Year 2007, GAO-07-76 (Washington, D.C.: Nov. 13,
2006).
[6] GAO, DOD Business Transformation: Lack of an Integrated Strategy
Puts the Army's Asset Visibility System Investments at Risk, GAO-07-860
(Washington, D.C.: July 27, 2007).
[7] GAO, Securing, Stabilizing, and Rebuilding Iraq: Key Issues for
Congressional Oversight, GAO-07-308SP (Washington, D.C.: Jan. 9, 2007).
[8] GAO, Defense Inventory: Opportunities Exist to Save Billions by
Reducing Air Force's Unneeded Spare Parts Inventory, GAO-07-232
(Washington, D.C.: Apr. 27, 2007).
[9] GAO-07-308SP.
[10] GAO, Defense Acquisitions: Improved Management and Oversight
Needed to Better Control DOD's Acquisition of Services, GAO-07-832T
(Washington, D.C.: May 10, 2007).
[11] GAO-07-832T.
[12] GAO, Military Operations: High-Level DOD Action Needed to Address
Long-standing Problems with Management and Oversight of Contractors
Supporting Deployed Forces, GAO-07-145 (Washington, D.C.: Dec. 18,
2006).
[13] Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005, Pub. L. No. 108-375, § 332 (2004) (codified in part at 10
U.S.C. §§ 186 and 2222).
[14] See for example, GAO-07-1072; GAO, Defense Business
Transformation: A Comprehensive Plan, Integrated Efforts, and Sustained
Leadership Are Needed to Assure Success, GAO-07-229T (Washington, D.C.:
Nov. 16, 2006); Department of Defense: Sustained Leadership Is Critical
to Effective Financial and Business Management Transformation, GAO-06-
1006T (Washington, D.C.: Aug. 3, 2006); and DOD's High-Risk Areas:
Successful Business Transformation Requires Sound Strategic Planning
and Sustained Leadership, GAO-05-520T (Washington, D.C.: Apr. 13,
2005).
[15] See for example GAO-07-1072, GAO-07-310, GAO-07-229T, and GAO-06-
1006T.
[16] Defense Business Board, Governance-Alignment and Configuration of
Business Activities Task Group Report (Washington, D.C.: May 31, 2006)
and Institute for Defense Analyses, Does DOD Need a Chief Management
Officer? (Alexandria, Va.: Dec. 2006).
[17] DOD Directive 5105.02, Deputy Secretary of Defense (Sept. 18,
2007).
[18] Pub. L. No. 109-163, § 376, 119 Stat. 3136, 3213 (2006).
[19] Pub. L. No. 109-364, § 321, 120 Stat. 2083 (2006).
[20] GAO-06-1006T and GAO-07-229T.
[21] Disciplined processes include a wide range of activities,
including project planning and oversight, requirements management, risk
management, and testing.
[22] See for example, GAO-07-860; DOD Needs to Ensure That Navy Marine
Corps Intranet Program Is Meeting Goals and Satisfying Customers, GAO-
07-51 (Washington, D.C.: Dec. 8, 2006); Defense Travel System: Reported
Savings Questionable and Implementation Challenges Remain, GAO-06-980
(Washington, D.C.: Sept. 26, 2006); DOD Systems Modernization:
Uncertain Joint Use and Marginal Expected Value of Military Asset
Deployment System Warrant Reassessment of Planned Investment, GAO-06-
171 (Washington, D.C.: Dec. 15, 2005); and DOD Systems Modernization:
Planned Investment in the Navy Tactical Command Support System Needs to
be Reassessed, GAO-06-215 (Washington, D.C.: Dec. 5, 2005).
[23] GAO, DOD Business Systems Modernization: Progress Continues to Be
Made in Establishing Corporate Management Controls, but Further Steps
Are Needed, GAO-07-733 (Washington, D.C.: May 14, 2007).
[24] GAO, Business Systems Modernization: Strategy for Evolving DOD's
Business Enterprise Architecture Offers a Conceptual Approach, but
Execution Details Are Needed, GAO-07-451 (Washington, D.C.: Apr. 16,
2007); and Enterprise Architecture: Leadership Remains Key to
Establishing and Leveraging Architectures for Organizational
Transformation, GAO-06-831 (Washington, D.C.: Aug. 14, 2006).
[25] See GAO-07-733.
[26] Ronald W. Reagan National Defense Authorization Act for Fiscal
Year 2005, Pub. L. No. 108-375, § 332 (2004) (codified in part at 10
U.S.C. § 2222).
[27] GAO, Business Systems Modernization: DOD Needs to Fully Define
Policies and Procedures for Institutionally Managing Investments, GAO-
07-538 (Washington, D.C.: May 11, 2007).
[28] Field/tactical refers to Army units that are deployable to
locations around the world, such as Iraq or Afghanistan.
[29] GAO-07-860.
[30] GAO-06-215.
[31] GAO-07-51.
[32] GAO, DOD Personnel: Inadequate Personnel Security Investigations
Pose National Security Risks, GAO/NSIAD-00-12 (Washington, D.C.: Oct.
27, 1999).
[33] GAO, Military Base Closures: Opportunities Exist to Improve
Environmental Cleanup Cost Reporting and to Expedite Transfer of
Unneeded Property, GAO-07-166 (Washington, D.C.: Jan. 30, 2007).
[34] GAO, Military Base Closures: Projected Savings from Fleet
Readiness Centers Likely Overstated and Actions Needed to Track Actual
Savings and Overcome Certain Challenges, GAO-07-304 (Washington, D.C.:
June 29, 2007).
[35] GAO, Defense Acquisitions: Assessments of Selected Weapon
Programs, GAO-07-406SP (Washington, D.C.: Mar. 30, 2007).
[36] GAO, Federal Acquisitions and Contracting: Systemic Challenges
Need Attention, GAO-07-1098T (Washington, D.C.: July 17, 2007).
[37] GAO, Defense Acquisitions: Tailored Approach Needed to Improve
Service Acquisition Outcomes, GAO-07-20 (Washington, D.C.: Nov. 9,
2006).
[38] GAO, Defense Contracting: Improved Insight and Controls Needed
over DOD's Time-and-Materials Contracts, GAO-07-273 (Washington, D.C.:
June 29, 2007).
[39] GAO, Defense Contracting: Use of Undefinitized Contract Actions
Understated and Definitization Time Frames Often Not Met, GAO-07-559
(Washington. D.C.: June 19, 2007).
[40] GAO, Defense Contract Management: DOD's Lack of Adherence to Key
Contracting Principles on Iraq Oil Contracts Put Government Interests
at Risk, GAO-07-839 (Washington, D.C.: July 31, 2007).
[41] GAO, Rebuilding Iraq: Fiscal year 2003 Contract Award Procedures
and Management Challenges, GAO-04-605 (Washington, D.C.: June 1, 2004).
[42] GAO, Military Operations: DOD's Extensive Use of Logistics Support
Contracts Requires Strengthened Oversight, GAO-04-854 (Washington,
D.C.: July 19, 2004).
[43] GAO, Interagency Contracting: Problems with DOD's and Interior's
to Support Military Operations, GAO-05-201 (Washington, D.C.: Apr. 29,
2005).
[44] GAO-07-145.
[45] GAO, Military Operations: Contractors Provide Vital Services to
Deployed Forces but Are Not Adequately Addressed in DOD Plans, GAO-03-
695 (Washington, D.C.: June 24, 2003).
[46] GAO-04-854.
[47] GAO, Rebuilding Iraq: Actions Needed to Improve the Use of Private
Security Providers, GAO-05-737 (Washington, D.C.: July 28, 2005) and
Rebuilding Iraq: Actions Still Needed to Improve the Use of Private
Security Providers, GAO-06-865T (Washington, D.C.: June 13, 2006).
[48] GAO-07-145.
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