<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:24241.wais] S. Hrg. 109-246 THE DEFENSE TRAVEL SYSTEM: BOON OR BOONDOGGLE? ======================================================================= HEARING before the PERMANENT SUBCOMMITTEE ON INVESTIGATIONS of the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION ---------- SEPTEMBER 29, 2005 ---------- Printed for the use of the Committee on Homeland Security and Governmental Affairs S. Hrg. 109-246 THE DEFENSE TRAVEL SYSTEM: BOON OR BOONDOGGLE? ======================================================================= HEARING before the PERMANENT SUBCOMMITTEE ON INVESTIGATIONS of the COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION __________ SEPTEMBER 29, 2005 __________ Printed for the use of the Committee on Homeland Security and Governmental Affairs U.S. GOVERNMENT PRINTING OFFICE 24-241 WASHINGTON : 2006 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS SUSAN M. COLLINS, Maine, Chairman TED STEVENS, Alaska JOSEPH I. LIEBERMAN, Connecticut GEORGE V. VOINOVICH, Ohio CARL LEVIN, Michigan NORM COLEMAN, Minnesota DANIEL K. AKAKA, Hawaii TOM COBURN, Oklahoma THOMAS R. CARPER, Delaware LINCOLN D. CHAFEE, Rhode Island MARK DAYTON, Minnesota ROBERT F. BENNETT, Utah FRANK LAUTENBERG, New Jersey PETE V. DOMENICI, New Mexico MARK PRYOR, Arkansas JOHN W. WARNER, Virginia Michael D. Bopp, Staff Director and Chief Counsel Joyce A. Rechtschaffen, Minority Staff Director and Chief Counsel Trina D. Tyrer, Chief Clerk PERMANENT SUBCOMMITTEE ON INVESTIGATIONS NORM COLEMAN, Minnesota, Chairman TED STEVENS, Alaska CARL LEVIN, Michigan TOM COBURN, Oklahoma DANIEL K. AKAKA, Hawaii LINCOLN D. CHAFEE, Rhode Island THOMAS R. CARPER, Delaware ROBERT F. BENNETT, Utah MARK DAYTON, Minnesota PETE V. DOMENICI, New Mexico FRANK LAUTENBERG, New Jersey JOHN W. WARNER, Virginia MARK PRYOR, Arkansas Raymond V. Shepherd, III, Staff Director and Chief Counsel C. Jay Jennings, Senior Investigator Elise J. Bean, Minority Staff Director and Chief Counsel Mary D. Robertson, Chief Clerk C O N T E N T S ------ Opening statements: Page Senator Coleman.............................................. 1 Senator Coburn............................................... 5 Senator Levin................................................ 18 Senator Carper............................................... 19 WITNESSES Thursday, September 29, 2005 Hon. Charles Grassley, a U.S. Senator from the State of Iowa..... 3 Thomas A. Schatz, President, Citizens Against Government Waste... 8 Robert Langsfeld, Partner, The Corporate Solutions Group, Menlo Park, California............................................... 9 Thomas F. Gimble, Acting Inspector General, U.S. Department of Defense........................................................ 25 Scott A. Comes, Director, Strategic and Information Programs Division, Program Analysis and Evaluation, U.S. Department of Defense........................................................ 27 McCoy Williams, Director, Financial Management and Assurance, U.S. Government Accountability Office.......................... 28 Zack E. Gaddy, Director, Defense Finance and Accounting Service, U.S. Department of Defense..................................... 29 Alphabetical List of Witnesses Comes, Scott A.: Testimony.................................................... 27 Gaddy, Zack E.: Testimony.................................................... 29 Prepared statement........................................... 93 Gimble, Thomas F.: Testimony.................................................... 25 Prepared statement........................................... 60 Grassley, Hon. Charles: Testimony.................................................... 3 Langsfeld, Robert: Testimony.................................................... 9 Prepared statement with attachments.......................... 49 Schatz, Thomas A: Testimony.................................................... 8 Prepared statement........................................... 41 Williams, McCoy: Testimony.................................................... 28 Prepared statement........................................... 65 EXHIBITS 1. GThrough the Looking Glass, a Citizens Against Government Waste Special Report: Defense Travel System: The Twilight Zone of Travel, September 28, 2004.................................. 100 2. GReport of The Corporate Solutions Group, eTravel/DTS Fare Audit, Task ``A,'' Report and Findings, Executive Summary, Revision III, May 5, 2005...................................... 115 3. GReport of The Corporate Solutions Group, eTravel/DTS Fare Audit, Task ``A,'' Report and Findings, Revision IV, May 5, 2005........................................................... 121 4. GReport of The Corporate Solutions Group, eTravel/DTS Fare Audit, Task ``B,'' Report and Findings, Revision I, April 18, 2005........................................................... 246 5. GDepartment of Defense Inspector General Report, Allegations to the Defense Hotline on the Management of the Defense Travel System, July 1, 2002........................................... 307 6. GDepartment of Defense Program Analysis and Evaluation (PA&E) Division Report, Defense Travel System Cost Effectiveness Review, December 2002.......................................... 356 7. GDepartment of Defense Project Management Office rebuttal to DOD PA&E'S December 2002 Report, Defense Travel System Cost Effectiveness Review........................................... 373 8. GCorrespondence from David S. C. Chu, Under Secretary of Defense, to The Honorable Norm Coleman, Chairman, Permanent Subcommittee on Investigations, dated September 29, 2005, regarding Defense Travel System................................ 375 9. GResponses to supplemental questions for the record submitted to Thomas Schatz, President, Citizens Against Government Waste. 376 10. GResponses to supplemental questions for the record submitted to Robert Langsfeld, Partner, The Corporate Solutions Group.... 377 11. GResponses to supplemental questions for the record submitted to Thomas F. Gimble, Acting Inspector General, U.S. Department of Defense..................................................... 381 12. GResponses to supplemental questions for the record submitted to McCoy Williams, Director, Financial Management and Assurance, Government Accountability Office.................... 386 13. GResponses to supplemental questions for the record submitted to Dr. Scott A. Comes, Director, Strategic and Information Programs Division, Program Analysis and Evaluation, U.S. Department of Defense.......................................... 391 THE DEFENSE TRAVEL SYSTEM: BOON OR BOONDOGGLE? ---------- THURSDAY, SEPTEMBER 29, 2005 U.S. Senate, Permanent Subcommittee on Investigations, Committee on Homeland Security and Governmental Affairs, Washington, DC. The Subcommittee met, pursuant to notice, at 10:02 a.m., in room 342, Dirksen Senate Office Building, Hon. Norm Coleman, Chairman of the Subcommittee, presiding. Present: Senators Coleman, Coburn, Levin, and Carper. Staff Present: Raymond V. Shepherd, III, Staff Director and Chief Counsel; C. Jay Jennings, Senior Investigator; Leland Erickson, Counsel; Mary D. Robertson, Chief Clerk; Melissa Stalder, Intern; Melissa Audick, Intern; and Peter Levine (Senator Levin/Armed Services Committee). OPENING STATEMENT OF CHAIRMAN COLEMAN Senator Coleman. This hearing of the Permanent Subcommittee on Investigations is called to order. Our first witness will be Senator Grassley. What I am going to do is begin my opening statement, but when my colleague comes, we always defer to the Chairman of the Finance Committee and we will have him give his statement and then move on to the other panels. I should also note that we have a vote at 11--I will have to leave at 11:15. We need to be in our seats by 11:20 and then a vote on the Roberts nomination at 11:30, so I will adjourn the hearing and after that vote, we will reconvene and finish up the testimony. So we will be adjourning at 11:15. Good morning and thank you for attending today's hearing. Nobel Prize winning economist Milton Friedman once stated, ``Governments never learn, only people learn.'' I disagree. My job as Chairman of the Permanent Subcommittee on Investigations is to ensure that our government learns as well. Simply put, that is why we are having this hearing, ``The Defense Travel System: Boon or Boondoggle?'' It follows from other investigations this Subcommittee has held on Defense Department waste, fraud, and abuse. In November 2003, this Subcommittee conducted a hearing on the Department of Defense's use of first and business class airline travel. At the hearing, it was determined that DOD had not properly authorized or justified 73 percent of the first and business class travel undertaken in the fiscal years 2001 and 2002. DOD spent $124 million on over 68,000 tickets during these 2 years. The improper authorization and justification of these tickets resulted in the improper expenditure of over $60 million in 2 years. On February 12, 2004, the Subcommittee held a hearing on ``DOD Contractors Who Cheat on Their Taxes.'' The hearing examined the failure to collect unpaid taxes owed by contractors doing business with the Department of Defense and getting paid with taxpayer dollars. The Subcommittee determined that 27,000 DOD contractors owed $3 billion in unpaid taxes. The taxes were not collected because DOD was not validating contractors' taxpayer numbers and was not referring contractor payments to the Financial Management Service to identify unpaid tax debt. This hearing is designed to determine if DTS is the windfall to DOD travel that it was promised to be or simply a waste of taxpayers' money. I have repeatedly asked DOD about DTS because there are credible allegations that DTS has very serious problems. Specifically, I have heard that DTS is 4 years behind schedule; is deployed to barely half of the 11,000 DOD travel sites; has grown in cost from $273 million to $500 million--and even for government that is a lot of money--it does not identify the lowest available airline fares; it does not identify all available lodging facilities that offer government rates; and has not generated the projected cost savings for travel agent services and voucher processing. I am particularly concerned with DOD's failure to realize the projected cost savings for travel agent services. This has occurred because DOD has made the use of DTS voluntary rather than mandatory at those sites where it has been deployed. The current utilization rate for DTS at those sites is about 5 percent. DOD pays travel agents about $5 for DTS transaction as compared to about $25 for a traditional transaction. Thus, 95 percent of DOD's travel transactions are costing DOD $20 more for each transaction. This translates into millions of dollars that DOD is wasting in realized cost savings. On three separate occasions over the past 2 years, I have asked DOD to respond to these allegations. DOD has been unresponsive. For example, I asked DOD if DTS always finds the lowest available airfare. DOD begged the question by stating that DTS displays GSA contracted city pair flights without stating that these are always the lowest cost fairs. Finally, on August 11, I sent a Chairman's letter to the Secretary of Defense in which I laid out my concerns with DOD's failure to respond to allegations about DTS. Further, I requested that the Secretary suspend further implementation of DTS until the questions about the system have been fully addressed and resolved. Let me be specific about that. One year and one day from today, the DTS contract will expire. Before DOD renews the DTS contract, the substantive problems and cost and benefit questions about DTS need to be fully resolved. To ensure that DTS is comprehensively and objectively reviewed, I have asked the Government Accountability Office and the DOD Inspector General to evaluate and report on DTS. I asked GAO to identify the problems that need to be addressed and I have asked the Inspector General to conduct a cost benefit analysis and determine if DTS will address DOD's travel needs. Those evaluations and reports are to be concluded before the DTS contract is renewed and will provide the Secretary with the answers he needs to ensure that hundreds of millions of taxpayer dollars are not wasted on an inefficient travel system. That is a perfect entree to our first witness before this Subcommittee. I would like to welcome the Chairman of the Senate Finance Committee, Senator Charles Grassley. Senator Grassley testified at our November 2003 hearing on DOD's improper use of first and business class airline travel. This was the first in a series of Subcommittee hearings that focused on waste, fraud, and abuse in the Department of Defense. Senator Grassley, I welcome you back to this Subcommittee. I know that you have a great interest and expertise in the subject matter of this hearing. You have worked aggressively over the years to expose waste, fraud, and abuse in government and I thank you for that focus and for that service and I thank you for your participation in today's hearing and look forward to hearing your testimony. Senator Grassley, you may proceed. TESTIMONY OF HON. CHARLES GRASSLEY, A U.S. SENATOR FROM THE STATE OF IOWA Senator Grassley. I want to thank you, too. You are doing a very fine job in the leadership of this Subcommittee in this area and in a lot of other areas, as well. I want to thank you for doing that. Your Subcommittee is a premier committee for getting to the bottom of a lot of problems that we have in government and bringing them to light and finding solutions for them, and I am sure the same end result will come as a result of what we are doing here. Although, as your statement probably made clear, as well as my statement will make clear, it is kind of frustrating that we think we make progress 2 or 3 years ago and then review it now and you wonder whether you have made any progress. As you said, I have been looking into waste, fraud, and abuse in the Department of Defense travel for several years. I started with charge cards, travel cards, and purchase cards. I think we are all very familiar now with the stories of inappropriate purchases made with government charge cards. That led to concerns about other aspects of Department of Defense travel. Mr. Chairman, you and I and others asked the Government Accountability Office to look into improper premium class air travel and I testified at a hearing before this Subcommittee in November 2003. We also asked the GAO to issue reports on unused airline tickets going to waste as well as fraudulent travel claims. I also testified at a hearing before the full Governmental Affairs Committee on those issues in June 2004. At both of those hearings, representatives of the Department of Defense came in here with very embarrassing testimony, promising to do better. They said that there was this new computer system called the Defense Travel System that will fix all the problems. It happens that by that time, DTS already had problems that we were probably unaware of at that time, but we are now very aware of. It was originally supposed to be fully implemented by 2002. As this deadline approached, the Department of Defense restructured the contract and I assume they were doing it because they saw problems with it at that particular time. But anyway, it was stalled through the restructuring of the contract. The taxpayers, of course, are now paying most of the development costs and the new deadline to have DTS fully implemented, it is my understanding, is going to be at the end of the year 2006. In July 2003, the Inspector General of Defense issued a report criticizing DTS for being behind schedule and over the projected cost. In 2003, the Department of Defense Program Analysis and Evaluation Division completed a report questioning whether DTS was the most cost-effective solution to these problems that you and I have brought forward, but it still survived. Despite all its problems, we then have lots of taxpayers' money being sunk into DTS. I want to know, as a result of all these expenditures, and I don't ask questions like this just of the Department of Defense but recently I asked them of the Department of Justice and FBI on one of their computer systems, that we need to know what the taxpayers are getting for their money. Is there any end to getting to the bottom of the problems of this program? And will we have something functioning and getting our taxpayers' money's worth, or was it a big mistake right from the very beginning? In the case of the FBI, they started all over again. I think we need to ask of DTS, really, is it a silver bullet that will solve all of the DOD's travel problems? Will it prevent improper premium-class travel? Will it catch unused airline tickets so that refunds can be obtained? Will it prevent fraudulent travel claims from being processed? These are all questions that you and I have asked before, Mr. Chairman, and we still don't have a system in place that is going to answer these, and that is why we have the problems brought to our attention and the waste of taxpayers' money. I understand now that the Government Accountability Office is going to testify that DTS can be helpful in some of these areas, although it is clearly not a cure-all as it was advertised to be. Now, maybe the testimony will say something different, but that is what I understand will be the gist of it. Moreover, I understand that DTS currently cannot be relied on to find the lowest available airfare consistent with the travel requirements of the Department of Defense. Now, that is really, when you get right down to it, if you are going to have a new control system in place, that is a pretty basic function that we ought to expect from a travel system. Since taxpayers' money went into the development of DTS, I think we should also know what we purchased. Usually, when the government pays to have something developed, it owns the final product. That doesn't appear to be the case as you read the DTS contract. So what exactly did the government buy with all of this money? Finally, we have to ask, is DTS the most cost-effective option for DOD travel at this point? So, Mr. Chairman, I, of course, commend you for holding this hearing. I know that as a result of this hearing, you will get answers to these questions and hopefully enough has been learned from the mistakes of the past that whatever we are told today and the deadlines that are in place to accomplish the goals that we want to accomplish will be met. It will take your watchdogging, as you have done, to make sure that happens. I know you know that you have to be ever vigilant when you are doing oversight, and I thank you for being that way. I have said everything I can say at this point. I might have something to say after I heard other testimony, but I won't be able to come back. Senator Coleman. Senator Grassley, first, again, I want to thank you. You certainly inspired me in the work that we are doing here from your efforts, and you have laid out the questions that I hope we get some answers to today, or at least begin a process. My concern on this, you talked about taxpayers paying for development costs. I don't think that was the original intent when this system was contracted out. You indicate that we hear now, as I have reviewed the testimony and the reports, that it may be helpful, but if you are spending $500 million on something that originally was a $263 million program, it better be more than helpful. It should be delivering what you think it should deliver. You have laid out the questions. What about premium-class travel? Does it deal with unused tickets? Does it stop fraudulent travel? Does it provide the lowest-available airfare? And then, ultimately, your last comment, is it most cost effective? I am hopeful that we are engaged in a process now that will help us get responses to that and determine whether our taxpayer dollars are being used wisely. If they are not, then we have to do something about it. Again, I thank you for your leadership in this area and I look forward to working with you. I say this in my opening statement. This is part of a process. This is not simply a hearing and we are done. We will have some responses, but we will continue to look at this issue and move forward on it. So again, I thank you for your leadership and then for your testimony today. Senator Grassley. And if need be, I have a couple of good staff people. If your staff needs any help, I would be glad to have them involved, but I know you have very good staff, too. Senator Coleman. I look forward to working with you on this issue, Mr. Chairman. Thank you so much, Senator Grassley. Senator Grassley. Thank you. Senator Coleman. Senator Coburn. OPENING STATEMENT OF SENATOR COBURN Senator Coburn. Senator, I appreciate you holding this hearing. The second week I was a U.S. Senator, I became involved in this. I won't be able to stay for the hearing and I don't have a formal opening statement other than to say I am highly concerned about procurement methods, transparency, and accountability in our government. Our Subcommittee has been holding hearings. We have had 14 thus far in terms of oversight, and we will probably have 10 more before the year is out on oversight. I would just ask unanimous consent to submit five pages of questions for the witnesses today that I would like to submit and have answers back within 2 weeks. Senator Coleman. Without objection, that will be done. Senator Coburn. I thank the Chairman and I thank him for holding this hearing. Senator Coleman. Thank you, Senator Coburn. I am surrounded by Chairman Grassley and Senator Coburn, who both have been dogged in their determination to protect taxpayer dollars and deal with fraud, waste, and abuse, and so I greatly appreciate your interest, your participation, and the leadership that you are providing with your Subcommittees. So I look forward to working with you and we will get those questions to the witnesses and make sure that we have answers. Thank you. I am going to just finish with the rest of my opening statement and then we will call the first panel. DTS was expected to be a boon to DOD travel needs by cutting costs and red tape for DOD's travelers. However, by 2001, the commercial off-the-shelf travel software that DOD had planned to use failed its operational tests, and it became clear that DOD would not be able to translate its concept into reality. Rather than terminating and rebidding the project, however, DOD restructured the DTS contract to develop a web-based travel system. This restructuring increased the projected costs of DTS, as I noted before, from $263 to $492 million. During this time, the DOD Inspector General began receiving complaints of DTS fraud and waste on its hotline. After numerous complaints, the IG initiated an audit of DTS. Of the nine complaints the Inspector General received, it was able to substantiate four of them. More importantly, the report concluded there was a substantial risk that DTS would not deliver a viable, integrated travel management system and initially recommended that funding for the development and deployment of DTS be suspended until a determination was made as to whether DTS was the most cost-effective solution to DOD travel needs. In response to the Inspector General's report, the Controller tasked the Program Analysis and Evaluation Division (PA&E) with conducting a cost-benefit study and further agreed to abide by its findings. The study concluded that it could not verify that DTS provides the most cost-effective solution to DOD's travel needs because there could be alternative solutions that are less expensive. Despite these findings, DOD decided to push ahead with DTS on October 20, 2003. While DOD claims it has fully considered the Inspector General's and PA&E's concerns as part of its top-level management decision to go forward with DTS, I have seen no studies or reports that clearly address and resolve those concerns. Instead, I continue to see reports that question DTS' effectiveness or hear allegations that the IG's and the Program Analysis and Evaluation Division's concerns have not been fully addressed. For example, the PA&E's study raised the question about who owns the DTS, the contractor or the DOD. The ownership of DTS has both cost and competitive implications for DOD. Seven months after DOD's decision to move forward, the Department of Justice informed Judge George W. Miller of the U.S. Court of Federal Claims that DTS belonged to the contractor and not to DOD, and that concern was raised by my colleague, Senator Grassley. This clearly is an issue that needs to be resolved. I expect to get some responsive answers from DOD on that issue. Today, we will hear testimony from some of the individuals and organizations that help to administer DTS or who have raised concerns about DTS' costs and performance. They will share with us their concerns about DTS. We will also hear from representatives of the GAO, the DOD Inspector General, and the PA&E, who will testify about reports or studies they wrote that have questioned the costs and benefits that DTS offers DOD. Finally, we will hear from the Controller and Director of the Defense Finance and Accounting Service, who are the principal officials responsible for DTS. Before hundreds of millions of additional taxpayer dollars are unnecessarily wasted, it is imperative that DOD adequately address the many questions that have been raised regarding the cost effectiveness of DTS. I expect DOD to provide answers to these questions during today's hearing. My colleague, Senator Coburn, and others also have that same expectation. With that, we will call our first panel and welcome our first witnesses today. Actually, it is technically our second panel since Senator Grassley was a panel in and of himself. I would like to welcome Thomas Schatz, the President of the Citizens Against Government Waste located here in Washington, DC, and Robert Langsfeld, Partner of the Corporate Solutions Group of Menlo Park, California. I appreciate your attendance, gentlemen, at today's hearing and look forward to your testimony and assessment of the Defense Travel System. Before we begin, pursuant to Rule 6, all witnesses who testify before the Subcommittee are required to be sworn in. At this time, I would ask you to rise and raise your right hand. Do you swear that the testimony you are about to give before the Subcommittee will be the truth, the whole truth, and nothing but the truth, so help you, God? Mr. Schatz. I do. Mr. Langsfeld. I do. Senator Coleman. Thank you, gentlemen. We will have a time system here. A minute before you should be done, before the red light comes on, you will see the light change from green to yellow. If you desire, we will certainly have your full written testimony entered into the record, but we urge you to try to stay within the time limits. As I said, we have a vote and we will have to adjourn at a set time today. Mr. Schatz, why don't you go first, followed by Mr. Langsfeld, and then after we have heard the testimony, we will turn to questions. Mr. Schatz, you may proceed. TESTIMONY OF THOMAS A. SCHATZ,\1\ PRESIDENT, CITIZENS AGAINST GOVERNMENT WASTE Mr. Schatz. Thank you very much, Mr. Chairman. I congratulate you and your staff and certainly Senator Coburn and his staff for helping to bring this to this level of a hearing. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Schatz appears in the Appendix on page 41. --------------------------------------------------------------------------- We issued a report 1 year and 1 day ago,\2\ September 28 of last year, on the Defense Travel System, so we very much appreciate the effort that has been made and the information that you have provided. You provided an excellent summary of what has occurred and why we are where we are today, so I want to take just a minute or two to talk about our organization, what we have done, and what we would like answers to, as well, because the answers do lie with the people that are in charge of the system, and that would be the Department of Defense, the Inspector General, PA&E, and others that are the ones that should be providing the information. We are certainly disappointed that we have not gotten, or you have not gotten a more prompt response to your questions. Perhaps that might have avoided the ongoing issues that surround DTS. --------------------------------------------------------------------------- \2\ See Exhibit No. 1, which appears in the Appendix on page 100. --------------------------------------------------------------------------- Citizens Against Government Waste was created 21 years ago following the Grace Commission report. Much of what the Grace Commission and, in turn, CAGW looked at is waste, mismanagement, and inefficiency, in particular in the Department of Defense and in procurement. We have been following these issues for many years and we know that you and your Subcommittee are quite interested, as well. The original rational for DTS actually was something the Grace Commission recommended, a more cost-effective way to manage travel at the Department of Defense. But on the way to this web-based travel system, there were several bumps in the road. You have already described the original contract, which was supposed to provide an end-to-end web-based travel system. That means a system that could track authorization, produce tickets and vouchers, track expenses, and reimburse travelers. We know that parts of that are being done, but not all of that apparently is being done. And, of course, the effort to take the commercial off-the-shelf system and modify it did not work. The other part that we find questionable from a taxpayer standpoint is the original intent to have Northrop Grumman be paid following full deployment of the system, meaning installation, but not necessarily usage, at 11,000 DOD facilities. Then they would be paid only if a transaction was completed. That cost was supposed to be $263 million, and development was supposed to be paid for by the contractor. Instead, following the restructuring, which the U.S. Court of Claims said violated the Competition in Contracting Act, everything was changed so that DOD paid Northrop for development. Some have suggested that DOD may end up paying the same amount, $263 million, but there is a difference between development and a per-transaction reimbursement after development. In other words, there is no guarantee that Northrop ever would have been paid that full amount because that would have required full usage, and we know from what you have said and from what we have heard and certainly other studies that usage is, first of all, not required or mandated, and second of all, many who are using it don't necessarily like using it. That is one of the things that we would like an answer to, is why was this written in a way that didn't require full usage. Why would you spend hundreds of millions of dollars on a system and then not require the Department of Defense to utilize it? We have certainly examined and heard of many other problems with software development at the Federal level. Senator Grassley mentioned the Virtual Casefile at the FBI. Eventually, they pulled the plug on that. That is at least a question to consider here, or certainly what we might do going forward. The other question, one that you asked, is who owns it? The question may be why the GSA is paying the contractor and not paying DOD and what is going to go on once it is fully developed. There are also some questions which haven't been addressed about who was involved in the decisionmaking process, some individuals at DOD. We are not suggesting anything, but we hope that is part of your investigation, as to who was involved in the final decision and when that occurred. Senator Coburn is considering an amendment to move this from the DTS over to the e-travel system at GSA, another question that should be examined by the Subcommittee. The most recent GAO report, issued in March, and I know they are going to comment, said that the full cost would be $4.3 billion, or $4.39 billion, so there are lots of numbers being thrown around. We would like to know which is which. That report also said the National Guard is having major problems in terms of mobilization vouchers and authorizations, so that also should be further examined by the Subcommittee. Mr. Chairman, the bottom line is whether taxpayers will ever know what they are getting for their money and whether or not we did waste or didn't waste hundreds of millions of dollars now and in the future. Thank you. I will be happy to answer any questions. Senator Coleman. Thank you very much, Mr. Schatz. Mr. Langsfeld, you may proceed. TESTIMONY OF ROBERT LANGSFELD,\1\ PARTNER, THE CORPORATE SOLUTIONS GROUP, MENLO PARK, CALIFORNIA Mr. Langsfeld. Good morning, Mr. Chairman. Thank you for having me here today. I am the founding partner of The Corporate Solutions Group. We are a consulting firm providing services to the government and corporate organizations. I also request that a full copy of the presentation be placed into the record, sir. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Langsfeld appears in the Appendix on page 49. --------------------------------------------------------------------------- Senator Coleman. Without objection. Mr. Langsfeld. Thank you. I am here today because we were awarded a task order by GSA to perform an audit and study the Contract City Pair Program, the DTS program, and the three ETS programs. We were asked to determine, among other things, whether DTS actually displayed the best policy-compliant fares that are available at the time of the booking. The study was intended to provide an accurate, independent assessment of fare presentations for each of the tested systems. First, our team was asked to perform an initial review of the inventory platform. That is, we were asked to make sure that all the Government's City Pairs are in the booking systems. We have prepared a slide that shows how the City Pairs make their way into the database, and as you can see from the slide, the GSA conducts procurement and then awards the City Pair contracts to the winning airlines. The rates are then sent to a processing group, the Airline Tariff Publishing Company, and then loaded into the respective global distribution systems, such as Sabre, Galileo, Worldspan, and Amadeus. Once the fares are in the GDS, the DTS and ETS web-based travel systems access that information, process it, and display it to the Federal traveler. During our review of this inventory, we found that 7 to 8 percent of all these fares either were not loaded correctly or were not loaded at all into the GDS. Therefore, they were not available for DTS to capture and display and for the DTS traveler to select. When this anomaly was disclosed to GSA, they responded that they considered this to be totally acceptable, at 8 percent. GSA also refused to provide our company with the source documentation to verify the fares and who was responsible for those issues. We were told to look at the websites, the GSA website to find the fares, and without that, we were not able to provide an opinion without source documentation. The next review was a review of the domestic 25 City Pairs, and we found a variety of errors and omissions and issues. However, once these problems were reported to DTS and GSA, the project management personnel continued to change and reduce our review and the performance scope of our contract significantly. These changes to our original assignment had the effect of significantly reducing our ability to report variances on available airfares, commercially available airfares, and competitive airfares that might be lower than the City Pair Program. What is worse, the GSA and DTS project management officials would not allow our auditors to access the systems to be tested, so therefore, all we could look at would be the displays of the systems, not how they functioned or why. I direct your attention to the charts we have included in our report, and in this first chart over here, of the top 25 domestic City Pairs, the YCA code is used to designate unrestricted coach class fares, which are the CPP program, and the dash-CAs, as they call them, are used for capacity control for the City Pair Program. Table 1 shows that the four government systems displayed between 35 and 90 percent of all applicable CPP fares in the 25 markets. Specifically in the case of DTS, only 61 of 187 fares, or 33 percent, were listed by DTS. Other systems showed between 35 and 90 percent of the fares displayed. DTS only displayed, therefore, one-third of the itineraries that were available to the Federal traveler, or put another way, two-thirds of the time, the applicable City Pair fares were not displayed, which is a major operational deficiency in our perspective. Also, all available fares, including the rest of the CPP fares and lower-cost fares, are simply not being displayed on a consistent basis, i.e., that is, all available fares are not listed, all CPP fares are not listed, and the lowest-cost airfares are not listed. We were very surprised to find that, when we presented, the DTS and GSA sought to downplay the issues and the results. We were asked to change some of our findings to give a better result. We refused to do that and they proceeded to terminate our contract on that review. The overriding concern I have is that when DTS deficiencies were identified, the government chose to change, suppress, or modify the results in order to downplay the severity of the issues and to disclaim responsibility. You will undoubtedly hear government personnel try to make excuses for the findings, but it was their settings. They set the conditions for the audit and they determined how best to do it. Our opinion is the government needs to have a continuing quality control audit in place for these programs and systems. It is painfully apparent that such reviews need to be on independent and objective areas outside of the GSA and DTS office. And in these times of budgetary concerns, the constraints on the performance of the system such as these are paramount. We hope that this Subcommittee and these hearings may result in the viable and reliable process for the use of the government, and in this case, the government traveler. Thank you for allowing me to participate in this hearing. I am prepared to answer your questions. Senator Coleman. Thank you very much, Mr. Langsfeld. I will mirror what you said about in times of budgetary concerns, and these are clearly times of budgetary concerns. I voted for $62 billion in appropriations for funding Katrina relief, which is clearly the greatest natural disaster in the history of this country. We'll see how that money is spent and we need to track that very carefully. But we're in the midst of a war. There are great challenges, deficits rising, and the economy impacted by disasters. So I think we have a special responsibility in these times to do what we're doing. I appreciate your work here. I want to step back, first. Can you explain the City Pair, what that means? Mr. Langsfeld. Yes, sir. I'd be glad to. City Pair is a program administered by the General Service Administration. That is to have contracts established between the airlines and the U.S. Government for going from point A to point B, such as National to Pittsburgh, Dulles to Atlanta, and so forth. Those would be considered City Pairs or one-way fares. There are about 4,000 of those negotiated on an ongoing basis annually, with the airlines by GSA. And therefore, the government traveler has access to those fares. Senator Coleman. You're getting access to--you know how much it costs, you've got to get a set amount to a particular city and then you can either use that---- Mr. Langsfeld. As a baseline. Senator Coleman. As a baseline. Mr. Langsfeld. Yes, sir. Senator Coleman. What I'm hearing from your testimony is that in at least 8 percent of the cases, the city pairs weren't even loaded into the program, so there's no baseline. Mr. Langsfeld. There's no baseline. That is correct, sir. Senator Coleman. So there's no way to---- Mr. Langsfeld. There's no way to get to it. Senator Coleman. Your other testimony is that you're talking about all fares not displayed and not listed. Why? What's missing here? Mr. Langsfeld. There is something missing, sir, but we weren't permitted access to find out those answers. Our scope was limited to only taking an audit of those City Pair Programs, those CPP program rates, those 4,000 we just discussed, and to say were they displayed to the travelers through the various systems, in this case DTS, or not. If there were other lower fares they might not be displayed. For example, to clarify and answer your question specifically, in the case of let's say Albuquerque to Los Angeles, we found a City Pair that is $153 one way between Albuquerque and Los Angeles. That's the negotiated City Pair, as we discussed it. The DTS system found prices anywhere between $120 and $300. And the GovTrip system pretty much similar, which is another Northrop system provided under GSA contract. Under the E2 solutions provided by Carlson, they found an $87 comparative rates and unrestricted walk-up fares. So in essence, 50 percent less and it wasn't displayed. Senator Coleman. The other thing I want to understand is you indicate 7 or 8 percent of all fares are not fully loaded in the City Pair Program, but then your Table 1\1\ indicates that only one-third of available government fares are listed. Can you help me understand the difference between the one-third figure versus the 7 to 8 percent? --------------------------------------------------------------------------- \1\ See Table 1 attached to prepared remarks of Robert Langsfeld, which appears in the Appendix on page 54 and 59. --------------------------------------------------------------------------- Mr. Langsfeld. Yes, sir. First of all, the 7 to 8 percent means that even out of the 100 percent, if you may, that they could possibly look at, they won't find, based on our sample, 7 to 8 percent of those regardless. So that means that the traveler, if they're going from Point A to Point B, will be paying commercial fare rather than negotiated fare that's established. That would reduce by definition even the amount of fares that these different systems can find. Their population is essentially 92 percent of whatever is out there. The second part of your question, sir, is that of 187 on that chart, as you can note, out of the 187 possible City Pairs that were found between Point A and Point B, that only one- third of them were ever displayed by the DTS system and the other system somewhere between 35 percent and 90 percent of them were displayed. So there is something other there that's editing that result that we weren't permitted to find. Senator Coleman. I'm trying to get to a solution on that. What I'm hearing is that the reaction you're getting from the government folks was it didn't seem like there was a lot of concern. Mr. Langsfeld. That would be a correct statement. Senator Coleman. Your testimony is very strong when you use words like change, suppress, down play. Those are very serious concerns. Do you have any reason to qualify that at all? Mr. Langsfeld. I have no reason to qualify that statement, sir. Senator Coleman. DOD has very optimistic projected cost savings on this program. Can you respond to that issue? Can you give me some information? I don't have the numbers in front of me but I know they have some very optimistic cost savings. What I'm trying to figure out, as I listen to the testimony, is how do you get cost savings in a system in which you've got 33 percent of total fares displayed being used? How do you get there? What's the basis for that? Mr. Langsfeld. If I may be permitted, I'll answer that in two parts, sir. The first would be a reverse question for you, or a rhetorical question, of course. And that is how can you display 100 percent when you only have 33 percent in front of you? So you'll never be able to achieve those results regardless of any steps that you take, given the current condition of the system. The second part of it is all of the assumptions that I've seen on the DTS system and the ETS systems are anywhere between an 80 and 95 percent adoption. Therefore, that's 85 to 90 percent of all the Federal travelers using that system. As you provided in your opening statements, 4 or 5 percent are where they are today. To get from Point A to Point B, in the condition that the systems are in, I think is an unrealistic goal. And therefore, your return on investment and your analysis has to be adjusted and possibly significantly. Senator Coleman. That leads into my question to Mr. Schatz. One of my concerns that I'm struggling with here, on the one hand it's clear that we're not having full utilization. Mr. Schatz, you talked about that. But the next question is even if we have full utilization in a system that's fundamentally flawed, are we going to get the cost savings we're talking about? Mr. Schatz, you talked about the system being underutilized. Do you have any sense that if it was fully utilized that we'd be achieving the cost savings that have been projected? Mr. Schatz. Certainly not based on what Mr. Langsfeld just said. There's a lot that remains to be done in order to get to where they originally intended to be. Of course, that intention meant that this system would have been completed about 4 years ago. So we're behind schedule, we don't have full utilization, there's no requirement for full utilization. And even if you had, apparently from the study, you don't even have all of the available information to get the best fare and the greatest amount of information. The other point to recall is that this was supposed to be an end-to-end system. Authorizations and vouchers may be what they're doing now but it's supposed to do a lot more. So you've got cost overruns, lack of information, lack of usage, all adding up to some number. As I said, GAO in March said it could be $4.39 billion. We've seen $470 million, $491 million, $559 million. I'd like an answer. I know you'd like an answer as to what the cost is, how do we get greater usage if the system, in fact, is the right system and does perform everything it's supposed to? And then we might be able to determine how much it's really going to cost or save, if anything. Senator Coleman. When we say end-to-end system, it's lowest cost air fare, lodging facilities, some of the concerns that Senator Grassley raised, tracking unused tickets. There's more than just the lowest cost fare is involved in this; is this correct? Mr. Schatz. That's correct. It would be something that you would have if you were a company trying to come up with a system that you, as an organization, could produce and track and require your employees to use. In fact, it wouldn't be surprising if, and I'm sure it's true, the companies involved in this have their own systems that do that. Like many other efforts to get the government up to speed in software systems, they need to do more. Senator Coleman. I would appreciate it if you could help me a little with the history here. The report, ``Through the Looking Glass,''\1\ that was one that was commissioned or developed by Citizens Against Government Waste? --------------------------------------------------------------------------- \1\ See Exhibit No. 1, which appears in the Appendix on page 100. --------------------------------------------------------------------------- Mr. Schatz. Right. Senator Coleman. You can go through a little history of this thing. When it was first developed, was it intended to be an end-to-end system, that $263 million figure? Mr. Schatz. It's our understanding that is correct; yes. Senator Coleman. At that time, was the question of ownership at issue? Mr. Schatz. I'm not certain about that. The ownership issue came up in the court case, as you mentioned. The Department of Justice said it's owned by the contractor. We have heard differing views on that. We have not seen anything that confirms it one way or another. Senator Coleman. I believe as I reflected on the court decision, in part it seemed to me that one of the reasons the judge didn't just pull the plug on this system was his belief that, in fact, it was owned by Northrop. And in doing so, the government would have had to start from scratch? Did you have a chance to read the decision? Mr. Schatz. Yes, that is our understanding. That was one of the reasons that even though he found that it violated the Competition in Contracting Act, he said it would cost another $500 million to develop another system, which we would argue is not quite the case based on systems produced by other companies that would be available. Senator Coleman. And yet development costs are now, as I understand it, the Federal Government is paying for the development costs of creating this end-to-end system. Is that a correct statement? Let me raise the issue of cost to deploy. The judge obviously concluded that because the system was not owned by the government, that there would be significant costs--my question was when the contract was first developed, where was the responsibility for development costs? Mr. Schatz. Development costs were with the contractor, not with the government. Senator Coleman. So the development costs were not intended initially to be government development costs? Mr. Schatz. That's correct. That's why the taxpayers are ending up paying more than they probably would have, given the fact that we don't have full usage and it was supposed to be a transaction-based fee, not a development fee. Senator Coleman. One of the things that you've done, which some people I know have contested, but you actually--your organization gave an estimate of costs per transaction, very significant costs. I believe it was about $33,000. We can debate that, but can you explain the process by which you come to that figure? Mr. Schatz. It was based on the amount of money paid by the government and the usage by travelers. That number, I'm sure, has changed because there is more usage, authorizations, vouchers being processed. That number would have to be updated. We'd certainly like to see what the actual number is, and then you can say all right, we have spent $200 million or whatever it might be. It's processed this many transactions. Therefore this is the cost per transaction to date. That will change in the future. Senator Coleman. With greater utilization. Mr. Schatz. Right. But again, full utilization is what they were looking for. I think to get from $33,000 to zero in your savings is a long way to go. Senator Coleman. The question, Mr. Langsfeld, about the ability to get the lowest cost, available cost out there, that has a significant impact on total cost; is that correct? So for instance, I believe that testing showed that flights booked by DTS could cost as much as $1,200 more per ticket. Is this something that your group looked at? Mr. Schatz. Yes. We've heard since then that this is still the case. Even in the last week or so we've received some information that indicated---- Senator Coleman. Again, speak very loud so folks in the back can hear. Can folks in the back hear? The microphone is not functioning. Mr. Carper. What did you say? [Laughter.] Mr. Schatz. Yes. There are some indications that some of these tickets are being provided at a substantial cost over what other systems can find. That's something else we would certainly urge the Inspector General, DFAS and others to look into, so that we can see whether or not this is still the case. We have heard that it is. We would like independent verification of that from people that are in charge of monitoring the system. Senator Coleman. Mr. Langsfeld, did your study touch at all on that? You've looked at some other systems and cost savings. Were these systems in place in other government agencies? Mr. Langsfeld. Your question being? Senator Coleman. The question being the incidence of overpaying, of not paying the lowest available fare. How significant that is, and whether there are other systems that simply do a better job of correcting that or identifying that? Mr. Langsfeld. I think even some background would help. In our experience, we've worked with hundreds of private sector companies, some very large and some very small. But the bottom line is it's always a challenge to find the lowest fare. Just focusing on finding the City Pair Programs, as we talked about, is not effective. It's a very good baseline, but it's only that. We found that carriers that have City Pair fares, let's say United Airlines, from Point A to Point B, they'll even have fares that are lower than the City Pair Program. But in the case of most of these systems, we didn't find that being displayed for whatever reason. We also find that there are significant other comparable fares that government travelers could take, that are totally compliant with your terms and conditions, that would significantly save money to the U.S. taxpayer and to the U.S. Government. Senator Coleman. Is the airline pricing system so complicated that we do not have the computer capacity available to actually identify at a touch of a button the lowest available fare? Is it that complicated? Mr. Langsfeld. It's certainly complex. On the average, about 100,000 to 150,000 changes to the system a day are made. So you have to have a computer system, if you may, to keep up with the computer systems. In this case, these systems just want to go against each other. They're only as good as their resource and their source data. Senator Coleman. What I'm trying to understand is again, we are spending hundreds of millions of dollars here. Do we have the capacity? Was the money well spent? If we identify here's what we want to get, this is the end-to-end system, and among the end-to-end pieces of that system, one of them is going to be lowest available fare. Do we have the technical capacity? Is that there, in order to identify lowest available fare? Mr. Langsfeld. At this point in time, it has not been demonstrated to be available. Senator Coleman. I'm not talking about in this system, but in any system? Mr. Langsfeld. Yes, it is available. Senator Coleman. It would be available? Mr. Langsfeld. Yes, and you can get it. Senator Coleman. Your point is we're not getting it in this system, but it's available? Mr. Langsfeld. Yes, sir. Senator Coleman. Mr. Schatz, let me just talk to you about the cost of pulling the plug. I'm not saying that to speak out, but I think you have to put that on the table. When I was Mayor of St. Paul, we went through a change in our computer systems. And at a certain point in time I looked at literally millions that was spent and then had to make a decision as to whether to keep spending. I made a decision to pull the plug. Some people, you're mayor, you've already spent over $1 million. But as I looked at the ongoing costs and what we were getting, and the problem is that we weren't getting what we contracted for. So I made the decision to cut our losses. It appears to me that along the way there have been some discussions in some of these reports, and maybe you can refresh my memory, where a decision was made to say hey, at this point it may be best to pull the plug. I'm going to ask you to kind of walk me through that, but then I want to look to the future. I believe this system is up for bid again next year. Is that correct? Mr. Schatz. Yes, certain aspects of it. Yes, the operation and maintenance and other aspects of it, yes. Senator Coleman. Can you give your best assessment now? Or first of all, along the way, would there have been a time to pull the plug, based on your review of this? And what would you recommend as we move forward? Mr. Schatz. Mr. Chairman, there were two opportunities, we think, earlier on. July 2002, the Inspector General estimated the cost had grown from $263.7 million to $491.9 million, 87 percent higher than the original contract. The IG also said that DTS, and this is a quote, ``remains a program at high risk of not being an effective solution in streamlining DOD travel management process.'' That certainly would have an opportunity then, based on the IG's recommendations, to take a good hard look and possibly pull the plug and do something else. In December 2002, the Program Analysis and Evaluation Office followed up on the IG's findings and recommended that DOD consider commercial e-travel systems that were now available but were not available at the time of the original contract awarded to Northrop. So despite these two reports from their own internal offices, DOD--and I guess in this case, the Program Management Office for DTS--decided to move forward anyway. As to whether it's cost-effective now to pull the plug, I honestly could not give you an answer to that. Perhaps your next witnesses can. Because now we're many years into this arrangement and we have certainly seen this occur with Virtual Case File and others, where it was just such a mess that they decided it was not worth the additional cost to complete it because they could either do something better or possibly something more effective. Senator Coleman. Last question in follow-up, are there alternative off-the-shelf systems? Either to you, Mr. Schatz or Mr. Langsfeld. Are there private side off-the-shelf systems that would be more user friendly, more effective, more cost efficient? Mr. Schatz. There certainly has been a discussion about having DOD use the GSA e-Travel systems. There's questions about the interfaces that have already been established. So that is, I think, something that the Subcommittee and its experts in DOD should take a good look at. But certainly based on what we've seen, there are systems that can provide lower fares. Mr. Langsfeld. In response to your question, Mr. Chairman, I believe that there are alternative systems out there. I believe that the design of the DTS system and also the design of the other government systems, where one of their base points was to go off-the-shelf, Commercial off-the-shelf, COTS programs. They are available. They've been proven in the public marketplace. And the idiosyncrasies or the uniqueness of the government travel can readily be adapted to be responsive to the government needs. So yes, there are ways to get to it. And I think there should be better ways to get and access that information. Senator Coleman. Thank you, gentlemen. My Ranking Member is here. I know he's in a full Armed Services Committee meeting, where he's also the ranking member. Senator Levin. OPENING STATEMENT OF SENATOR LEVIN Senator Levin. Mr. Chairman, thank you and thanks to Senator Carper for allowing me to jump in here out of turn. I will be very brief because I have to return to the Armed Services Committee. First, I want to commend you, Mr. Chairman, for digging into this issue with your usual determination and thoroughness. It is a very important issue. You are not only bringing to light the deficiencies in a particular system, but this Defense Travel System is, I am afraid, too typical of the Department of Defense's efforts to acquire major new business systems. It has been plagued by poor planning, schedule delays, increasing costs, and performance deficiencies. So you are not only going to hopefully address the problems in a particular system, but you are also through this effort of yours providing some real insight into the problems with the acquisition system overall inside of the Department of Defense. I think my entire statement has been made part of the record. If it has not been, I would ask that it be made part of the record. Senator Coleman. Without objection. [The prepared statement of Senator Levin follows:] PREPARED STATEMENT OF SENATOR LEVIN Mr. Chairman, thank you for convening this important hearing and for the oversight that you are providing in a critical area of DOD operations. Every year, the Department of Defense spends roughly $20 billion to develop new information systems and to operate and maintain existing information systems. Like so many other DOD programs, the Department's IT programs are troubled by cost overruns, schedule delays, and performance deficiencies. The Defense Travel System (DTS) is no exception. When DTS was first conceived in the mid-1990's, the DOD travel system was a complete mess. Individual components of the Department entered their own arrangements with different travel companies, each of which had its own processes, systems and procedures. The travel process was paper intensive, with written travel orders required before the trip and written requests for reimbursement filed at the end of the trip. The travel process was separate from the voucher and payment process, which was itself separate from the financial accounting process. Management controls were lacking, and financial records were inaccurate and incomplete. DTS was conceived as an easy way to address these problems by taking advantage of commercial-off-the-shelf (COTS) technology. Rather than developing its own unique travel system, the Department would pay a contractor to use a commercially-available system on a transaction- by-transaction basis. DOD was so confident in this approach that it originally envisioned that system would be up and running within 120 days of the effective date of the contract. It was a good idea. Unfortunately, it ran up against reality. The Department of Defense has its own unique travel rules, and individual components of the Department have their own unique requirements and practices. Before DOD could use COTS technology, it would have to reengineer its travel practices--and the COTS technology itself would have to be modified--so that the two would match. Moreover, DOD wanted more than just a travel system. It wanted an ``end-to-end'' system that would be integrated with the voucher and payment process and with DOD financial accounting and management systems. The requirement for an end-to-end system meant that DTS would have to interface with dozens of unique DOD accounting and management systems. While these are laudable objectives, consistent with congressional policy, these interfaces would also require extensive modifications to the COTS system. As we have seen over and over again, once DOD starts to modify COTS technology, it is not really ``off-the-shelf'' at all. As a result, schedules start to drag out and costs start to escalate. That is exactly what happened with DTS. More than 7 years after the initial DTS contract was awarded, the system still is not fully functional. The contract has been re-written to convert it from the original fixed-price, performance-based services contract to a development contract for the acquisition of a DOD-unique system. And, as is all too typical of DOD business system development programs, DTS appears to be deficient in meeting user requirements by providing the appropriate lowest cost fares for government travelers. DOD says that these problems can be fixed, but we do not know how much those fixes will cost or how effective they will be. It is my hope that the Department will learn from its experience with DTS, and from this hearing, that it must do a better job of planning its IT acquisitions at the outset. The Clinger-Cohen Act of 1996 eliminated a cumbersome GSA review process, enabling DOD to purchase information technology (IT) products and services for itself, in a more efficient, streamlined manner. At the same time, the Clinger- Cohen Act required the Department to institute its own measures for business process reengineering, analysis of alternatives, economic analysis, and performance measures for their systems. Congress also expected individual agencies to take the steps necessary to ensure that their IT systems would be secure and compatible with each other. Unfortunately, as shown by the DTS acquisition and so many others, DOD has failed to live up to its planning obligations under the Clinger-Cohen Act. I do not know whether DOD should pursue DTS to completion at this point, or whether we would be better off scrapping DTS and starting over from the beginning. The Department itself must do the cost-benefit analysis needed to make that decision. I do know that we can and we must do a better job of developing and fielding IT systems in the future. I look forward to the testimony of our witnesses. Senator Levin. Again, I want to thank you and commend you and your staff and our staffs for working on this together. Senator Coleman. Thank you, Senator Levin, and thank you for all the work you and your staff have done. I should compliment them. I think we have a good bipartisan relationship when it comes to dealing with fraud, abuse, and misuse of taxpayer dollars, so I thank you very much. Senator Carper. OPENING STATEMENT OF SENATOR CARPER Senator Carper. Mr. Chairman, I just learned during the course of the early part of the hearing is the audio was coming in and out for our guests here today. This room has been revamped and this whole platform up here has been redone. It was out of commission here for several months. The folks who actually have been probably been working on this Defense Travel System actually worked on the audio. [Laughter.] I don't know what to make of that, but on a more serious note, I thank our witnesses for being here. I, too, have a statement and I would ask that it be made a part of the record, Mr. Chairman. Senator Coleman. Without objection. [The prepared statement of Senator Carper follows:] PREPARED STATEMENT OF SENATOR CARPER Thank you, Mr. Chairman, for holding this hearing. Despite the heroic performance of the men and women in our armed forces on the battlefield over the years, DOD has had difficulty meeting basic standards for financial and organizational management. These failings have likely wasted billions of dollars that could have been used to improve the lives or better protect the health and safety of military personnel. This isn't a new problem. GAO has been warning us about some of these problems for more than a decade now. We're now at the point where 14 of the 25 most severe management challenges in the Federal Government highlighted by GAO every 2 years in its high risk series are challenges currently facing DOD. Things have gotten so bad now that the department's efforts to address the management challenges that have been highlighted by GAO over the years are now on the high risk list themselves. Senator Coburn and I intend to look into the financial side of some of DOD's management problems in the very near future through our leadership roles on the Financial Management Subcommittee, and I thank him for his commitment to work with me on those issues. I'm pleased then, that we'll be using the resources on this subcommittee to get to the bottom of what's going on with the Defense Travel System. Like most of the murky areas at DOD, the Defense Travel System has been a much-studied question mark for some time now--about 10 years. There's a lot of conflicting information out there about how much the system will cost, how much it will save DOD, and how well it works. I think we'll even hear some conflicting testimony today on these points. But what's clear at least to me so far is that DOD hasn't been able to prove that the development of this system, as it's currently envisioned, is in the department's best interests. Mr. Chairman, I don't think I have enough information right now to be able to answer the question posed in the title of this hearing-- ``boon or boondoggle?'' I know DOD is busy working out some of the kinks in the Defense Travel System and may have already addressed some of the concerns that have been raised by GAO and others. We owe it to the taxpayers, however, to make sure that the money DOD is spending on this system will pay off in real savings at some point. Thank you again for focusing on this issue. Senator Carper. I am sort of like you. In my old job, I was the governor of a State. I remember any number of technology projects and information projects we got into where we got to the point where we said, do we want to continue to put money down this deep, dark hole or to pull the plug or just do something else? I don't know if we are at that point for this one, but I am sure it is a question that needs to be asked. I hope that we will have an opportunity to hear from, and maybe it is later today, from folks within DOD who have been part of overseeing the development of this system who can tell us whether it is worth all the time and the money and the trouble that it is causing or if there is a better option. If you are in our shoes, a recovering mayor, recovering governor, what would you do? Mr. Schatz. Well, you are doing the first step that you need to take, which is to have the hearing. There have been reports, there have been, as I said a minute ago, opportunities to do something about this earlier, in 2002. So again, the question is, here we are 3 years later. Have we spent so much that we have to continue? What is in the contract? What are the penalties? We have canceled contracts, paid penalties, and moved forward. That is not unprecedented. But I think your next panel and the further investigations you have requested, also the questions that haven't been answered for the last year since Senator Coleman and Senator Coburn have been asking them, and I know you have been involved, as well, and we appreciate that very much. It is at a crucial point, I guess is the bottom line. Within the next year, in a sense, that is kind of it. So something, if it is going to be done, needs to be done soon, and sooner meaning in the next few months, not in the middle of next year. Senator Carper. All right. Mr. Langsfeld. Mr. Langsfeld. I agree with his comments. I think the process we are going through right now is important. The resolution of this, if you were in the commercial world, you would have been fired. In essence, what you are doing, this is recoverable, certainly, and I think there are some good issues and there is good product out of this. I think it is recoverable there. At a point in time, I think you need to get beyond the appropriations voucher and authorization side and get into the travel savings. To save $15 in transaction fee and to leave $1,000 for the airline ticket on the table is illogical to me and I can't find a resolution for that. So I think you need to get to a system that is going to be able to do that. I think DTS system, in my definition, is what I call closed architecture. Therefore, they have modified code in such a way that everything has to be changed when something--one thing is changed, they have to go in and change code. It is not a COTS drop-in system where you could just bring in a new module and put it in. I think those are some of the solutions that we found in the public sector to be very effective. Senator Carper. All right, good. Thank you very much for that. I am sure the Department of Defense didn't set out to have this kind of problem. They wanted to solve a problem and didn't want to create one, and I am sure they didn't want to spend all of this money. I am also certain that DOD isn't the first large organization, either public or private, that has attempted to find some paperless, more streamlined method of handling employee travel. Let me just ask what mistakes--you have spoken to this to some extent, but let me ask again. What mistakes has DOD made here that other departments or private sector businesses have avoided? Mr. Schatz. Do you want to answer that? Mr. Langsfeld. I will be glad to. I think, first of all, I mentioned the closed system, closed architecture. In this changing era, as Mr. Coburn has--Coleman has referenced---- Senator Carper. Senator Coburn. A lot of people call him Coburn. Mr. Langsfeld. And I just got caught doing it myself. I apologize. Senator Carper. When they start calling me Coburn, we will really worry. Mr. Langsfeld. I think I will go back to ``sir.'' [Laughter.] The reference of what has been expended and where you have gotten to at this point in time, I think on the appropriations- authorization side, the vouchering system in itself has been a good tool and I think there are some strong savings in there. What we have found in the private sector, for example, is--let us say for that City Pair Program that we talked about with 78 percent variance, literally a travel manager of a, probably what I would consider the second-largest private employer in the world, at 1 percent, I would have called the person in on the carpet and disciplined them. At 2 percent, they would have been released. I think you need to go in and have some good oversight and what you need to do and what we have done in the private sector successfully is gone out and dropped in a new module when one module doesn't work. In this case, it is the booking system. There are commercially available products that can be adapted and integrated, and I think at a much lower cost than where some of your projections could be to correct the existing system. Mr. Schatz. Unfortunately, Senator, these problems have existed for some time and continue to exist. There were many Acts in the 1990's that were intended to streamline the procurement system and improve it. In this case, because of the way that the contract was changed, and it was called a cardinal change by the court, meaning that it did violate the Competition in Contracting Act, this is a little bit more than just a kind of questionable software system. There are issues with how this all occurred that really underlie the entire procurement system. So you have obviously a question, what do you do about this, and the other question is, how do you prevent that from occurring again, where we go from a system where the contractor was supposed to develop it at its cost and get paid per transaction to where they are getting paid for development and may end up having been paid more than they would have gotten based on the transactions. So that is something else to keep a very close eye on. In terms of the expertise of others as to the better systems, at least obviously Mr. Langsfeld feels that there is something else out there, and from what we have seen, there are systems that work better. As to whether you could just drop it into DOD, it is something for the DOD people to answer. Senator Carper. One more question. Is DOD travel, is it more complicated or expensive given the scope of their operations and flying around the country or around the world? Is it more complicated or expensive maybe through regulations that they have or mandates that maybe the Congress has put in place, or is it that the Department just hasn't done as good a job with this travel system that they could have? Mr. Langsfeld. I think it is more the latter than the former. There are complexities in U.S. Government travel that are unique--the Fly America Act, the City Pair Program to try to do it as efficiently as possible, other factors, other accounting issues that are in concern, that you have to appropriate and you have to escrow your monies for travel, and the vouchering system has unique FAR rules and DOD rules that are there. But I would say at the end of the day, travel is travel and finding the lowest rate and finding the lowest hotel and finding the lowest car rental is pretty much a very direct issue. It sits out there. All you are doing is looking at the inventory and selecting it. I think that is a very basic step to do, and the only thing you have to do in the government arena and the government sector is you have to apply a few more rules than you might have to the public sector. Other than that, I would facetiously say that probably half your travelers are looking at Orbitz when they call your travel agent at this current time. I do. I mean, these people know what is out there. They look at what is available. I think your travelers are savvy enough to be able to figure that out pretty easily. Senator Carper. Thank you. Mr. Schatz. Senator Carper, I did mention earlier that DOD is essentially at fault for all of this, for changing the nature of the contract, for not requiring the lowest fare, and in general for having so many incompatible financial systems, something that this Subcommittee and the full Committee has looked at for many years. That would help resolve a lot of these issues, again a broader one, but one that really gets to the basis for a lot of these problems that occur when software systems are introduced into the Federal Government. Senator Carper. Thanks. Chairman Coleman, back to you, sir. Senator Coleman. Thank you very much, Senator Carper. Just two quick observations. One is a comment you made, Mr. Langsfeld, that I think is pretty important here. This system does save money on transaction costs, $15, right, $5 web-based, $15 traditional. Mr. Langsfeld. Right. Senator Coleman. So it does save money on that, but I think your comment is important, that we are up front with saving the money on a transaction, but if you are going to be spending $1,000 more on a ticket if you don't have this end-user system, then something is wrong. Then we are not getting bang for the buck. The other comment about the 78 percent being acceptable, I get very frustrated. We make a joke about it is not bad for government work, but we really should expect the best for government work. Mr. Langsfeld. And you can achieve the best, sir. Senator Carper. It is funny you say that, Mr. Chairman, if I could. In our Administration, maybe in yours, as well, back in St. Paul, whenever people would say, ``That is good enough for government work,'' we would fire them, and we would hire replacement people whose motto was, ``If it isn't perfect, make it better.'' Senator Coleman. And lastly, I just want to raise one thing that you made a comment on, and you didn't pursue it, but there was a concern raised at one point, without casting aspersions, but I just want to raise the issue about folks who worked for the Department of Defense, then went to work for the contractor, that kind of revolving door. That was a concern in this contract, is that fair to state? Mr. Schatz. Yes. There is a concern. There is--again, the questions, I think, have been asked but not answered. I don't have the answers, but we are certainly happy to ask the question. We did see that in other cases. We are not saying anything like that is occurring here, but we don't know, I guess is the bottom line. Certainly, the IG, at the very least, should be looking into that, and hopefully they will be conducting another investigation in regard to this contract. Senator Coleman. I just think this is the issue of individuals who are senior places in the Department of Defense and then go work for the contractor that gets the contract or modifications to the contract that are not very transparent. Actually, I think, there is an extra responsibility where you have that kind of revolving door to be acting in a way that doesn't even raise those issues. I think it undermines public confidence in the systems, and certainly those questions will be looked at and will have to be responded to. Gentlemen, I thank you. Your testimony has been very helpful and I am very appreciative. Thank you. This panel is excused. The third panel, what we are going to do is simply going to swear in the panel members, maybe have testimony from one person, and we are going to adjourn at 11:15. We are supposed to be in our seats by 11:20 for a very important, historic vote at---- Senator Carper. What vote is that? Senator Coleman. I will tell you how to vote on the way out, Senator. [Laughter.] Senator Carper. You already have. Senator Coleman. I would now like to welcome our final panel of witnesses for today's hearing: Thomas F. Gimble, the Acting Inspector General at the Department of Defense; Dr. Scott Comes, the Director of DOD's Strategic and Program Analysis and Evaluation Division; McCoy Williams, the Director of the Government Accountability Office's Financial Management and Assurance Team; and finally, Zack Gaddy, the Director of DOD's Finance and Accounting Services. Gentlemen, I appreciate your appearance today and your testimony and your perspective on the Defense Travel System. I do have a letter from David Chu, the Under Secretary of Defense for Personnel and Readiness, and I will read the letter here, but do want to note that there has been certainly an increased level of response from the Department of Defense from the time that we put this hearing together, and I do appreciate that.\1\ --------------------------------------------------------------------------- \1\ See Exhibit No. 8, which appears in the Appendix on page 375. --------------------------------------------------------------------------- Letter read by Senator Coleman follows: Dear Mr. Chairman, I want to thank you and members of the Subcommittee for your interest in the Defense Travel System. My office will soon assume a new and significant role for this system as part of our continued effort to strengthen management and oversight in a phased plan. As we assume functional oversight of the entire program, our first order of business is to assess the DTS program viability. Specifically, we will assess whether DTS is delivering increased efficiencies, improved services, and achieving cost savings. In doing so, we will study carefully the several reports and evaluations of the system before we take any action, including reviews of the Committees of Congress before we proceed. The Department clearly understands that we have many challenges ahead in making our travel program more efficient and cost effective. Indeed, the Defense Travel System represents a whole new way of doing business for government and we must ensure that promises and goals envisioned are achievable. We will take the necessary steps to resolve problems. I look forward to continuing to work with you and your Committee on this important program and will provide you with the conclusions of my analysis. Sincerely, David S. C. Chu, Under Secretary of Defense for Personnel and Readiness. So I am pleased that the Department of Defense has chosen to cooperate with the Subcommittee, work with us in resolving these concerns. Clearly, the Subcommittee, though, will continue its oversight to ensure that DOD's actions match its promises. Gentlemen, pursuant to Rule 6, all witnesses who testify before the Subcommittee are required to be sworn in. Will you please stand and raise your right hand. Do you swear the testimony you are about to give before this Subcommittee is the truth, the whole truth, and nothing but the truth, so help you, God? Mr. Gimble. I do. Mr. Comes. I do. Mr. Williams. I do. Mr. Gaddy. I do. Senator Coleman. Thank you very much. I think you are aware of the timing system. Again, we will begin with the testimony, but we will break at 11:15. We will start with Mr. Gimble and then proceed across. Mr. Gimble, why don't you begin first. TESTIMONY OF THOMAS F. GIMBLE,\1\ ACTING INSPECTOR GENERAL, U.S. DEPARTMENT OF DEFENSE Mr. Gimble. Mr. Chairman and Members of the Permanent Subcommittee on Investigations, thank you for the opportunity to appear before the Subcommittee today to address the questions regarding our July 2002 audit report, ``Allegations to the Defense Hotline on the Management of the Defense Travel System.'' --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Gimble appears in the Appendix on page 60. --------------------------------------------------------------------------- We conducted the audit in response to allegations made to the Defense Hotline. In summary, we concluded that DOD should have managed the Defense Travel System Program as a major automated information system program and ensured that it met the requirements of the Clinger-Cohen Act, DOD acquisition policies, and security policies. Before I begin discussing the Defense Travel System, I would like to provide information on other acquisition efforts where we identified systemic problems pertaining to the information of technology acquisition during the period of October 1996 to March 2000. Those systemic problems included: Inadequate documentation and validation of system requirements, inaccurate life-cycle cost analysis or incomplete cost data, incomplete analysis of alternatives to assure that the programs were the most cost-effective solutions, improper categorization of systems for oversight purposes, and incomplete or nonexistent acquisition program baselines to record cost, schedule, and performance goals. Many of these issues were present in the Defense Travel System acquisition. Additionally, we believe that the Defense Travel System acquisition also faced significant challenges in using commercial off-the-shelf software that required substantial modifications. We reported similar challenges on the Standard Procurement System and the Defense Integrated Military Human Resources System. The Defense Travel System was envisioned as a general support system designed to make business travel quicker, easier, and more efficient by providing automated commercial and government travel support services to the DOD travelers. By early 1999, as indicated in our audit report, it became evident that the commercial off-the-shelf software required major development and modification in order to meet the DOD requirements. In February 2002, the Program Management Office requested approximately $377 million to manage and develop the program for fiscal year 2002 through 2007, of which $186.5 million was for research, development, test, and evaluation. As stated in the 2002 audit report, the Defense Travel System was at high risk for not being an effective solution to streamlining the DOD travel management process. Further, the Defense Travel System experienced significant testing and deployment problems which were compounded by the need for significant but unplanned developmental efforts. The Program Management Office terminated the November 2000 operational assessment because 72 discrepancies and substantial deployment problems were identified. In October 2001, the Joint Interoperability Test Command reported in the second operational assessment that it did not consider the Defense Travel System to be an operationally effective system for all DOD components. In FY 2002, DOD revised its deployment plan and reduced the number of deployment sites. The Clinger-Cohen Act of 1996 and the DOD acquisition policy provide an effective framework for the management of information technology investments. Information on cost, schedule, and performance required by the DOD acquisition policy would also be needed by the Chief Information Officer in performing the responsibilities under the 1996 Act. However, DOD had not viewed the Defense Travel System as subject to DOD acquisition policy for a program because its capabilities were based on commercial off-the-shelf software, and therefore cost, schedule, and performance information had not been obtained. In June 1997, the DOD CIO designated the Defense Travel System as a special interest initiative. DOD did not consider special interest initiatives subject to DOD acquisition policy. In January 2001, the Under Secretary of Defense for Acquisition, Technology, and Logistics and the DOD Comptroller recommended a reassessment of the system because of the deficiencies identified during acceptance tests. They required the Army to specify the actions needed on the contract based on the results of a functional and technical assessment of the system. In April 2001, the Army Communications-Electronics Command became responsible for the contract, to include contract restructuring. In July 2001, the Under Secretary of Defense for Acquisition, Technology, and Logistics and the DOD Comptroller approved proceeding with the Defense Travel System and identified that they would retain oversight responsibility of the program until the contract actions were completed. We had recommended the designation of the Defense Travel System as a major automated information system program and also that the DOD Comptroller complete the Program Analysis and Evaluation study by October 1, 2002. The DOD Comptroller had tasked the Director of Program Analysis and Evaluation to undertake a cost effectiveness study of the system that would be used to determine whether to continue or terminate the system. Additionally, we had recommended, among other things, that the Program Management Office comply with the Clinger- Cohen Act. We had also asked that the Under Secretary for Acquisition, Technology, and Logistics and the DOD Comptroller and the DOD Chief Information Officer (CIO) review the progress made by the Program Management Office in developing appropriate acquisition information and determine whether the system should continue or be terminated. In response to our audit in May 2002, the CIO designated the Defense Travel System as a major automated information system subject to DOD acquisition policy with himself as the milestone decision authority. In response to our recommendation, the results of the Program Analysis and Evaluation study were briefed to the DOD Comptroller in December 2002. Senator Coleman. I am going to ask you, Mr. Gimble, if you can just summarize---- Mr. Gimble. In December 2003, the CIO issued a Defense Travel System Acquisition Memorandum Decision moving the system forward. That concludes my statement. Senator Coleman. We will have your full statement entered into the record. Gentlemen, we are going to adjourn the hearing right now. We will reconvene when we get back, at sometime between 11:45 and 12 o'clock. You are sworn in and we will just continue when we get back. At this point, this hearing is recessed. [Recess.] Senator Coleman. The hearing is called to order. Dr. Comes, please proceed. TESTIMONY OF SCOTT A. COMES, DIRECTOR, STRATEGIC AND INFORMATION PROGRAMS DIVISION, PROGRAM ANALYSIS AND EVALUATION, U.S. DEPARTMENT OF DEFENSE Mr. Comes. Good morning, Chairman Coleman. My name is Dr. Scott Comes. I am the Director for C4 and Information Programs in the Office of the Secretary of Defense, Program Analysis and Evaluation. The Office of Program Analysis and Evaluation conducts independent analysis for and provides independent pre- decisional advice to the Secretary and Deputy Secretary of Defense. In this role, one of PA&E's principal responsibilities is to ensure that the cost effectiveness and capabilities of DOD programs are presented accurately and completely. My office has primary responsibility in PA&E for conducting such analyses in support of information technology programs, such as the Defense Travel System. In July 2002, PA&E was asked by the USD Comptroller to conduct a cost effectiveness review of the Defense Travel System. We conducted that analysis and documented our results in a report entitled, ``DTS Cost Effectiveness Review'' in December 2002. I am here today to answer your questions regarding that report. Thank you. Senator Coleman. Thank you, Dr. Comes. Mr. Williams. TESTIMONY OF McCOY WILLIAMS,\1\ DIRECTOR, FINANCIAL MANAGEMENT AND ASSURANCE, U.S. GOVERNMENT ACCOUNTABILITY OFFICE Mr. Williams. Thank you, Mr. Chairman. Thank you for the opportunity to discuss our preliminary audit results related to DOD's efforts to develop and implement a standard end-to-end travel system which DOD has been working on for the last 10 years. This Subcommittee has been at the forefront in addressing issues related to DOD's travel management practices, with the hearing today being another example of its oversight efforts. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Williams appears in the Appendix on page 65. --------------------------------------------------------------------------- Our testimony is based on the preliminary results of our audit and focuses on the following three questions: Has DOD effectively tested key functionality in DTS related to flight and air fare information? Will DTS correct the problems related to DOD travel previously identified by GAO and others? What challenges remain in ensuring that DTS achieves its goal as DOD's standard travel system? In addition, our statement for the record provides a description of DOD property rights in DTS, as you requested. Subsequent to this testimony, we plan to issue a report that will include recommendations to the Secretary of Defense aimed at improving the Department's implementation of DTS. Mr. Chairman, DTS' development and implementation have been problematic, especially in the area of testing key functionality to ensure that the system will perform as intended. Consequently, critical flaws have been identified after deployment, resulting in significant schedule delays. Our recent analysis of selected requirements disclosed that system testing was ineffective in ensuring that promised capability has been delivered as intended. For example, we found that DOD did not have reasonable assurance that DTS properly displayed flight and airfare information. This problem was not detected prior to deployment since DOD failed to properly test system interfaces. DTS officials have indicated that this problem was fixed in the most recent system upgrade. We are in the process of verifying the effectiveness of these corrective actions. DTS has corrected some of the previously reported travel problems, but others remain. Specifically, DTS has resolved the problem related to duplicate payment for airline tickets purchased with the centrally billed accounts. However, problems remain related to improper premium class travel, unused tickets that are not refunded, and accuracy of travelers' claims. These remaining problems cannot be resolved solely within DTS and will take department-wide action to address. Mr. Chairman, we have identified two key challenges facing DTS in becoming DOD's standard travel system: One, developing needed interfaces; and two, underutilization of DTS at sites where it has been deployed. While DTS has developed 32 interfaces with various DOD business systems, it will have to develop interfaces with at least 17 additional systems and this is not a trivial task. Furthermore, the continued use of existing legacy travel systems results in underutilization of DTS and affects the savings that DTS was planned to achieve. Components incur additional costs by operating both DTS and legacy systems which have the same functionality, and by paying higher processing fees for manual travel vouchers as opposed to processing the travel vouchers electronically through DTS. Mr. Chairman, overhauling DOD's financial management and business operations, one of the largest and most complex organizations in the world, represents a daunting challenge. DTS, intended to be the Department's end-to-end travel system, is a case study of some of the obstacles that must be overcome by DOD's array of transformation efforts. Successful implementation of standard business systems such as DTS will be the key to achieving billions of dollars of annual savings through DOD transformation. Eliminating stovepiped legacy systems and using cheaper electronic processing are critical to realizing the anticipated savings. Again, I commend the Subcommittee for holding this hearing as a catalyst for improving the Department's travel management practices. Mr. Chairman, this concludes my statement. I will be pleased to respond to any questions you may have. Senator Coleman. Thank you very much, Mr. Williams. Mr. Gaddy, you may proceed. TESTIMONY OF ZACK E. GADDY,\1\ DIRECTOR, DEFENSE FINANCE AND ACCOUNTING SERVICE, U.S. DEPARTMENT OF DEFENSE Mr. Gaddy. Mr. Chairman, distinguished Members of the Subcommittee, it is a pleasure to be here to discuss the Defense Travel System. I am Zack Gaddy, Director of the Defense Finance and Accounting Service. I am providing detailed information on DTS and the scope of the Department's travel operations in a statement for the record. What I want to do now is give you an overview of the current status of DTS and how we got to where we are today. --------------------------------------------------------------------------- \1\ The prepared statement of Mr. Gaddy appears in the Appendix on page 93. --------------------------------------------------------------------------- The Department of Defense launched DTS in 1995. The goal was to streamline and improve how the Department managed travel of DOD personnel and to replace dozens of independent and inefficient existing travel systems. Initial progress was slower than expected, and the goal of integrated incompatible systems turned out to be more complex than originally envisioned. After several reviews and reports, the time frame for full usage of DTS by everyone in the Department, originally scheduled to be completed in fiscal year 2003, was adjusted to a more realistic time frame of FY 2009. In recent years, the Department has made important changes to better manage DTS and achieve the ambitious goals for improving travel administration. As a result, today, we believe that DTS is proving to be a cost-effective solution to our travel needs. DTS is enabling us to make our DTS-related processes faster, less costly, and better for DOD personnel. It is strengthening accountability and internal controls, making our data management more accurate and less costly, reducing the likelihood of fraud and waste, and achieving other benefits. In fiscal year 2006, we expect that DTS will save the Department over $35 million. Once fully deployed, DTS will have replaced 31 primary travel systems and eliminated travel processing in another 12 systems where travel is a secondary function of the system. The management of DTS has been criticized in several reviews and reports over the past few years. In May 2002, the Department designated DTS as a Major Automated Information System to get the program on track. This meant that DTS' progress and problems would be subjected to greater scrutiny by the Department's senior leaders. This designation resulted in a comprehensive review of the scope of the program and a thorough analysis as part of the Department's acquisition process and its program budget review. Under rigorous scrutiny, the DTS program has met the cost, performance, and schedule goals set for it under its approved program baseline. Still, we continue to assess how to strengthen the program and hasten progress. To that end, later this fall, we look forward to hearing from the Government Accountability Office, which is expected to complete its DTS program review, as a source of additional ideas for improvements. We know that we need to continue to monitor the DTS program carefully and to make adjustments. Still, we are beginning to see the benefits of the new system. For example, DTS speeds up the travel process and facilitates better customer service, maintains accountability throughout the travel process, meets our requirements for safeguarding information, and allows DOD organizations to monitor their travel budgets more precisely. Despite the progress to date, we understand that DTS does not currently accommodate all DOD travel requirements. For example, DTS does not process all types of travel for permanent change of station, group, or mobilization travel. We expect these requirements to be addressed by the end of fiscal year 2006. Further, while DTS enhances visibility and auditability for travel, it does not eliminate travelers' or approving officials' erroneous use or approval of premium travel. We also recognize that the travel industry and emerging technologies are changing how travel should be administered. At the conclusion of this contract, we plan to competitively award a follow-on contract that will address these emerging opportunities. In closing, I would emphasize that the Department of Defense has acted to correct the previous issues with DTS and is providing proper oversight to make the best use of taxpayer resources to improve our travel process. We welcome input from the GAO and this Subcommittee to help us fulfill our commitment to provide a world class travel system for DOD travelers. We appreciate your interest in DTS and look forward to working with you in the future. Thank you. Senator Coleman. Thank you very much, Mr. Gaddy. Mr. Williams, I think it was in your testimony, you reflected on the DOD system being one of the largest and most complex in the world and we understand that. Mr. Williams. Yes, sir. Senator Coleman. But even with that understanding, as you look at the history of this and where it started and even now we are talking looking at originally 2003 for a goal of integrating systems and now it is a goal of 2009, that is a long time. The cost started at $263 million to $500 million. Those are the things that have obviously raised the level of concern of this Subcommittee. One of the questions that has come up, and I think, Mr. Williams, you indicated an answer to it, but I would like it very clear for the record, who owns this system? Who owns the DTS system? In the court decision, it appeared that Northrop owned it, and in fact, the judge specifically raised concerns saying one of the reasons we are not going to stop it now is because we would walk away with nothing. Was the judge mistaken on that assessment, or is it different today than it was then? Mr. Gaddy. I would like to try to answer your question, Mr. Chairman. DTS is owned by DOD. However, when I say that, there are aspects of the program where there is software code developed by DOD that we own outright. All the interfaces to the accounting and finance systems within the Department, we own all of those interfaces and all of that software. The commercially developed software that Northrop Grumman developed, we have an unlimited license to use that software. We don't physically own the software, but we own unlimited rights to use that software and we can delegate those rights to any other user as a follow-on contract. Senator Coleman. But, hypothetically, if the contract were to be terminated with Northrop, what would DOD be left with, because that was the concern of the judge, that we can't start from scratch here. Again, it goes back to the nature of our ownership interest on things that have been developed with taxpayer dollars. What do we own if it were to be terminated? Can you divide between what Northrop would have and what we would have? Mr. Gaddy. Mr. Chairman, as I said earlier, I believe the correct answer is, we would be able to take the software that has been developed by Northrop and turn it over to a subsequent contractor to use. Senator Coleman. Thank you. In Mr. Langsfeld's testimony, he said the system is not cost effective and does not use the best available software. Does anybody want to respond to that, because my concern is even if it is deployed, how are you going to realize full cost savings, and can this fundamental problem be fixed? First, do you see this as a fundamental problem? Do you agree with the testimony? And then, second, if so, can it be fixed? Mr. Gaddy. I am unable to fully address what Mr. Langsfeld was referring to when he said it was not cost effective. I do know from his study that he determined the software, DTS, did not display all City Pair Contract flights that were available. We took the information he supplied to us. We actually used that information and my internal review organization independently looked at the information to determine whether there was a problem with how we had configured or established the settings on the displays. We, in fact, went and found we have a 4-hour display of 12 flights, a limitation in the system at the time Mr. Langsfeld did his study, compared to other displays which use the 12-hour window and did not have the 12-flight display limitation. If you widen the aperture and look at it in the same 12-hour window, we changed that, we believe we find at least 92 percent of the flights that are in the City Pair Contract. We have since, based on information, revised our program to display a 12-hour window and to display a 25-flight limitation as opposed to a 12-flight limitation, and in November, we will start a new change or a new setting that will display City Pair flights first. So that way, you always know you get all available City Pair flights before you look at other available fares. Senator Coleman. We don't have the chart here, but in one of his charts, Table 1, he had top 25 domestic City Pairs and he had total displayed, for the DTS, he had 33 percent whereas for FedTraveler or Government Trip, E2 Solutions, has higher figures. Is your testimony that you have made corrections there that would change these conclusions? Mr. Gaddy. Yes, sir, Mr. Chairman. We have gone back and looked at what they were reviewing. The flights are available in the system, they just were not displayed, and that is what he was asked to look at. We have since opened the time frame to 12 hours versus 4 hours and the limits on flights from 12 flights to 25 flights so that we can display all available flights. Senator Coleman. He also indicated that he was told that DTS only displayed one-third of the available fares, and that was the 8 percent figure, and then his comment was that DOD told him that was completely acceptable. Do you agree or disagree with that? Mr. Gaddy. I cannot agree that is acceptable, not to display all the flights. The 8 percent limitation I believe he was referring to are not all flights available, all City Pair flights are in the Global Distribution System. Up to 8 percent, I believe, of City Pair flights are not currently available in the GDS or Global Distribution System. Therefore, they would not be accessible by any software looking for them. Within the context of what was available, the 92 percent that are available because of our settings, and I believe that was buried in a footnote in his actual table in the report, he said the settings themselves would determine what would be displayed, and based on those settings, we looked at it and said, yes, you are right. A 4-hour window does block displaying all available flights, and that is why we went in and changed the setting to 12 hours. Senator Coleman. To a 12-hour window. When you said 8 percent are not in the system, is that in any system? Is there any system that is capable, or is it just the DTS system? Mr. Gaddy. As I understood his comments, the 8 percent were flights not in the Global Distribution System, which is what any travel system would go to to find available flights. It is not DTS per se or ETS. It is not in the Global Distribution System that the systems are querying to find available flights. Senator Coleman. One of the questions that has come up here is utilization of the system. The testimony, and Mr. Williams mentioned it, about continued use of legacy travel systems, higher processing fees, etc. Mr. Williams. That is correct. Senator Coleman. If we know that there are higher processing fees with continued use of legacy systems, can you help me understand the under utilization? Why doesn't the Secretary of Defense simply mandate that we start using DTS? Mr. Williams. Mr. Chairman, as currently structured, each of the various components within DOD have funding authority. Until a decision is made at the top level of the organization that DTS will be used once it is implemented, the different components will continue to use those legacy systems. Once DTS is deployed and it is operational, then it must be used and the legacy systems must be cut off, then the utilization rate will go up. But there needs to be a decision made at the top, across the organization, that this is going to be the policy. Senator Coleman. And my concern is we don't have that decision and I am trying to understand the reason for that decision. If on the one hand we talk about the system being effective and cost effective, on the other hand we hear there are continued problems in terms of getting the end-to-end system that we like, is the reason the decision hasn't been made because there isn't a unanimity of agreement that the system is effective and that it is meeting needs? Mr. Gaddy. Actually, Mr. Chairman, I would like to comment further on that. There was a directive signed by the Deputy Secretary of Defense last November directing usage of DTS once deployed to the user sites. You need to understand that when we talk about the time frame for deploying DTS--I will use an example. Hill Air Force base in Utah has 16,000 employees. We have recently deployed DTS to that site. It will take probably a year to fully deploy across all 16,000 users. So one of the reasons you will see other systems still in use is it hasn't been fully deployed across all the users at a particular location. The directive that was signed last November, however, said DTS is the official system for this Department. Prior to that time, various organizations, as Mr. Williams indicated, were making investments in alternative systems. The Reserve Travel System in the Air Force comes to mind as an example. There was a decision. DTS is the official DOD system. However, as you well know, within the Department, you get a directive on top and then the execution of that directive sometimes takes a while. One of the factors in it is the deployment of the system itself. It is not fully deployed yet. Another factor is even where it has been deployed to particular sites, it is not fully at use in those sites quite yet. And the third factor is what I described a little bit earlier, and that is all types of travel are not currently accommodated in DTS, so they will need to use legacy systems until other types of travel are folded into the DTS capability. At that time, I do believe Dr. Chu, in my conversations with him and others, we are pushing very hard that old legacy systems do, in fact, need to be shut down and a decision has to be made, for example, 60 days post-deployment, full usage has been acknowledged. At some point, you have to terminate the old systems, and one of the best ways to do that is just stop funding them. Senator Coleman. Let me then go to the folks on the audit inspection side to see if their perspectives, having looked at this, are as optimistic as Mr. Gaddy's. Mr. Gimble, if I can just kind of step back, you originally started your evaluation based on hotline complaints, which I found--is that something that is usual? Mr. Gimble. It is fairly usual. We do get a lot of complaints to the DOD IG hotline and it is typical, you do get them on systems of various kinds, IT systems, weapons systems. One thing I would just preface, most of our work on DTS is in the 2002 time frame and we just recently started some new work on that system. But for the 3 years that intervened there, we really hadn't done much work, so we don't have much current knowledge. We know there were some agreements made on actions that were going to be done to bring it into a system-managed arena. We think, according to the documentation that we have, that has been done. Now, we will go back and look and really do some assessments. That is the plan that we just started out with in the last week or so. In fact, it was at your request and we are going to address the follow-up actions to see if those original recommendations were appropriately addressed and achieved the results that we think they should have. Also, we will be looking at cost effectiveness and also how wide the utilization is. Senator Coleman. One of the things that I recall, your original, I believe that you had an original recommendation that recommended dropping funding for DTS until cost and benefits were determined based--is that correct? Mr. Gimble. In the draft report, we had recommended suspending the funding until the system was determined to be cost effective. Senator Coleman. And then you dropped that recommendation-- -- Mr. Gimble. Well, what we did is we--I would like to say we got an alternate solution there. They agreed to--the Department agreed to put the system under an acquisition program, which is one part of that recommendation, and the other was they agreed to do the cost-effectiveness study, which was done by PA&E. Subsequent to that, our auditors had been redirected into other programs and so we relied on the Acquisition Memorandum Decision that was signed off in December 2003 that said everything was compliant and moving forward in terms of--it was a major acquisition information system versus a special interest initiative. So we really have been pretty dormant in the oversight of this particular system since the audit report was issued in July 2002. Senator Coleman. But one of the things you were waiting on was a cost-benefit analysis from PA&E. Do you believe that was done? Have you had a chance to review that? Mr. Gimble. We did not review that. This was over on our follow-up side and there was documentation that indicated it had been performed. When the Assistant Secretary or the CIO of the Department signed off on the Acquisition Memorandum Decision in December 2003 saying that everything was completed, we didn't go back and follow it. We closed out and redirected our assets into other areas. Senator Coleman. Dr. Comes, did you consider your work to be--at least as I understand it, my review of the record is that the Inspector General agreed to drop its recommendation that program funding be suspended until costs and benefits were determined. Have you seen a cost-benefit analysis? Mr. Comes. We looked at the costs and benefits at the time of the program. The program was rather immature, so the available data to compare on the costs and benefits was rather limited. So we focused our efforts on what the requirements were for the program and whether there might be alternative solutions. Senator Coleman. So would it be fair to say, as I understand it, you didn't have the data to do a cost-benefit-- did you do a cost-benefit analysis? Mr. Comes. The reason you couldn't do a cost-benefit analysis at the time, it was almost a circular argument. You would need a good travel system to collect all of that data. Lacking a travel system, you had no data. So we did what we could with the available data that the Program Office had at the time. They had done some pilot experiments at a few sites and they had reports for Congress that we reviewed to see what was available at the time. Senator Coleman. I think it is certainly part of my frustration is we had a recommendation to stop funding until there was a cost-benefit analysis. It is really not possible to do a cost-benefit analysis if you don't have the system in place to do the analysis. I won't ask where we are at. I think where we are at, and we have sent a letter on this in August to the Inspector General to perform a cost-benefit analysis. I think it has to be done. Mr. Gimble. And we started that work this week. Senator Coleman. Apparently, this contract is going to be rebid sometime next year. Can somebody explain what pieces of it--what is going to be rebid, is it next August, next year? Mr. Gaddy. Mr. Chairman, the current contract is set to expire at the end of fiscal year 2006. What will be rebid is the follow-on contract support to operate and maintain the system, and if there are any additional changes to be made, we call it Phase II, travel reengineering kinds of things that were talked a little bit about in the earlier panel, if any of those things lead to changes, emerging changes in the marketplace that we want to adopt within the program through a follow-on contract, we would make those changes to the system. Senator Coleman. Are we confident that we have identified several major problems getting to this end-to-end system that we would like, and clearly, they have been recognized that there are still some deficiencies in that regard. Do you believe that we need to resolve those problems at the time it is rebid? What happens if those problems aren't resolved? I am trying to understand a process here. If you still have issues out there, how do you effectively rebid? Mr. Gaddy. Mr. Chairman, what normally happens with this program is we have a series of releases, they are called Presidential releases. The Monroe release will be deployed in the December time frame. The Quincy Adams release will be deployed sometime in the June 2006 time frame. That is the last scheduled release we have for this program. Each one of these releases, the intent of it is to improve upon the capability of the system to provide even more functionality so we can address additional types of travel, for example, Guard and Reserve mobilization travel that is an issue for people. What we are looking for in what we call the Phase II follow-on is how permanent duty travel is even managed. Some of the things that were alluded to here, if we want to change how travel policies--right now, the system is configured to comply on fares with the Joint Federal Travel Regulation. If there are changes to how travel should be administered, those would be then part of the follow-on contract. In the basic sense, however, the intent is to manage the current application, operate it, sustain it, and then make any additional changes that might be deemed desirable using cost- benefit analysis to see if it is worth doing or not. Senator Coleman. Mr. Williams, I would like to have you address this same question if you have problems, identify them. I am trying to get a sense of the measure of resolution required by the time a contract is rebid. Mr. Williams. We are looking at about a 12-month time frame to go through the procurement process. The process would have to be very aggressive, in my opinion. I would say that you would want to make sure you do the things that were just described. You want to make sure you are doing everything that you can to upgrade the system to address those issues along the way. We believe that because the system has already been implemented at approximately 5,600 out of the 11,000 locations, that Block 1 or Phase 1 should be completed. Once that is completed, we think that there should be a process in which there is an oversight, Management Oversight Review Board that needs to take a look at the whole DTS process, where do we go from here, and look at it from the standpoint of not just DTS, but this is just one component within an overall architecture for DOD and how is it fitting in and make some decisions on how the Department should proceed with DTS. Senator Coleman. You indicated that it is presently in 5,600 of 11,000 locations, but my understanding is it is only used in a small percentage of those. So we are not getting 50 percent use. That is a 50 percent figure. What is the percent usage right now of DTS? Mr. Gaddy. You are correct that it is not fully used or utilized at all of those locations yet. While it has been deployed to 5,600 sites, during fiscal year 2005, approximately 8 percent of travel tickets were procured using DTS. Today, the usage of the system is about 80,000 travel vouchers a month. That number is growing at a rate of about 10 to 15 percent per month, so we are seeing more and more uses as it goes to more sites---- Senator Coleman. What are 80,000 travel vouchers? About what percentage of use does that represent? Mr. Gaddy. Again, looking at five million or so a year, that is about a million--so it is about 20 percent in total. But the usage is starting to grow because we are going to more sites and more users are being trained. There is a one-week training program, for example, for initial usage at a site. The usage will expand. We will finish deploying to all of the major sites during fiscal year 2006. Those major sites where the travel--and it is kind of interesting. If you look at total usage, 80 percent, roughly, of all travel is performed at those major sites. We talk 11,000, quite honestly, but there are probably 200 to 300 locations where about 80 percent of all the travel is actually conducted, and those are the targeted sites that we are really trying to take the system to first to get it fully deployed, fully used, so we can take advantage of the benefits that the system provides. Senator Coleman. My concern is that it is $25--is it $20 or $25 per transaction without DTS? What is the figure? Mr. Gaddy. If you use DTS for travel, for example, if you use full DTS, no touch, it is about $5---- Senator Coleman. Five dollars. Mr. Gaddy [continuing]. For a travel reservation. If you go to a commercial vendor or a commercial travel office, you are talking, on average, $25 for the same transaction. Senator Coleman. It is about a $20 difference? Mr. Gaddy. Right. Senator Coleman. You have five million vouchers, $12.2 million at $20 more per cost. Mr. Gaddy. And on the back end, there is a big difference between the actual computation of the settlement, of the travel transaction. DTS is much cheaper. So we know that there is a lot of potential out there, and one of the things you cited, Dr. Chu's letter, as the owner of this area, one of the things, that same decision that directed the use of DTS was the establishment of a Travel Management Office within the Department because you have each service doing something with its own unique systems, including my own. As a result, his organization is now standing up a standard Travel Management Office which will assume the responsibility for managing department-wide travel so that we can begin to take advantage of a common application for all users and that is something that I very strongly support, that there ought to be one way of doing business within the Department. Senator Coleman. I just want to make sure the record is clear. Is your testimony that DTS, that the Department has mandated by order the use of DTS? Mr. Gaddy. There was a directive signed last November by the Deputy Secretary that said DTS is the official travel system for the Department. There is a subject of interpretation, I think, on the part of some that says, well, OK, that means I can use what I have got until you replace it, which is true. You have to have something that you use. But our perspective on it, our Program Management's perspective on it is as we deploy the system to these sites, once it is fully deployed to those sites, then our expectation is we will start shutting down the old systems. I am not sure that we have full agreement of that by the activities that own those systems. Senator Coleman. Well, I would hope, and it is one of the things that we would like--you would think that there would be a common understanding from those at the highest level, if it is being directed down to--as a military organization, people follow orders, don't they? Mr. Gaddy. Yes, sir, they normally do. However, what I find interesting about this business is some will claim they have never seen the order. Senator Coleman. Dr. Comes, on page 13 of your report, you state, ``It is our understanding that DOD has not bought the rights to the software developed for the DTS program. This could potentially limit the number of competitors that may support the Department's voucher processing in the future.'' Is there anything you have heard today that somehow is contrary to that notion? Mr. Comes. That report was written in 2002--in December 2002. I am not aware of what has happened in the ensuing time. Senator Coleman. I raise that, Mr. Gaddy, because of your testimony. Is it your testimony that as of today, that the statement that DOD has not bought the rights to software developed for DTS, that this could potentially limit the number of competitors that may support the Department's voucher processing in the future? Are there limitations on the opportunity for competitors based on limitations on property rights, software property rights? Mr. Gaddy. Mr. Chairman, there are no limitations on subsequent users or contractors who might want to operate this system on behalf of the Department. Senator Coleman. And part of my concern here is I don't believe that the Department has really bought anything in the interim. You are simply giving an interpretation that obviously is contrary to--because nothing has changed. There was no purchase of property rights here, right, of software rights? Mr. Gaddy. Actually, what happened when the contract was restructured and we went from buying a service to buying software development, the normal Federal Acquisition Regulation rules kicked in that say if it is commercially developed software, we have rights to the software. Since then, we have actually gotten a signed letter from the contractor that acknowledges that and we are in the process of modifying the contract to make sure it specifically clarifies that. But our understanding and interpretation of the FAR is when we pay the contractor to develop software on our behalf, we have unlimited usage to that software as long as we wish to do so. Senator Coleman. Mr. Williams, does the GAO have the same assessment of property rights as the DOD has? Mr. Williams. As stated in Appendix 1 to my testimony, that is consistent with our belief. Senator Coleman. As we move forward, there is obviously more work to be done. The testimony of the Department is certainly more optimistic than some of the assessments, as we heard on the earlier panel. Can we talk just a little bit about cost savings. We are spending, as I understand, and I think it is Mr. Comes, is it $537 million? Is that the figure? I don't know where that came from. Was it your study, from fiscal year 2001 to fiscal year 2014? Is that a valid figure? Does anybody dispute about $537 million as the amount to complete software development in the system? Mr. Comes. Again, that study was done in 2002. I am not aware of what is happening now as far as what the current cost to complete would be. Senator Coleman. Do we have any estimates of the current cost to complete the system? Mr. Gaddy. Yes. Currently, the system total acquisition costs for the whole program is $474 million. Senator Coleman. And what is the time frame for that? Mr. Gaddy. Through fiscal year 2006. We have currently expended $402.5 million of that amount. Senator Coleman. If I went back to Mr. Schatz's testimony, he talked about the original study that this whole thing was $260 million, that it was supposed to be looked at as that amount set aside and it was a cost per transaction. Is that simply out the window now and we are paying for it, this is our obligation, but Northrop runs the system? How does that work? Mr. Gaddy. Actually, Mr. Chairman, when the contract was restructured, you are correct. Prior to that point, it was a purchase of service. After the restructure, we bought software development work, program management support, deployment support. So we have, in fact, paid $229 million of that contract value, original estimate $264 million, we have expended $229 million of that with Northrop Grumman to date. Senator Coleman. I will bring this portion of the hearing to a close. My colleague, Senator Coburn, does have a series of questions, I think he indicated five pages. I am going to keep the record open for 2 weeks so that we can get a response to those. But just an observation--and I also say that we will conduct a follow-up hearing to focus on the later reports that we expect to receive from the Inspector General and hopefully working with Mr. Williams, the GAO. The concern as I sit here and have reviewed all the materials is there has been a concern certainly about process, Mr. Gaddy, and that was reflected in some court actions. But there have been concerns about process. There have been concerns about evaluation along the way, but many of those evaluations are now dated and so we will certainly get more current ones. In the end, we want to make sure the system works. That is what it is about. If it doesn't work, then we need to know that and we need to have a very honest assessment of that so we are not throwing good money after bad. There may be a cheaper, better alternative if it doesn't work. But if it does work, let us make sure that we understand what the limitations are, that we then deal with those limitations, and I appreciate the letter from the Under Secretary, and then we will go from there. As I said, this is simply a step along the road. We have not completed this process. We do appreciate your coming before us, the work you have done. We look forward to working with you in the future. With that, the record will be kept open for 14 days. Questions will be submitted and responded to. This hearing is now adjourned. 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