[House Hearing, 111 Congress]
[From the U.S. Government Printing Office]
[H.A.S.C. No. 111-21]
THE DEPARTMENT OF DEFENSE AT HIGH RISK: RECOMMENDATIONS OF THE
COMPTROLLER GENERAL FOR IMPROVING DEPARTMENTAL MANAGEMENT
__________
COMMITTEE ON ARMED SERVICES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
MARCH 12, 2009
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HOUSE COMMITTEE ON ARMED SERVICES
One Hundred Eleventh Congress
IKE SKELTON, Missouri, Chairman
JOHN SPRATT, South Carolina JOHN M. McHUGH, New York
SOLOMON P. ORTIZ, Texas ROSCOE G. BARTLETT, Maryland
GENE TAYLOR, Mississippi HOWARD P. ``BUCK'' McKEON,
NEIL ABERCROMBIE, Hawaii California
SILVESTRE REYES, Texas MAC THORNBERRY, Texas
VIC SNYDER, Arkansas WALTER B. JONES, North Carolina
ADAM SMITH, Washington W. TODD AKIN, Missouri
LORETTA SANCHEZ, California J. RANDY FORBES, Virginia
MIKE McINTYRE, North Carolina JEFF MILLER, Florida
ELLEN O. TAUSCHER, California JOE WILSON, South Carolina
ROBERT A. BRADY, Pennsylvania FRANK A. LoBIONDO, New Jersey
ROBERT ANDREWS, New Jersey ROB BISHOP, Utah
SUSAN A. DAVIS, California MICHAEL TURNER, Ohio
JAMES R. LANGEVIN, Rhode Island JOHN KLINE, Minnesota
RICK LARSEN, Washington MIKE ROGERS, Alabama
JIM COOPER, Tennessee TRENT FRANKS, Arizona
JIM MARSHALL, Georgia BILL SHUSTER, Pennsylvania
MADELEINE Z. BORDALLO, Guam CATHY McMORRIS RODGERS, Washington
BRAD ELLSWORTH, Indiana K. MICHAEL CONAWAY, Texas
PATRICK J. MURPHY, Pennsylvania DOUG LAMBORN, Colorado
HANK JOHNSON, Georgia ROB WITTMAN, Virginia
CAROL SHEA-PORTER, New Hampshire MARY FALLIN, Oklahoma
JOE COURTNEY, Connecticut DUNCAN HUNTER, California
DAVID LOEBSACK, Iowa JOHN C. FLEMING, Louisiana
JOE SESTAK, Pennsylvania MIKE COFFMAN, Colorado
GABRIELLE GIFFORDS, Arizona THOMAS J. ROONEY, Florida
NIKI TSONGAS, Massachusetts
GLENN NYE, Virginia
CHELLIE PINGREE, Maine
LARRY KISSELL, North Carolina
MARTIN HEINRICH, New Mexico
FRANK M. KRATOVIL, Jr., Maryland
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
Erin C. Conaton, Staff Director
Andrew Hunter, Professional Staff Member
Jenness Simler, Professional Staff Member
Caterina Dutto, Staff Assistant
C O N T E N T S
----------
CHRONOLOGICAL LIST OF HEARINGS
2009
Page
Hearing:
Thursday, March 12, 2009, The Department of Defense at High Risk:
Recommendations of the Comptroller General for Improving
Departmental Management........................................ 1
Appendix:
Thursday, March 12, 2009......................................... 29
----------
THURSDAY, MARCH 12, 2009
THE DEPARTMENT OF DEFENSE AT HIGH RISK: RECOMMENDATIONS OF THE
COMPTROLLER GENERAL FOR IMPROVING DEPARTMENTAL MANAGEMENT
STATEMENTS PRESENTED BY MEMBERS OF CONGRESS
McHugh, Hon. John M., a Representative from New York, Ranking
Member, Committee on Armed Services............................ 2
Skelton, Hon. Ike, a Representative from Missouri, Chairman,
Committee on Armed Services.................................... 1
WITNESSES
Dodaro, Gene L., Acting Comptroller General of the United States;
accompanied by Janet St. Laurent, Managing Director, Defense
Capabilities and Management, Government Accountability Office;
and Katherine Schinasi, Managing Director, Acquisition and
Sourcing Management, Government Accountability Office.......... 4
APPENDIX
Prepared Statements:
Dodaro, Gene L., Acting Comptroller General of the United
States..................................................... 33
Documents Submitted for the Record:
[There were no Documents submitted.]
Witness Responses to Questions Asked During the Hearing:
Mr. Skelton.................................................. 67
Mr. Taylor................................................... 67
Questions Submitted by Members Post Hearing:
Mr. Murphy................................................... 72
Mr. Smith.................................................... 71
THE DEPARTMENT OF DEFENSE AT HIGH RISK: RECOMMENDATIONS OF THE
COMPTROLLER GENERAL FOR IMPROVING DEPARTMENTAL MANAGEMENT
----------
House of Representatives,
Committee on Armed Services,
Washington, DC, Thursday, March 12, 2009.
The committee met, pursuant to call, at 10:02 a.m., in room
2118, Rayburn House Office Building, Hon. Ike Skelton (chairman
of the committee) presiding.
OPENING STATEMENT OF HON. IKE SKELTON, A REPRESENTATIVE FROM
MISSOURI, CHAIRMAN, COMMITTEE ON ARMED SERVICES
The Chairman. Ladies and gentlemen, welcome to our hearing
on ``The Department of Defense At High Risk: Recommendations of
the Comptroller General.''
Today, we focus on the issue of how well the Department of
Defense (DOD) is doing at the routine business of managing its
business operations, its finances, its investments and its
contracts.
I would note that today's hearing fulfills one of the
committee's responsibilities under H. Res. 40, the Tanner
Resolution, which amended the House rules to require the
standing committees of the House to perform additional
oversight.
I use the phrase ``routine business,'' but the truth is
that the Department of Defense is almost certainly the largest
and most complex organization in the world. Managing such an
organization can never truly be just routine.
I might add that providing oversight to such an
organization is also a significant responsibility. We must also
today thank our witness, Gene Dodaro, the acting Comptroller
General of the United States and the Government Accountability
Office (GAO), which he leads, for taking on this task.
For the last 19 years, the GAO has annually reviewed the
Federal Government's operations and published a list of those
areas presenting the highest risk. Due in large part to the
size and complexities of the Department of Defense, the DOD has
been a significant presence on the list since its inception.
The Department has not been able to completely eliminate
its risk in any of the areas identified by GAO over the years,
nor has this committee been able to do so through its
legislative or oversight activities.
That is not to say, however, that nothing has been done. In
fact, a great deal has been done.
During the 110th Congress, this committee tackled many of
the problems identified by the GAO. To cite a few, we codified
the duties of the Chief Management Officer (CMO) of the
Department of Defense, a step recommended by the GAO.
We also enacted two significant pieces of acquisition
reform legislation: the Acquisition Accountability and
Improvement Act of 2007 and the Clean Contracting Act of 2008.
And just last week, this committee established a panel on
reform of the defense acquisition system to bring additional
resources to its efforts in this area.
The committee has certainly not been alone in its efforts.
Secretary Gates, former Deputy Secretary Gordon England,
incoming Deputy Secretary Bill Lynn have also devoted a great
deal of effort to these problems, and they have shown a lot of
progress.
We must concede, however, that a tremendous amount remains
to be done. It is unacceptable that only one significant
organization within the Department of Defense, the Army Corps
of Engineers, is able to reconcile its books with an outside
auditor.
It is unacceptable that the Department has allowed a cost
growth of $295 billion in its pending major weapons systems. It
is unacceptable that the Department's business systems remain
stovepiped and incapable of generating the decision quality
information that senior leaders need.
We have not done enough, obviously.
Today, the acting Comptroller General will update us on the
high-risk areas of the Department of Defense and, most
importantly, provide us with his recommendations on how we can
eliminate or mitigate these risks.
I would note for my colleagues that, in a few weeks, we
will bring before this committee some of the senior managers of
the Department of Defense, to hear their plans for addressing
these problems.
Joining Mr. Dodaro are Ms. Katherine Schinasi. Pronounce
it. Did I get it? Thank you. She is managing director for
acquisitions and sourcing management. Ms. Janet St. Laurent--
did I get that? All right. She is managing director for defense
capabilities and management.
Before we hear from our Comptroller General friend, let me
turn to my colleague, my friend, John McHugh----
Mr. McHugh. Thank you very much.
The Chairman [continuing]. The gentleman from New York.
STATEMENT OF HON. JOHN M. MCHUGH, A REPRESENTATIVE FROM NEW
YORK, RANKING MEMBER, COMMITTEE ON ARMED SERVICES
Mr. McHugh. Thank you, Mr. Chairman. As always, you summed
up the purpose of our getting together and our challenges very,
very well.
Let me note that, as I considered today's hearing, as you
noted, it has been the better part of two decades that GAO's
good counsel has been presented to us about high-risk Federal
Government programs. And also as you noted, Mr. Chairman, in
that time, the Department of Defense regrettably has
consistently made that roll.
And today, in fact, as we look at the current listing, the
Department still has responsibility, at least in part, for
about half of GAO's list of high-risk management programs.
But it seems to me that, even more disturbing than that is
that, once a DOD program makes the list, it does not seem to
ever get fully removed. And this is, I guess, remarkable. It is
also, obviously, somewhat disturbing.
And it has to be an indication of one of two things.
Surely, this is either DOD management, systems, and processes
and their inherent risk, or DOD management is incapable of
addressing the root causes.
It would appear this axiom holds true, regardless of a
particular administration, regardless of the controlling party
in Congress, but is a consistent theme.
But I think we would all be in dereliction of our duties
were we to throw up our hands and simply accept as truth the
Department cannot or will not address these challenges.
As you noted, Mr. Chairman, there have been significant
efforts, both from the Department side, as well as from the
oversight side here in this Congress. And yet, any kind of
significant resolution evades us.
And at the end of the day, as I know you believe very
strongly, Mr. Chairman, it is always the responsibility of this
committee to assume a leadership role in advocating for
reforms, particularly for those high-risk areas.
More importantly, we are really at a critical juncture
here, as ongoing military readiness needs and fiscal pressures
place DOD increasingly in a position where it cannot tolerate
ineffective and inefficient management processes and
technology.
To put it very bluntly, we cannot stand by and allow some
in Congress, or in the Department, or anywhere, to cut programs
supporting our military families or programs desperately needed
to maintain and modernize our force in lieu of the concerted
effort by both branches of government--the Administration as
well as Congress--to boost efficiency of spending and to root
out waste. And members of this committee do, I know. But we
must stand as the vanguard against hasty and ill-conceived
reductions to programs that some might try to cloak under the
guise of reform.
We have to be realistic. Nearly half of the areas for which
DOD is responsible require interagency solutions, thereby
compounding the challenge.
I would add, as well, before we admonish DOD and other
agencies too vociferously we should also examine how our own
structure within the Congress impedes or fosters interagency
solutions. And I would certainly be interested in any
recommendations GAO might have on this score.
In the end, risk is inherent in any organization
responsible for so many personnel, so many dollars, so many
contracting actions and systems. And that is why GAO has
recommended, DOD has adopted and Congress has codified, the
role of the Chief Management Officer.
Currently, the Deputy Secretary of Defense (DEPSECDEF)
serves as the CMO. The ability of the DEPSECDEF to take an
active role in internal DOD management may be dependent on
personality or circumstances. And how do we ensure that the
management of the day-to-day DOD processes is not just an ad
hoc duty?
Mr. Chairman, I want to thank you for having this hearing
today. I am certainly grateful for the opportunity. I want to
add my words of welcome and deep appreciation to our guests
here today. GAO, certainly here in matters of defense, but
across the board in government operations, has been often a
guiding light in our efforts to do a better job with our
charges. And we look forward to their comments today.
And let me note in conclusion that, I want to underscore
that, although I strongly believe continued reforms of
procurement and DOD's other business processes are essential, I
have to break with those that might point to waste and
mismanagement in the Department of Defense as grounds for
tightening the defense budget.
Cuts in programs that suffer from cost overruns are
warranted when they reform behaviors that lead to negative
procurement outcomes. But employing across-the-board cuts, as
some in Washington propose, is, in my judgment, a blunt
instrument that does little to restructure the Defense
Department's business practices.
And with that, Mr. Chairman, I yield back the balance of my
time.
The Chairman. Thank the gentleman.
Mr. Dodaro, you are on.
As I understand it, the gentleladies with you will be here
for questions, and you will--but you will have a formal
statement. Am I correct?
Mr. Dodaro. That is correct, Chairman.
The Chairman. Thank you.
STATEMENT OF GENE L. DODARO, ACTING COMPTROLLER GENERAL OF THE
UNITED STATES; ACCOMPANIED BY JANET ST. LAURENT, MANAGING
DIRECTOR, DEFENSE CAPABILITIES AND MANAGEMENT, GOVERNMENT
ACCOUNTABILITY OFFICE; AND KATHERINE SCHINASI, MANAGING
DIRECTOR, ACQUISITION AND SOURCING MANAGEMENT, GOVERNMENT
ACCOUNTABILITY OFFICE
STATEMENT OF GENE L. DODARO
Mr. Dodaro. Good morning, Mr. Chairman, Congressman McHugh,
members of the committee. We are very pleased to be here today
to discuss the status of DOD's high-risk areas.
As has been pointed out in our latest update, DOD
represents approximately half of the 30 areas we currently have
on the list.
I would note, however, that over the years since we have
been doing this, in 1990, that we started out with the program
focused largely on fraud, waste, abuse and mismanagement and
those areas that were vulnerable to that. But over time, we
also added areas in need of broad-based transformation to meet
21st century challenges. And so, DOD's areas on the list really
represent both of those areas in terms of vulnerabilities and
areas in need of transformation.
Now, I would like to highlight a few of those areas for you
today, and then take questions on any of the areas as we enter
into that period of the session.
First is in the weapons systems acquisition area, which has
seen significant cost growth. The last time we updated our work
in 2007, we looked at the 95 programs in that portfolio. And
over the original estimates that were in place for those
programs, the cost growth was a total of $295 billion.
Forty-four percent of those programs had cost growth of
over 25 percent from the original estimates. And also,
importantly, the delay in the scheduled delivery time was up to
21 months, which was 4 months longer than just 2 months--or 2
years, excuse me--previously in 2005. So, the cost growth was
up, and it was taking longer to deploy.
Now, the problem in the weapons systems area really has two
dimensions at a strategic level. There are difficulties and not
enough prioritization across the programs. And the process for
determining and getting the requirements from the military
commanders is fragmented. So, that part of the issue needs to
be addressed, as well. It is still pretty much a service-by-
service type of determination.
But also, at the individual program level, we consistently
find that projects are moved forward without the maturity of
the technologies that are under development, without
application of sound systems engineering process with a good
understanding of what the cost would be. The cost estimates
continue to remain optimistic during the development period of
time, and requirements keep getting introduced into the process
as it moves forward, which further compounds the situation. So,
there needs to be a more disciplined process in place.
Now, one area that we have been very pleased with, back in
December 2008, DOD modified its policy guidance in this area
and implemented a number of the best practices that we have
been advocating for a period of time. So, we are very
encouraged by that. If they follow those practices, that will
ensure more disciplined development of these weapons systems
acquisitions, and we think would go a long way.
This is the first time we have reported progress in this
area since we have been tracking the high-risk areas, so we are
very encouraged.
The big challenge for DOD will be to translate policy into
practice. And that is what we will be looking at as we continue
to review their efforts.
Now, similarly, in the contracting area, including service
contracting, that is an area where DOD has grown a lot more
reliant on contractors over a period of time. In fact, in the
last five years in real terms, that contracting growth has more
than doubled to about $387 billion, which includes about $200
billion in service contracting.
Now, that decision to attain more reliance on the
contractors has not been one that has been a systematic,
strategic decision. It is the result of the amalgamation of
thousands of decisions that have been made across the
Department to pursue additional contracting, often as a result
of exigencies and the lack of the necessary means.
However, we found that DOD too often has turned to time and
materials contracting, or undefinitized contracts, whereby the
work proceeds without a final agreement, including costs, with
the contractor. These are highly risky contracting vehicles to
be used, and more risk is borne by the government.
But also, part of the equation here is that the amount of
people that DOD uses to monitor and evaluate these contracts
has not grown hardly at all. In fact, while the contracting has
doubled in real terms over a four- or five-year period, the
career contracting organization has grown less than one
percent.
So, this formula of high-risk contracts and lack of people
to oversee the contracts adequately is not a prescription for
success. And we think it needs to change.
To DOD's credit, they have put in place stronger policies
and procedures to deal with these issues. And if they use,
like, for example, undefinitized contracts, we recommend they
solidify the agreements within the 180 days required after that
approach. And they are trying to better understand their
contract workforce needs.
These activities need to be completed. And just like the
weapons systems acquisition area, they need to be put into
practice and consistently implemented across the Department.
Now, we are encouraged again here by some of the recent
activities, but the proof will be in implementation going
forward, which is one of the areas that we are concerned about
in terms of the Department's track record in this regard.
Now, we are also encouraged by other developments in the
contracting and acquisition area. I would like to commend, Mr.
Chairman, you and this committee for establishing your panel on
DOD acquisition reform. I think that is important.
And the Senate has introduced some legislation that we
think will be helpful, as well. They have created also an ad
hoc committee on contracting on the Homeland Security and
Governmental Affairs Committee, on the Senate side.
I was very pleased to see the President come out and
announce contracting reform, and directing Office of Management
and Budget (OMB) to address a number of issues and
implementation guidance to the agencies, and we will be
monitoring that very closely. But we think it is long overdue
and much needed, and hope that it really addresses the issue
and gains traction in DOD and other agencies across government.
Now, a couple of other high-risk areas I would highlight
quickly. One is supply chain management. This is an area in
terms of being able to meet DOD's goal of getting the right
items to the right people at the right time, whether they be
spare parts or other support activities.
We continue to see that they are challenged by demand
forecasting in this area. And that means that they have a lot
of spare parts in inventory that are not needed to meet current
requirements. In fact, over a four-year period of time, on
average, on an annual basis, the Army and the Navy had about
$11 billion of spare parts that were not needed to meet current
requirements.
They developed a logistical road map to try to address the
challenges in this area. And we think it was a good first step,
but it does not address all the gaps that are needed. It does
not have performance measures. And DOD has agreed that it needs
some additional work going forward.
You mentioned, Mr. Chairman, the lack of the ability of any
of the major military services to get an opinion on the
financial statements there. We are encouraged, at least, that
the Army Corps of Engineers was able to move in that direction.
But much more work in that area is needed. We are currently
looking at DOD's plans to make improvements in this area.
But I would point out, one of GAO's other responsibilities
is to audit the consolidated financial statements of the
Federal Government. And the lack of progress in financial
management in DOD is the single largest impediment to our
ability to be able to give an opinion on the Federal
Government's financial statements.
For 12 years now, we have had to disclaim an opinion,
because of that issue, as well as problems with the Department
of Treasury, and some other areas. So, this is a very critical
area. It would be the underpinnings of also getting better cost
information and have better reliable data, as well.
In the human capital area, 30 percent of DOD's personnel
are going to be eligible to retire over the next few years.
This is a huge challenge. We have looked at their plans. They
have made some good progress in this area. But those plans
continue to need to be refined to meet the legislative
requirements that have been imposed on them.
In summary, there are some common issues here that we see
across all the high-risk areas. There needs to be sustained
leadership on the part of the Department. That has been lacking
over a period of time. That needs to change, if there is going
to be any progress made in these areas.
There needs to be good, strategic plans to address the root
causes of the problems. The plans have to have interim
milestones and measures, so you can track progress.
I mean, these are the things we look for when we decide to
take an area off the high-risk list. You have got a commitment
from your leaders, you have a good plan, and then you monitor
and execute the plan in order to demonstrate progress. And that
is the time where we consider taking some areas off the list.
So, in DOD's case, they have got some good intentions here
and revisions to their policies, but they really have to
deliver along these lines.
Now, important to that will be how they implement the new
Chief Management Officer concept within DOD. Since the
legislation has been passed, it really has not been
implemented, because it came in the waning days of the prior
administration.
And there are still some people currently--positions that
are unfilled there at the Deputy Chief Management Officer level
and at some of the Chief Management Officers of the services.
And that needs to be clarified in terms of the roles and
responsibilities of the Deputy Chief Management Officer, and
how they relate to the Chief Management Officers in the
services.
So, basically, you know, from an overall standpoint, some
of the infrastructure is in place, and things are poised to
make great progress. But a lot will depend on actions and
implementation, and a lot of hard work that will have to be put
forth by the Department.
Congressional oversight is imperative in this area. I
applaud you for taking on this initiative and your future
hearings. And that concludes my opening remarks. I would be
happy to take any questions.
[The prepared statement of Mr. Dodaro can be found in the
Appendix on page 33.]
The Chairman. Mr. Dodaro, thank you so much.
I think you will see some yeoman's work out of this
committee this year. What we do hopefully will be very
thorough, but also very effective. And we will not, I assure
you, rush to judgment, but try to get it right the first time.
I have two questions before I ask my friend from New York.
Why is it the Army Corps of Engineers can balance its
books, and not the rest of the Department of Defense?
My second question is, how do we get our arms around the
medical issue, the high costs of the medical issue within, or
across the board, in the various services?
Mr. Dodaro. First, with regard to the Army Corps of
Engineers, for many years, they have put a lot of effort into
developing a good financial management system. And they were
one of the leaders within the Department, even many years ago,
in terms of developing that. And they made a commitment that
they wanted to achieve that goal. And they have a lot of unique
financial operations there, because of the revolving fund type
issue that they have over there.
So, it was a matter of, they laid the foundation with some
system development and good practices. But equally as
important, if not more important, they made a commitment to get
it done. And I think that is what is needed to be replicated
throughout the Department.
They also are able to--you know, one of the bigger
challenges--let me put it this way. One of the bigger
challenges for the services is they need a lot of cooperation
across the Department. Congressman McHugh mentioned the
cooperation across the Department.
A lot of the information necessary for financial reporting
is kept in some logistics systems, property systems, and
others. And that needs to be brought together.
And this is an area where I think there has to be
leadership by the chief management offices--and officer within
a department to support--even the comptroller does not
necessarily have all the data necessary to pull the systems
together. It is really a Department effort.
The Corps of Engineers has somewhat of a more limited issue
in that respect.
With regard to the medical services, I would ask Janet to
comment on this. But I would say--I mean, this is an issue in
the private sector. It is an issue in the government generally.
The largest single cost driver in the Federal Government's
budget right now is escalating health care costs. And a lot of
that is being driven by new technologies and utilization that
differs across the government.
We have issued a lot of reports on this and pointed to the
need for the government to do this. So, I think, in that
respect, DOD is not alone in trying to get a handle on this.
And I think the efforts that have been announced to address
health care reform generally are, I think, much needed.
Janet.
Ms. St. Laurent. Thank you very much, Mr. Chairman.
Again, as Gene mentioned, this is an overarching issue for
the Federal Government. Within DOD, we have looked overall at
the average cost of compensation for military personnel, and
have issued a number of studies looking at both the active
component and the reserve component, showing that those total
costs are increasing.
And a large part of that increase is being driven by health
care costs. So, we certainly agree that it is a key issue that
has to be studied in more detail.
There are a number of options on the table. One would be,
again, looking at plans to possibly increase or charge service
members a fee for certain services. That would be an option.
But overall, I think a lot of the increase is also focused on
the pharmaceutical issues and the costs associated with the
rising cost. And again, it is very much linked to the overall
problem that the nation is facing.
We have not done specific work to look particularly at that
issue with regard to DOD, however.
Mr. Dodaro. And Mr. Chairman, we have also done work
looking at the relationship between DOD and the Veterans'
Administration (VA), and how they could leverage some of their
purchasing power to help in this area. And I would be happy to
provide a summary of that for the record.
The Chairman. It would be outstanding if you would do that.
Mr. Dodaro. We will.
[The information referred to can be found in the Appendix
on page 67.]
The Chairman. Mr. McHugh.
Mr. McHugh. Thank you, Mr. Chairman.
I do not want to be unfair here. But, Mr. Dodaro, you
mentioned the weapons acquisition changes. And I believe your
comments were roughly, ``this is the first time since they were
designated high risk that they have actually done some things
to move forward.''
As I look at the chart, they were designated in 1990. And
in my opening comments, I talked about--as I believe the
chairman did, as well--in all of the time that DOD programs
have been designated high risk, not a single one has ever been
undesignated high risk.
That seems pretty remarkable to me. I remember when the GAO
put certain operations of the postal service on high risk.
L'Enfant Plaza almost blew up trying--at least trying to do
some things in a very proactive way to remove themselves. And I
am sure that is the behavior in other agencies.
What is the problem with DOD?
I do not want to be unfair. Help me understand why, after
nearly 20 years, they just now did something that acted toward
the high-risk actions, because as I read your high-risk
reports, it is pretty clear why they are there and what they
need to do to get off.
Mr. Dodaro. I think--and I will ask Katherine to add in the
weapons systems area--we gave them credit for progress this
year. We might have noted some other attempts that they made
previously, Congressman, to be fair. And I will let her, since
she has been following this for a number of years, add context
to that area.
But I would say, overall, you know, one of the issues here
is really senior leader commitment. I can tell you that I have
received calls over the years from top agency officials,
concerned they are on the list. They want to get off the list.
They want to know what they need to do to be able to do that.
We have had some discussions with DOD over the years. But I
have not had that type of discussion with them in that regard,
and I think that is needed.
You know, in some other areas, too, the Congress has taken
some steps to provide rigorous oversight. In some cases
discussions have been taken as it relates to funding, and
making sure progress is made in those areas.
So, I think there needs to be some incentives for the
Department to move forward in that regard. And it has to come
with the Congress.
We are prepared--and I am going to be outreaching to the
Secretary and the Deputy Secretary, the Comptroller and all the
new leaders that are put in place--to do what we can to give
them advice on how to make progress in this area. I can assure
you of that.
Mr. McHugh. Yes. I am not worried about you.
As a manager, I would have done something just to try to
shut you up, frankly. But----
Mr. Dodaro. Most----
Mr. McHugh. It is frustrating. But I assure you the
chairman and I--and we had dinner the other night with Senators
Levin and McCain, and as you noted very graciously, are very
committed to this. And we are going to work.
And I don't know as I would place the word ``incentive''
quite what we may have in mind if we are met with a deaf ear,
but we will take some steps. I look forward to that.
And I want to commend the Administration, the new
Administration, that have been--and you noted again--for
tackling this issue, because certainly from the DOD
perspective, as you look at these high-risk designations, how
long it has been, understand that the losses, as you put in
your testimony, billions of dollars in bad procurement
practices, et cetera, et cetera.
The Administration has targeted, I believe, $40 billion in
savings in procurement areas. What a shock. They could find
other people who had different opinions. And they ranged all
over the map. I have no idea what the target out there
reasonably might be, but GAO has talked about billions in
savings.
Have you ever assessed the figure that could help the
chairman and I kind of look at where we need to be in terms of
savings and real return on tax dollars?
Mr. Dodaro. We have not come up with figures beyond a
couple that I mentioned earlier. I mean, there are pretty good
figures regarding the spare parts that are developed that are
unneeded. That is probably where we have the best baseline
information. It is hard to predict in some of these other
areas, because they are so unique in some of the developments.
And I have not looked at the Administration's figures yet.
I am anxious to see what the details will be of how they will
try to implement the reforms. But I do not think it is
unreasonable to try to set some targets that are reasonable,
and there is some flexibility there.
But part of the issue with DOD is there are not interim
targets. And that is part of the problem with the plan.
And we have seen this on large-scale developments. There is
nothing quite like the weapons systems development areas, but
in other big development efforts there is more incremental
development and specific goals that are needed to be met before
you move to the next phase.
And unless you do that, you never really get a handle on
the issue that you are talking about. It might cost a little
bit more up front, but it will save you long run, you know,
more costs in the out years.
But I think the direction that you are headed is a good
direction, and I would encourage you to continue to do that. We
will do what we can to support you.
Mr. McHugh. Well, and I appreciate that. And I will just
reiterate before I yield back, how much I know we all--but I
certainly deeply am--deeply grateful for the great work that
GAO does. And I suspect, Mr. Chairman, with your leadership,
that as we go forward on procurement reform, we are going to be
relying on these good folks even more.
This is a critically important challenge. And as important
as it is, I look forward to joining with you in taking it on.
So, I would yield back, Mr. Chairman.
The Chairman. Thank you very much.
I think it is important as our committee approaches or
attacks this problem, which we have looked at off and on
through the years, to get it right. And to have to revisit it
periodically is--we would like to get this behind us, but we
have to get it right.
You know, Rome was not built in a day, so we will do our
very best.
Mr. Johnson.
Mr. Johnson. Thank you. Thank you, Mr. Chairman. And I
applaud the holding of this hearing to elucidate us on the----
The Chairman. Can you get just a little bit closer to the
mike, please?
Mr. Johnson. Sorry.
The Chairman. And the witnesses do the same, because the
acoustics in here are not very good.
Mr. Johnson. All right. Thank you, Mr. Chairman and Mr.
Ranking Member, for holding this very necessary and timely
hearing at a time when there are cries from Americans to reduce
the amount that this country spends on defense.
And the areas of fraud, waste, and mismanagement, getting a
handle on those can certainly yield some significant reductions
in the amounts that the taxpayers are called upon to spend on
defense--on the Department of Defense.
And I would like to--you know, it is very strange that, for
the last 19, 20 years, that there has really been no meaningful
changes in the high-risk areas that GAO has identified since
then.
What are some of the reasons why the situation remains the
same, after 20 years?
Mr. Dodaro. I think, you know, basically--I mentioned some
of the common denominators that we find across these
departments. One is an inability to set the requirements
properly up front, to take a disciplined approach to
management, to have adequate follow-through and measures in the
process.
But underlying it all is a culture and incentives that are
relatively unique within the Department. And I think that that
needs to be modified, to be able to address some of these
issues.
I would ask----
Mr. Johnson. Does that culture include one of perhaps over-
reliance on private contractors?
Mr. Dodaro. Well, one of the recommendations that we have
made is to ask for the Department to make a systematic
assessment of where it should be contracting and where it
should build in-house capabilities.
I think, given the magnitude, size and challenge facing the
Department, contractors will always be important. The question
is, you know, determining where you want to use contracting,
and if you make that determination, that you have adequate
acquisition workforce to manage the contractors well, so the
government gets what it pays for--deliverables on time and
support to the warfighters. That is really important.
But I would ask Katherine to make a couple of comments,
because she has been traveling this road for a while.
Ms. Schinasi. Thank you.
One of the most difficult things that the Department has
been unable to do is translate its policies into practice.
Mr. Johnson. Could you pull that mike up a little bit?
Ms. Schinasi. Yes.
Mr. Johnson. Thank you.
Ms. Schinasi. The Department, even when it has good
policies in place, translating those policies into practice
does not happen very often.
So, the question that we ask is: Why? And what we find very
often is that there are no consequences if you do not follow
policies.
So, there is always an exception made to the policy. For
almost every--certainly in the weapons system area--for every
program that we look at individually, there is an exception
made for that program. And then what you have is the
opportunity cost that falls into other programs, so that
overall, you are faced with a very difficult situation and come
up with the numbers that we have seen, $295 billion in cost
overruns.
But it is this basic lack of discipline and consequences
for taking decisions and actions that do not follow the good
policies that they have in place.
Mr. Johnson. Thank you.
What kind of consequences for these cost overruns, what
kind of consequences would you deem appropriate and effective?
Ms. Schinasi. There are very clear guidelines, some of
which are legislatively mandated, about the kinds of
information that you need before you make major investments in
weapons systems. So, before you start a program, you have to
understand that your technologies are mature. You have to
understand that you can put together a design, and as you move
forward through that process, that you can produce an item at
the quality and at the cost, and in the time that you need it.
So, there are very clear markers as to what you have to
know before you make a decision to make a large investment.
Those markers are not followed. And the decisions are made by
the Department to continue to invest money, even when we do not
know what the outcome of a program is going to be.
Mr. Johnson. But which----
Mr. Dodaro. And I think--congressman, excuse me--I think
there also have to be consequences for the contractors in this
area. I mean, we did a study a year or two ago that Katherine
led, that looked at the award fees that were given the
contractors, even though some of the terms of the contract were
not met in the manner in which they were laid out.
Now, the Department has moved, to its credit, to try to
address that issue. But it is not only for the Department
managers. There has to be some consequences for the contractors
to incentivize them to perform consistently within time, on
budget, as well.
Mr. Johnson. Thank you. And just one final thought.
If the DOD were a private corporation, it would have been
bankrupted many years ago with this, facing these same
challenges.
Ms. Schinasi. But I think that is a very important point,
because a private corporation is focused on putting a product
into the field, and the Department is focused on starting a
program. And those created two very different sets of
incentives.
The Chairman. Mr. Bartlett.
Mr. Bartlett. Thank you very much.
There is an old adage that says, what is everybody's
business is nobody's business. I think of that as I walk
through the Pentagon, through those halls, and see all of those
names on the doors.
Dr. Parkinson noted that, no matter how small the British
Navy got, the British Admiralty--I guess their equivalent of
our Pentagon--got larger and larger.
I suspect both of these entities have grown, because things
go wrong in administering contracts, and so forth. And so every
time something goes wrong, we set up a new office to make sure
that is not going to happen again.
Every one of these new offices functions kind of as a
committee. And, of course, committee functions always revert to
the lowest common denominator, which means that the output is
always going to be mediocre. It will never be stellar when
everybody has to agree, you have to reach a consensus.
It reminds me of our solution to mediocre teachers. We have
a meticulously detailed curriculum, hoping that even a poor
teacher will produce something in the classroom, because they
have to follow a meticulously detailed curriculum.
I think that kind of thing happens in the Pentagon. We just
add rules and rules and rules to make sure nothing goes wrong,
and I think this stifles creativity.
Another problem I think is that, if you are going to
advance in government, you cannot make a mistake. And the best
way not to make a mistake is to never reach out and never to do
anything. If you don't do anything, you do not make mistakes.
And I think that is one of our big problems there.
Dr. Parkinson again noted that there are far too many of
what he called the ``abominable no-man'' in our government.
Somebody wants to do something a little bit out of the box. No,
you cannot do that.
Dr. Parkinson also noted that, as institutions grew, more
and more of their energies were exerted in internal
communications. And depending upon the institution, they can
reach a size when all of their energies are expended in
internal communication, and nothing productive outside the
organization happens.
Are we stuck with what we have got? Or can we kind of start
again?
Mr. Dodaro. Well, our recommendation to create a focused,
dedicated chief management official over at the Department was
an attempt to try to penetrate some of the issues that you
mentioned, or things that could get built up over time. There
are clearly stovepipes that need to be brought together.
That can only be done through top-level, dedicated
leadership. And that is why we advanced this concept, and the
Congress has acted. It was not entirely what we had
recommended.
We recommended a dedicated, full-time chief management
official that would transcend administrations, so you would not
lose momentum in some of these more basic financial and
business systems over time. But that is what--you know, we were
trying to advance something to create a new dynamic that would
focus on these activities.
As has been indicated here, this is one of the largest
entities in the world. It has a lot of complexities associated
with it. If you do not have dedicated, full-time management
focused on it, and focused on it all the time, you are not
going to create the type of changes that are needed.
Mr. Bartlett. A number of years ago, one of our senior
managers in government retired, so that he could speak freely.
And he said that he thought that, if we simply took our
government employees and marched them through a cutting gate
and kept every tenth one--without any regard to whether they
were good or bad--that our government would probably be more
productive, because we were so ponderous, so much internal
communications, that we were doing very little outside work.
Do you think there could be an element of truth in that?
Mr. Dodaro. Congressman, you know, most of the people that
I meet--and I have been in government service for a long----
Mr. Bartlett. Sorry, but there are very good people. They
are working very hard. They are very dedicated. It is not the
people, sir. It is the system.
Mr. Dodaro. Well, there is a lot of truth to that. And it
is up to leaders to change the system when it needs change. And
that is my assessment of the Department of Defense. And it is
up to the leadership to change that.
Because there is no reason--I mean, we have the best
military in the world, and when they are mission-focused on the
military side, it gets done. On the business side, you do not
have that same level of, you know, a sense of urgency and focus
and clarity of what you want to achieve.
And if that type of commitment and energy and dedication
that is on the military side can be focused on these business
systems, this can be done. It is not an unsolvable problem.
Mr. Bartlett. Thank you, Mr. Chairman, for calling this
hearing. It is more important than our attendance would
indicate. Thank you very much.
The Chairman. Dr. Snyder from Arkansas. Please.
Dr. Snyder. Thank you, Mr. Chairman.
I actually feel some empathy for the Department of Defense
on this. You know, we are talking about the 19 years or the 20
years. This is my 13th year here, and we still do not have a
microphone system that works. [Laughter.]
I mean, you would think that would be something that would
be readily fixable.
Mr. Dodaro, I wanted to ask, you mentioned the Levin-McCain
bill. And the Chairman mentioned having their meeting the other
night with Mr. Levin and Mr. McCain. And I think you thought
that there were some good things in it.
One of the concerns I have about that bill is its
overwhelming focus. I mean, it is a bill about hardware. It is
not a bill about service contracts.
And I can see a possibility, if we do pass something a lot
like that bill, there will be, as you talked about, the laser
focus of the bill in the Congress will go on hardware. And, in
fact, 60 to 65 percent of the money we are talking about is not
spent on hardware, it is spent on service contracts.
And if we do something major this year, I hope that we will
not neglect service contracts, because I think that has even,
in my view, more looseness to it than some of the hardware
issues.
Do you have any comment on that?
Ms. Schinasi. As you know, the 2006 National Defense
Authorization Act took a hard look at services and put a
structure in place for the Department to be better managing its
service contracts, just for the reasons that you stated.
We are now looking at how well that is happening. They have
made some move toward improving the focus on service
contracting. But whether or not the outcome has started turning
around yet, that is something that we will be looking at.
But certainly, service contracting, in terms of dollars,
has gotten more important over the years and needs the kind of
attention that----
Dr. Snyder. I think the attention of the public and the
attention of the Congress, it is a lot easier to talk about
Presidential helicopters or, I mean, something that we can see
and touch. It is more difficult to talk about, okay, how much
was this contract for the management of information technology
supposed to cost, and why didn't it work?
I mean, a lot of us can get confused fairly quickly--not
just members of Congress, but people who follow the money
issues pretty closely. But in fact, that is where a lot of the
money is. And I think we need to not forget that.
I wanted to ask about, if I might, Mr. Skelton mentioned
the issue, we want to get it right. And I am not sure that we
can get it right if--I am going to overstate what the chairman
said, which is the implication that somehow we will come up
with a bill or an architecture that this will work, this is
perfect. All we have to do is the President signs it, and
everything is back to where we want it to be.
I do not think it is going to work that way. I mean, I
think it is going to be a process that will just keep going on
and on, that you will--I think workforce training, getting the
right blend of workforce is going to be something we will work
at. But that will not happen overnight.
That is years right there in terms--first of all, we have
got to stop the bleeding, as you pointed out, losing a lot of
senior people. We are going to have to be training people. We
are going to have to train people in a way that we think things
need to be done.
But talk about that, if you would, about the whole issue of
how we go about doing the kind of reform that we think is
necessary.
Mr. Dodaro. I think, first of all, having an appropriate
reform framework that goes to some of the root causes of the
issues is a very important starting place. And I think some of
those are outlined in the Senator McCain and Levin bill for
those areas that are talked about. And I agree with you, it
needs to be a broader focus.
Secondly, you have to have good management accountability
in the legislation, so that that accountability then sort of
cascades down through the Department. You need to be able to
hold people accountable.
Thirdly, you need to have interim measures. You cannot, I
believe, institute a large-scale reform that everybody knows
will take a number of years to implement satisfactorily. But
after six months, you should see some level of progress, after
a year, another level of progress.
That is what is lacking, I think, at the Department,
because you do not have these interim milestones that are
reasonable, that could be negotiated. But you do not know if
you are on track or not over a period of time.
So, I think a good legislative framework, followed by a
very detailed implementation plan that the Congress understands
and has realistic implementation milestones, is the only way
that you are going to be able to achieve the progress over time
and do it right, because a lot of these things are going to
require mid-course corrections and refinements.
Dr. Snyder. Thank you.
The Chairman. Mr. Coffman.
Mr. Coffman. Thank you, Mr. Chairman.
I had a meeting with the Secretary of Defense. He opened it
up to all freshmen Members of Congress to go over to the
Pentagon and to meet with him, as well as the Joint Chiefs of
Staff.
And I asked him a question. I said, well, I expressed a
concern that the United States had been engaged in
counterinsurgency operations for a period of time, and that
maybe our forces were being reoriented permanently in that
direction, of light forces versus the heavier ground forces,
air power, sea power, needed to effect a deterrence against our
potential enemies.
And he bristled at that notion and said that he was focused
on both fronts, on maintaining strategic deterrence as well as
fighting two counterinsurgency wars.
But he went on to say something that I thought was very
interesting about his view of the Congress of the United
States, because he said, one of the difficulties that he
confronted was that any time he had a discussion--these are his
words--with a Member of the Congress of the United States, they
always had a list in their back pocket of weapons systems
produced in their district that they wanted implemented,
according to him, his view.
What is your estimate of the Secretary's view of the role
of Congress in weapons procurement? And is that an issue from
your perspective that is problematic in procurement, in the
weapons acquisition process?
Mr. Dodaro. I think, you know, clearly, Congress has a role
to play in reacting to and responding to the requests that the
Department has put forward. Congress has the ultimate power of
the purse, and they have decisions on how they want to allocate
resources. So, in my view, it is a joint responsibility in
these areas for people to be able to do that.
But part of the issue here, I think, as reforms are put in
place, I think the Congress needs to decide how it will behave
and act in order to support and encourage those reforms going
forward. So, I think it is an area that ought to come under
some debate and discussion within the Congress about how it
will support and incentivize and support good management
decisions within the Department.
And so, I think that is a very important point that needs
attention.
Mr. Coffman. Thank you.
Mr. Chairman, I yield back the balance of my time.
The Chairman. Mr. Ortiz.
No, excuse me. Mr. Marshall and then Mr. Ortiz.
Mr. Ortiz. Thank you, Mr. Chairman.
The Government Accountability Office found that the
Department of Defense actually unified or coordinated a command
structure to plan for the management and execution of the
return of material and equipment from Iraq. With less than 18
months left to redeploy combat forces from Iraq, does the
logistic road map have enough support within the Department of
Defense to facilitate the withdrawal by the date mandated by
the Administration?
And I know that--the reason I asked this question is
because I think we have more contractors in Iraq than we have
troops. And when we talk about withdrawing the contractors and
the equipment and our soldiers, we just want to be sure that
what we do, that we do it right.
Maybe you can touch on that and see if there is enough
support to be able to accomplish that by the date given by the
Administration.
Mr. Dodaro. This is a very important issue. I am going to
ask Janet to talk about our report, because we looked at
whether or not they had a, you know, a command structure,
unified command structure and a plan in place to do this.
There is about $16.5 billion of equipment that is there. As
you point out, there are a lot of contractors, and there are
more than the military troops.
There are a lot of factors that need to be considered. You
know, we studied the withdrawal for the first Gulf War back in
the early 1990s. And even that, that had far less deployment,
took about 15 months, I believe, during that period of time.
And so, there are a lot of issues here associated with
cleaning, moving the equipment, getting the clearances from the
countries in which we have to transport the material,
environmental issues and other things. And we issued, I
thought, a very good, early, thoughtful report on this. I will
let Janet talk about it.
Mr. Ortiz. That will be fine. Thank you.
Yes, ma'am.
Ms. St. Laurent. Thank you very much.
I agree that it is going to be a very complex effort to
coordinate closely.
Since we issued our report, the Department has taken some
steps to address some of the command issues. But, of course,
there is going to be much more work that needs to be done,
develop a more detailed plan for bringing equipment back out of
Iraq.
It is going to require a lot of analysis to determine how
much equipment should be brought back, what if any equipment
should be left for the Iraqis, whether or not the equipment is
in good enough condition to be refurbished, or whether it needs
to be replaced. And then, just coordinating all of the
mechanics of moving considerable quantities of equipment out of
the country to the point that it has to be cleaned, meet up
with United States Department of Agriculture (USDA) inspections
is going to be very comprehensive.
Also, as you mentioned, the plan for removing U.S. combat
forces and equipment needs to be closely coordinated with the
plan for contractors. We think the plan for contractors is less
mature at this point. We know the Department is working on
developing some plans. But again, we need to see--would like to
see--more detailed plans for the management of contractors and
how it is going to be coordinated with the overall plans for
drawdown.
Turning back to the logistics road map, this is a very
broad, departmental-wide effort to improve logistics across the
Department. And again, our observation there is that, that
effort needs to be improved in a couple of respects.
It does not fully identify the most important gaps from a
supply chain or logistics standpoint. So, we think the next
iteration of it should identify more clearly what the
priorities are.
It does not fully address the funding needs associated with
the initiatives. Again, prioritize those.
And it is not clear how the senior leadership of the
Department is going to use the road map to really manage and
effect change, and a senior leadership focus on bringing about
improvements in supply chain issues.
Mr. Ortiz. See, it is not that I have anything against
contractors or that I am against contracting, but let us do it
when it makes sense.
In my opinion--because we have had other hearings--it has
kind of had morale problems with the soldiers, too. Because
when I talk to some of the soldiers who are about to get out of
the military, they say, ``You know what? I am going out, and I
am going to do security work for a private company, because I
am being paid $40,000 a year, and I am going to get paid
$150,000.''
And then, lo and behold, they are kept in the military.
They cannot get out. And this has happened sometime back.
So, me, as a member and chairman of the Readiness
Subcommittee, I have no idea what criteria they use to hire
contractors. I do not know what kind of pay scale they utilize
to pay them.
And many times we found out through hearings that, instead
of the services doing some of the work that they are supposed
to do, some of this work is given to contractors, to where the
contractors are doing the work that the service people should
be doing.
So, I hope that we can correct that. And maybe you can
elaborate on what needs to be done to correct something like
this that has been happening for a long time.
Mr. Dodaro. Yes, we made, and emphasize in our statement
today, a fundamental recommendation to the Department, that
they lay out and specify their criteria for making those
decisions in a systematic way over time. And I would encourage
the Congress to follow up with the Department, and make sure
that that happens.
I think that is very important, and it will address
directly your issue.
Mr. Ortiz. Thank you so much. My time has run out.
Thank you, Mr. Chairman.
The Chairman. Mary Fallin, and then followed by Mr.
Marshall.
Ms. Fallin. Thank you, Mr. Chairman.
I have kind of a general question. As we are going through
this process of meeting with various folks back home in our
states and in our districts, there are a lot of people coming
up to us as Members and saying, we have specific needs in our
states--specific needs with the various branches of the
military. And they are asking us for funding requests for those
different projects.
And so, when you analyze the Department of Defense, the
criteria, the systems and the decision-making, you talked a
little bit about leadership knowing, you know, what is needed
down below.
What recommendations do you have for us as Members of
Congress when people come to us from our National Guard, from
our Air Force or Army bases, or even from the private sector,
or even from higher education, the universities with research
and development, coming to us saying, these are things we
believe will be beneficial for the Department of Defense,
military branches, as far as those spending requests?
Have you found any good way for us to work through these
things?
I know that we best know, I think, what our states need and
what our local military branches need. But sometimes it seems
to be that we fund things maybe they do not need at the top, or
maybe the top does not know what the people down here need.
Have you got some good suggestions on that?
Mr. Dodaro. I am going to ask Janet to elaborate on this.
But the first suggestion I have is, I think the Congress has to
have confidence in the Department's ability to take all the
requirements, and in a thoughtful, consistent way set
priorities, and present that back to the Congress.
Because there will probably never be a situation where
everybody's wants are going to be able to be met or sustained
over a period of time.
So, there has to be some priorities that are set within a
coherent framework that is understandable and transparent to
the Congress.
So, I think that--I would say that as a backdrop.
Now, Janet has done a lot of work in this area,
particularly with the Guard and Reserve. I will let her
comment.
Ms. St. Laurent. Another, I think, key piece of this is the
notion of risk-based assessment, because, if you look at any
one particular state--and I will use the example of National
Guard--they may have equipment shortfalls, personnel shortfalls
currently.
But I think it is more important to look across the
Department and how they are managing risk, whether or not they
are looking at the cumulative requirements, how they are
balancing risk and then allocating their resources effectively.
And again, in some of our work, we have seen that that
process is not necessarily occurring as well as it could be.
And as a result, it does lead to issues, again, within
particular states.
I think there has been progress made on the National Guard
issue over the past few years. Congress has certainly
appropriated significant additional amounts of money for
equipment.
And the Department is also making strides in determining
how to balance equipment across regions and across the country
as a whole, to provide adequate capacity to have enough
equipment here to deal with any potential homeland issues, and
have a reserve, but then also to support forces that are going
overseas.
Ms. Fallin. I guess, Mr. Chairman, what I am trying to find
out is, how do we establish that balance between what the
Department of Defense needs, what the President wants, what
people from our local communities are coming to us saying, this
is what our states need, without us allocating resources that
maybe are not in line with the priorities of the Department of
Defense, be it having them know what our needs are back home.
So, sometimes I think there is a little bit of a disconnect
between the two. And, of course, I see that as being our
responsibility as members of this committee, is to take our
needs to the committee, take our needs to the top leadership
and say, these are some of the things we see back with our
folks, back in our districts.
Mr. Dodaro. I think a large part of this is really a
communications issue, too.
In other words, I mean, you have issues, and your community
has issues. What you need to be sure of is they have a vehicle
to get their needs communicated to the Department, and that you
have confidence that the Department will listen to those needs,
make a decision, an informed decision, and communicate back to
the Congress what its priorities are, and whether or not those
needs are going to be included or not. And if not, why not?
And Congress would have to be satisfied with those
decisions, or take action to provide a modification to the
Department's proposal. And I think that is the way the process
needs to work.
Ms. Fallin. Thank you so much.
Mr. Dodaro. You are welcome.
Ms. Fallin. I yield back my time.
The Chairman. Thank you.
Mr. Marshall.
Mr. Marshall. Thank you, Mr. Chairman.
It is not at all uncommon in business--or government, for
that matter--for efficiency experts, auditors, accountants, et
cetera, to come in and look at a process, crank the numbers,
what have you, and then make recommendations which the CEO, or
the board, or the mayor says, ``Thank you very much. I am not
going to do that. I do not think that is a good idea. In fact,
what you have asked me to do is going to cost us more money
than any possible savings we could realize as a result of doing
what you have requested.''
That is just not an unusual event at all in business and in
government. I have done it myself.
And when it happens, typically, those who reject the
recommendation have very precise, clear reasons why they are
going to reject the recommendation. ``No, I am not going to add
that person to trace those pennies, so that we know to a penny
what has been spent, because we know it is within this realm,
and that person--it is within a margin of error that is less
than the cost of adding the person,'' for example.
I find myself wondering if--the Department of Defense, it
reminds me of--it greatly reminds me of a book published by a
Yale professor. I cannot remember his name at the moment. But
the book is wonderful. The title is wonderful.
And actually, the title was the best part of the book, and
it is ``Beyond Human Scale.'' And it refers to organizations
that get to a point, as my friend, Roscoe Bartlett, was trying
to describe, that no individual within the organization truly
understands how it works.
But I find myself wondering, are there apologists within
the Department of Defense, or are there apologists outside of
the Department of Defense, who have said to you all, ``Look.
You are asking this institution--obviously can approve--they
need to head in the direction that you are suggesting. But the
institution is a different kind of beast. It has got a
different kind of mission. You all just do not understand this.
You are trying to take one model and apply it to what is
inappropriate.''
Do you get any kind of feedback like that? If you are not
getting feedback like that, it is just amazing to me that 20
years later, we are still talking about how to meet your goals.
What kind of feedback do you get from anybody? What sort of
pushback do you get from anybody?
Mr. Dodaro. Yes. I will ask both Katherine and Janet to
give you a perspective on it, because we make a lot of
recommendations to the Department of Defense. And from my
vantage point, the reaction is quite mixed. In many areas they
agree, they put in places.
I have just mentioned today many examples where they have
implemented our recommendations by changing their policies, but
the implementation of those policies is not consistently
applied going forward.
So, I do not think, you know, we have run in--I am sure
over time we have run into some disagreements, where they
disagree with us. And I will ask them to give some examples.
But it is not a consistent type of issue. And certainly, in
many cases, we are not asking or recommending things that we
have not recommended in other departments and agencies, as
well.
Katherine, and then Janet.
Ms. Schinasi. Perhaps I will start.
It is true that we have mixed reactions. And I will give
you a number of examples.
Most of the work we do on individual programs, the program
manager is the advocate for that program. And his or her
responsibility is to support that program through whatever
process that it is put through. And so, many times we will get
from the program office a different perspective than we have
brought to the problem.
That said, however, when we raise those issues up to a
higher level in the Department that has responsibility across
many, many programs, we often hear a different story, because
they are responsible for managing at a level that represents
the Department's budget as a whole, not the individual program
manager.
So, for example, we have heard from officials in the
Department that they hope weapons acquisition never comes off
the high-risk list, because they see that as a force for
change. And they like us coming in and pointing out with sort
of that independent, once removed view, what we are seeing,
particularly because we are able to, in many cases, quantify
the effect of those decisions that you talked about, when they
say, ``No, we are not going to do it. We have other reasons.
You know, we do not like what you are saying. We are going to
take another course.''
Part of our responsibility is to come back and say, ``Fine.
But this, you know, this is the effect of making that
decision.''
So, it is a mix. It is a mixed response.
I would say, part of our optimism comes from the fact that,
over the last five or six years, we have been much more in step
with what the Department's top leadership----
Mr. Marshall. I am going to run out of time. It would be
very helpful to me, perhaps to the committee, to have some
concrete examples of that, that you think reflect fairly the
difference of opinion between program managers and GAO with
regard to how things should evolve. That would be very helpful.
Mr. Dodaro. Sure. We would be happy to provide that.
[The information referred to was not available at the time
of printing.]
The Chairman. Mr. Wilson.
Mr. Wilson. Thank you, Mr. Chairman.
I am Joe Wilson from South Carolina and appreciate very
much your service and the extraordinarily difficult challenge.
I am very grateful that I have three Michelin plants located in
the district I represent. South Carolina is home to
extraordinary French investments.
And a success story that you have been responsible for is
the tire privatization program. And Michelin was successful in
the competitive contract, working together with Goodyear as a
subcontractor, providing the aviation and ground tires to the
American military.
And there are specifics here that are extraordinary, that I
think the American public would be reassured to know. And that
is that aviation tires are provided with a delivery time of 3.3
days, with the allowable standard of 9.2 days, and an on-time
delivery of 98.9 percent of the time. And for ground tires, the
delivery is 3.7 days with a standard of 8.8 days, and 94
percent delivery rate time.
Additionally the Defense Logistics Agency has indicated
this saves the American taxpayers $170 million. And to me, it
is very significant for the health and safety of our service
members, but it also provides for protection and advancement of
our industrial base here within the United States.
My question is that in July 2008, DOD released its
Logistics Roadmap to guide improvement efforts in the area of
logistics, including the supply chain management. Will the road
map be effective in helping DOD to substantially improve supply
chain management?
Mr. Dodaro. The road map, from our perspective, was a good
first step, but it will not be effective unless they make
several changes. One is that the road map needs to address
additional, significant gaps that we see that need to be
addressed. It does not include performance measures, and it
needs to. The Department has recognized some of these
shortcomings and is beginning to work on them.
But I would ask Janet if she has any additional points.
Ms. St. Laurent. Yes. The road map, the current version of
it, is also the latest version of a plan to improve supply
chain and logistics issues. So, I think the challenge for the
new administration in place is to make the further improvements
on it that Gene talked about--identify the gaps, prioritize the
gaps, identify the associated funding, identify the performance
measures--and then move out to implement the most important
aspects of the initiatives in that plan.
There have been numerous similar plans that preceded this
current version of the Logistics Roadmap. So, that is why,
again, this issue has been on our high-risk list for a number
of years. And what really needs to happen at this point is the
focus on achieving outcomes and being able to demonstrate
within the next couple of years some key successes.
Mr. Wilson. And I appreciate your bringing up the
successes.
Additionally, a concern all of us have are cost overruns.
And it has been a situation where contractors are under-
bidding, low-balling their cost estimates to receive the
contract, so that they will have the contract. And then, from
there, there are modifications to the contract, which are
obviously much, much higher.
Is there some process where low-balling could be avoided or
eliminated?
Mr. Dodaro. You know, one of the issues in best practices
is to have independent cost estimates along the way, so you
have benchmarks against the bids that are in. And we think that
is one suggestion that has a lot of merit.
Mr. Wilson. And I can see a real need for it, based on the
Littoral Combat Ship (LCS), which was estimated to cost $220
million, and that bids were processed on that. But it has come
back at half-a-billion.
And so, I hope with your expertise and efforts that this
can be addressed about low-balling, under-bidding, and the
reforms that are necessary.
And so, thank you again for your service.
Mr. Dodaro. Thank you.
The Chairman. Thank you.
Mr. Kissell.
Mr. Kissell. Thank you, Mr. Chairman.
I think this is an incredibly important subject matter. And
normally, I really do ask questions without a lot of preamble.
But I think today, as I sit and listen, I think preamble is
what I need to do.
And Mr. Bartlett started out with an adage, and I am going
to start with one, too. The last seven years before coming
here, I was a high school social studies teacher. And as
teachers tend to do, I had a little sign in my classroom. And
one of the ones that I had that I called to attention a lot is,
``Insanity is expecting different results, while continuing to
do the same thing.''
And as I sit here and listen today to the words of
procedures, and lack of procedures, and a lack of consequences,
and that certain issues are staying on the table for 20 years,
it seems to me that we have a lot of doing the same thing while
wanting results.
I also want to point out, which was mentioned earlier, and
I was in a hearing earlier this week that this was greatly
emphasized, were services are 60 to 65 percent of the
expenditures.
And I happened to have another conversation this week with
a gentleman who is in the construction business. They do $600-
$700 million a year. But the complexity of bidding on
Department of Defense contracts is so much that they just will
not do it anymore. Which, in itself, tends to eliminate all but
certain groupings.
So, all of that said, it obviously is very important, Mr.
Chairman, and we do not want to do this in a way that is a
knee-jerk reaction. But it seems to me that consequences has to
be a very important part of what we are doing.
And before I taught, I spent 27 years in industry. And we
always went to the people who did the job every day, to ask
them for their opinions before we did anything. And sometimes I
wonder, are we doing enough of talking to the people that make
this work day to day.
And as Mr. Bartlett also said, are we having a system and
supporting a system where we encourage them to hide?
And so, I am finally leading to a question. And I apologize
for this rambling, but I think I just--it is important
sometimes to kind of have an understanding of where this is
coming from.
Do we have functioning and well-understood ways that
people, when they see that these procedures are not being
followed, where people can offer suggestions? Or is that part
of the complex that we tend to cover up, so that we do not draw
attention to people?
Mr. Dodaro. I think that the issue that you are raising is
an important one.
The people, the program managers, say, for the weapons
systems, really do not have any ability to make any decisions
in that process. And there needs to be, I think, probably
greater incentive for them to raise some of the issues up
through the system.
But I would ask Katherine to elaborate on that point. But I
appreciate your prologue, and it was not rambling. Plus, my
father is a social studies teacher, so I understand.
Katherine.
Ms. Schinasi. I am not sure I have an answer for you, but I
will agree. And one of the things that we try and do in our
work is find success, and try and find people who are doing
things to manage the system and manage the process, instead of
letting the process manage them, and to highlight that, because
it helps us to show things can be done differently, because
some people have stepped up to do that. But we do not find that
many examples.
Mr. Dodaro. But I think your focus on saying that
consequences are important is really a key element. But in
implementing that, there has to be not only putting
accountability and consequences, but you have to have a
constructive, open line of communication there, because you
could incentivize and make things worse, unless you have that
ability to do what you are talking about, to have open
disagreements, if you will, or people can raise issues up
without fear of having problems.
Mr. Kissell. Thank you.
Thank you, Mr. Chairman.
The Chairman. I have remaining Mr. Taylor and Ms. Bordallo.
Mr. Taylor.
Mr. Taylor. Thank you, Mr. Chairman.
I want to thank our witnesses.
Mr. Dodaro--is that correct?
Mr. Dodaro. That is.
Mr. Taylor. A couple of things I would like you to comment
on. Mr. Wilson mentioned the LCS program, and it has got to be
right up there amongst the poster children of just absolutely
waste of taxpayer money--no effort to take advantage of any
economies at any step, whether it is on acquisition,
modernization.
It is like we are going to send the government a bill. We
will send them a bigger bill. They are going to keep paying it,
because we have got them where we want them.
Having said that, I have been lucky enough to serve at the
city level, the state level, and now here. I know that cities
and states very often require performance bonds on a project.
Whether it is a building, a highway, a sewer and water
line, they see to it that whoever bids on that posts a
performance bond. And that way, if the contractor fails to do
it properly, if he fails to do it on time, that the city gets
the money that they would have squandered, back.
I realize that there is a cost associated with a
performance bond. But when a program like the LCS program is
two-and-a-half times over the initial budget, even a 20 percent
premium on the performance bond would have you way ahead at the
end of the day.
My question to you is, has your organization--and I am not
a fan of the insurance industry by any means, but there is a
place for that industry--has anyone in your organization looked
into when the last time we required that, and whether or not it
would be worthwhile now?
Mr. Dodaro. Let me just check.
Apparently, we do not have an answer for it that----
Mr. Taylor. Can I ask you to do that?
Mr. Dodaro. We will look at it.
[The information referred to can be found in the Appendix
beginning on page 67.]
Mr. Taylor. It is not just that program. It is the Coast
Guard ruining the 110/123 conversions, 8 ruined ships, $80
million that Bollinger shipbuilding got to ruin 8 ships, so
that you had the value of the 110s before they were ruined
going on top of the $80 million. That is a lot of money
squandered, that maybe a performance bond could have prevented.
The second thing I would ask you to look at is, I
understand you are concerned about buying spare parts we do not
need. I understand you are concerned about buying,
historically, commodities we do not need.
But the world has changed so dramatically with things like
computer-assisted drafting, where before--if it is done right--
before you ever start an airplane, before you ever start a
ship, you are going to know exactly how many pieces you are
going to need, what shapes they are going to be, how many of
them there are, where every single one of them is going to go.
I mean, I could take you to the Maersk shipyard or the
Hyundai shipyard. And they literally, as a piece of steel is
rolled into that yard, hit it with a barcode, and they will
show you on the laptop exactly on that 1,000-foot ship where
that one piece of steel is going to be, which machines it is
going to pass over, in which sequence, as it is molded to the
right shape.
So, you know, the idea of buying stuff we do not need does
not have to happen.
The reason I say all this is, it has recently come to my
attention that the price of aluminum is half of what it was two
years ago. The price of steel is less than half of what it was
two years ago. The price of titanium is down a third from two
years ago.
Who, if anyone, in your organization is encouraging people,
for us as a Nation, to be countercyclical in our acquisitions
on those things we know we are going to buy? C-130s, DDG-51s--
not the risky programs that may not survive, but the ones we
know we buy every year.
Who in your organization is going to them saying, you know
what? We need to be aggressive. We need to tie down some
contracts right now, while these suppliers are desperate for
work. We can get good prices, and we know we can get them. By
the way, we can keep them in business, and we can save the
taxpayers a lot of money.
Mr. Dodaro. Yes, we--that is not a normal function we would
do. I would talk----
Mr. Taylor. Well, Mr. Dodaro.
Mr. Dodaro. Yes----
Mr. Taylor. I know it is not a normal function.
Mr. Dodaro. Right, right.
Mr. Taylor. But these are not normal times, and you would
hope that you are the organization that is providing some
insight to the other organizations of how they ought to be
doing things better.
Mr. Dodaro. Right. Well, we can certainly raise the
question to the Department, to see if it is looking at the
issues that you are talking about, and making some decisions.
We do not want to insert ourselves as a management function,
Congressman.
But we can and we will follow up to see if they are
considering these issues, and as part of their normal
management process.
[The information referred to can be found in the Appendix
on page 68.]
Mr. Taylor. Well, those are two things that I very much
want to pursue.
Mr. Dodaro. Okay.
Mr. Taylor. I am open-minded on both of them, so I am
asking you to look into them and get back to us and say whether
or not you think this would be a good idea, and for what
reason--or whether or not you think it is a bad idea, and for
what reason.
Mr. Dodaro. Okay. We will do that.
Mr. Taylor. Thank you. Thank you, Mr. Chairman.
The Chairman. Would you make your answer to both of those
inquiries to the entire committee? We would appreciate that.
Mr. Dodaro. Well, that is our normal procedure, Mr.
Chairman. I would be happy to.
The Chairman. You bet. Thank you.
Ms. Bordallo.
Ms. Bordallo. Thank you very much, Mr. Chairman.
I was not going to ask a question, but I came here, because
I was very interested in the subject matter.
With the impending military buildup occurring in my area,
on Guam, the movement of 8,300 Marines from Okinawa at the cost
of $14 billion, I can see where many of the high-risk areas, at
least--maybe not many, but a few of them--on your list would
certainly be involved in our buildup.
And I want to bring up the fact that this is probably one
of the largest military relocations of a base in the history of
the military. And our chairman, Mr. Skelton, and several
members here on the Armed Services Committee, just visited the
area, both Guam and Okinawa.
And I would like to repeat what our chairman says. We want
to do this, and we want to do it right.
So, I am curious. Are you aware of this buildup that is
occurring? And things are already going on, contracting and
that type of thing.
Could you give me some----
Mr. Dodaro. Yes. We are well aware of it. We have been
asked to do quite a bit of work as it relates to the Guam
situation. I will let Janet talk about what we know, and what
we are currently doing.
Ms. St. Laurent. We have three engagements going on right
now, or studies, that are focused on various aspects of the
buildup on Guam. And also, we are doing a lot of work worldwide
to look at global reposturing.
But specifically, we have an engagement looking at the
utilities issues and how the Navy is going to meet those needs,
working with Guam, the government of Guam. And I think you are
well aware of that one.
We are also monitoring and looking at the overall costs
associated with the buildup, how those cost estimates are
changing, all of the military players involved.
Again, as you mentioned, this is going to be a complex move
involving all of the services. There is a joint effort being
done by the services to do the planning in a coordinated
fashion, and we are looking at how that is going.
And then third, we also have another effort underway that
is focused on how the federal agencies are coordinating, again,
with the government of Guam, to look at any further
enhancements in infrastructure that may be needed, and how
those issues are going to be addressed.
Ms. Bordallo. All right. I do want to thank you. I am just
concerned, because I have said over and over in this committee
during hearings, that we are going to be monitoring this
process as it goes along. And hopefully, contracting and all of
that will be very transparent.
And I do not want to be sitting here later on and hear that
there were all kinds of abuses with this move.
So, I want to thank you again.
And I want to especially thank our chairman here, who has
been very interested in this movement. And as he says, and I
say now, I quote him, let us do it, and let us do it right.
So, thank you.
Thank you, Mr. Chairman.
The Chairman. Certainly thank the gentlelady.
Is there any member that wishes to ask additional questions
while we have this panel before us?
Are there any additional questions?
Well, we thank each one of you. And Mr. Dodaro, it is just
excellent testimony, as usual. We look forward to your answers,
specifically to Mr. Taylor's questions. And we look forward to
working with you.
We have, as you know, and it has been mentioned earlier, a
panel on acquisition reform. And I am sure we will call upon
your expertise to be of assistance in that.
Without further ado, thank you.
[Whereupon, at 11:32 a.m., the committee was adjourned.]
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WITNESS RESPONSES TO QUESTIONS ASKED DURING
THE HEARING
March 12, 2009
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RESPONSE TO QUESTION SUBMITTED BY MR. SKELTON
Mr. Dodaro. Over the past several years, we have performed work on
issues related to the cost of pharmaceuticals, including the
relationship between DOD and VA. (In submitting my written responses
for the record, I will also provide copies of any products cited in my
response.) For example, in May 2000, we testified that VA and DOD could
save millions of dollars by expanding their use of joint contracts for
pharmaceuticals (See GAO/T-HEHS-00-121). In a subsequent report in May
2001, we found that VA and DOD had made important progress in
leveraging joint purchasing power for pharmaceuticals by expanding the
number of joint pharmaceutical contracts (See GAO-01-588). At the time,
most of their joint contracts were for generic drugs. We concluded that
more significant cost reductions could be realized through joint
procurement of high-cost brand name drugs, although we noted that DOD
and VA faced challenges to do so. We recommended, among other things,
that VA and DOD include information on ongoing and planned joint
contracts in an annual report to the Congress, which they did most
recently in February 2009.\1\ This report notes that there were 59 VA
and DOD joint national contracts for the first three quarters of fiscal
year 2008, resulting in $115 million in cost avoidance.
---------------------------------------------------------------------------
\1\ VA/DOD Joint Executive Council, Annual Report Fiscal Year 2008,
(Washington, D.C.: Feb. 2009).
---------------------------------------------------------------------------
We also reported in June 2005 on a pilot program for DOD to use
VA's mail order pharmacy to dispense outpatient refill prescriptions
(See GAO-05-555). We noted that DOD's costs were much higher when
beneficiaries used retail pharmacies than when they used military
treatment facility pharmacies or mail order options. In addition, we
concluded that DOD could achieve cost savings at very high levels of
beneficiary satisfaction by delivering drugs to beneficiaries using the
VA's mail order pharmacy rather than military treatment facility
outpatient refill operations. In 2008, we reported that DOD's drug
spending had more than tripled from fiscal year 2000 to fiscal year
2006, and that retail pharmacy spending drove most of this increase. We
noted that the growth in retail spending reflected the fact that
federal pricing arrangements, which generally result in prices lower
than retail prices, were not applied to drugs dispensed at retail
pharmacies during this time. However, we noted that future growth in
retail pharmacy spending may slow as the National Defense Authorization
Act for Fiscal Year 2008 required that federal pricing arrangements be
applied to drugs dispensed at retail pharmacies.\2\ We recommended that
DOD monitor the effect of federal pricing arrangements for drugs
dispensed at retail pharmacies along with ongoing efforts to limit
pharmacy spending to determine the extent to which they reduce the
growth in retail pharmacy spending, and to identify, implement, and
monitor other efforts as needed to reduce the growth in retail pharmacy
spending (See GAO-08-327). DOD stated that it concurred with these
recommendations. [See page 9.]
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\2\ Pub. L. No. 110-181, Sec. 703(a)(2), 122 Stat. 3, 188 (codified
at 10 U.S.C. Sec. 1074g(f)).
---------------------------------------------------------------------------
[The GAO reports referred to above are retained in the committee
files and can be viewed upon request.]
______
RESPONSES TO QUESTIONS SUBMITTED BY MR. TAYLOR
Mr. Dodaro. Although we have not done audit work looking at
performance bonds on DOD contracts, we are familiar with the use of
this tool. Just like many cities and states, the federal government
provides for the use of performance bonds on construction contracts. In
this regard, the Miller Act requires performance bonds for any
construction contract exceeding $100,000.\3\ The bond is intended to
assure fulfillment of the contractor's obligations under the contract
by providing for payment of a penal amount to the government in the
event of nonperformance. In general, the penal amount of the
performance bond is equal to the amount of the contract.
---------------------------------------------------------------------------
\3\ 40 U.S.C. Sec. Sec. 3131 to 3134 (2007).
---------------------------------------------------------------------------
The FAR provides, however, that agencies generally should not
require performance bonds for other than construction contracts. The
exceptions to this general prohibition for the most part involve
situations in which the government is providing property or other
assets to the contractor early in the performance of the contract.
The rationale for the general prohibition on the use of performance
bonds outside the construction area is based on a number of factors.
First, unlike construction contracts that are structured around well-
defined specifications, contracts for weapon system development such as
for the Littoral Combat Ship often lack fixed objective specifications.
Second, the length of time for which a surety is willing to issue a
bond is typically less than two years, far shorter than most weapon
system development projects. Third, the cost of obtaining a performance
bond would be reflected in the contract price paid by the government.
This means the government would be paying higher prices on all
contracts requiring a bond even though only a small percentage of the
contractors might fail to perform to contract requirements. And
finally, the government has other means available to it to ensure good
contract performance. Chief among these is the requirement in the FAR
that the government do business only with responsible contractors. For
all contracts, the contracting officer must make an affirmative
determination that the prospective contractor has adequate financial
resources, is able to meet schedule, has a satisfactory performance
record, and is otherwise equipped to perform all contract requirements.
[See page 26.]
Mr. Dodaro. We have contacted the cognizant office within the
department, the Director, Defense Procurement and Acquisition Policy,
within the office of the Undersecretary for Acquisition, Technology and
Logistics. We have conveyed Congressman Taylor's concern over the issue
of countercyclical purchases of materials when they are in the best
interests of the government, as well as the need to be aggressive in
taking advantage of such opportunities. The Director replied that this
issue has been discussed within the department and that he is taking
steps to have the Defense Contract Management Agency pursue
countercyclical purchases. He noted that enhancing the Defense Contract
Management Agency's capacity in this area is one component of the
department's overall workforce initiative. [See page 27.]
?
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QUESTIONS SUBMITTED BY MEMBERS POST HEARING
March 12, 2009
=======================================================================
QUESTIONS SUBMITTED BY MR. SMITH
Mr. Smith. Many of the systems on your list are software-intensive
IT systems. In your analysis, did you find common characteristics that
typify high-risk IT efforts from more successful programs?
Mr. Dodaro. One of the more formidable challenges to addressing the
business systems modernization high risk area is ensuring that the
thousands of DOD business system programs and projects and IT services
employ acquisition management rigor and discipline. This is because our
work has shown that DOD has implemented acquisition management controls
on large business system investments to varying degrees of
effectiveness. In the last year, our reviews of major defense business
system acquisitions have disclosed patterns of system-specific
management weaknesses, including:
not economically justifying investments on the basis of
reliable estimates of future costs and benefits, which increases the
risk that the department is not pursuing the most cost effective
solutions for satisfying its business mission needs;
not pursuing investments within the context of an
enterprise architecture, which increases the risk of system
implementations that are duplicative and not well integrated;
not adequately defining and controlling system
requirements, which increases the risks of producing a system that
cannot be effectively tested and does not meet expectations;
not proactively managing acquisition risks, which results
in potential cost, schedule, and performance problems becoming actual
problems; and
not sufficiently testing system functions and
performance, which increases the chances of developed and deployed
capabilities not performing as intended and not meeting users
operational needs.
Until DOD addresses these characteristics of ``at risk''
acquisitions, it will be severely challenged in its ability to ensure
that its system investments are the right solutions for addressing its
business needs, that they produce expected capabilities and mission
benefits, and that stakeholders are satisfied.
Mr. Smith. Because the time cycle for technology development and
refresh are so different, major automated information systems have
different developmental needs compared to traditional hardware
acquisition programs. Do you feel that the new DOD 5000 acquisition
directives adequately address the specific challenges for IT systems?
If so, what changes would you recommend?
Mr. Dodaro. Based on our prior work, DOD has taken some action
consistent with our recommendations, but additional steps are needed to
address the challenges for IT systems. (In submitting my written
responses for the record, I will also provide copies of the cited
products). Specifically, in 2004, we reported that DOD's 5000
acquisition directive and guidance were consistent with some, but not
all, key acquisition practices for IT systems (See GAO-04-722).
Specifically, while the policies and guidance largely incorporated the
best practices that are relevant to any business systems acquisition,
they did not incorporate key best practices that relate to acquiring
commercial component-based business systems. For example, they included
the requirement that acquisitions be economically justified on the
basis of costs, benefits, and risks. However, they did not address
basing any decision to modify commercial components on a thorough
analysis of the impact of doing so, and they did not address preparing
system users for the business process and job roles and
responsibilities changes that are embedded in the functionality of
commercial products. Moreover, they did not contain sufficient controls
to ensure that DOD organizations appropriately follow the best
practices that are incorporated in the department's policies and
guidance.
DOD has since revised its 5000 acquisition guidance to incorporate
some of these practices. For example, they now provide for conducting
an analysis of lifecycle costs and benefits before modifying commercial
components. However, they do not yet incorporate provisions for
measurement and verification that the best practices provided for are
appropriately followed. Moreover, DOD's Business Transformation Agency,
which is responsible for leading and coordinating, among other things,
acquisition of business systems across the department, has recognized
the need for an acquisition management approach that reflects the
unique characteristics of major automated information systems.
Specifically, it has drafted a lifecycle management methodology,
referred to as the Business Capability Lifecycle that provides an
approach for acquiring business systems. However, this methodology has
been in draft for about two years and has yet to be approved or fully
implemented. Our May 2009 report reiterates existing recommendations
and includes new recommendations to address the business systems
modernization high risk area (See GAO-09-586). These recommendations
are aimed at strengthening institutional controls and ensuring that
these controls are implemented on each and every business system
investment.
For example, at the institutional level, DOD still needs to:
extend (federate) DOD's corporate business enterprise
architecture and related transition plan to its component organizations
and ensure that it reflects the department's complete investment
portfolio; and
evolve the department's corporate and component business
system investment management processes and ensure that they are
institutionalized at all levels of the organization.
At the program-level, DOD still needs to ensure that the thousands
of DOD business system modernization and IT services programs and
projects employ program management rigor and discipline, to include:
economically justifying investments on the basis of
reliable estimates of future costs and benefits;
pursuing investments within the context of an enterprise
architecture; and
adequately conducting key acquisition functions, such as
requirements management, risk management, test management, performance
management, and contract management.
DOD has largely agreed with GAO's recommendations aimed at
improving these institutional and program-specific controls and
described either commitments or actions being planned or under way to
address them.
[The GAO reports referred to above are retained in the committee
files and can be viewed upon request.]
______
QUESTIONS SUBMITTED BY MR. MURPHY
Mr. Murphy. Why are contractors who have a track record of
providing substandard services because of the failure to maintain a
well-trained and stable workforce continuing to receive additional
government contracts?
Mr. Dodaro. The federal government has tried for many years to find
a way to give appropriate weight to firms' track record in selecting
firms for new contracts. Today, agencies are required to consider past
performance in selecting contractors, but, as discussed below, it is
only one of a number of factors they consider. In addition, while a
seemingly simple concept, using past performance information in source
selections can be complicated in practice. Further, we recently
identified several underlying problems that limit the usefulness of
information in the government's past performance database for
governmentwide sharing.
The government contracting process provided under the Federal
Acquisition Regulation (FAR) requires consideration of contractor
performance at multiple points:
Source selection: Past performance is required to be an
evaluation factor in selecting contractors, along with factors such as
price, management capability, and technical approach to the work.\1\
Although past performance must be a significant evaluation factor in
the award process, agencies have broad discretion to set the precise
weight to be afforded to past performance relative to other factors in
the evaluation scheme.
---------------------------------------------------------------------------
\1\ Agencies are required to consider past performance in all
negotiated procurements above the simplified acquisition threshold of
$100,000 and in all procurements for commercial goods or services.
Responsibility determinations: Prior to the award of a
contract the contracting officer must make an affirmative determination
of responsibility regarding the prospective contractor. One of the
factors a contracting officer must consider in making this
determination is the prospective contractor's ability to perform the
contract. This includes, for example, whether the prospective awardee
---------------------------------------------------------------------------
has a satisfactory performance record on prior contracts.
Surveillance under the current contract: Once a contract
is awarded, the government monitors a contractor's performance
throughout the life of the contract. This record of performance will
generally be one of the evaluation factors considered by the government
when evaluating and awarding future contracts.
Debarment: To protect the government's interests,
agencies can debar, that is preclude, contractors from receiving future
contracts for various reasons, including serious failure to perform to
the terms of a contract.
DOD has issued additional guidance on the use of past performance
data during contract award and what systems will be used to store and
retrieve past performance data. For example, DOD offers instructions on
using past performance in source selection and contractor
responsibility determinations through the Defense Federal Acquisition
Regulation Supplement and related Procedures, Guidance, and
Information. DOD's Office of Defense Procurement and Acquisition Policy
also made available a guide that provides more detailed standards for
the collection and use of past performance information, including
criteria applicable to various types of contracts.
We recently assessed federal agencies' use of past performance
information and the challenges that hindered the systematic sharing of
past performance information.\2\ We found that the lack of
accountability or incentives at agencies to document assessments in the
government's past performance information system, a lack of standard
evaluation factors and rating scales across agencies, and a lack of
central oversight to ensure the adequacy of information fed into the
system limited the usefulness of information for governmentwide
sharing. We made several recommendations to the Office of Federal
Procurement Policy aimed at improving the sharing and use of past
performance information in contract award decisions. We also
recommended that the agencies we reviewed establish management controls
and appropriate management review of past performance evaluations to
improve management and accountability for documenting contractor past
performance information. The Office of Federal Procurement Policy and
the agencies agreed with our recommendations. In addition, most of
these agencies outlined plans or actions to implement our
recommendation on management controls and reviews of past performance.
---------------------------------------------------------------------------
\2\ GAO, Federal Contractors: Better Performance Information Needed
to Support Agency Contract Award Decisions, GAO-09-374 (Washington,
D.C.: April 23, 2009).
---------------------------------------------------------------------------
Mr. Murphy. In your opinion, do you believe that by incorporating
measures that allow procurement officers to evaluate the treatment of
those employees that will be performing the contract we can obtain
contracts that better service the needs of the government and the
American people?
Mr. Dodaro. Contracting officers are to consider a number of
factors such as price, quality of the product or service, and past
performance when awarding government contracts. As part of the quality
of the product or service the government considers one or more non-cost
evaluation factors such as technical excellence, management capability,
and personnel qualifications. Contracting officers have broad
discretion in the selection of evaluation factors used in assessing the
relative merit of competing proposals for contracts for the procurement
of goods and services, and a contractor's treatment of its employees
can thus be used as an evaluation factor. In addition to evaluation
factors, which are set out in a solicitation and used in the selection
of the apparent winner of the competition for a contract, another issue
relevant to your question is the determination of ``responsibility.''
Before an apparently successful firm can actually be awarded the
contract, the contracting officer must determine that the firm is
``responsible,'' a term of art that means, among other things, that the
contractor:
has adequate financial resources to perform the contract,
or the ability to obtain them;
be able to comply with the required or proposed delivery
or performance schedule, taking into consideration all existing
commercial and governmental business commitments;
has a satisfactory performance record;
has a satisfactory record of integrity and business
ethics;
has the necessary organization, experience, accounting
and operational controls, and technical skills, or the ability to
obtain them;
has the necessary production, construction, and technical
equipment and facilities, or the ability to obtain them; and
is otherwise qualified and eligible to receive an award
under applicable laws and regulations.
A contractor's treatment of its employees is not a required
evaluation factor nor is it necessarily considered by contracting
officers in responsibility determinations. We have not done work that
assessed the merits of the use of such a factor either in source
selection or responsibility determinations.
Mr. Murphy. Do you believe that by encouraging the selection of
responsible contractors who employ a stable and well-trained workforce,
the procurement process would better serve the needs of the government
and the American people?
Mr. Dodaro. In general, the selection of responsible contractors
who employ a stable and well-trained workforce can help contribute to
meeting the needs of the government and the American people. The
stability and training of the contractors workforce are, however, not
the only criteria used in selecting contractors, as explained above.
Moreover, the government's selection of qualified contractors is just
one of many factors associated with the performance of a successful
acquisition. Other factors include, for example (1) the development of
well-defined requirements; (2) the use of an appropriate contract type;
(3) selection of a responsive and responsible contractor; and (4)
proper government oversight of contractor performance. We have reported
on DOD's contract management challenges in these four areas, which
contribute to unmet expectations and continue to place the department
at risk of potentially paying more than necessary for contracted
services.
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