Homeland Security
Challenges in Creating an Effective Acquisition Organization Gao ID: GAO-06-1012T July 27, 2006The Department of Homeland Security (DHS) has some of the most extensive acquisition needs within the U.S. government. In fiscal year 2005, the department reported that it obligated almost $17.5 billion to acquire a wide range of goods and services. DHS's acquisition portfolio is broad and complex, including procurements for sophisticated screening equipment for air passenger security; technologies to secure the nation's borders; trailers to meet the housing needs of Hurricane Katrina victims; and the upgrading of the Coast Guard's offshore fleet of surface and air assets. This testimony summarizes GAO reports and testimonies, which have reported on various aspects of DHS acquisitions. It addresses (1) areas where DHS has been successful in promoting collaboration among its various organizations, and (2) challenges it still faces in integrating the acquisition function across the department; and (3) DHS' implementation of an effective review process for its major, complex investments. The information in this testimony is based on work that was completed in accordance with generally accepted government auditing standards.
Since its establishment in March 2003, DHS has been faced with assembling 23 separate federal agencies and organizations with multiple missions and cultures into one department. This mammoth task involved a variety of transformational efforts, one of which is to design and implement the necessary management structure and processes for the acquisition of goods and services. We reported in March 2005 that DHS had opened communication among its acquisition organizations through its strategic sourcing and small business programs. With strategic sourcing, DHS' organizations quickly collaborated to leverage spending for various goods and services--such as office supplies, boats, energy, and weapons--without losing focus on small businesses, thus leveraging its buying power and increasing savings. Its small business program, whose reach is felt across DHS, is also off to a good start. Representatives have been designated in each DHS procurement office to ensure small businesses can compete effectively for the agency's contract dollars. We also reported that DHS' progress in creating a unified acquisition organization has been hampered by policy decisions that create ambiguity about who is accountable for acquisition decisions. To a great extent, we found that the various acquisition organizations within DHS were still operating in a disparate manner, with oversight of acquisition activities left primarily up to each individual organization. DHS continues to face challenges in integrating its acquisition organization. Specifically, dual accountability for acquisitions exists between the Chief Procurement Officer (CPO) and the heads of each DHS component; a policy decision has exempted the Coast Guard and Secret Service from the unified acquisition organization; the CPO has insufficient capacity for department-wide acquisition oversight; and staffing shortages have led the Office of Procurement Operations, which handles a large percentage of DHS's contracting activity, to rely extensively on outside agencies for contracting support--often for a fee. We found that this office lacked the internal controls to provide oversight of this interagency contracting activity. This last challenge has begun to be addressed with the hiring of additional contracting staff. Some of DHS's organizations have major, complex acquisition programs that are subject to a multi-tiered investment review process intended to help reduce risk and increase chances for successful outcomes in terms of cost, schedule, and performance. While the process includes many best practices, it does not include two critical management reviews, namely a review to help ensure that resources match customer needs and a review to determine whether a program's design performs as expected. Our prior reports on large DHS acquisition programs, such as the Transportation Security Administration's Secure Flight program and the Coast Guard's Deepwater program, highlight the need for improved oversight of contractors and adherence to a rigorous management review process.
GAO-06-1012T, Homeland Security: Challenges in Creating an Effective Acquisition Organization
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United States Government Accountability Office:
GAO:
Testimony before the Committee on Government Reform, House of
Representatives:
For Release on Delivery:
Expected at 10:00 a.m. EST:
Thursday, July 27, 2006:
Homeland Security:
Challenges in Creating an Effective Acquisition Organization:
Statement of Michael J. Sullivan:
Director, Acquisition and Sourcing Management:
GAO-06-1012T:
GAO Highlights:
Highlights of GAO-06-1012T, a testimony before the Committee on
Government Reform, House of Representatives.
Why GAO Did This Study:
The Department of Homeland Security (DHS) has some of the most
extensive acquisition needs within the U.S. government. In fiscal year
2005, the department reported that it obligated almost $17.5 billion to
acquire a wide range of goods and services. DHS…s acquisition portfolio
is broad and complex, including procurements for sophisticated
screening equipment for air passenger security; technologies to secure
the nation‘s borders; trailers to meet the housing needs of Hurricane
Katrina victims; and the upgrading of the Coast Guard‘s offshore fleet
of surface and air assets.
This testimony summarizes GAO reports and testimonies, which have
reported on various aspects of DHS acquisitions. It addresses (1) areas
where DHS has been successful in promoting collaboration among its
various organizations, and (2) challenges it still faces in integrating
the acquisition function across the department; and (3) DHS‘
implementation of an effective review process for its major, complex
investments. The information in this testimony is based on work that
was completed in accordance with generally accepted government auditing
standards.
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-1012T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael Sullivan at (202)
512-4841 or sullivanm@gao.gov.
What GAO Found:
Since its establishment in March 2003, DHS has been faced with
assembling 23 separate federal agencies and organizations with multiple
missions and cultures into one department. This mammoth task involved a
variety of transformational efforts, one of which is to design and
implement the necessary management structure and processes for the
acquisition of goods and services. We reported in March 2005 that DHS
had opened communication among its acquisition organizations through
its strategic sourcing and small business programs. With strategic
sourcing, DHS‘ organizations quickly collaborated to leverage spending
for various goods and services”such as office supplies, boats, energy,
and weapons”without losing focus on small businesses, thus leveraging
its buying power and increasing savings. Its small business program,
whose reach is felt across DHS, is also off to a good start.
Representatives have been designated in each DHS procurement office to
ensure small businesses can compete effectively for the agency‘s
contract dollars.
We also reported that DHS‘ progress in creating a unified acquisition
organization has been hampered by policy decisions that create
ambiguity about who is accountable for acquisition decisions. To a
great extent, we found that the various acquisition organizations
within DHS were still operating in a disparate manner, with oversight
of acquisition activities left primarily up to each individual
organization. DHS continues to face challenges in integrating its
acquisition organization. Specifically, dual accountability for
acquisitions exists between the Chief Procurement Officer (CPO) and the
heads of each DHS component; a policy decision has exempted the Coast
Guard and Secret Service from the unified acquisition organization; the
CPO has insufficient capacity for department-wide acquisition
oversight; and staffing shortages have led the Office of Procurement
Operations, which handles a large percentage of DHS‘ contracting
activity, to rely extensively on outside agencies for contracting
support”often for a fee. We found that this office lacked the internal
controls to provide oversight of this interagency contracting activity.
This last challenge has begun to be addressed with the hiring of
additional contracting staff.
Some of DHS‘ organizations have major, complex acquisition programs
that are subject to a multi-tiered investment review process intended
to help reduce risk and increase chances for successful outcomes in
terms of cost, schedule, and performance. While the process includes
many best practices, it does not include two critical management
reviews, namely a review to help ensure that resources match customer
needs and a review to determine whether a program‘s design performs as
expected. Our prior reports on large DHS acquisition programs, such as
the Transportation Security Administration‘s Secure Flight program and
the Coast Guard‘s Deepwater program, highlight the need for improved
oversight of contractors and adherence to a rigorous management review
process.
[End of section]
Mr. Chairman and Members of the Committee:
Thank you for inviting me here today to discuss the Department of
Homeland Security‘s (DHS) acquisition organization. Since its
establishment in March 2003, DHS has been faced with assembling 23
separate federal agencies and organizations with multiple missions,
values, and cultures into one cabinet-level department. This mammoth
task” one of the biggest mergers ever to take place within the federal
government” involved a variety of transformational efforts, one of
which is to design and implement the necessary management structure and
processes for the acquisition of goods and services.
DHS has some of the most extensive acquisition needs within the U.S.
government. In fiscal year 2005, the department reported that it has
obligated almost $17.5 billion to acquire a wide range of goods and
services. The DHS acquisitions portfolio is broad and complex. For
example, it has purchased increasingly sophisticated screening
equipment for air passenger security; acquired technologies to secure
the nation‘s borders; purchased trailers to meet the housing needs of
Hurricane Katrina victims; and is upgrading the Coast Guard‘s offshore
fleet of surface and air assets. DHS has been working to integrate the
many acquisition processes and systems that the disparate agencies and
organizations brought with them while still addressing ongoing mission
requirements and emergency situations such as responding to Hurricane
Katrina. As you know, we designated the establishment of the department
and its transformation as high risk;[Footnote 1] we also pointed out
that not effectively addressing DHS‘ management challenges and program
risks could have serious consequences for our national security.
Based on work done for this committee last year,[Footnote 2] today I
would like to discuss areas where DHS has been successful in promoting
collaboration among its various organizations and areas where it still
faces challenges, such as integrating and unifying the acquisition
function across the department. I will also discuss our assessment of
the department‘s progress in implementing an effective review process
for its major, complex investments, highlighting some recent GAO work
related to these issues. This testimony is based on GAO reports and
testimonies that were done in accordance with generally accepted
government auditing standards.
Summary:
Designing and implementing the necessary management structure and
processes for the acquisition of goods and services for 23 separate
federal agencies and organizations, with multiple missions and
cultures, has been a mammoth task for DHS and, while it has had some
success, there are many challenges remaining. DHS has opened
communication among its acquisition organizations through its strategic
sourcing and small business programs. DHS‘ organizations quickly
collaborated to leverage spending for various goods and services
without losing focus on small businesses, thus leveraging its buying
power and increasing savings.
We reported in March 2005 that DHS‘ efforts to create a unified,
accountable acquisition organization have been hampered by policies
that create ambiguity as to who is accountable for acquisition
decisions. Further, we found that, 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. DHS continues to face
challenges in creating a more effective acquisition organization. For
example:
* A policy directive intended to integrate the acquisition function
relies on a system of dual accountability for acquisitions between the
Chief Procurement Officer (CPO) and the heads of each DHS component.
This directive does not apply to the U.S. Coast Guard and the Secret
Service, which is likely to hinder the formation of a unified
acquisition organization.
* Although the CPO has issued guidance providing a framework for
acquisition oversight, implementation of the oversight program has been
limited due to insufficient staffing in the CPO‘s office.
* Staffing shortages in the Office of Procurement Operations, which
handles a significant portion of DHS‘ contracting activity”over $4
billion last year”have led this office to rely heavily on outside
agencies for contracting support, often for a fee. The office did not
have adequate internal controls in place to effectively oversee this
interagency contracting. Due to the challenges associated with
interagency contracts, we recently designated interagency contracting
as a government-wide high risk area.[Footnote 3] To protect its major,
complex investments, DHS has put in place an investment 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 acquisition outcomes. However the
process does not include two critical management reviews that would
help ensure that (1) resources match customer needs prior to beginning
a major acquisition and (2) program designs perform as expected before
moving to production. We also found that some critical information is
not addressed in DHS‘ investment review policy or the guidance provided
to program managers. For example, before a program is approved to
begin, DHS does not require that cost and schedule estimates be
established for the acquisition based on knowledge from preliminary
designs. The review process also does not fully address how program
managers are to conduct effective contractor tracking and oversight.
Our prior reports on large DHS acquisition programs, such as the
Transportation Security Administration‘s (TSA) Secure Flight program
and the U.S. Coast Guard‘s Deepwater program, have highlighted the need
for improved oversight of contractors and a management review that
provides decision makers with critical information at the right time.
Early Initiatives to Leverage Buying Power and Small Business Programs
Fostered Collaboration Among DHS Organizations:
In the three years since its creation, DHS realized some successes
among its various acquisition organizations in opening communication
through its strategic sourcing and small business programs. Both
efforts have involved every principal organization in DHS, along with
strong involvement from the CPO, and both have yielded positive
results. DHS‘ disparate acquisition organizations quickly collaborated
on leveraging spending for various goods and services, without losing
focus on small businesses. This use of strategic sourcing”formulating
purchasing strategies to meet departmentwide requirements for specific
commodities, such as office supplies, boats, energy, and weapons”helped
DHS leverage its buying power, with savings expected to grow. At the
time of our March 2005 review, DHS had reported approximately $14
million in savings across the department. We also found that the small
business program, whose reach is felt across DHS, was off to a good
start. In fiscal year 2004, DHS reported that 35 percent of its prime
contract dollars went to small businesses, exceeding its goal of 23
percent. Representatives have been designated in each DHS procurement
office to help ensure that small businesses have opportunities to
compete for DHS‘ contract dollars.
However, some officials responsible for carrying out strategic sourcing
initiatives have found it challenging to balance those duties with the
demands and responsibilities of their full-time positions within DHS.
Officials told us that strategic sourcing meetings and activities
sometimes stall because participants must shift attention to their full-
time positions. Our prior work on strategic sourcing shows that leading
commercial companies often establish full-time commodity managers to
more effectively manage commodities. Commodity managers help 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.
DHS Faces Key Challenges In Creating An Integrated Acquisition
Organization:
DHS continues to faces challenges in creating a unified, accountable
acquisition organization due to policies that create ambiguity as to
accountability for acquisition decisions, inadequate staffing to
conduct department-wide oversight, and heavy reliance on interagency
contracting in the Office of Procurement Operations, which is
responsible for a large portion of DHS‘ contracting activity.
Policy Directive Relies on Dual Accountability and Exempts Coast Guard
and Secret Service:
Achieving a unified and integrated acquisition system is hampered
because an October 2004 policy directive relies on a system of dual
accountability between the CPO and the heads of the department‘s
principal organizations. Although the CPO has been delegated the
responsibility to manage, administer, and oversee all acquisition
activity across DHS, in practice, performance of these activities is
spread throughout the department, reducing accountability for
acquisition decisions.
This system of dual accountability results in unclear working
relationships between the CPO and heads of DHS‘ principal
organizations. For example, the policy leaves unclear how the CPO and
the director of Immigration and Customs Enforcement are to 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 CPO initiatives.
The policy also leaves unclear what enforcement authority the CPO has
to ensure that initiatives are carried out because heads of principal
organizations are only required to ’consider“ the allocation of
resources to meet procurement staffing levels in accordance with the
CPO‘s analysis. Agreements had not been developed on how the resources
to train, develop, and certify acquisition professionals in the
principal organizations would be identified or funded.
While the October 2004 policy directive emphasizes the need for a
unified, integrated acquisition organization, achievement of this goal
is further hampered because the directive does not apply to the U.S.
Coast Guard and U.S. Secret Service. The Coast Guard is one of the
largest organizations within DHS, with obligations accounting for about
$2.2 billion in fiscal year 2005, nearly 18 percent of the department‘s
total. The directive maintains that these two organizations are
exempted from the directive by statute. We disagreed with this
conclusion, as we are not aware of any explicit statutory exemption
that would prevent the application of the DHS acquisition directive to
either organization. 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.
Chief Procurement Officer‘s Staffing for Oversight Is Insufficient:
DHS‘ goal of achieving a unified, integrated acquisition organization
is in part dependent on its ability to provide effective oversight of
component activities. We reported in March 2005 that the CPO lacked
sufficient staff to ensure compliance with DHS‘ acquisition oversight
regulations and policies. To a great extent, the various acquisition
organizations within the department were still operating in a disparate
manner, with oversight of acquisition activities left primarily up to
each individual organization. In December 2005, DHS implemented a
department wide management directive that establishes policies and
procedures for acquisition oversight. The CPO has issued guidance
providing a framework for the oversight program and, according to DHS
officials, as of May 2006, five staff were assigned to oversight
responsibilities. We have ongoing work in this area and will be
reporting on the department‘s progress in the near future.
The challenge DHS faces overseeing its various components‘ contracting
activities is significant. For example, in May 2004[Footnote 4] we
reported that TSA had not developed an acquisition infrastructure,
including organization, policies, people, and information that would
facilitate successful management and execution of its acquisition
activities. The development of those areas could help ensure that TSA
acquires quality goods and services at reasonable prices, and makes
informed decisions about acquisition strategy.
Office of Procurement Operations‘ Heavy Use of Interagency Agreements:
To support the DHS organizations that lacked their own procurement
support, the department created the Office of Procurement Operations.
In 2005, we found that, because this office lacked sufficient
contracting staff, it had turned extensively to interagency contracting
to fulfill its responsibilities. At the time of our review, we found
that this office had transferred almost 90 percent of its obligations
to other federal agencies through interagency agreements in fiscal year
2004. For example, DHS had 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. We found that the
Office of Procurement Operations lacked adequate internal controls to
provide oversight of its interagency contracting activity. For example,
it did not track the fees it was paying to other agencies for
contracting assistance. Since our report was issued, the office has
added staff and somewhat reduced its reliance on interagency
contracting. Recently, DHS officials told us that the office has
increased its staffing level from 42 to 120 employees, with plans to
hire additional staff. As reported by DHS, the Office of Procurement
Operations‘ obligations transferred to other agencies had decreased to
72 percent in fiscal year 2005.
Review Process for Major Investments, Despite Use of Best Practices,
Was Inconsistent and Lacked Some Management Controls:
To protect its major, complex investments, DHS has put in place a
review process that adopts many acquisition best practices”proven
methods, processes, techniques, and activities”to help the department
reduce risk and increase the chances for successful investment outcomes
in terms of cost, schedule, and performance. One best practice is a
knowledge-based approach to developing new products and technologies
pioneered by successful commercial companies, which emphasizes that
program managers need to provide sufficient knowledge about important
aspects of their programs at key points in the acquisition process, so
senior leaders are able to make well-informed investment decisions
before an acquisition moves forward.
While DHS‘ framework includes key tenets of this approach, in March
2005 we reported that it did not require two critical management
reviews. The first would help ensure that resources match customer
needs before any funds are invested. The second would help ensure that
the design for the product performs as expected prior to moving into
production. We also found that some critical information is not
addressed in DHS‘ investment review policy or the guidance provided to
program managers. In other cases, it is made optional. For example,
before a program is approved to start, 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. Further, 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 review”are not mandatory.
In addition, while the review process adopts other important
acquisition management practices, such as requiring program managers to
submit acquisition plans and project management plans, a key practice”
contractor tracking and oversight”is not fully incorporated. We have
cited the need for increased contractor tracking and oversight for
several large DHS programs. While many of DHS‘ major investments use
commercial, off-the-shelf products that do not require the same level
of review as a complex, developmental investment would, DHS is
investing in a number of major, complex systems, such as TSA‘s Secure
Flight program and the Coast Guard‘s Deepwater program, that
incorporate new technology. Our work on these two systems highlights
the need for improved oversight of contractors and greater adherence to
a best practices approach to management review. Two examples follow.
We reported in February 2006[Footnote 5] that TSA, in developing and
managing its Secure Flight program, had not conducted critical
activities in accordance with best practices for large scale
information technology programs. Program officials stated that they
used a rapid development method that was intended to enable them to
develop the program more quickly. However, as a result of this
approach, the development process has been ad hoc, with project
activities conducted out of sequence. TSA officials have acknowledged
that they have not followed a disciplined life cycle approach in
developing Secure Flight, and stated that they are currently
rebaselining the program to follow their standard systems development
life cycle process, including defining system requirements. TSA
officials also told us they are taking steps to strengthen contractor
oversight for the Secure Flight program. For example, the program is
using one of TSA‘s support contractors to help track contractors‘
progress in the areas of cost, schedule, and performance and the number
of TSA staff with oversight responsibilities for Secure Flight
contracts has been increased. TSA reports it has identified contract
management as a key risk factor associated with the development and
implementation of Secure Flight.
The Coast Guard‘s ability to meet its responsibilities depends on the
capability of its deepwater fleet, which consists of aircraft and
vessels of various sizes and capabilities. In 2002, the Coast Guard
began a major acquisition program to replace or modernize these assets,
known as the Deepwater program. Deepwater is currently estimated to
cost $24 billion. We have reported[Footnote 6] that the Coast Guard‘s
acquisition strategy of relying on a prime contractor (’system
integrator“) to identify and deliver the assets needed carries
substantial risks. We found that well into the contract‘s second year,
key components for managing the program and overseeing the system
integrator‘s performance had not been effectively implemented. As we
recently observed, the Coast Guard has made progress in addressing our
recommendations, but there are aspects of the Deepwater program that
will require continued attention. The program continues to face a
degree of underlying risk, in part because of the unique, system-of-
systems approach with the contractor acting as overall integrator, and
in part because it is so heavily tied to precise year-to year funding
requirements over the next two decades. Further, a project of this
magnitude will likely continue to experience other concerns and
challenges beyond those that have emerged so far. It will be important
for Coast Guard managers to carefully monitor contractor performance
and to continue addressing program management concerns as they arise.
In closing, I believe that DHS has taken strides toward putting in
place an acquisition organization that contains many promising
elements. However, 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 CPO‘s responsibilities to be effectively carried out in
a modern-day acquisition organization, and to put in place the strong
internal controls needed to manage interagency contracting activity and
large, complex investments. DHS‘ top leaders must continue to address
these challenges to ensure that the department is not at risk of
continuing to exist with a fragmented acquisition organization that
provides stopgap, ad hoc solutions. DHS and its components, while
operating in a challenging environment, must have in place sound
acquisition plans and processes to make and communicate good business
decisions, as well as a capable acquisition workforce to assure that
the government receives good value for the money spent.
Mr. Chairman, this concludes my statement. I would be happy to respond
to any questions you or other Members of the Committee may have at this
time. For further information regarding this testimony, please contact
Michael Sullivan at (202) 512-4841 or sullivanm@gao.gov.
[End of section]
Footnotes:
[1] GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.:
January 2003).
[2] GAO, Homeland Security: Successes and Challenges in DHS‘s Efforts
to Create an Effective Acquisition Organization, GAO-05-179,
(Washington, D.C.: Mar. 29, 2005).
[3] GAO, High Risk Series: An Update, GAO-05-207 (Washington, D.C.:
January 2005).
[4] GAO, Transportation Security Administration: High-Level Attention
Needed to Strengthen Acquisition Function, GAO-04-544 (Washington,
D.C.: May 28, 2004).
[5] GAO-05-356 and GAO-06-374T.
[6] GAO, Coast Guard: Changes to Deepwater Plan Appear Sound, and
Program Management Has Improved, but Continued Monitoring Is Warranted,
GAO-06-546 (Washington, D.C.: Apr. 28, 2006; Contract Management: Coast
Guard‘s Deepwater Program Needs Increased Attention to Management and
Contractor Oversight, GAO-04-380 (Washington, D.C.: Mar. 9, 2004).
[End of section]
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