Homeland Security
Successes and Challenges in DHS's Efforts to Create an Effective Acquisition Organization Gao ID: GAO-05-179 March 29, 2005Department of Homeland Security (DHS) organizations are expected to work together to protect the United States from terrorism. To support this primary mission, DHS has been acquiring billions of dollars worth of goods and services. DHS also has been working to integrate the disparate acquisition processes and systems that organizations brought with them when DHS was created 2 years ago. GAO was asked to identify (1) areas where DHS has been successful in promoting collaboration among its various organizations and (2) areas where DHS still faces challenges in integrating the acquisition function across the department. GAO was also asked to assess DHS's progress in implementing an effective review process for major, complex investments.
DHS's disparate organizations have quickly established collaborative relationships to leverage spending for various goods and services without losing focus on small businesses. DHS is using strategic sourcing, that is, formulating purchasing strategies to meet departmentwide requirements for specific commodities, such as office supplies, boats, energy, and weapons. By fostering collaboration, DHS has leveraged its buying power and savings are expected to grow. Also off to a good start is the small business program, whose reach is felt across DHS. Representatives have been designated in each DHS procurement office to help ensure that small businesses have opportunities to compete for DHS's contract dollars. In contrast, lack of clear accountability is hampering DHS's efforts to integrate the acquisition functions of its numerous organizations into an effective whole. DHS remains a collection of disparate organizations, many of which are performing functions with insufficient oversight, giving rise to an environment rife with challenges. Some of DHS's organizations have major, complex acquisition programs that are subject to a multitiered investment review process to help reduce risk and increase chances for successful outcomes in terms of cost, schedule, and performance. Part of the review process features a knowledge-based acquisition approach pioneered by successful commercial firms. DHS's adaptation of this best practices approach, however, does not require two critical management reviews and is missing some key information before decisions are made to invest additional resources. In addition, contractor tracking and oversight is not fully incorporated into DHS policy and guidance. Finally, some aspects of the review process--which has been under revision for many months--need clarification.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-179, Homeland Security: Successes and Challenges in DHS's Efforts to Create an Effective Acquisition Organization
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Report to Congressional Requesters:
United States Government Accountability Office:
GAO:
March 2005:
Homeland Security:
Successes and Challenges in DHS's Efforts to Create an Effective
Acquisition Organization:
GAO-05-179:
GAO Highlights:
Highlights of GAO-05-179, a report to congressional requesters.
Why GAO Did This Study:
Department of Homeland Security (DHS) organizations are expected to
work together to protect the United States from terrorism. To support
this primary mission, DHS has been acquiring billions of dollars worth
of goods and services. DHS also has been working to integrate the
disparate acquisition processes and systems that organizations brought
with them when DHS was created 2 years ago.
GAO was asked to identify (1) areas where DHS has been successful in
promoting collaboration among its various organizations and (2) areas
where DHS still faces challenges in integrating the acquisition
function across the department. GAO was also asked to assess DHS‘s
progress in implementing an effective review process for major, complex
investments.
What GAO Found:
DHS‘s disparate organizations have quickly established collaborative
relationships to leverage spending for various goods and services
without losing focus on small businesses. DHS is using strategic
sourcing, that is, formulating purchasing strategies to meet
departmentwide requirements for specific commodities, such as office
supplies, boats, energy, and weapons. By fostering collaboration, DHS
has leveraged its buying power and savings are expected to grow. Also
off to a good start is the small business program, whose reach is felt
across DHS. Representatives have been designated in each DHS
procurement office to help ensure that small businesses have
opportunities to compete for DHS‘s contract dollars.
In contrast, lack of clear accountability is hampering DHS‘s efforts to
integrate the acquisition functions of its numerous organizations into
an effective whole. DHS remains a collection of disparate
organizations, many of which are performing functions with insufficient
oversight, giving rise to an environment rife with challenges, as shown
in the following table.
Challenges Facing DHS‘s Efforts to Integrate Acquisition Functions:
Problem areas: Overall integration;
Challenges: New policy emphasizes need for unified, integrated
acquisition organization but allows U.S. Coast Guard and U.S. Secret
Service to remain exempt from integration efforts. Possible workload
imbalances have not been addressed, nor has the lack of enforcement of
program managers‘ training and certification.
Problem areas: Dual accountability;
Challenges: Some of the primary duties delegated to the Chief
Procurement Officer have also been given to heads of DHS‘s
organizations, resulting in confusion over who is ultimately
accountable for acquisition decisions.
Problem areas: Chief Procurement Officer‘s oversight staff;
Challenges: Office has lacked sufficient staff to ensure compliance
with DHS‘s acquisition regulations and policies.
Problem areas: Office of Procurement Operations‘ use of interagency
contracting;
Challenges: Created almost 1 year after DHS was formed to support the
organizations that lacked their own procurement support, Procurement
Operations lacks sufficient staff and relies heavily on interagency
contracting, but missing are management controls to properly oversee
this activity, including fees paid to other agencies.
Source: GAO analysis.
[End of table]
Some of DHS‘s organizations have major, complex acquisition programs
that are subject to a multitiered investment review process to help
reduce risk and increase chances for successful outcomes in terms of
cost, schedule, and performance. Part of the review process features a
knowledge-based acquisition approach pioneered by successful commercial
firms. DHS‘s adaptation of this best practices approach, however, does
not require two critical management reviews and is missing some key
information before decisions are made to invest additional resources.
In addition, contractor tracking and oversight is not fully
incorporated into DHS policy and guidance. Finally, some aspects of the
review process”which has been under revision for many months”need
clarification.
What GAO Recommends:
GAO recommends that the Secretary of Homeland Security consider adding
resources to DHS‘s strategic sourcing program, correct deficiencies in
departmentwide oversight of acquisition policies and procedures, add
resources for contracting, and shore up its review process for
acquiring major, complex investments. In written comments on a draft of
this report, DHS agreed with the recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-179.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael J. Sullivan at
(937) 258-7915 or sullivanm@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Initiatives to Leverage Buying Power and Small Business Program Have
Helped Foster Collaboration among DHS Organizations:
Goal of Creating an Integrated Acquisition Organization Is Hampered by
Unclear Policy Decisions and Staffing Disparities:
Despite Adoption of Many Best Practices, Review Process for Major
Investments Lacks Key Reviews and Some Management Controls:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Comments from the Department of Homeland Security:
Appendix III: Office of Procurement Operations' Customers:
Appendix IV: Summary of Selected Commodity Council Strategic Sourcing
Initiatives:
Appendix V: Selected Acquisition Management Best Practices:
Appendix VI: GAO Contacts and Staff Acknowledgments:
Contacts:
Staff Acknowledgments:
Tables:
Table 1: DHS's Principal Organizations and Their Missions:
Table 2: Sampling Error at the 95 Percent Confidence Level for the
Sample of Interagency Agreements:
Table 3: Sampling Error at the 95 Percent Confidence Level for the
Sample of Interagency Agreements Fee Payments:
Figures:
Figure 1: DHS's Directorates and Other Principal Organizations and
Sources of Contracting Support:
Figure 2: Reported Monthly Monetary Benefits Generated by DHS's
Strategic Sourcing Program:
Figure 3: Comparison of Fiscal Year 2004 Dollars Obligated per
Contracting Staff within Each DHS Contracting Office:
Figure 4: General Depiction of DHS's Investment Review Process for
Major, Complex Investments:
Figure 5: Applying the Knowledge-Based Approach to DHS's Acquisition
Framework:
Abbreviations:
DHS: Department of Homeland Security:
DOD: Department of Defense:
MANPADS: man-portable air defense systems:
US-VISIT: U.S. Visitor and Immigrant Status Indicator Technology:
United States Government Accountability Office:
Washington, DC 20548:
March 29, 2005:
The Honorable Tom Davis:
Chairman:
Committee on Government Reform:
House of Representatives:
The Honorable Susan M. Collins:
Chairman:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
Since it was established, in March 2003,[Footnote 1] the Department of
Homeland Security (DHS) has been faced with assembling 23 separate
federal agencies and organizations with multiple missions, values, and
cultures into one cabinet-level department.[Footnote 2] This mammoth
task--one of the biggest mergers ever to take place within the federal
government--involves a variety of transformational efforts, one of
which is to design and implement the necessary management structure and
processes for acquiring goods and services. In January 2003, we
designated DHS's implementation and transformation as high-risk because
of the size and complexity of the effort and the existing challenges
faced by the components being merged into the department.[Footnote 3]
As it progresses through the early stages of its merger and
transformation, DHS has an opportunity to put into place the necessary
elements to become a 21st century federal department with a high-
quality acquisition organization that effectively supports its
critically important missions.
DHS has some of the most extensive acquisition needs within the U.S.
government. In fiscal year 2004, the department obligated $9.8 billion
to acquire a wide range of goods and services--such as information
systems, new technologies, weapons, aircraft, ships, and professional
services. At the same time, DHS is working to integrate the many
acquisition processes and systems that the disparate agencies and
organizations brought with them.
Given DHS's complex merger, you asked us to review the department's
progress in establishing an effective acquisition organization. In
response to your request, we (1) identified areas where DHS has been
successful in promoting collaboration among its various organizations
and (2) identified areas where DHS still faces challenges in
integrating the acquisition function across the department. We also
assessed the department's progress in implementing an effective review
process for its major, complex investments.
To conduct this work, we assessed information from DHS headquarters and
the department's principal organizations and compared the information
against what our previous work has shown to be best acquisition
practices. We reviewed agency directives, memorandums, and other
documentation; interviewed agency officials; and analyzed agency
systems and processes. For the purposes of this report, the term
acquisition refers to the overall effort to acquire goods and services
and involves a host of activities. Acquisition begins when an agency
establishes its requirements and moves through a process that involves
soliciting providers of goods and services, awarding contracts,
monitoring performance, and handling various contract administration
duties. In some cases, acquisition can include development of a new
product, such as a weapon system or a database system. Acquisition also
can be the simple purchase of existing products. The Federal
Acquisition Regulation, which governs acquisitions within the federal
government, defines the term procurement as being synonymous with
acquisition.[Footnote 4] Appendix I presents our scope and methodology
in more detail. We conducted our review from March 2004 through
February 2005 in accordance with generally accepted government auditing
standards.
Results in Brief:
In the relatively short time since its inception, DHS has demonstrated
some successes in implementing a strategic sourcing program to leverage
the department's buying power and in creating a small business
program.[Footnote 5] Both of these efforts have fostered an environment
in which DHS's various organizations work collaboratively toward a
common goal. The cornerstone of the strategic sourcing program is the
use of commodity councils, each consisting of a cross-functional group
of acquisition-related personnel and specialists from the various
organizations. These councils are charged with formulating purchasing
strategies to meet departmentwide requirements for specific
commodities, such as office supplies and the department's vehicle
fleet. Even though the councils have faced challenges in gathering
accurate spending data and in managing workload, they have helped spur
collaboration and cooperation across the department. Moreover, DHS
already has reported $14 million in dollar savings as a result of
leveraging resources across DHS, and officials expect the savings to
grow over time. Another area of early success is DHS's small business
program, which has been proactive in working with each organization in
the department to ensure that small businesses have the opportunity to
compete for DHS dollars. In fiscal year 2004, DHS reported that 35
percent of its prime contract dollars went to small businesses,
exceeding its goal of 23 percent.
Notwithstanding these initial successes, DHS's progress in creating a
unified acquisition organization has been slowed by policy decisions
that create ambiguity and by procurement staffing disparities within
the department. An October 2004 management directive emphasizes the
need for a unified, integrated acquisition organization but relies on a
system of dual accountability between the Chief Procurement Officer and
the heads of the department's organizations to make this happen. The
Chief Procurement Officer has been delegated the responsibility to
manage, administer, and oversee all acquisition activity across DHS,
but in practice enforcement of these activities is spread throughout
the department with unclear accountability. Further, the directive
states that the U.S. Coast Guard and U.S. Secret Service are
statutorily exempt from its application. Although the Homeland Security
Act provides that both the Coast Guard and the Secret Service shall be
maintained as distinct entities within the department, we found no
reasonable basis to conclude that the directive could not be made
applicable to them. Rather, it appears to be a policy decision that is
likely to hamper efforts to effectively integrate the acquisition
function in DHS. To a great extent, the various acquisition
organizations within the department are still operating in a disparate
manner, with oversight of acquisition activities left primarily up to
each individual organization. Significant disparities in the dollar
value of contracting staff's workloads across DHS have only recently
begun to be addressed. Staffing shortages have led one organization,
which handles about $2 billion in obligations for various departmental
organizations, to rely extensively on outside agencies for contracting
support--often for a fee. We found that this office lacked adequate
internal controls to provide oversight of this interagency contracting
activity.
To protect its major, complex investments, DHS's Office of the Chief
Financial Officer has put in place a review process that adopts many
best practices--that is, proven methods, processes, techniques, and
activities--to help the department reduce risk and increase the chances
for successful outcomes in terms of cost, schedule, and performance.
One best practice is an overarching, knowledge-based acquisition
approach pioneered by successful commercial companies. A general
principle of this approach is that program managers should provide
sufficient knowledge about important aspects of their programs at key
points in the acquisition process, so that senior leaders are prepared
to make a well-informed investment decision before an acquisition moves
forward. DHS's framework includes key tenets of this approach but does
not require two critical management reviews to ensure that resources
match customer needs and that design performs as expected. Also missing
is important information to help reduce risk and meet cost and delivery
targets for major investments. In addition, DHS's review process does
not fully address how program managers will conduct effective
contractor tracking and oversight. We also found that program managers
lacked sufficient guidance about how to navigate investment reviews.
The review process has been under revision for many months, and DHS
officials could not tell us when the process would be finalized.
In this report, we are making recommendations to the Secretary of
Homeland Security to help ensure that the department's strategic
sourcing program maintains its current momentum, that acquisition
integration efforts continue, and that DHS leadership has the
information it needs to proactively manage risks that arise during the
acquisition of major, complex systems. In written comments on a draft
of this report, DHS concurred with the recommendations. DHS's comments
are included in their entirety in appendix II.
Background:
The Homeland Security Act of 2002 created DHS, effective March 1, 2003,
by merging agencies and organizations that specialize in one or more
aspects of homeland security. Some of those specialties are
intelligence analysis, law enforcement, border security,
transportation security, biological research, critical infrastructure
protection, and disaster recovery. The intent behind DHS's merger and
transformation was to improve coordination, communication, and
information sharing among the multiple federal agencies responsible for
protecting the homeland. Critical to performing the homeland security
mission is the effective interaction between and integration of these
agencies and organizations. Table 1 shows DHS's eight principal
organizations and their missions.
Table 1: DHS's Principal Organizations and Their Missions:
Principal organizations[A]: Border and Transportation Security
Directorate;
Missions: Ensures security of U.S. borders and transportation systems;
Enforces the nation's immigration laws; Manages and coordinates port-of-
entry activities and oversees protection of government buildings.
Principal organizations[A]: Emergency Preparedness and Response
Directorate;
Missions: Prepares for catastrophes; Oversees federal government's
national response and recovery strategy.
Principal organizations[A]: Information Analysis and Infrastructure
Protection Directorate;
Missions: Identifies and assesses threats; Recommends measures
necessary to protect key resources and critical infrastructure.
Principal organizations[A]: Science and Technology Directorate;
Missions: Coordinates DHS's efforts in research and development.
Principal organizations[A]: Management Directorate;
Missions: Administers DHS's budget, financial management systems,
procurement activities, human resources functions, information
technology systems, facilities management, and performance measurement
efforts.
Principal organizations[A]: U.S. Secret Service;
Missions: Protects
U.S. President and other designated personnel, as well as the country's
currency and financial infrastructure, and provides security for
designated national events.
Principal organizations[A]: U.S. Coast Guard;
Missions: Protects the public, the environment and U.S. economic
interests in the nation's ports and waterways, coasts, international
waters, or any maritime region as required to support national
security; has terrorism, counternarcotics border protection roles; and
prevents illegal incursion of U.S. exclusive economic zone.
Principal organizations[A]: U.S. Citizenship and Immigration Services;
Missions: Directs immigration benefit system and promotes citizenship
values by providing immigration services, such as immigrant and
nonimmigrant sponsorship; adjustment of status; work authorization and
other permits; naturalization of qualified applicants; and asylum or
refugee processing.
Sources: DHS (data); GAO (analysis).
[A] This table does not show the organizations that fall under each of
the five directorates. This table also does not show all organizations
that report directly to the DHS Secretary and Deputy Secretary, such as
executive secretary, legislative affairs, public affairs, chief of
staff, inspector general, and general counsel.
[End of table]
Of the 23 entities that joined DHS from other agencies, only 7 came
with their own procurement support. Providing support to the other
entities--as well as a number of newly created entities, such as the
offices of the Chief Information Officer and Chief Financial Officer--
is an eighth office, the Office of Procurement Operations (Procurement
Operations). That office was not created until January 2004, almost a
year after DHS came into being. Appendix III lists all of the DHS
organizations that receive contracting support from Procurement
Operations. Figure 1 shows the sources of contracting support for DHS's
principal organizations.
Figure 1: DHS's Directorates and Other Principal Organizations and
Sources of Contracting Support:
[See PDF for image]
[End of figure]
To carry out acquisition effectively across a large federal
organization requires an integrated structure with standardized
policies and processes, the appropriate placement of the acquisition
function within the department, leadership that fosters good
acquisition practices, and a general framework that delineates the key
phases along the path for a major acquisition. An effective acquisition
organization has in place knowledgeable personnel who work together to
meet cost, quality, and timeliness goals while adhering to guidelines
and standards for federal acquisition.
Initiatives to Leverage Buying Power and Small Business Program Have
Helped Foster Collaboration among DHS Organizations:
In the 2 years since its creation, DHS has realized some successes in
opening the lines of communication among the various organizations
within the department through its strategic sourcing and small business
programs. Both of these efforts have involved every principal
organization in DHS, along with strong involvement from the Chief
Procurement Officer, and both have yielded positive results. DHS
already has begun to demonstrate that its strategic sourcing program
can foster collaboration across the department and at the same time
maximize the department's overall buying power. DHS's small business
program has a presence departmentwide, and according to DHS officials,
the department exceeded its 23 percent small business goal for fiscal
year 2004.[Footnote 6]
Strategic Sourcing Program Has Encouraged Partnerships across DHS and
Begun to Realize Savings:
Under the authority of the Chief Procurement Officer, DHS created a
strategic sourcing group in October 2003 to leverage departmentwide
spending for various commodities. The group brought together diverse
expertise from throughout DHS. To identify commodities with the most
potential for savings, strategic sourcing officials conducted a spend
analysis using available acquisition databases, such as the Federal
Procurement Data System, and input from DHS senior management.[Footnote
7] The following 15 commodities were identified as having potential to
leverage the department's buying power:
* aviation,
* boats,
* business wireless communications,
* copiers,
* energy,
* enterprise software agreements,
* facilities,
* facilities security,
* vehicle fleets,
* mail,
* office supplies,
* professional services,
* training,
* uniforms, and:
* weapons.
Consistent with best practices, the strategic sourcing group then
established commodity councils composed of representatives from across
DHS. The commodity councils were assigned responsibility for further
collection and refinement of historical procurement data in order to
better assess future purchasing strategies. Typically, members from the
strategic sourcing group and the DHS organization with the most
expertise in a particular commodity serve as council cochairs. For
example, a Coast Guard official is a cochair for the boats commodity
council.
Commodity council cochairs said they were willing to devote time to the
strategic sourcing initiatives because they recognized the unique
opportunity DHS had to move forward to leverage buying power across the
department. Further, the cochairs were virtually unanimous in telling
us that the councils enable stakeholders to build awareness of a
particular commodity and develop strong relationships throughout DHS.
They said the councils foster a sense of community in which the various
organizations can share information, participate in forums, find
commonalities, engage in open and productive communication, and make
smarter and more collaborative business decisions. For example, the
weapons commodity council routinely shares information on ammunition.
When one DHS organization is low on ammunition, others help meet the
need. Appendix IV contains more detail on initiatives that several
commodity councils have undertaken.
In fiscal year 2004, 4 commodity councils--office supplies, boats,
energy, and weapons--reported approximately $14.1 million in cost
savings and cost avoidances, and department officials expect the
savings to continue to grow.[Footnote 8] The savings have resulted from
DHS negotiating lower rates with suppliers and leveraging resources
across the department. Figure 2 depicts the savings trend over a 12-
month period. The September 2004 surge resulted when authorized DHS
employees began purchasing pistols through two large contracts, a
strategy spearheaded by the weapons commodity council.
Figure 2: Reported Monthly Monetary Benefits Generated by DHS's
Strategic Sourcing Program:
[See PDF for image]
[End of figure]
Baseline Data and Workload Demands Have Presented Challenges:
Some councils are encountering a problem faced by many federal
departments and agencies, namely, a shortage of comprehensive data upon
which to draw an accurate and detailed picture of what is being spent
on certain commodities over time. Strategic sourcing officials and
commodity council members told us that they cannot take full advantage
of spend analyses, nor can they accurately chart historical spending,
because DHS's acquisition databases do not contain enough procurement
data. The problem is compounded by the fact that when parts of existing
agencies, such as the Immigration and Naturalization Service from the
Department of Justice, joined DHS, detailed information on its spending
history was not available. Without an accurate analysis of how DHS
organizations historically purchased a commodity, council members will
likely continue to rely on a patchwork of estimates, as well as
information from suppliers, to glean information on spending history
and develop purchasing strategies for the future.
In addition, some commodity council members have found it challenging
to balance council duties with the demands and responsibilities of
their full-time positions within DHS. Officials told us that council
meetings and activities sometimes stall because council members must
shift attention to their full-time positions. Many commodity councils
did not make much progress during the last month of fiscal year 2004,
we were told, because council members' time was diverted to year-end
priorities. Our prior work on strategic sourcing shows that leading
commercial companies often establish full-time commodity managers to
more effectively manage commodities.[Footnote 9] Commodity managers
help commodity councils define requirements with internal clients,
negotiate with potential vendors, and resolve performance or other
issues arising after a contract is awarded and can help maintain
consistency, stability, and a long-term strategic focus.
Small Business Program Off to Good Start:
DHS's small business program has also had initial successes, reporting
that 35 percent of fiscal year 2004 obligations were awarded to small
business prime contractors, exceeding the department's goal of 23
percent. Although reporting directly to the Deputy Secretary of DHS,
the Director of the Office of Small and Disadvantaged Business
Utilization works closely with the Chief Procurement Officer to
emphasize throughout the department the important public policy
objective of small business inclusion in acquisition activities. The
small business office, in conjunction with the procurement staff across
the department, has created an outreach program that advises small
businesses on ways to market goods and services to DHS. Small business
representatives have been designated in each DHS procurement office,
and each office is required to submit a forecast of upcoming contract
opportunities above $100,000. DHS posts this information on a Web site
so that small businesses can identify opportunities to do business with
the department. The small business office has conducted extensive
outreach to DHS's business partners through regular seminars and has
established a mentor-protégé program that is designed to motivate and
encourage large businesses to provide mutually beneficial developmental
assistance to small businesses.
The Director of the Office of Small and Disadvantaged Business
Utilization and his staff have also been directly involved in DHS's
strategic sourcing efforts to help ensure that, even as the department
leverages its buying power, small businesses continue to have
opportunities to compete for contracts. Several commodity councils have
developed strategies to address this issue. The office supplies council
has worked out an arrangement for DHS employees to purchase office
supplies from the Department of Defense's (DOD) Web-based Emall, where
employees can easily identify and order from small businesses.[Footnote
10] The head of procurement in the Immigration and Customs Enforcement
organization, working closely with the weapons commodity council,
awarded a contract for half of the largest pistol procurement in the
history of U.S. law enforcement to a small business. According to the
chair of the boats council, the council plans to consult with the Coast
Guard's small business specialist to explore future possibilities for
providing opportunities to small businesses.
Goal of Creating an Integrated Acquisition Organization Is Hampered by
Unclear Policy Decisions and Staffing Disparities:
DHS's goal of integrating the acquisition function more broadly across
the department has not been accomplished, and the introduction of a new
policy has been unsuccessful in breaking down barriers to effective
departmentwide management. An integrated acquisition organization is
essential to the department's success in executing policies and
processes to effectively obligate and administer billions of dollars in
acquiring what DHS needs to accomplish its mission. An October 2004 DHS
management directive emphasizes the need for an integrated acquisition
organization and reiterates the Chief Procurement Officer's
responsibility to manage, administer, and oversee all acquisition
activity across DHS and to establish a qualified acquisition workforce.
In practice, these responsibilities are spread throughout the
department with unclear accountability. Further hampering efforts to
effectively integrate the acquisition function, the directive provides
that the Coast Guard and the Secret Service are statutorily exempt from
its application. We found no reasonable basis to conclude that the
directive could not be made applicable to them. The various
organizations within DHS continue to operate in a largely disparate
manner, with a lack of centralized oversight of compliance with the
department's acquisition regulation and policies. Staffing disparities
across the procurement organizations have only recently begun to be
addressed. We found that staffing shortfalls led Procurement Operations
to rely extensively on outside agencies for contracting support--often
for a fee--and that this office lacked adequate internal controls to
properly manage this interagency contracting activity. Because of the
risks associated with interagency contracting, we recently designated
this approach as a high-risk issue.[Footnote 11]
Not Clear How Recent Management Directive Will Drive Integration of the
Acquisition Organization:
In October 2004, the Secretary of DHS signed a management directive
entitled "Acquisition Line of Business Integration and Management."
This directive, the department's principal guidance for "leading,
governing, integrating, and managing" the acquisition function, states
that DHS will standardize acquisition policies and procedures and
continue to consolidate and integrate the number of systems supporting
the acquisition function. It directs managers from each organization to
commit resources to training, development, and certification of
acquisition professionals. The directive also highlights the Chief
Procurement Officer's broad authority, including:
* management, administration, and oversight of departmentwide
acquisition, financial assistance, strategic sourcing, and competitive
sourcing programs;
* promotion of career development and establishment of qualifications,
training, and certification standards for the acquisition and financial
assistance workforce;
* development and publication of departmentwide acquisition and
financial assistance regulations, directives, policies, and
procedures;
* designation of all heads of contracting activities; and:
* development and maintenance of contracting officer warrant and
financial assistance officer programs, including designation of
qualified persons as contracting officers and financial assistance
officers.
However, the directive may not achieve its goal of creating an
integrated acquisition organization, because it creates unclear working
relationships between the Chief Procurement Officer and heads of DHS's
principal organizations.[Footnote 12] For example, the Chief
Procurement Officer and the director of Immigration and Customs
Enforcement share responsibility for recruiting and selecting key
acquisition officials, preparing performance ratings for the top
manager of the contracting office, and providing appropriate resources
to support the Chief Procurement Officer's initiatives. The policy
leaves unclear how the responsibilities will be implemented or what
enforcement authority the Chief Procurement Officer has to ensure that
initiatives are carried out. In addition, directors are only required
to "consider" the allocation of resources to meet procurement staffing
levels in accordance with the Chief Procurement Officer's analysis.
Agreements have not been developed on how the resources to train,
develop, and certify acquisition professionals in the principal
organizations will be identified or funded. In a relatively new
department like DHS, which is still in the process of instituting
procedures, developing a strong organizational culture, and
establishing clear roles and missions, this concept of dual
accountability--absent effective implementing guidance--may not
accomplish the intended goals.
The October 2004 management directive does not apply to the Coast Guard
or the Secret Service, further hampering efforts to integrate the
acquisition organization. The Coast Guard is one of the largest
organizations within DHS, with obligations accounting for about $2.1
billion in fiscal year 2004, nearly 23 percent of the department's
total. According to the directive, the Coast Guard is exempted by
statute. We disagree. We are not aware of any explicit statutory
exemption that would prevent the application of this directive. While
several provisions in the Homeland Security Act would limit the range
of management initiatives concerning the Coast Guard, none of them
would appear to be applicable in this case. For example, the Homeland
Security Act requires the Coast Guard to be maintained as a distinct
entity within the department.[Footnote 13] Other limitations prevent
the transfer of assets,[Footnote 14] alteration of missions,[Footnote
15] and changes in reporting relationships.[Footnote 16] The act also
expressly provides that "the authorities, functions, and capabilities
of the Coast Guard to perform its missions shall be maintained intact
and without significant reduction after the transfer of the Coast Guard
to the department." We find nothing in the directive that contravenes
these limitations. Nothing in the document would reasonably appear to
threaten the status of the Coast Guard as a distinct entity or
otherwise impair its ability to perform statutory missions.
We raised the question of statutory exemption with the DHS General
Counsel, who shared our assessment concerning the explicit statutory
exemptions. He viewed the applicability of the management directive as
a policy matter, noting that "the determination of whether the
application of all or part of this [management directive] would impact
the [Coast Guard's] ability to perform its mission is not a legal
matter and is more appropriately made by DHS policy officials." We
agree that DHS officials, with sufficient reasons, could make a policy
decision that a particular management directive impacts the Coast
Guard's ability to perform its missions. In this instance, however, we
found no evidence that such a decision had been made.
The directive also provides that the Secret Service is exempted by
statute. As with the Coast Guard, we are unaware of any specific
statutory exemption that would prevent the application of the
directive. The Homeland Security Act requires the Secret Service to be
maintained as a distinct entity within the department.[Footnote 17] The
2005 Homeland Security Appropriations Act reiterates this requirement
and imposes additional limitations on altering reporting
relationships.[Footnote 18] Given the nature of the management
directive, we also conclude that there is no apparent reason to exempt
the Secret Service from its application.[Footnote 19]
In Environment of Largely Disparate Procurement Organizations,
Oversight of Acquisition Activity Lacking:
DHS's principal organizations are, to a large extent, still functioning
much as they did in premerger days with regard to acquisition-related
functions. Embedded within seven of the procurement organizations are,
for the most part, the same contracting staffs that joined DHS from
their former agencies. The eighth organization, Procurement Operations,
created to meet the needs of the many DHS organizations that do not
have colocated procurement support, has a direct reporting chain to the
Chief Procurement Officer.
Until recently, the Chief Procurement Officer, whom DHS's top
leadership delegated with the key responsibility of ensuring compliance
with the department's acquisition regulation and policies, had only two
staff members to carry out this duty. Consequently, the department's
acquisition oversight program relies extensively on self-assessments by
personnel in each procurement organization. A component of the
oversight program is a recent initiative to review DHS acquisition
plans, according to dollar thresholds, and to perform on-site
evaluations of each procurement organization. The fiscal year 2005
budget provided the Chief Procurement Officer with five additional
staff, but it is too soon to tell whether this number will be adequate
to effectively implement the oversight program. Further, it remains
unclear what the result would be if an organization were found not to
be in compliance with DHS's acquisition regulation and policies.
Our prior work shows that in a highly functioning acquisition
organization, the chief procurement officer is in a position to oversee
compliance with acquisition policies and processes by implementing
strong oversight mechanisms.[Footnote 20] Adequate oversight of
acquisition activities across DHS is imperative, in light of the
department's mission and the problems that have been reported by us and
inspectors general for some of the large agencies and organizations
within the department. These reports have highlighted the lack of
important management controls for monitoring contractors and ensuring
efficiencies and effectiveness in the acquisition process. For example,
the Department of Homeland Security Inspector General reported that
during its first year of operation, the Transportation Security
Administration relied extensively on contractors to accomplish its
mission. It also found that contracting officers wrote contracts
without clearly defined deliverables, and on occasion, contractors
themselves were permitted to determine requirements and define
deliverables. As a result, the cost of those initial contracts
ballooned.[Footnote 21] The Transportation Security Administration is
in the process of devising policies and procedures that require
adequate procurement planning, contract structure, and contract
oversight. We have also reported that the former U.S. Immigration and
Naturalization Service did not have the basic infrastructure--including
oversight of procurement activities--to ensure that its contracting
office was effective. DHS's Inspector General recently reported that
the Federal Emergency Management Agency discovered it has not been
reporting or tracking procurements handled by its field
offices.[Footnote 22]
Challenges to Effective Implementation of Acquisition Workforce Plan:
In July 2003, we recommended that DHS develop a data-driven assessment
of the department's acquisition personnel, resulting in a workforce
plan that would identify the number, location, skills, and competencies
of the workforce.[Footnote 23] DHS concurred with the recommendation
and has drafted a plan, based on best practices, that defines the
acquisition workforce, focuses on the need for continuous training, and
implements a certification program for contracting officials, program
managers, and contracting officers' technical
representatives.[Footnote 24] However, the department faces challenges
in implementing the plan.
As part of its acquisition workforce planning efforts, the department
has not conducted an assessment of whether contracting staff within DHS
are appropriately distributed for the varying workloads in each
procurement organization. Our analysis shows that some disparities may
exist. We divided the obligated fiscal year 2004 dollars for each
contracting office by the number of contracting staff. While this
approach is limited in that it does not take into account the
complexity of the acquisitions being performed, it can provide senior
leadership with an indication of whether disparities may exist in the
contracting workforce. Figure 3 shows the amount of contracting
obligations per contracting staff within DHS contracting activities.
Figure 3: Comparison of Fiscal Year 2004 Dollars Obligated per
Contracting Staff within Each DHS Contracting Office:
[See PDF for image]
[End of figure]
As of September 2004, Procurement Operations had only 19 contracting
staff to support a number of DHS organizations that, taken together,
accounted for about 21 percent, or almost $2 billion, of DHS's fiscal
year 2004 obligations. That year, Procurement Operations contracting
staff on the average handled $101 million per employee, whereas the
contracting staff for the Federal Law Enforcement Training Center on
the average handled close to $2.7 million per employee. Disparities
such as this may indicate the need to assess the numbers of contracting
staff across the department to determine whether imbalances exist and
whether actions are needed to correct the imbalances.
Another challenge to effectively implementing the acquisition workforce
plan pertains to the lack of enforcement of DHS's certification
program. While the plan calls for program managers responsible for
acquisitions to be certified in accordance with DHS's established
training and experience requirements, in practice, the means to enforce
compliance is lacking. In January 2005, the Director for the
Acquisition Workforce Program, within the Office of the Chief
Procurement Officer, determined that only 22 percent of the identified
programs in the department had program managers that had documented
that they had the training and experience requirements for
certification. While the Office of the Chief Procurement Officer has
issued a management directive requiring program mangers to meet the
department's certification and training requirements--and the number of
certified program managers has been increasing--accountability for
complying with the certification program rests with the principal
organizations to whom the program managers report. At present,
according to DHS officials, no mechanism is in place to ensure that
program managers take the required training and obtain certification
from the Chief Procurement Officer.
Struggling with Staffing Shortfalls, Procurement Operations Has Relied
on Interagency Agreements but Failed to Follow DHS Guidance in Doing
So:
Established almost 1 year after DHS was formed and tasked with
providing contracting support to the department organizations that did
not have their own contracting support, Procurement Operations has
struggled to manage its almost $2 billion workload because of staffing
shortfalls. Lacking in-house capability, Procurement Operations has
turned extensively to interagency contracting, and we found that
management controls were not in place to effectively oversee this
activity. Interagency contracting occurs when a federal agency obtains
supplies or services through another federal agency, either by placing
orders on existing contracts that have already been awarded by the
other agency, or by asking the other agency to award and administer
contracts or issue and administer task orders on its behalf. Use of
these contracts demands a high degree of business acumen and
flexibility on the part of the federal acquisition workforce.
We found that Procurement Operations had transferred almost 90 percent
of its obligations to other federal agencies through interagency
agreements in fiscal year 2004. For example, DHS transferred $12
million to the Department of the Interior's National Business Center to
obtain contractor operations and maintenance services at the Plum
Island Animal Disease Center. Interior charged DHS $62,000 for this
assistance. While some of the interagency agreements were for
contracting support, others were for program support, such as sending
funds to Department of Energy laboratories for providing a threat and
capability assessment.
DHS has issued a management directive that sets forth a number of
requirements meant to ensure that internal controls are in place when
using interagency contracting. Based on a random sample of 136
interagency agreements between Procurement Operations and outside
agencies, we found that the office had not complied with the
requirements in the directive.[Footnote 25] We can project, for
example, that in fiscal year 2004:
* 94 percent of Procurement Operations' files did not document that the
contracting staff had conducted the required analysis of alternatives
to justify the decision to pay an outside agency for contracting
support;
* 47 percent of the files did not identify the contracting officer's
technical representative, although this information is required to be
in the files;
* 35 percent of the files did not contain the required determination
and findings;[Footnote 26] and:
* 96 percent of the files lacked an indication that contractor
oversight had been performed.
Further, we found that Procurement Operations was not tracking how much
it is paying in fees to other agencies for contracting support. On the
basis of our sample, we found that the office had spent $12.9 million
in fees in fiscal year 2004.
While the oversight problems we identified are in large part due to the
staffing shortages in the office, we also found evidence that
contracting staff lacked basic information on how to use interagency
contracting. For example, a memo from Procurement Operations to DHS's
Director of Acquisition Policy and Oversight requested clarification on
what documentation is required in order to use another agency for
contracting support. In September 2004, DHS's Office of General Counsel
reviewed 20 of Procurement Operations' interagency agreements and found
that 16 were not legally sufficient. For example, 13 agreements
appeared to require performance by a contractor, but appropriate
documentation was not included in the contract files. Three were
insufficient because it was unclear whether the servicing agency would
perform cost/price analysis and trade-off, or whether Procurement
Operations had conducted a technical competition and expected the
servicing agency to award without a trade-off. According to a
Procurement Operations official, a fiscal year 2005 initiative for the
office is to establish a policy for processing interagency agreements
that provides clear guidance to staff.
Procurement Operations to Use Working Capital Fund to Increase Staffing
Levels:
Since January 2004, Procurement Operations has increased its staffing
level from 7 to 42 employees, and it plans to build to 127 staff in
fiscal year 2005. Rather than use direct appropriations to fund the
additional positions, the office plans to require the DHS organizations
that rely on its contracting services to contribute to a working
capital fund, to be replenished on a no-profit basis with payments
based on the extent to which the various organizations use the office's
support. Although the DHS budget for fiscal year 2005 includes $8.9
million to add contracting staff through the fund, we found that the
mechanics of making the fund viable have not been worked out.
Currently, Procurement Operations is negotiating agreements with each
organization it supports to determine the terms and conditions of
support and the dollar level to be contributed to the fund. According
to DHS officials, this negotiation process has been problematic. For
example, at the time of our review, the Science and Technology
Directorate and Procurement Operations were having difficulty reaching
a decision about who would be responsible for hiring the contracting
staff that would support the directorate. As of January 2005, no
agreements had been reached.
Despite Adoption of Many Best Practices, Review Process for Major
Investments Lacks Key Reviews and Some Management Controls:
Some DHS organizations have large, complex, and high-cost acquisition
programs that need to be closely managed. For example, the Bureau of
Customs and Border Protection's Automated Commercial Environment
system, which is a new trade processing system intended to improve the
movement of goods imported into the United States, is projected to cost
$5 billion, and the Coast Guard's Deepwater Program is expected to cost
$17 billion and take 2 to 3 decades to complete.[Footnote 27] To review
major, complex investments such as these (referred to as level 1
investments), DHS's Office of the Chief Financial Officer has put in
place a multitiered process. DHS has taken positive steps in creating a
knowledge-based framework, or philosophy, for managing major
investments; however, it still lacks key reviews and deliverables--both
best practices--within this framework to ensure that cost and schedule
estimates for major investments are as accurate as possible. These
reviews take place at critical junctures in the process and include
demonstrating knowledge about technologies, design, and manufacturing
processes. In addition, we found that contractor oversight, an
important tool for managing programs, is not receiving high-level
attention in the review process. Finally, we identified several areas
of confusion surrounding the mechanics of implementing the process from
a program manager's perspective. The management directive on the review
process has been under revision for many months, and DHS officials
could not tell us when the directive would be finalized.
Key Elements of DHS's Investment Review Process:
DHS's investment review process involves several different levels of
review, depending on the dollar threshold and risk level of the
program. The Investment Review Board makes decisions on level 1
investments with prior review and input from the Joint Requirements
Council, which in turn seeks input from other DHS specialists who have
expertise in such areas as asset management and information technology.
In classifying investments as level 1, DHS considers the following
criteria: contract costs; importance to DHS strategic and performance
plans; high development, operating, or maintenance costs; high risk;
high return; and significance in resource administration. Investments
classified as levels 2, 3, or 4 are considered lower-level acquisitions
and follow different investment review processes. In addition, many of
the major DHS organizations, such as the Transportation Security
Administration and the Coast Guard, have their own review processes,
which occur prior to higher-level review in the department. Figure 4
illustrates who is involved in the decision-making process and the
levels of review.
Figure 4: General Depiction of DHS's Investment Review Process for
Major, Complex Investments:
[See PDF for image]
[End of figure]
Although Policy Governing the Review Process Has Established a Solid
Risk Management Framework, Additional Best Practices Would Benefit DHS:
DHS has adopted several best practices from lessons learned from
leading commercial companies and successful federal programs that, if
applied consistently, could refine its ability to reduce risk to meet
cost and delivery targets for major investments. One of the best
practices is a knowledge-based approach, or framework, for managers to
hold reviews at key decision points in order to reduce risk before
investing resources in the next phase of a program's development. The
investment review policy provides guidance to program managers to
provide knowledge about important aspects of a product at key points in
the acquisition process and encourages them to reduce technology risk
through demonstration prior to beginning a project. The policy also
encourages program managers to demonstrate a product's design with
critical design reviews and reduce manufacturing risk prior to a
production decision. However, we found, based on our extensive body of
work on this knowledge-based approach, that additional program reviews
and knowledge deliverables could be incorporated into the process as
internal controls to better position DHS to make well-informed
decisions on its major, complex investments.
Figure 5 generally depicts the major phases of the knowledge-based
approach and the positioning of three knowledge points, or gates, when
key reviews are scheduled. The figure applies the knowledge-based
approach to DHS's investment review framework and displays an
exclamation mark where key reviews or information are missing.
Figure 5: Applying the Knowledge-Based Approach to DHS's Acquisition
Framework:
[See PDF for image]
[End of figure]
As shown in figure 5, DHS review points do not fully align with the
knowledge-based approach. For example, DHS does not require a review to
ensure that an investment's design performs as expected before
investing in a prototype. In addition, DHS's mandatory review to
proceed to production does not occur until after low-rate initial
production is well under way. DHS does have a review for low-rate
initial production; however, it is at the discretion of the Investment
Review Board. Our past work has shown that successful investments
reduce risk by ensuring that high levels of knowledge are achieved at
these key points of development. We found that investments that were
not reviewed at the appropriate points faced problems--such as
redesign--that resulted in cost increases and schedule delays.
We also found that some critical information is not addressed in DHS's
investment review policy or the guidance provided to program managers.
In other cases, it is made optional. For example, before program start
(knowledge point 1) is approved, DHS policy requires program managers
to identify an acquisition's key performance requirements and to have
technical solutions in place. This information is then used to form
cost and schedule estimates for the product's development to ensure
that a match exists between requirements and resources. However, DHS
policy does not establish cost and schedule estimates for the
acquisition based on knowledge from preliminary designs. At knowledge
point 2, while DHS policy requires program managers to identify and
resolve critical operational issues before proceeding to production,
initial reviews--such as the system and subsystem reviews--are not
mandatory.
Not all investments require the use of every piece of information
included under a knowledge-based approach. Many of DHS's major
investments use commercial, off-the-shelf products that do not require
the same level of review as a complex, developmental investment would.
However, DHS is investing in a number of major, complex systems, such
as the Coast Guard's Deepwater Program and the U.S. Visitor and
Immigrant Status Indicator Technology (US-VISIT),[Footnote 28] which
incorporate new technology and therefore require greater adherence to
the knowledge-based approach in order to ensure risk is reduced before
committing to the next phase of the investment. In addition, the added
reviews and information included in the knowledge-based approach may
still be required for programs that use existing technology, such as
the Counter-MANPADS program, which involves placing military technology
on commercial aircraft.[Footnote 29]
In addition to the knowledge-based approach and its associated
controls, DHS's investment review policy and guidance adopt a number of
other important acquisition management practices, such as requiring
program managers to submit acquisition plans and project management
plans. However, a key practice, contractor tracking and oversight, is
not fully incorporated in the policy and guidance. We have cited the
need for increased contractor tracking and oversight for several large
DHS programs. For example, we previously reported that the Coast
Guard's Deepwater program needed increased management and contractor
oversight. One activity of contract tracking and oversight requires
that a quantitative set of software and system metrics are used to
define and measure product quality and contractor performance. The
Coast Guard had not developed measurable performance goals or adhered
to effective procedures for holding the contractor accountable for its
ongoing performance. In addition, we previously recommended that the
US-VISIT program should improve attention to implementing acquisition
best practices. While DHS agreed, and the US-VISIT program office has
assigned responsibility for implementing the recommended management
controls, the department has not yet developed explicit plans or time
frames for defining and implementing acquisition best practices. A list
of selected acquisition management practices and required activities is
in appendix V.
As Review Process Matures, Some Mechanics Still to Be Worked Out:
The investment review process has been under revision for many months.
According to DHS officials, the changes will include shifting
responsibilities of some tiers in the review process and increasing the
dollar threshold for level 1 investments. To date, the new process has
not been finalized, and officials could not provide us with a time
frame for completion. In the meantime, we found unclear guidance and
confusion about several aspects of the process. In some cases, the
confusion has resulted in key stakeholders, such as the Chief
Procurement Officer, not receiving materials in time to conduct a
thorough review and provide meaningful feedback prior to investment
review meetings.
The issues we found include the following:
* Program managers have been provided with only draft guidance
regarding the information they are required to submit and the time
frames for submissions. This draft guidance is, in some cases, unclear.
* Some DHS officials noted that their submissions to the review board
had been rejected on an inconsistent basis with no explanation.
* Program managers have not received formal training on the investment
review process. Officials told us that some program managers have been
unaware of when to submit information about their programs for review.
* In practice, major investments in services are exempt from the review
process and are only reviewed when done as part of a capital
investment. Officials from the Office of the Chief Financial Officer
who are in charge of the process told us that services investments are
reviewed only when they are part of a capital investment because these
acquisitions are not complex and therefore do not need the same level
of scrutiny reserved for the acquisition of goods.
Currently, program managers receive assistance in developing their
review board submissions from a small number of staff in the Chief
Financial Officer's Office of Program Analysis and Evaluation at the
beginning of a program and at DHS's key decision points. However,
because of limited resources, the office has only been able to provide
limited support to programs to assist them in completing their
submissions.
Conclusions:
In the 2 years since its merger, DHS has taken strides toward putting
in place an acquisition organization that contains many promising
elements, but the steps taken so far are not enough to ensure that the
department is effectively managing the acquisition of the multitude of
goods and services it needs to meet its mission. More needs to be done
to fully integrate the department's acquisition function, to pave the
way for the Chief Procurement Officer to fully carry out his
responsibilities in a modern-day acquisition organization, and to put
in place the strong internal controls needed to effectively manage
interagency contracting activity and large, complex investments. Unless
DHS's top leaders address these challenges, the department is at risk
of continuing to exist with a fragmented acquisition organization that
provides stopgap, ad hoc solutions. DHS has an opportunity, while it is
still involved in transformational efforts, to avoid the complications
that plague acquisition efforts in other long-established federal
departments.
Recommendations for Executive Action:
To help ensure that DHS receives the goods and services it needs at the
best value to the government, we recommend that the Secretary of
Homeland Security take the following six actions:
* establish a structure to ensure continued support for commodity
councils, such as appointing full-time dedicated commodity managers, to
ensure that the commodity councils develop long-term strategies,
maintain momentum, and continue to realize savings;
* provide the Office of the Chief Procurement Officer with sufficient
resources and enforcement authority to enable effective, departmentwide
oversight of acquisition policies and procedures;
* conduct a departmentwide assessment of the number of contracting
staff and, if a workload imbalance is found, take steps to correct it
by re-aligning resources;
* direct higher-level management attention to the implementation of the
working capital fund (which is to be used to fund contracting staff for
the Office of Procurement Operations) by, for example, determining the
level of contracting support needed by the organizations relying on
this office, ensuring that appropriate funds are committed to hire
needed contracting staff, and ensuring that funds are available on an
ongoing basis for continuity;
* revise the October 2004 management directive "Acquisition Line of
Business Integration and Management" to eliminate reference to the
Coast Guard and Secret Service being statutorily exempt from complying;
and:
* ensure that DHS's management directive on interagency agreements is
followed and that fees paid to other agencies are tracked.
To help ensure that DHS leadership is aware of risks as they arise
during the acquisition of major, complex systems, we recommend that the
Secretary of Homeland Security take the following seven actions:
* in making revisions to the investment review policy:
* require for all complex, developmental investments a formal design
review between the integration and demonstration of a program to ensure
that the design is stable and has been demonstrated through prototype
testing;
* require for all complex, developmental investments a review before
initial production;
* require that program managers supply additional information--such as
cost and schedule estimates based on results of a preliminary design
review and critical design review--when their major, complex programs
are reviewed; and:
* require program managers to specifically address contractor oversight
in their submissions to investment review boards.
* ensure that stakeholders, including acquisition officials in the
Office of the Chief Procurement Officer, have adequate time to review
investment submissions and provide formal input to decision-making
review boards;
* implement training for program managers on the investment review
process that emphasizes the importance of a knowledge-based approach;
and:
* require that major acquisitions of services be subject to oversight
by the investment review board.
Agency Comments and Our Evaluation:
We provided a draft of this report to DHS for review and comment. In
written comments, DHS generally agreed with our facts and conclusions
and concurred with all of our recommendations. Regarding three of our
recommendations on the investment review process, DHS stated that the
actions exist in current directives and are already being done. We
disagree. Our work demonstrated that DHS's review points do not fully
align with the knowledge-based approach. For example, DHS's mandatory
review to proceed into production does not occur until after low-rate
initial production is well under way, and the review for starting low-
rate initial production only occurs at the discretion of the Investment
Review Board. Also, DHS's framework lacks the knowledge deliverables
necessary at each key review to ensure that cost and schedule estimates
for major investments are as predictable as possible. Our past work has
shown that investments that were not reviewed at the appropriate points
faced problems that resulted in cost increases and schedule delays.
The department's comments are reprinted in appendix II.
As arranged with your offices, unless you publicly announce its
contents earlier, we plan no further distribution of this report until
30 days from its issue date. We are sending copies of this report to
other interested congressional committees, the Secretary of the
Department of Homeland Security, and the Director of the Office of
Management and Budget. In addition, the report will be available on
GAO's Web site at http://www.gao.gov.
If you or your staff have any questions concerning this report, please
contact me at (937) 258-7915. Staff making major contributions to this
report are listed in appendix VI.
Signed by:
Michael J. Sullivan,
Director, Acquisition and Sourcing Management:
[End of section]
Appendix I: Scope and Methodology:
To identify the areas where the Department of Homeland Security (DHS)
has been successful in promoting collaboration among its various
organizations, we interviewed senior acquisition officials at DHS
headquarters and analyzed pertinent documents. We obtained information
from the Office of Strategic Sourcing and Acquisition Systems to
analyze how DHS has used strategic sourcing to leverage the
department's buying power. We interviewed senior strategic sourcing
officials at DHS headquarters to obtain information on how they
identified the commodities with potential for savings. We reviewed
studies, policies, guidance, and other documents related to ongoing or
proposed strategic sourcing initiatives that leveraged buying power,
cut costs, or achieved other performance benefits. Our review found
that the department's strategic sourcing cost savings methodologies
appear reasonable; however, we did not verify the accuracy of any
strategic procurement costs savings reported to us. We asked senior
strategic sourcing and commodity council participants about potential
barriers to employing strategic sourcing at DHS. We interviewed the
Director, Office of Small and Disadvantaged Business Utilization, and
procurement officials within the department. We obtained policies,
memorandums, and other documents from the small business office,
procurement organizations, and the U.S. Small Business Administration.
To determine areas where DHS faces challenges in integrating the
acquisition function, we reviewed DHS organizational charts to gain
insight into where the procurement offices fall in the hierarchy and to
determine the lines of responsibility and authority between the various
stakeholders in the acquisition process. We reviewed DHS policies,
guidance, and procedures governing acquisition and analyzed internal
audit reports, when available, to determine if those policies and
procedures were being followed. We obtained statistics from DHS's
Office of the Chief Procurement Officer on the department's
procurements and the acquisition workforce. We interviewed procurement
policy officials at headquarters and conducted interviews with
personnel in each of the procurement organizations. To assess DHS's
effectiveness in managing its acquisition workforce, we interviewed
contracting and human resource officials at DHS headquarters. We
analyzed DHS's processes and procedures for certifying program
managers, warranting contracting officers, and tracking the acquisition
workforce training. Lastly, we reviewed previous GAO work regarding
best acquisition practices for organizational alignment and oversight.
Because the Office of Procurement Operations has, by far, the highest
level of interagency contracting activity in the department, we
examined the office's database of contracts to gain an understanding of
the general scope of activity involving interagency agreements. We
randomly selected and then reviewed 136 interagency agreement contract
files. We interviewed officials responsible for the data to ensure that
the system they use to track procurement activity was adequate for
identifying the sample population. We reviewed the interagency
agreement contract files to assess key aspects of the acquisition
process--such as a signed determination and findings in accordance with
the Federal Acquisition Regulation, acquisition planning, and
interagency agreement contract administration, including contractor
oversight. We held follow-on discussions with the Office of Procurement
Operations to discuss discrepancies noted in the files. Further
information on our methodology and sampling error rates is as follows:
* In fiscal year 2004, the Office of Procurement Operations
predominately obtained contracting services for its customers through
the issuance of interagency agreements with other government agencies.
We drew our sample from an original population of 984 agreements. Of
the 150 items we initially sampled, the department deleted 14 of these
agreements and withdrew them from the data. As a result, we adjusted
the population of agreements to which we are making estimates to 892
agreements. All estimates are to these 892 agreements based upon a
sample size of 136 agreements. In addition, 4 files were missing and
were not able to be reviewed, and one agreement was a duplicate. This
resulted in only 131 files being reviewed. As we conducted our reviews,
the agency became better at recording the agreements that should be
included in its database. Currently, Procurement Operations reports
that 1,104 agreements are contained in its records and total $1.8
billion.
* We reviewed the files and documents for these 131 agreements, using
as our criteria the department's directive on interagency agreements.
The following projections are made from our sample of 136 agreements.
The estimates from a statistical sample are always subject to some
uncertainty because the entire collection is not reviewed. This
uncertainty is called sampling error. Tables 2 and 3 show the sampling
errors for certain factors relating to the issuance of interagency
agreements.
Table 2: Sampling Error at the 95 Percent Confidence Level for the
Sample of Interagency Agreements:
Observation: Analysis of alternatives not conducted;
Number: Estimate: 840;
Number: Sampling error: 36;
Percentage: Estimate: 94.1%;
Percentage: Sampling error: 4.
Observation: Contracting officer's technical representatives not
identified;
Number: Estimate: 420;
Number: Sampling error: 76;
Percentage: Estimate: 47.1%;
Percentage: Sampling error: 8.5.
Observation: Determination and findings not prepared;
Number: Estimate: 308;
Number: Sampling error: 72;
Percentage: Estimate: 34.6%;
Percentage: Sampling error: 8.1.
Observation: No indication that contractor oversight performed;
Number:
Estimate: 853;
Number: Sampling error: 31;
Percentage: Estimate: 95.6%;
Percentage: Sampling error: 3.5.
Source: GAO (data and analysis).
[End of table]
Table 3: Sampling Error at the 95 Percent Confidence Level for the
Sample of Interagency Agreements Fee Payments:
Observation: Fees paid on use of interagency agreements.
Number: Estimate: 433;
Number: Sampling Error: 76;
Dollars: Estimate: $12,991,079;
Dollars: Sampling Error: $2,280,189.
Source: GAO (data and analysis).
[End of table]
To assess the department's progress in implementing a review process
for major, complex systems, we compared DHS's acquisition policies for
major acquisitions to our knowledge-based approach. We used information
from several of our prior reports that examine how commercial best
practices can improve outcomes for acquisition programs. Specifically,
we compared and contrasted DHS's investment review process with the
best practices for commercial acquisitions identified in our past
reports. Our analysis focused on whether DHS's policies contained the
measurable criteria and management controls necessary for minimizing
cost, schedule, and performance risks. To clarify the content of the
investment review process, we met with various DHS officials from the
Office of the Chief Procurement Officer and the Office of Program
Evaluation and Analysis within the Office of the Chief Financial
Officer. We also discussed the review process with officials from DHS
procurement organizations and collected reports and analyzed available
program data on the current status of major acquisitions being carried
out by DHS.
We conducted our review from March 2004 through February 2005 in
accordance with generally accepted government auditing standards.
[End of section]
Appendix II: Comments from the Department of Homeland Security:
U.S. Department of Homeland Security:
Washington, DC 20528:
March 23, 2005:
Mr. Michael J. Sullivan:
Director (Acting), Acquisition and Sourcing Management:
Government Accountability Office:
Washington, DC 20548:
Dear Mr. Sullivan:
Re: Draft Report GAO-05-179, Successes and Challenges in DHS's Efforts
to Create an Effective Acquisition Organization.
Thank you for the opportunity to review your draft report We appreciate
the opportunity to comment on the draft report and the time your staff
afforded us during their preparation of the report. We generally concur
with the report and with the recommended executive actions listed at
the conclusion of your report. Your report effectively discusses many
of the integration, accountability and staffing issues confronting the
Department.
Any such report can only represent a snapshot in time. In that context,
it is understandable that the report does not reflect the most current
staffing information. For example, the report mentions that an increase
in the acquisition oversight staff was authorized in the FY-05 budget.
The oversight staff has three of the five billets filled as of this
date and will complete the recruitment and hiring process in the next
60 days for the remaining billets. Similarly, the Headquarters Office
of Procurement Operations has made strides in its staffing efforts and
now has 42 personnel aboard, though much remains to be done in this
area. DHS agrees that a rigorous oversight approach is central to an
effective acquisition and investment review program and believes that
the initiatives in those areas will address the establishment of an
effective framework. These observations do not alter our view that the
report provides valuable and useful information.
The report addresses the Investment Review Process in depth. DHS has
conducted a joint review of the departmental Investment Review Process
in response to the direction from the Deputy Secretary on January 24,
2005. The actions required are consistent with the draft GAO report
recommendations, and considered the GAO Statement of Facts dated
December, 2004. Several actions have already been initiated to ensure
departmental oversight without imposing burdensome and redundant
processes on the DHS operating agencies. Below is the reply to each of
the GAO's seven recommendations regarding investment review provided by
Program Analysis & Evaluation. Note DHS will place further emphasis on
these recommendations in all Department investment review process
guidance.
GAO Recommendation 1: Require major service contracts be reviewed by
the IRB.
Concur. MD 1400 is being updated for publishing this spring to reflect
interim changes made to the DHS Investment Review process. The IRB will
conduct annual reviews of large planned service contracts and support
programs. This review will significantly improve oversight of large
planned expenditures that are not capital investments.
GAO Recommendation 2: Train Program Managers in the investment review
process and guidance.
Concur. The following initiatives are planned for implementation over
the next year: Provide briefing and training on the MD 1400 revisions.
Further, DHS is developing a well qualified program management
workforce. The Undersecretary for Management is providing policy and
training necessary to obtain and maintain program management
competencies, knowledge and act on best practices. DHS directives
require managers of level one acquisition projects to be DHS certified
within one year of appointment. The department augments the
certification program with work tools and best practices for program
managers.
GAO Recommendation 3: Require for all complex, developmental investment
a formal design review between the integration and demonstration of a
program to ensure that the design is stable and has been demonstrated
through prototype testing.
Concur. The recommended actions exist in current directives and are
being done. We will, however, further emphasize the recommendation in
the revisions to the Department's directives and guidance.
GAO Recommendation 4: Require a review before initial production.
Concur. See the response to Recommendation 3.
GAO Recommendation 5: Require Program Managers to supply additional
information-such as cost and schedule estimates based on results of a
preliminary design review and critical design review.
Concur. The recommended actions exist in current directives and are
being done. We will, however, further emphasize the recommendation in
the revisions to the Department's directives and guidance.
GAO Recommendation 6: Require Program Managers to specifically address
contractor oversight in their submission to IRB.
Concur. Currently, DHS requires an Acquisition Program Baseline (APB)
to gain better cost, schedule and performance visibility for each
investment project. To further improve project oversight, the
department will deploy an Earned Value Management System (EVMS). This
initiative will require selection of a reporting tool that will include
a set of dashboard gauges to monitor program adherence to cost,
schedule and performance. The APB requires cost, schedule and
performance information and from the projects, and the EVMS includes
contractor oversight. At any time, the IRB may require further review
of any program.
GAO Recommendation 7: Give stakeholders, specifically DHS CPO, time to
review submission prior to IRB and JRC.
Concur. The DHS CPO is represented on both the JRC and on the IRB, and
staffs will ensue adequate review time for principals.
We thank you again for the opportunity to review the report and provide
comments.
Sincerely,
Signed by:
Steven J. Pecinovsky:
Acting Director, Departmental GAO/OIG Liaison Office:
[End of section]
Appendix III: Office of Procurement Operations' Customers:
Chief Financial Officer:
Chief Human Capital Officer:
Chief Information Officer:
Chief Procurement Officer:
Chief of Administrative Services:
Chief of Staff:
Citizenship and Immigration Services:
Citizenship and Immigration Services Ombudsman:
Civil Rights and Civil Liberties:
Communications Director:
Counter Narcotics Officer:
Deputy Secretary:
Executive Secretary:
General Counsel:
Headquarters Operational Integration Staff:
Homeland Security Advisory Council:
Homeland Security Operations Center:
Immigration Statistics:
Information Analysis and Infrastructure Protection:
International Affairs:
Office of the Secretary:
Legislative Affairs:
National Capital Region:
Office of the Under Secretary--Border and Transportation Security:
Press Secretary:
Privacy Officer:
Private Sector:
Public Affairs:
Science and Technology:
Security:
State and Local Government Coordination (includes Office of Domestic
Preparedness):
Under Secretary for Management:
White House Liaison:
[End of section]
Appendix IV: Summary of Selected Commodity Council Strategic Sourcing
Initiatives:
Commodity council: Office Supplies;
Strategic sourcing actions taken: Leverages DHS's purchasing power and
reduces amount spent on office supplies:
* For its main strategic sourcing initiative, this council partnered
with the Department of Defense's Electronic Mall (DOD Emall). DOD Emall
is an Internet-based catalog ordering system that provides 24-hour-a-
day, 7-day-a-week access to over 200 small and large office supply
vendors;
* Because many military services also purchase office supplies through
DOD Emall, DHS can take advantage of large volume discounts to increase
its buying power;
* As of June 1, 2004, DHS mandated all of its purchase cardholders to
exclusively use DOD Emall to buy office supplies. As a result, DHS has
already become the third-largest federal government user of DOD Emall.
For the 4-month period starting June 1, 2004, DHS spent over $14.5
million on DOD Emall, representing 16.7 percent of the total dollars
spent on Emall;
* Before the full implementation of DOD Emall, the council also
generated savings by using an office supplies blanket purchase
agreement that the Transportation Security Administration had in place
to provide office supplies to other DHS principal organizations;
* Through September 30, 2004, the council estimated cost savings of $8
million.
Commodity council: Boats;
Strategic sourcing actions taken: Establishes standard boat
procurements to decrease life cycle costs, facilitate interoperability,
reduce training burden, and provide immediate cost savings:
* For example, Customs and Border Patrol needed six boats in fiscal
year 2004. Instead of creating a new contract, the council explored
whether there were any existing contract vehicles within DHS that could
satisfy the need;
* The council purchased the six boats through an existing Coast Guard
contract and took advantage of large volume discounts;
* As a result of these strategic sourcing efforts, the council was able
to acquire each boat for $50,000 less than anticipated, resulting in a
total of $300,000 in cost savings.
Commodity council: Weapons;
Strategic sourcing actions taken: Identifies and consolidates emerging
firearms and ammunition requirements for DHS:
* In fiscal year 2004, the council planned to acquire pistols for DHS
organizations to meet critical, mission-driven requirements;
* The council surveyed all DHS organizations interested in weapons,
factored in the end users' requirements, and established a list of
potential vendors that could provide best value for pistols and satisfy
requirements;
* As a result, DHS awarded contracts to two vendors for 65,000 pistols
each over 5 years--the largest pistol acquisition in the history of
U.S. law enforcement;
* As of September 20, 2004, the council has reported cost savings of
over $4.1 million and $915,000 in cost avoidance.
Commodity council: Energy;
Strategic sourcing actions taken: Identifies strategies for aggregating
and centralizing DHS's energy procurements to take advantage of
economies of scale and negotiate more competitive prices with
suppliers:
* Although DHS spent approximately $58 million for electricity in
fiscal year 2003, only $9 million of the spending was for negotiable
energy services in states with deregulated electricity industries.
Nevertheless, the council estimates more than $705,000 in cost savings
through September 30, 2004.
Source: DHS (data); GAO (presentation).
[End of table]
[End of section]
Appendix V: Selected Acquisition Management Best Practices:
Best practices: Acquisition planning; To ensure that reasonable
planning for all parts of the acquisition is conducted;
Activity: Plans are prepared during acquisition planning and maintained
throughout the acquisition; Planning addresses the entire acquisition
process, as well as life cycle support of the products being acquired;
The acquisition organization has a written policy for planning the
acquisition; Responsibility for acquisition planning activities is
designated.
Best practices: Contract tracking and oversight; To ensure that
contract activities are performed in accordance with contractual
requirements;
Activity: The acquiring organization has sufficient insight into the
contractor's activities to manage and control the contractor and ensure
that contract requirements are met; The acquiring organization and
contractor maintain ongoing communication; commitments are agreed to
and implemented by both parties; All contract changes are managed
throughout the life of the contract; The acquisition organization has a
written policy for contract tracking and oversight; Responsibility for
contract tracking and oversight activities is designated; The acquiring
organization involves contracting specialists in the execution of the
contract; A quantitative set of software and system metrics is used to
define and measure product quality and contractor performance; In
addition to incentives for meeting cost and schedule estimates,
measurable, metrics-based product quality incentives are explicitly
stated in the contract.
Best practices: Risk management; To ensure that risks are proactively
identified and systematically mitigated;
Activity: Projectwide participation in the identification and
mitigation of risks is encouraged; The defined acquisition process
provides for the identification, analysis, and mitigation of risks;
Milestone reviews include the status of identified risks; The
acquisition organization has a written policy for managing acquisition
risk; Responsibility for acquisition risk management activities is
designated.
Source: GAO (data); GAO (presentation).
Note: See GAO, Information Technology: DoD's Acquisition Policies and
Guidance Need to Incorporate Additional Best Practices and Controls,
GAO-04-722 (Washington, D.C.: July 30, 2004) for a complete list of the
acquisition management practices and required activities.
[End of table]
[End of section]
Appendix VI: GAO Contacts and Staff Acknowledgments:
Contacts:
Michael J. Sullivan, (937) 258-7915 Michele Mackin, (202) 512-4309:
Staff Acknowledgments:
In addition to those named above, Daniel Chen, Lily Chin, Benjamin
Federlein, Arthur James Jr., John Krump, Jose Ramos, and Russell Reiter
made key contributions to this report.
FOOTNOTES
[1] The President signed legislation to create DHS on November 25,
2002. Homeland Security Act of 2002, Pub. L. No. 107-296, 116 stat.
2135, Nov. 25, 2002.
[2] When the department was established, 22 agencies and organizations
were brought in; Plum Island Animal Disease Center joined DHS
afterward.
[3] GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.:
January 2003).
[4] Federal Acquisition Regulation 2.1, Definitions.
[5] Strategic sourcing is a process used by leading commercial
companies and a small number of federal agencies to establish an
organizationwide approach to leveraging the organization's buying power
and fostering new ways of doing business.
[6] The Small Business Reauthorization Act of 1997 directed the
President to establish a goal of not less than 23 percent of the
federal government's prime contracting dollars to be awarded to small
businesses each fiscal year. The Small Business Administration is
charged with ensuring that federal agencies' goals, in the aggregate,
meet or exceed the 23 percent goal. Pub. L. No. 105-135, 111 stat.
2592, Dec. 2, 1997.
[7] Spend analysis is a tool that organizations use to acquire
knowledge about how much is being spent for what goods and services,
who are the buyers, and who are the suppliers. GAO, Best Practices:
Using Spend Analysis to Help Agencies Take a More Strategic Approach to
Procurement, GAO-04-870 (Washington, D.C.: Sept. 16, 2004).
[8] Our review found that the department's strategic sourcing cost
savings methodologies appear reasonable. However, we did not verify the
accuracy of any strategic procurement cost savings reported to us.
[9] GAO, Best Practices: Taking a Strategic Approach Could Improve
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18,
2002).
[10] DOD Emall is an Internet-based marketplace that allows DOD and
other federal purchasers to access DOD's wide variety of vendors and
catalogs and acquire off-the-shelf items from the commercial
marketplace.
[11] GAO, High-Risk Series: An Update, GAO-05-207 (January 2005,
Washington, D.C.)
[12] Two prior GAO reports, Transportation Security Administration:
High-Level Attention Needed to Strengthen Acquisition Function,
GAO-04-544 (Washington, D.C.: May 28, 2004), and Contract Management:
INS Contracting Weaknesses Need Attention from the Department of
Homeland Security, GAO-03-799 (Washington, D.C.: July 25, 2003),
address the importance of having clear lines of authority to ensure
that contracting activity is effective and enables the department to
get best value on goods and services.
[13] Pub. L. No. 107-296, § 888(b) November 25, 2002.
[14] Id. at § 888(d).
[15] Pub. L. No. 107-296, § 888(e), November 25, 2002.
[16] Id. at §§104 and 888(g).
[17] Pub. L. 107-296, § 521, November 25, 2002.
[18] Pub. L. 108-334, § 528, October 18, 2004. "None of the funds
available in this Act shall be available to maintain the United States
Secret Service as anything but a distinct entity within the Department
of Homeland Security and shall not be used to merge the United States
Secret Service with any other department function, cause any personnel
and operational elements of the United States Secret Service to report
to an individual other than the Director of the United States Secret
Service, or cause the Director to report directly to any individual
other than the Secretary of Homeland Security." Department of Homeland
Security Appropriations Act, 2005, Pub. L. No. 108-334, § 521, 118
stat. 1298, Oct. 18, 2004.
[19] Given the similarity of the issue pertaining to the Coast Guard,
we did not separately seek the view of the DHS General Counsel
concerning the exemption of the Secret Service.
[20] GAO-02-230 and GAO-04-544.
[21] DHS Office of the Inspector General, Semiannual Report to the
Congress, (Washington, D.C.: April 30, 2003), and Review of the Status
of Department of Homeland Security Efforts to Address Its Major
Management Challenges, OIG-04-21 (Washington, D.C.: March 2004).
[22] OIG-04-21.
[23] GAO-03-799.
[24] Contracting officers' technical representatives represent the
contracting officer in monitoring the contractor's performance.
[25] See appendix I for details on our methodology and sampling error
rates.
[26] Determination and findings is a written approval by an authorized
official to take certain contract actions. The determination is a
conclusion or decision supported by the findings. The findings are
statements of fact or rationale essential to support the determination.
[27] At the time of our review, the Coast Guard had revised its
requirements for the Deepwater program based on the new homeland
security mission. We did not have information on the new cost of the
program.
[28] US-VISIT is a governmentwide program to collect, maintain, and
share information on foreign nationals. The program's goals are to
enhance national security, facilitate legitimate trade and travel,
contribute to the integrity of the U.S. immigration system, and adhere
to U.S. privacy laws and policies.
[29] Counter-MANPADS (man-portable air defense systems) is a protective
system for U.S. commercial aircraft against shoulder-fired missiles. We
recently issued a report that recommended additional information be
provided at key decision points. See GAO, The Department of Homeland
Security Needs to Fully Adopt a Knowledge-based Approach to Its
Counter-MANPADS Development Program, GAO-04-341R (Washington, D.C.:
Jan. 30, 2004).
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