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Report to Congressional Requesters:

United States Government Accountability Office:

GAO:

March 2005:

Homeland Security:

Successes and Challenges in DHS's Efforts to Create an Effective 
Acquisition Organization:

GAO-05-179:

GAO Highlights:

Highlights of GAO-05-179, a report to congressional requesters.

Why GAO Did This Study:

Department of Homeland Security (DHS) organizations are expected to 
work together to protect the United States from terrorism. To support 
this primary mission, DHS has been acquiring billions of dollars worth 
of goods and services. DHS also has been working to integrate the 
disparate acquisition processes and systems that organizations brought 
with them when DHS was created 2 years ago. 

GAO was asked to identify (1) areas where DHS has been successful in 
promoting collaboration among its various organizations and (2) areas 
where DHS still faces challenges in integrating the acquisition 
function across the department. GAO was also asked to assess DHS’s 
progress in implementing an effective review process for major, complex 
investments.

What GAO Found:

DHS’s disparate organizations have quickly established collaborative 
relationships to leverage spending for various goods and services 
without losing focus on small businesses. DHS is using strategic 
sourcing, that is, formulating purchasing strategies to meet 
departmentwide requirements for specific commodities, such as office 
supplies, boats, energy, and weapons. By fostering collaboration, DHS 
has leveraged its buying power and savings are expected to grow. Also 
off to a good start is the small business program, whose reach is felt 
across DHS. Representatives have been designated in each DHS 
procurement office to help ensure that small businesses have 
opportunities to compete for DHS’s contract dollars.

In contrast, lack of clear accountability is hampering DHS’s efforts to 
integrate the acquisition functions of its numerous organizations into 
an effective whole. DHS remains a collection of disparate 
organizations, many of which are performing functions with insufficient 
oversight, giving rise to an environment rife with challenges, as shown 
in the following table.

Challenges Facing DHS’s Efforts to Integrate Acquisition Functions: 

Problem areas: Overall integration; 
Challenges: New policy emphasizes need for unified, integrated 
acquisition organization but allows U.S. Coast Guard and U.S. Secret 
Service to remain exempt from integration efforts. Possible workload 
imbalances have not been addressed, nor has the lack of enforcement of 
program managers’ training and certification. 

Problem areas: Dual accountability; 
Challenges: Some of the primary duties delegated to the Chief 
Procurement Officer have also been given to heads of DHS’s 
organizations, resulting in confusion over who is ultimately 
accountable for acquisition decisions. 

Problem areas: Chief Procurement Officer’s oversight staff; 
Challenges: Office has lacked sufficient staff to ensure compliance 
with DHS’s acquisition regulations and policies. 

Problem areas: Office of Procurement Operations’ use of interagency 
contracting; 
Challenges: Created almost 1 year after DHS was formed to support the 
organizations that lacked their own procurement support, Procurement 
Operations lacks sufficient staff and relies heavily on interagency 
contracting, but missing are management controls to properly oversee 
this activity, including fees paid to other agencies. 

Source: GAO analysis.

[End of table]

Some of DHS’s organizations have major, complex acquisition programs 
that are subject to a multitiered investment review process to help 
reduce risk and increase chances for successful outcomes in terms of 
cost, schedule, and performance. Part of the review process features a 
knowledge-based acquisition approach pioneered by successful commercial 
firms. DHS’s adaptation of this best practices approach, however, does 
not require two critical management reviews and is missing some key 
information before decisions are made to invest additional resources. 
In addition, contractor tracking and oversight is not fully 
incorporated into DHS policy and guidance. Finally, some aspects of the 
review process—which has been under revision for many months—need 
clarification.

What GAO Recommends:

GAO recommends that the Secretary of Homeland Security consider adding 
resources to DHS’s strategic sourcing program, correct deficiencies in 
departmentwide oversight of acquisition policies and procedures, add 
resources for contracting, and shore up its review process for 
acquiring major, complex investments. In written comments on a draft of 
this report, DHS agreed with the recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-05-179.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Michael J. Sullivan at 
(937) 258-7915 or sullivanm@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

Initiatives to Leverage Buying Power and Small Business Program Have 
Helped Foster Collaboration among DHS Organizations:

Goal of Creating an Integrated Acquisition Organization Is Hampered by 
Unclear Policy Decisions and Staffing Disparities:

Despite Adoption of Many Best Practices, Review Process for Major 
Investments Lacks Key Reviews and Some Management Controls:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Scope and Methodology:

Appendix II: Comments from the Department of Homeland Security:

Appendix III: Office of Procurement Operations' Customers:

Appendix IV: Summary of Selected Commodity Council Strategic Sourcing 
Initiatives:

Appendix V: Selected Acquisition Management Best Practices:

Appendix VI: GAO Contacts and Staff Acknowledgments:

Contacts:

Staff Acknowledgments:

Tables:

Table 1: DHS's Principal Organizations and Their Missions:

Table 2: Sampling Error at the 95 Percent Confidence Level for the 
Sample of Interagency Agreements:

Table 3: Sampling Error at the 95 Percent Confidence Level for the 
Sample of Interagency Agreements Fee Payments:

Figures:

Figure 1: DHS's Directorates and Other Principal Organizations and 
Sources of Contracting Support:

Figure 2: Reported Monthly Monetary Benefits Generated by DHS's 
Strategic Sourcing Program:

Figure 3: Comparison of Fiscal Year 2004 Dollars Obligated per 
Contracting Staff within Each DHS Contracting Office:

Figure 4: General Depiction of DHS's Investment Review Process for 
Major, Complex Investments:

Figure 5: Applying the Knowledge-Based Approach to DHS's Acquisition 
Framework:

Abbreviations:

DHS: Department of Homeland Security:

DOD: Department of Defense:

MANPADS: man-portable air defense systems:

US-VISIT: U.S. Visitor and Immigrant Status Indicator Technology:

United States Government Accountability Office:

Washington, DC 20548:

March 29, 2005:

The Honorable Tom Davis: 
Chairman: 
Committee on Government Reform: 
House of Representatives:

The Honorable Susan M. Collins: 
Chairman: 
Committee on Homeland Security and Governmental Affairs: 
United States Senate:

Since it was established, in March 2003,[Footnote 1] the Department of 
Homeland Security (DHS) has been faced with assembling 23 separate 
federal agencies and organizations with multiple missions, values, and 
cultures into one cabinet-level department.[Footnote 2] This mammoth 
task--one of the biggest mergers ever to take place within the federal 
government--involves a variety of transformational efforts, one of 
which is to design and implement the necessary management structure and 
processes for acquiring goods and services. In January 2003, we 
designated DHS's implementation and transformation as high-risk because 
of the size and complexity of the effort and the existing challenges 
faced by the components being merged into the department.[Footnote 3] 
As it progresses through the early stages of its merger and 
transformation, DHS has an opportunity to put into place the necessary 
elements to become a 21st century federal department with a high-
quality acquisition organization that effectively supports its 
critically important missions.

DHS has some of the most extensive acquisition needs within the U.S. 
government. In fiscal year 2004, the department obligated $9.8 billion 
to acquire a wide range of goods and services--such as information 
systems, new technologies, weapons, aircraft, ships, and professional 
services. At the same time, DHS is working to integrate the many 
acquisition processes and systems that the disparate agencies and 
organizations brought with them.

Given DHS's complex merger, you asked us to review the department's 
progress in establishing an effective acquisition organization. In 
response to your request, we (1) identified areas where DHS has been 
successful in promoting collaboration among its various organizations 
and (2) identified areas where DHS still faces challenges in 
integrating the acquisition function across the department. We also 
assessed the department's progress in implementing an effective review 
process for its major, complex investments.

To conduct this work, we assessed information from DHS headquarters and 
the department's principal organizations and compared the information 
against what our previous work has shown to be best acquisition 
practices. We reviewed agency directives, memorandums, and other 
documentation; interviewed agency officials; and analyzed agency 
systems and processes. For the purposes of this report, the term 
acquisition refers to the overall effort to acquire goods and services 
and involves a host of activities. Acquisition begins when an agency 
establishes its requirements and moves through a process that involves 
soliciting providers of goods and services, awarding contracts, 
monitoring performance, and handling various contract administration 
duties. In some cases, acquisition can include development of a new 
product, such as a weapon system or a database system. Acquisition also 
can be the simple purchase of existing products. The Federal 
Acquisition Regulation, which governs acquisitions within the federal 
government, defines the term procurement as being synonymous with 
acquisition.[Footnote 4] Appendix I presents our scope and methodology 
in more detail. We conducted our review from March 2004 through 
February 2005 in accordance with generally accepted government auditing 
standards.

Results in Brief:

In the relatively short time since its inception, DHS has demonstrated 
some successes in implementing a strategic sourcing program to leverage 
the department's buying power and in creating a small business 
program.[Footnote 5] Both of these efforts have fostered an environment 
in which DHS's various organizations work collaboratively toward a 
common goal. The cornerstone of the strategic sourcing program is the 
use of commodity councils, each consisting of a cross-functional group 
of acquisition-related personnel and specialists from the various 
organizations. These councils are charged with formulating purchasing 
strategies to meet departmentwide requirements for specific 
commodities, such as office supplies and the department's vehicle 
fleet. Even though the councils have faced challenges in gathering 
accurate spending data and in managing workload, they have helped spur 
collaboration and cooperation across the department. Moreover, DHS 
already has reported $14 million in dollar savings as a result of 
leveraging resources across DHS, and officials expect the savings to 
grow over time. Another area of early success is DHS's small business 
program, which has been proactive in working with each organization in 
the department to ensure that small businesses have the opportunity to 
compete for DHS dollars. In fiscal year 2004, DHS reported that 35 
percent of its prime contract dollars went to small businesses, 
exceeding its goal of 23 percent.

Notwithstanding these initial successes, DHS's progress in creating a 
unified acquisition organization has been slowed by policy decisions 
that create ambiguity and by procurement staffing disparities within 
the department. An October 2004 management directive emphasizes the 
need for a unified, integrated acquisition organization but relies on a 
system of dual accountability between the Chief Procurement Officer and 
the heads of the department's organizations to make this happen. The 
Chief Procurement Officer has been delegated the responsibility to 
manage, administer, and oversee all acquisition activity across DHS, 
but in practice enforcement of these activities is spread throughout 
the department with unclear accountability. Further, the directive 
states that the U.S. Coast Guard and U.S. Secret Service are 
statutorily exempt from its application. Although the Homeland Security 
Act provides that both the Coast Guard and the Secret Service shall be 
maintained as distinct entities within the department, we found no 
reasonable basis to conclude that the directive could not be made 
applicable to them. Rather, it appears to be a policy decision that is 
likely to hamper efforts to effectively integrate the acquisition 
function in DHS. To a great extent, the various acquisition 
organizations within the department are still operating in a disparate 
manner, with oversight of acquisition activities left primarily up to 
each individual organization. Significant disparities in the dollar 
value of contracting staff's workloads across DHS have only recently 
begun to be addressed. Staffing shortages have led one organization, 
which handles about $2 billion in obligations for various departmental 
organizations, to rely extensively on outside agencies for contracting 
support--often for a fee. We found that this office lacked adequate 
internal controls to provide oversight of this interagency contracting 
activity.

To protect its major, complex investments, DHS's Office of the Chief 
Financial Officer has put in place a review process that adopts many 
best practices--that is, proven methods, processes, techniques, and 
activities--to help the department reduce risk and increase the chances 
for successful outcomes in terms of cost, schedule, and performance. 
One best practice is an overarching, knowledge-based acquisition 
approach pioneered by successful commercial companies. A general 
principle of this approach is that program managers should provide 
sufficient knowledge about important aspects of their programs at key 
points in the acquisition process, so that senior leaders are prepared 
to make a well-informed investment decision before an acquisition moves 
forward. DHS's framework includes key tenets of this approach but does 
not require two critical management reviews to ensure that resources 
match customer needs and that design performs as expected. Also missing 
is important information to help reduce risk and meet cost and delivery 
targets for major investments. In addition, DHS's review process does 
not fully address how program managers will conduct effective 
contractor tracking and oversight. We also found that program managers 
lacked sufficient guidance about how to navigate investment reviews. 
The review process has been under revision for many months, and DHS 
officials could not tell us when the process would be finalized.

In this report, we are making recommendations to the Secretary of 
Homeland Security to help ensure that the department's strategic 
sourcing program maintains its current momentum, that acquisition 
integration efforts continue, and that DHS leadership has the 
information it needs to proactively manage risks that arise during the 
acquisition of major, complex systems. In written comments on a draft 
of this report, DHS concurred with the recommendations. DHS's comments 
are included in their entirety in appendix II.

Background:

The Homeland Security Act of 2002 created DHS, effective March 1, 2003, 
by merging agencies and organizations that specialize in one or more 
aspects of homeland security. Some of those specialties are 
intelligence analysis, law enforcement, border security, 
transportation security, biological research, critical infrastructure 
protection, and disaster recovery. The intent behind DHS's merger and 
transformation was to improve coordination, communication, and 
information sharing among the multiple federal agencies responsible for 
protecting the homeland. Critical to performing the homeland security 
mission is the effective interaction between and integration of these 
agencies and organizations. Table 1 shows DHS's eight principal 
organizations and their missions.

Table 1: DHS's Principal Organizations and Their Missions:

Principal organizations[A]: Border and Transportation Security 
Directorate; 
Missions: Ensures security of U.S. borders and transportation systems; 
Enforces the nation's immigration laws; Manages and coordinates port-of-
entry activities and oversees protection of government buildings.

Principal organizations[A]: Emergency Preparedness and Response 
Directorate; 
Missions: Prepares for catastrophes; Oversees federal government's 
national response and recovery strategy.

Principal organizations[A]: Information Analysis and Infrastructure 
Protection Directorate; 
Missions: Identifies and assesses threats; Recommends measures 
necessary to protect key resources and critical infrastructure.

Principal organizations[A]: Science and Technology Directorate; 
Missions: Coordinates DHS's efforts in research and development.

Principal organizations[A]: Management Directorate; 
Missions: Administers DHS's budget, financial management systems, 
procurement activities, human resources functions, information 
technology systems, facilities management, and performance measurement 
efforts.

Principal organizations[A]: U.S. Secret Service; 
Missions: Protects 
U.S. President and other designated personnel, as well as the country's 
currency and financial infrastructure, and provides security for 
designated national events.

Principal organizations[A]: U.S. Coast Guard; 
Missions: Protects the public, the environment and U.S. economic 
interests in the nation's ports and waterways, coasts, international 
waters, or any maritime region as required to support national 
security; has terrorism, counternarcotics border protection roles; and 
prevents illegal incursion of U.S. exclusive economic zone.

Principal organizations[A]: U.S. Citizenship and Immigration Services; 
Missions: Directs immigration benefit system and promotes citizenship 
values by providing immigration services, such as immigrant and 
nonimmigrant sponsorship; adjustment of status; work authorization and 
other permits; naturalization of qualified applicants; and asylum or 
refugee processing.

Sources: DHS (data); GAO (analysis).

[A] This table does not show the organizations that fall under each of 
the five directorates. This table also does not show all organizations 
that report directly to the DHS Secretary and Deputy Secretary, such as 
executive secretary, legislative affairs, public affairs, chief of 
staff, inspector general, and general counsel.

[End of table]

Of the 23 entities that joined DHS from other agencies, only 7 came 
with their own procurement support. Providing support to the other 
entities--as well as a number of newly created entities, such as the 
offices of the Chief Information Officer and Chief Financial Officer--
is an eighth office, the Office of Procurement Operations (Procurement 
Operations). That office was not created until January 2004, almost a 
year after DHS came into being. Appendix III lists all of the DHS 
organizations that receive contracting support from Procurement 
Operations. Figure 1 shows the sources of contracting support for DHS's 
principal organizations.

Figure 1: DHS's Directorates and Other Principal Organizations and 
Sources of Contracting Support:

[See PDF for image]

[End of figure]

To carry out acquisition effectively across a large federal 
organization requires an integrated structure with standardized 
policies and processes, the appropriate placement of the acquisition 
function within the department, leadership that fosters good 
acquisition practices, and a general framework that delineates the key 
phases along the path for a major acquisition. An effective acquisition 
organization has in place knowledgeable personnel who work together to 
meet cost, quality, and timeliness goals while adhering to guidelines 
and standards for federal acquisition.

Initiatives to Leverage Buying Power and Small Business Program Have 
Helped Foster Collaboration among DHS Organizations:

In the 2 years since its creation, DHS has realized some successes in 
opening the lines of communication among the various organizations 
within the department through its strategic sourcing and small business 
programs. Both of these efforts have involved every principal 
organization in DHS, along with strong involvement from the Chief 
Procurement Officer, and both have yielded positive results. DHS 
already has begun to demonstrate that its strategic sourcing program 
can foster collaboration across the department and at the same time 
maximize the department's overall buying power. DHS's small business 
program has a presence departmentwide, and according to DHS officials, 
the department exceeded its 23 percent small business goal for fiscal 
year 2004.[Footnote 6]

Strategic Sourcing Program Has Encouraged Partnerships across DHS and 
Begun to Realize Savings:

Under the authority of the Chief Procurement Officer, DHS created a 
strategic sourcing group in October 2003 to leverage departmentwide 
spending for various commodities. The group brought together diverse 
expertise from throughout DHS. To identify commodities with the most 
potential for savings, strategic sourcing officials conducted a spend 
analysis using available acquisition databases, such as the Federal 
Procurement Data System, and input from DHS senior management.[Footnote 
7] The following 15 commodities were identified as having potential to 
leverage the department's buying power:

* aviation,

* boats,

* business wireless communications,

* copiers,

* energy,

* enterprise software agreements,

* facilities,

* facilities security,

* vehicle fleets,

* mail,

* office supplies,

* professional services,

* training,

* uniforms, and:

* weapons.

Consistent with best practices, the strategic sourcing group then 
established commodity councils composed of representatives from across 
DHS. The commodity councils were assigned responsibility for further 
collection and refinement of historical procurement data in order to 
better assess future purchasing strategies. Typically, members from the 
strategic sourcing group and the DHS organization with the most 
expertise in a particular commodity serve as council cochairs. For 
example, a Coast Guard official is a cochair for the boats commodity 
council.

Commodity council cochairs said they were willing to devote time to the 
strategic sourcing initiatives because they recognized the unique 
opportunity DHS had to move forward to leverage buying power across the 
department. Further, the cochairs were virtually unanimous in telling 
us that the councils enable stakeholders to build awareness of a 
particular commodity and develop strong relationships throughout DHS. 
They said the councils foster a sense of community in which the various 
organizations can share information, participate in forums, find 
commonalities, engage in open and productive communication, and make 
smarter and more collaborative business decisions. For example, the 
weapons commodity council routinely shares information on ammunition. 
When one DHS organization is low on ammunition, others help meet the 
need. Appendix IV contains more detail on initiatives that several 
commodity councils have undertaken.

In fiscal year 2004, 4 commodity councils--office supplies, boats, 
energy, and weapons--reported approximately $14.1 million in cost 
savings and cost avoidances, and department officials expect the 
savings to continue to grow.[Footnote 8] The savings have resulted from 
DHS negotiating lower rates with suppliers and leveraging resources 
across the department. Figure 2 depicts the savings trend over a 12-
month period. The September 2004 surge resulted when authorized DHS 
employees began purchasing pistols through two large contracts, a 
strategy spearheaded by the weapons commodity council.

Figure 2: Reported Monthly Monetary Benefits Generated by DHS's 
Strategic Sourcing Program:

[See PDF for image]

[End of figure]

Baseline Data and Workload Demands Have Presented Challenges:

Some councils are encountering a problem faced by many federal 
departments and agencies, namely, a shortage of comprehensive data upon 
which to draw an accurate and detailed picture of what is being spent 
on certain commodities over time. Strategic sourcing officials and 
commodity council members told us that they cannot take full advantage 
of spend analyses, nor can they accurately chart historical spending, 
because DHS's acquisition databases do not contain enough procurement 
data. The problem is compounded by the fact that when parts of existing 
agencies, such as the Immigration and Naturalization Service from the 
Department of Justice, joined DHS, detailed information on its spending 
history was not available. Without an accurate analysis of how DHS 
organizations historically purchased a commodity, council members will 
likely continue to rely on a patchwork of estimates, as well as 
information from suppliers, to glean information on spending history 
and develop purchasing strategies for the future.

In addition, some commodity council members have found it challenging 
to balance council duties with the demands and responsibilities of 
their full-time positions within DHS. Officials told us that council 
meetings and activities sometimes stall because council members must 
shift attention to their full-time positions. Many commodity councils 
did not make much progress during the last month of fiscal year 2004, 
we were told, because council members' time was diverted to year-end 
priorities. Our prior work on strategic sourcing shows that leading 
commercial companies often establish full-time commodity managers to 
more effectively manage commodities.[Footnote 9] Commodity managers 
help commodity councils define requirements with internal clients, 
negotiate with potential vendors, and resolve performance or other 
issues arising after a contract is awarded and can help maintain 
consistency, stability, and a long-term strategic focus.

Small Business Program Off to Good Start:

DHS's small business program has also had initial successes, reporting 
that 35 percent of fiscal year 2004 obligations were awarded to small 
business prime contractors, exceeding the department's goal of 23 
percent. Although reporting directly to the Deputy Secretary of DHS, 
the Director of the Office of Small and Disadvantaged Business 
Utilization works closely with the Chief Procurement Officer to 
emphasize throughout the department the important public policy 
objective of small business inclusion in acquisition activities. The 
small business office, in conjunction with the procurement staff across 
the department, has created an outreach program that advises small 
businesses on ways to market goods and services to DHS. Small business 
representatives have been designated in each DHS procurement office, 
and each office is required to submit a forecast of upcoming contract 
opportunities above $100,000. DHS posts this information on a Web site 
so that small businesses can identify opportunities to do business with 
the department. The small business office has conducted extensive 
outreach to DHS's business partners through regular seminars and has 
established a mentor-protégé program that is designed to motivate and 
encourage large businesses to provide mutually beneficial developmental 
assistance to small businesses.

The Director of the Office of Small and Disadvantaged Business 
Utilization and his staff have also been directly involved in DHS's 
strategic sourcing efforts to help ensure that, even as the department 
leverages its buying power, small businesses continue to have 
opportunities to compete for contracts. Several commodity councils have 
developed strategies to address this issue. The office supplies council 
has worked out an arrangement for DHS employees to purchase office 
supplies from the Department of Defense's (DOD) Web-based Emall, where 
employees can easily identify and order from small businesses.[Footnote 
10] The head of procurement in the Immigration and Customs Enforcement 
organization, working closely with the weapons commodity council, 
awarded a contract for half of the largest pistol procurement in the 
history of U.S. law enforcement to a small business. According to the 
chair of the boats council, the council plans to consult with the Coast 
Guard's small business specialist to explore future possibilities for 
providing opportunities to small businesses.

Goal of Creating an Integrated Acquisition Organization Is Hampered by 
Unclear Policy Decisions and Staffing Disparities:

DHS's goal of integrating the acquisition function more broadly across 
the department has not been accomplished, and the introduction of a new 
policy has been unsuccessful in breaking down barriers to effective 
departmentwide management. An integrated acquisition organization is 
essential to the department's success in executing policies and 
processes to effectively obligate and administer billions of dollars in 
acquiring what DHS needs to accomplish its mission. An October 2004 DHS 
management directive emphasizes the need for an integrated acquisition 
organization and reiterates the Chief Procurement Officer's 
responsibility to manage, administer, and oversee all acquisition 
activity across DHS and to establish a qualified acquisition workforce. 
In practice, these responsibilities are spread throughout the 
department with unclear accountability. Further hampering efforts to 
effectively integrate the acquisition function, the directive provides 
that the Coast Guard and the Secret Service are statutorily exempt from 
its application. We found no reasonable basis to conclude that the 
directive could not be made applicable to them. The various 
organizations within DHS continue to operate in a largely disparate 
manner, with a lack of centralized oversight of compliance with the 
department's acquisition regulation and policies. Staffing disparities 
across the procurement organizations have only recently begun to be 
addressed. We found that staffing shortfalls led Procurement Operations 
to rely extensively on outside agencies for contracting support--often 
for a fee--and that this office lacked adequate internal controls to 
properly manage this interagency contracting activity. Because of the 
risks associated with interagency contracting, we recently designated 
this approach as a high-risk issue.[Footnote 11]

Not Clear How Recent Management Directive Will Drive Integration of the 
Acquisition Organization:

In October 2004, the Secretary of DHS signed a management directive 
entitled "Acquisition Line of Business Integration and Management." 
This directive, the department's principal guidance for "leading, 
governing, integrating, and managing" the acquisition function, states 
that DHS will standardize acquisition policies and procedures and 
continue to consolidate and integrate the number of systems supporting 
the acquisition function. It directs managers from each organization to 
commit resources to training, development, and certification of 
acquisition professionals. The directive also highlights the Chief 
Procurement Officer's broad authority, including:

* management, administration, and oversight of departmentwide 
acquisition, financial assistance, strategic sourcing, and competitive 
sourcing programs;

* promotion of career development and establishment of qualifications, 
training, and certification standards for the acquisition and financial 
assistance workforce;

* development and publication of departmentwide acquisition and 
financial assistance regulations, directives, policies, and 
procedures;

* designation of all heads of contracting activities; and:

* development and maintenance of contracting officer warrant and 
financial assistance officer programs, including designation of 
qualified persons as contracting officers and financial assistance 
officers.

However, the directive may not achieve its goal of creating an 
integrated acquisition organization, because it creates unclear working 
relationships between the Chief Procurement Officer and heads of DHS's 
principal organizations.[Footnote 12] For example, the Chief 
Procurement Officer and the director of Immigration and Customs 
Enforcement share responsibility for recruiting and selecting key 
acquisition officials, preparing performance ratings for the top 
manager of the contracting office, and providing appropriate resources 
to support the Chief Procurement Officer's initiatives. The policy 
leaves unclear how the responsibilities will be implemented or what 
enforcement authority the Chief Procurement Officer has to ensure that 
initiatives are carried out. In addition, directors are only required 
to "consider" the allocation of resources to meet procurement staffing 
levels in accordance with the Chief Procurement Officer's analysis. 
Agreements have not been developed on how the resources to train, 
develop, and certify acquisition professionals in the principal 
organizations will be identified or funded. In a relatively new 
department like DHS, which is still in the process of instituting 
procedures, developing a strong organizational culture, and 
establishing clear roles and missions, this concept of dual 
accountability--absent effective implementing guidance--may not 
accomplish the intended goals.

The October 2004 management directive does not apply to the Coast Guard 
or the Secret Service, further hampering efforts to integrate the 
acquisition organization. The Coast Guard is one of the largest 
organizations within DHS, with obligations accounting for about $2.1 
billion in fiscal year 2004, nearly 23 percent of the department's 
total. According to the directive, the Coast Guard is exempted by 
statute. We disagree. We are not aware of any explicit statutory 
exemption that would prevent the application of this directive. While 
several provisions in the Homeland Security Act would limit the range 
of management initiatives concerning the Coast Guard, none of them 
would appear to be applicable in this case. For example, the Homeland 
Security Act requires the Coast Guard to be maintained as a distinct 
entity within the department.[Footnote 13] Other limitations prevent 
the transfer of assets,[Footnote 14] alteration of missions,[Footnote 
15] and changes in reporting relationships.[Footnote 16] The act also 
expressly provides that "the authorities, functions, and capabilities 
of the Coast Guard to perform its missions shall be maintained intact 
and without significant reduction after the transfer of the Coast Guard 
to the department." We find nothing in the directive that contravenes 
these limitations. Nothing in the document would reasonably appear to 
threaten the status of the Coast Guard as a distinct entity or 
otherwise impair its ability to perform statutory missions.

We raised the question of statutory exemption with the DHS General 
Counsel, who shared our assessment concerning the explicit statutory 
exemptions. He viewed the applicability of the management directive as 
a policy matter, noting that "the determination of whether the 
application of all or part of this [management directive] would impact 
the [Coast Guard's] ability to perform its mission is not a legal 
matter and is more appropriately made by DHS policy officials." We 
agree that DHS officials, with sufficient reasons, could make a policy 
decision that a particular management directive impacts the Coast 
Guard's ability to perform its missions. In this instance, however, we 
found no evidence that such a decision had been made.

The directive also provides that the Secret Service is exempted by 
statute. As with the Coast Guard, we are unaware of any specific 
statutory exemption that would prevent the application of the 
directive. The Homeland Security Act requires the Secret Service to be 
maintained as a distinct entity within the department.[Footnote 17] The 
2005 Homeland Security Appropriations Act reiterates this requirement 
and imposes additional limitations on altering reporting 
relationships.[Footnote 18] Given the nature of the management 
directive, we also conclude that there is no apparent reason to exempt 
the Secret Service from its application.[Footnote 19]

In Environment of Largely Disparate Procurement Organizations, 
Oversight of Acquisition Activity Lacking:

DHS's principal organizations are, to a large extent, still functioning 
much as they did in premerger days with regard to acquisition-related 
functions. Embedded within seven of the procurement organizations are, 
for the most part, the same contracting staffs that joined DHS from 
their former agencies. The eighth organization, Procurement Operations, 
created to meet the needs of the many DHS organizations that do not 
have colocated procurement support, has a direct reporting chain to the 
Chief Procurement Officer.

Until recently, the Chief Procurement Officer, whom DHS's top 
leadership delegated with the key responsibility of ensuring compliance 
with the department's acquisition regulation and policies, had only two 
staff members to carry out this duty. Consequently, the department's 
acquisition oversight program relies extensively on self-assessments by 
personnel in each procurement organization. A component of the 
oversight program is a recent initiative to review DHS acquisition 
plans, according to dollar thresholds, and to perform on-site 
evaluations of each procurement organization. The fiscal year 2005 
budget provided the Chief Procurement Officer with five additional 
staff, but it is too soon to tell whether this number will be adequate 
to effectively implement the oversight program. Further, it remains 
unclear what the result would be if an organization were found not to 
be in compliance with DHS's acquisition regulation and policies.

Our prior work shows that in a highly functioning acquisition 
organization, the chief procurement officer is in a position to oversee 
compliance with acquisition policies and processes by implementing 
strong oversight mechanisms.[Footnote 20] Adequate oversight of 
acquisition activities across DHS is imperative, in light of the 
department's mission and the problems that have been reported by us and 
inspectors general for some of the large agencies and organizations 
within the department. These reports have highlighted the lack of 
important management controls for monitoring contractors and ensuring 
efficiencies and effectiveness in the acquisition process. For example, 
the Department of Homeland Security Inspector General reported that 
during its first year of operation, the Transportation Security 
Administration relied extensively on contractors to accomplish its 
mission. It also found that contracting officers wrote contracts 
without clearly defined deliverables, and on occasion, contractors 
themselves were permitted to determine requirements and define 
deliverables. As a result, the cost of those initial contracts 
ballooned.[Footnote 21] The Transportation Security Administration is 
in the process of devising policies and procedures that require 
adequate procurement planning, contract structure, and contract 
oversight. We have also reported that the former U.S. Immigration and 
Naturalization Service did not have the basic infrastructure--including 
oversight of procurement activities--to ensure that its contracting 
office was effective. DHS's Inspector General recently reported that 
the Federal Emergency Management Agency discovered it has not been 
reporting or tracking procurements handled by its field 
offices.[Footnote 22]

Challenges to Effective Implementation of Acquisition Workforce Plan:

In July 2003, we recommended that DHS develop a data-driven assessment 
of the department's acquisition personnel, resulting in a workforce 
plan that would identify the number, location, skills, and competencies 
of the workforce.[Footnote 23] DHS concurred with the recommendation 
and has drafted a plan, based on best practices, that defines the 
acquisition workforce, focuses on the need for continuous training, and 
implements a certification program for contracting officials, program 
managers, and contracting officers' technical 
representatives.[Footnote 24] However, the department faces challenges 
in implementing the plan.

As part of its acquisition workforce planning efforts, the department 
has not conducted an assessment of whether contracting staff within DHS 
are appropriately distributed for the varying workloads in each 
procurement organization. Our analysis shows that some disparities may 
exist. We divided the obligated fiscal year 2004 dollars for each 
contracting office by the number of contracting staff. While this 
approach is limited in that it does not take into account the 
complexity of the acquisitions being performed, it can provide senior 
leadership with an indication of whether disparities may exist in the 
contracting workforce. Figure 3 shows the amount of contracting 
obligations per contracting staff within DHS contracting activities.

Figure 3: Comparison of Fiscal Year 2004 Dollars Obligated per 
Contracting Staff within Each DHS Contracting Office:

[See PDF for image]

[End of figure]

As of September 2004, Procurement Operations had only 19 contracting 
staff to support a number of DHS organizations that, taken together, 
accounted for about 21 percent, or almost $2 billion, of DHS's fiscal 
year 2004 obligations. That year, Procurement Operations contracting 
staff on the average handled $101 million per employee, whereas the 
contracting staff for the Federal Law Enforcement Training Center on 
the average handled close to $2.7 million per employee. Disparities 
such as this may indicate the need to assess the numbers of contracting 
staff across the department to determine whether imbalances exist and 
whether actions are needed to correct the imbalances.

Another challenge to effectively implementing the acquisition workforce 
plan pertains to the lack of enforcement of DHS's certification 
program. While the plan calls for program managers responsible for 
acquisitions to be certified in accordance with DHS's established 
training and experience requirements, in practice, the means to enforce 
compliance is lacking. In January 2005, the Director for the 
Acquisition Workforce Program, within the Office of the Chief 
Procurement Officer, determined that only 22 percent of the identified 
programs in the department had program managers that had documented 
that they had the training and experience requirements for 
certification. While the Office of the Chief Procurement Officer has 
issued a management directive requiring program mangers to meet the 
department's certification and training requirements--and the number of 
certified program managers has been increasing--accountability for 
complying with the certification program rests with the principal 
organizations to whom the program managers report. At present, 
according to DHS officials, no mechanism is in place to ensure that 
program managers take the required training and obtain certification 
from the Chief Procurement Officer.

Struggling with Staffing Shortfalls, Procurement Operations Has Relied 
on Interagency Agreements but Failed to Follow DHS Guidance in Doing 
So:

Established almost 1 year after DHS was formed and tasked with 
providing contracting support to the department organizations that did 
not have their own contracting support, Procurement Operations has 
struggled to manage its almost $2 billion workload because of staffing 
shortfalls. Lacking in-house capability, Procurement Operations has 
turned extensively to interagency contracting, and we found that 
management controls were not in place to effectively oversee this 
activity. Interagency contracting occurs when a federal agency obtains 
supplies or services through another federal agency, either by placing 
orders on existing contracts that have already been awarded by the 
other agency, or by asking the other agency to award and administer 
contracts or issue and administer task orders on its behalf. Use of 
these contracts demands a high degree of business acumen and 
flexibility on the part of the federal acquisition workforce.

We found that Procurement Operations had transferred almost 90 percent 
of its obligations to other federal agencies through interagency 
agreements in fiscal year 2004. For example, DHS transferred $12 
million to the Department of the Interior's National Business Center to 
obtain contractor operations and maintenance services at the Plum 
Island Animal Disease Center. Interior charged DHS $62,000 for this 
assistance. While some of the interagency agreements were for 
contracting support, others were for program support, such as sending 
funds to Department of Energy laboratories for providing a threat and 
capability assessment.

DHS has issued a management directive that sets forth a number of 
requirements meant to ensure that internal controls are in place when 
using interagency contracting. Based on a random sample of 136 
interagency agreements between Procurement Operations and outside 
agencies, we found that the office had not complied with the 
requirements in the directive.[Footnote 25] We can project, for 
example, that in fiscal year 2004:

* 94 percent of Procurement Operations' files did not document that the 
contracting staff had conducted the required analysis of alternatives 
to justify the decision to pay an outside agency for contracting 
support;

* 47 percent of the files did not identify the contracting officer's 
technical representative, although this information is required to be 
in the files;

* 35 percent of the files did not contain the required determination 
and findings;[Footnote 26] and:

* 96 percent of the files lacked an indication that contractor 
oversight had been performed.

Further, we found that Procurement Operations was not tracking how much 
it is paying in fees to other agencies for contracting support. On the 
basis of our sample, we found that the office had spent $12.9 million 
in fees in fiscal year 2004.

While the oversight problems we identified are in large part due to the 
staffing shortages in the office, we also found evidence that 
contracting staff lacked basic information on how to use interagency 
contracting. For example, a memo from Procurement Operations to DHS's 
Director of Acquisition Policy and Oversight requested clarification on 
what documentation is required in order to use another agency for 
contracting support. In September 2004, DHS's Office of General Counsel 
reviewed 20 of Procurement Operations' interagency agreements and found 
that 16 were not legally sufficient. For example, 13 agreements 
appeared to require performance by a contractor, but appropriate 
documentation was not included in the contract files. Three were 
insufficient because it was unclear whether the servicing agency would 
perform cost/price analysis and trade-off, or whether Procurement 
Operations had conducted a technical competition and expected the 
servicing agency to award without a trade-off. According to a 
Procurement Operations official, a fiscal year 2005 initiative for the 
office is to establish a policy for processing interagency agreements 
that provides clear guidance to staff.

Procurement Operations to Use Working Capital Fund to Increase Staffing 
Levels:

Since January 2004, Procurement Operations has increased its staffing 
level from 7 to 42 employees, and it plans to build to 127 staff in 
fiscal year 2005. Rather than use direct appropriations to fund the 
additional positions, the office plans to require the DHS organizations 
that rely on its contracting services to contribute to a working 
capital fund, to be replenished on a no-profit basis with payments 
based on the extent to which the various organizations use the office's 
support. Although the DHS budget for fiscal year 2005 includes $8.9 
million to add contracting staff through the fund, we found that the 
mechanics of making the fund viable have not been worked out. 
Currently, Procurement Operations is negotiating agreements with each 
organization it supports to determine the terms and conditions of 
support and the dollar level to be contributed to the fund. According 
to DHS officials, this negotiation process has been problematic. For 
example, at the time of our review, the Science and Technology 
Directorate and Procurement Operations were having difficulty reaching 
a decision about who would be responsible for hiring the contracting 
staff that would support the directorate. As of January 2005, no 
agreements had been reached.

Despite Adoption of Many Best Practices, Review Process for Major 
Investments Lacks Key Reviews and Some Management Controls:

Some DHS organizations have large, complex, and high-cost acquisition 
programs that need to be closely managed. For example, the Bureau of 
Customs and Border Protection's Automated Commercial Environment 
system, which is a new trade processing system intended to improve the 
movement of goods imported into the United States, is projected to cost 
$5 billion, and the Coast Guard's Deepwater Program is expected to cost 
$17 billion and take 2 to 3 decades to complete.[Footnote 27] To review 
major, complex investments such as these (referred to as level 1 
investments), DHS's Office of the Chief Financial Officer has put in 
place a multitiered process. DHS has taken positive steps in creating a 
knowledge-based framework, or philosophy, for managing major 
investments; however, it still lacks key reviews and deliverables--both 
best practices--within this framework to ensure that cost and schedule 
estimates for major investments are as accurate as possible. These 
reviews take place at critical junctures in the process and include 
demonstrating knowledge about technologies, design, and manufacturing 
processes. In addition, we found that contractor oversight, an 
important tool for managing programs, is not receiving high-level 
attention in the review process. Finally, we identified several areas 
of confusion surrounding the mechanics of implementing the process from 
a program manager's perspective. The management directive on the review 
process has been under revision for many months, and DHS officials 
could not tell us when the directive would be finalized.

Key Elements of DHS's Investment Review Process:

DHS's investment review process involves several different levels of 
review, depending on the dollar threshold and risk level of the 
program. The Investment Review Board makes decisions on level 1 
investments with prior review and input from the Joint Requirements 
Council, which in turn seeks input from other DHS specialists who have 
expertise in such areas as asset management and information technology. 
In classifying investments as level 1, DHS considers the following 
criteria: contract costs; importance to DHS strategic and performance 
plans; high development, operating, or maintenance costs; high risk; 
high return; and significance in resource administration. Investments 
classified as levels 2, 3, or 4 are considered lower-level acquisitions 
and follow different investment review processes. In addition, many of 
the major DHS organizations, such as the Transportation Security 
Administration and the Coast Guard, have their own review processes, 
which occur prior to higher-level review in the department. Figure 4 
illustrates who is involved in the decision-making process and the 
levels of review.

Figure 4: General Depiction of DHS's Investment Review Process for 
Major, Complex Investments:

[See PDF for image]

[End of figure]

Although Policy Governing the Review Process Has Established a Solid 
Risk Management Framework, Additional Best Practices Would Benefit DHS:

DHS has adopted several best practices from lessons learned from 
leading commercial companies and successful federal programs that, if 
applied consistently, could refine its ability to reduce risk to meet 
cost and delivery targets for major investments. One of the best 
practices is a knowledge-based approach, or framework, for managers to 
hold reviews at key decision points in order to reduce risk before 
investing resources in the next phase of a program's development. The 
investment review policy provides guidance to program managers to 
provide knowledge about important aspects of a product at key points in 
the acquisition process and encourages them to reduce technology risk 
through demonstration prior to beginning a project. The policy also 
encourages program managers to demonstrate a product's design with 
critical design reviews and reduce manufacturing risk prior to a 
production decision. However, we found, based on our extensive body of 
work on this knowledge-based approach, that additional program reviews 
and knowledge deliverables could be incorporated into the process as 
internal controls to better position DHS to make well-informed 
decisions on its major, complex investments.

Figure 5 generally depicts the major phases of the knowledge-based 
approach and the positioning of three knowledge points, or gates, when 
key reviews are scheduled. The figure applies the knowledge-based 
approach to DHS's investment review framework and displays an 
exclamation mark where key reviews or information are missing.

Figure 5: Applying the Knowledge-Based Approach to DHS's Acquisition 
Framework:

[See PDF for image]

[End of figure]

As shown in figure 5, DHS review points do not fully align with the 
knowledge-based approach. For example, DHS does not require a review to 
ensure that an investment's design performs as expected before 
investing in a prototype. In addition, DHS's mandatory review to 
proceed to production does not occur until after low-rate initial 
production is well under way. DHS does have a review for low-rate 
initial production; however, it is at the discretion of the Investment 
Review Board. Our past work has shown that successful investments 
reduce risk by ensuring that high levels of knowledge are achieved at 
these key points of development. We found that investments that were 
not reviewed at the appropriate points faced problems--such as 
redesign--that resulted in cost increases and schedule delays.

We also found that some critical information is not addressed in DHS's 
investment review policy or the guidance provided to program managers. 
In other cases, it is made optional. For example, before program start 
(knowledge point 1) is approved, DHS policy requires program managers 
to identify an acquisition's key performance requirements and to have 
technical solutions in place. This information is then used to form 
cost and schedule estimates for the product's development to ensure 
that a match exists between requirements and resources. However, DHS 
policy does not establish cost and schedule estimates for the 
acquisition based on knowledge from preliminary designs. At knowledge 
point 2, while DHS policy requires program managers to identify and 
resolve critical operational issues before proceeding to production, 
initial reviews--such as the system and subsystem reviews--are not 
mandatory.

Not all investments require the use of every piece of information 
included under a knowledge-based approach. Many of DHS's major 
investments use commercial, off-the-shelf products that do not require 
the same level of review as a complex, developmental investment would. 
However, DHS is investing in a number of major, complex systems, such 
as the Coast Guard's Deepwater Program and the U.S. Visitor and 
Immigrant Status Indicator Technology (US-VISIT),[Footnote 28] which 
incorporate new technology and therefore require greater adherence to 
the knowledge-based approach in order to ensure risk is reduced before 
committing to the next phase of the investment. In addition, the added 
reviews and information included in the knowledge-based approach may 
still be required for programs that use existing technology, such as 
the Counter-MANPADS program, which involves placing military technology 
on commercial aircraft.[Footnote 29]

In addition to the knowledge-based approach and its associated 
controls, DHS's investment review policy and guidance adopt a number of 
other important acquisition management practices, such as requiring 
program managers to submit acquisition plans and project management 
plans. However, a key practice, contractor tracking and oversight, is 
not fully incorporated in the policy and guidance. We have cited the 
need for increased contractor tracking and oversight for several large 
DHS programs. For example, we previously reported that the Coast 
Guard's Deepwater program needed increased management and contractor 
oversight. One activity of contract tracking and oversight requires 
that a quantitative set of software and system metrics are used to 
define and measure product quality and contractor performance. The 
Coast Guard had not developed measurable performance goals or adhered 
to effective procedures for holding the contractor accountable for its 
ongoing performance. In addition, we previously recommended that the 
US-VISIT program should improve attention to implementing acquisition 
best practices. While DHS agreed, and the US-VISIT program office has 
assigned responsibility for implementing the recommended management 
controls, the department has not yet developed explicit plans or time 
frames for defining and implementing acquisition best practices. A list 
of selected acquisition management practices and required activities is 
in appendix V.

As Review Process Matures, Some Mechanics Still to Be Worked Out:

The investment review process has been under revision for many months. 
According to DHS officials, the changes will include shifting 
responsibilities of some tiers in the review process and increasing the 
dollar threshold for level 1 investments. To date, the new process has 
not been finalized, and officials could not provide us with a time 
frame for completion. In the meantime, we found unclear guidance and 
confusion about several aspects of the process. In some cases, the 
confusion has resulted in key stakeholders, such as the Chief 
Procurement Officer, not receiving materials in time to conduct a 
thorough review and provide meaningful feedback prior to investment 
review meetings.

The issues we found include the following:

* Program managers have been provided with only draft guidance 
regarding the information they are required to submit and the time 
frames for submissions. This draft guidance is, in some cases, unclear.

* Some DHS officials noted that their submissions to the review board 
had been rejected on an inconsistent basis with no explanation.

* Program managers have not received formal training on the investment 
review process. Officials told us that some program managers have been 
unaware of when to submit information about their programs for review.

* In practice, major investments in services are exempt from the review 
process and are only reviewed when done as part of a capital 
investment. Officials from the Office of the Chief Financial Officer 
who are in charge of the process told us that services investments are 
reviewed only when they are part of a capital investment because these 
acquisitions are not complex and therefore do not need the same level 
of scrutiny reserved for the acquisition of goods.

Currently, program managers receive assistance in developing their 
review board submissions from a small number of staff in the Chief 
Financial Officer's Office of Program Analysis and Evaluation at the 
beginning of a program and at DHS's key decision points. However, 
because of limited resources, the office has only been able to provide 
limited support to programs to assist them in completing their 
submissions.

Conclusions:

In the 2 years since its merger, DHS has taken strides toward putting 
in place an acquisition organization that contains many promising 
elements, but the steps taken so far are not enough to ensure that the 
department is effectively managing the acquisition of the multitude of 
goods and services it needs to meet its mission. More needs to be done 
to fully integrate the department's acquisition function, to pave the 
way for the Chief Procurement Officer to fully carry out his 
responsibilities in a modern-day acquisition organization, and to put 
in place the strong internal controls needed to effectively manage 
interagency contracting activity and large, complex investments. Unless 
DHS's top leaders address these challenges, the department is at risk 
of continuing to exist with a fragmented acquisition organization that 
provides stopgap, ad hoc solutions. DHS has an opportunity, while it is 
still involved in transformational efforts, to avoid the complications 
that plague acquisition efforts in other long-established federal 
departments.

Recommendations for Executive Action:

To help ensure that DHS receives the goods and services it needs at the 
best value to the government, we recommend that the Secretary of 
Homeland Security take the following six actions:

* establish a structure to ensure continued support for commodity 
councils, such as appointing full-time dedicated commodity managers, to 
ensure that the commodity councils develop long-term strategies, 
maintain momentum, and continue to realize savings;

* provide the Office of the Chief Procurement Officer with sufficient 
resources and enforcement authority to enable effective, departmentwide 
oversight of acquisition policies and procedures;

* conduct a departmentwide assessment of the number of contracting 
staff and, if a workload imbalance is found, take steps to correct it 
by re-aligning resources;

* direct higher-level management attention to the implementation of the 
working capital fund (which is to be used to fund contracting staff for 
the Office of Procurement Operations) by, for example, determining the 
level of contracting support needed by the organizations relying on 
this office, ensuring that appropriate funds are committed to hire 
needed contracting staff, and ensuring that funds are available on an 
ongoing basis for continuity;

* revise the October 2004 management directive "Acquisition Line of 
Business Integration and Management" to eliminate reference to the 
Coast Guard and Secret Service being statutorily exempt from complying; 
and:

* ensure that DHS's management directive on interagency agreements is 
followed and that fees paid to other agencies are tracked.

To help ensure that DHS leadership is aware of risks as they arise 
during the acquisition of major, complex systems, we recommend that the 
Secretary of Homeland Security take the following seven actions:

* in making revisions to the investment review policy:

* require for all complex, developmental investments a formal design 
review between the integration and demonstration of a program to ensure 
that the design is stable and has been demonstrated through prototype 
testing;

* require for all complex, developmental investments a review before 
initial production;

* require that program managers supply additional information--such as 
cost and schedule estimates based on results of a preliminary design 
review and critical design review--when their major, complex programs 
are reviewed; and:

* require program managers to specifically address contractor oversight 
in their submissions to investment review boards.

* ensure that stakeholders, including acquisition officials in the 
Office of the Chief Procurement Officer, have adequate time to review 
investment submissions and provide formal input to decision-making 
review boards;

* implement training for program managers on the investment review 
process that emphasizes the importance of a knowledge-based approach; 
and:

* require that major acquisitions of services be subject to oversight 
by the investment review board.

Agency Comments and Our Evaluation:

We provided a draft of this report to DHS for review and comment. In 
written comments, DHS generally agreed with our facts and conclusions 
and concurred with all of our recommendations. Regarding three of our 
recommendations on the investment review process, DHS stated that the 
actions exist in current directives and are already being done. We 
disagree. Our work demonstrated that DHS's review points do not fully 
align with the knowledge-based approach. For example, DHS's mandatory 
review to proceed into production does not occur until after low-rate 
initial production is well under way, and the review for starting low-
rate initial production only occurs at the discretion of the Investment 
Review Board. Also, DHS's framework lacks the knowledge deliverables 
necessary at each key review to ensure that cost and schedule estimates 
for major investments are as predictable as possible. Our past work has 
shown that investments that were not reviewed at the appropriate points 
faced problems that resulted in cost increases and schedule delays.

The department's comments are reprinted in appendix II.

As arranged with your offices, unless you publicly announce its 
contents earlier, we plan no further distribution of this report until 
30 days from its issue date. We are sending copies of this report to 
other interested congressional committees, the Secretary of the 
Department of Homeland Security, and the Director of the Office of 
Management and Budget. In addition, the report will be available on 
GAO's Web site at http://www.gao.gov.

If you or your staff have any questions concerning this report, please 
contact me at (937) 258-7915. Staff making major contributions to this 
report are listed in appendix VI.

Signed by: 

Michael J. Sullivan, 
Director, Acquisition and Sourcing Management:

[End of section]

Appendix I: Scope and Methodology:

To identify the areas where the Department of Homeland Security (DHS) 
has been successful in promoting collaboration among its various 
organizations, we interviewed senior acquisition officials at DHS 
headquarters and analyzed pertinent documents. We obtained information 
from the Office of Strategic Sourcing and Acquisition Systems to 
analyze how DHS has used strategic sourcing to leverage the 
department's buying power. We interviewed senior strategic sourcing 
officials at DHS headquarters to obtain information on how they 
identified the commodities with potential for savings. We reviewed 
studies, policies, guidance, and other documents related to ongoing or 
proposed strategic sourcing initiatives that leveraged buying power, 
cut costs, or achieved other performance benefits. Our review found 
that the department's strategic sourcing cost savings methodologies 
appear reasonable; however, we did not verify the accuracy of any 
strategic procurement costs savings reported to us. We asked senior 
strategic sourcing and commodity council participants about potential 
barriers to employing strategic sourcing at DHS. We interviewed the 
Director, Office of Small and Disadvantaged Business Utilization, and 
procurement officials within the department. We obtained policies, 
memorandums, and other documents from the small business office, 
procurement organizations, and the U.S. Small Business Administration.

To determine areas where DHS faces challenges in integrating the 
acquisition function, we reviewed DHS organizational charts to gain 
insight into where the procurement offices fall in the hierarchy and to 
determine the lines of responsibility and authority between the various 
stakeholders in the acquisition process. We reviewed DHS policies, 
guidance, and procedures governing acquisition and analyzed internal 
audit reports, when available, to determine if those policies and 
procedures were being followed. We obtained statistics from DHS's 
Office of the Chief Procurement Officer on the department's 
procurements and the acquisition workforce. We interviewed procurement 
policy officials at headquarters and conducted interviews with 
personnel in each of the procurement organizations. To assess DHS's 
effectiveness in managing its acquisition workforce, we interviewed 
contracting and human resource officials at DHS headquarters. We 
analyzed DHS's processes and procedures for certifying program 
managers, warranting contracting officers, and tracking the acquisition 
workforce training. Lastly, we reviewed previous GAO work regarding 
best acquisition practices for organizational alignment and oversight.

Because the Office of Procurement Operations has, by far, the highest 
level of interagency contracting activity in the department, we 
examined the office's database of contracts to gain an understanding of 
the general scope of activity involving interagency agreements. We 
randomly selected and then reviewed 136 interagency agreement contract 
files. We interviewed officials responsible for the data to ensure that 
the system they use to track procurement activity was adequate for 
identifying the sample population. We reviewed the interagency 
agreement contract files to assess key aspects of the acquisition 
process--such as a signed determination and findings in accordance with 
the Federal Acquisition Regulation, acquisition planning, and 
interagency agreement contract administration, including contractor 
oversight. We held follow-on discussions with the Office of Procurement 
Operations to discuss discrepancies noted in the files. Further 
information on our methodology and sampling error rates is as follows:

* In fiscal year 2004, the Office of Procurement Operations 
predominately obtained contracting services for its customers through 
the issuance of interagency agreements with other government agencies. 
We drew our sample from an original population of 984 agreements. Of 
the 150 items we initially sampled, the department deleted 14 of these 
agreements and withdrew them from the data. As a result, we adjusted 
the population of agreements to which we are making estimates to 892 
agreements. All estimates are to these 892 agreements based upon a 
sample size of 136 agreements. In addition, 4 files were missing and 
were not able to be reviewed, and one agreement was a duplicate. This 
resulted in only 131 files being reviewed. As we conducted our reviews, 
the agency became better at recording the agreements that should be 
included in its database. Currently, Procurement Operations reports 
that 1,104 agreements are contained in its records and total $1.8 
billion.

* We reviewed the files and documents for these 131 agreements, using 
as our criteria the department's directive on interagency agreements. 
The following projections are made from our sample of 136 agreements. 
The estimates from a statistical sample are always subject to some 
uncertainty because the entire collection is not reviewed. This 
uncertainty is called sampling error. Tables 2 and 3 show the sampling 
errors for certain factors relating to the issuance of interagency 
agreements.

Table 2: Sampling Error at the 95 Percent Confidence Level for the 
Sample of Interagency Agreements:

Observation: Analysis of alternatives not conducted; 
Number: Estimate: 840; 
Number: Sampling error: 36; 
Percentage: Estimate: 94.1%; 
Percentage: Sampling error: 4.

Observation: Contracting officer's technical representatives not 
identified; 
Number: Estimate: 420; 
Number: Sampling error: 76; 
Percentage: Estimate: 47.1%; 
Percentage: Sampling error: 8.5.

Observation: Determination and findings not prepared; 
Number: Estimate: 308; 
Number: Sampling error: 72; 
Percentage: Estimate: 34.6%; 
Percentage: Sampling error: 8.1.

Observation: No indication that contractor oversight performed; 
Number: 
Estimate: 853; 
Number: Sampling error: 31; 
Percentage: Estimate: 95.6%; 
Percentage: Sampling error: 3.5.

Source: GAO (data and analysis).

[End of table]

Table 3: Sampling Error at the 95 Percent Confidence Level for the 
Sample of Interagency Agreements Fee Payments:

Observation: Fees paid on use of interagency agreements.
Number: Estimate: 433; 
Number: Sampling Error: 76; 
Dollars: Estimate: $12,991,079; 
Dollars: Sampling Error: $2,280,189. 

Source: GAO (data and analysis).

[End of table]

To assess the department's progress in implementing a review process 
for major, complex systems, we compared DHS's acquisition policies for 
major acquisitions to our knowledge-based approach. We used information 
from several of our prior reports that examine how commercial best 
practices can improve outcomes for acquisition programs. Specifically, 
we compared and contrasted DHS's investment review process with the 
best practices for commercial acquisitions identified in our past 
reports. Our analysis focused on whether DHS's policies contained the 
measurable criteria and management controls necessary for minimizing 
cost, schedule, and performance risks. To clarify the content of the 
investment review process, we met with various DHS officials from the 
Office of the Chief Procurement Officer and the Office of Program 
Evaluation and Analysis within the Office of the Chief Financial 
Officer. We also discussed the review process with officials from DHS 
procurement organizations and collected reports and analyzed available 
program data on the current status of major acquisitions being carried 
out by DHS.

We conducted our review from March 2004 through February 2005 in 
accordance with generally accepted government auditing standards.

[End of section]

Appendix II: Comments from the Department of Homeland Security:

U.S. Department of Homeland Security: 
Washington, DC 20528:

March 23, 2005:

Mr. Michael J. Sullivan: 
Director (Acting), Acquisition and Sourcing Management: 
Government Accountability Office: 
Washington, DC 20548:

Dear Mr. Sullivan:

Re: Draft Report GAO-05-179, Successes and Challenges in DHS's Efforts 
to Create an Effective Acquisition Organization.

Thank you for the opportunity to review your draft report We appreciate 
the opportunity to comment on the draft report and the time your staff 
afforded us during their preparation of the report. We generally concur 
with the report and with the recommended executive actions listed at 
the conclusion of your report. Your report effectively discusses many 
of the integration, accountability and staffing issues confronting the 
Department.

Any such report can only represent a snapshot in time. In that context, 
it is understandable that the report does not reflect the most current 
staffing information. For example, the report mentions that an increase 
in the acquisition oversight staff was authorized in the FY-05 budget. 
The oversight staff has three of the five billets filled as of this 
date and will complete the recruitment and hiring process in the next 
60 days for the remaining billets. Similarly, the Headquarters Office 
of Procurement Operations has made strides in its staffing efforts and 
now has 42 personnel aboard, though much remains to be done in this 
area. DHS agrees that a rigorous oversight approach is central to an 
effective acquisition and investment review program and believes that 
the initiatives in those areas will address the establishment of an 
effective framework. These observations do not alter our view that the 
report provides valuable and useful information.

The report addresses the Investment Review Process in depth. DHS has 
conducted a joint review of the departmental Investment Review Process 
in response to the direction from the Deputy Secretary on January 24, 
2005. The actions required are consistent with the draft GAO report 
recommendations, and considered the GAO Statement of Facts dated 
December, 2004. Several actions have already been initiated to ensure 
departmental oversight without imposing burdensome and redundant 
processes on the DHS operating agencies. Below is the reply to each of 
the GAO's seven recommendations regarding investment review provided by 
Program Analysis & Evaluation. Note DHS will place further emphasis on 
these recommendations in all Department investment review process 
guidance.

GAO Recommendation 1: Require major service contracts be reviewed by 
the IRB.

Concur. MD 1400 is being updated for publishing this spring to reflect 
interim changes made to the DHS Investment Review process. The IRB will 
conduct annual reviews of large planned service contracts and support 
programs. This review will significantly improve oversight of large 
planned expenditures that are not capital investments.

GAO Recommendation 2: Train Program Managers in the investment review 
process and guidance.

Concur. The following initiatives are planned for implementation over 
the next year: Provide briefing and training on the MD 1400 revisions. 
Further, DHS is developing a well qualified program management 
workforce. The Undersecretary for Management is providing policy and 
training necessary to obtain and maintain program management 
competencies, knowledge and act on best practices. DHS directives 
require managers of level one acquisition projects to be DHS certified 
within one year of appointment. The department augments the 
certification program with work tools and best practices for program 
managers.

GAO Recommendation 3: Require for all complex, developmental investment 
a formal design review between the integration and demonstration of a 
program to ensure that the design is stable and has been demonstrated 
through prototype testing.

Concur. The recommended actions exist in current directives and are 
being done. We will, however, further emphasize the recommendation in 
the revisions to the Department's directives and guidance.

GAO Recommendation 4: Require a review before initial production.

Concur. See the response to Recommendation 3.

GAO Recommendation 5: Require Program Managers to supply additional 
information-such as cost and schedule estimates based on results of a 
preliminary design review and critical design review.

Concur. The recommended actions exist in current directives and are 
being done. We will, however, further emphasize the recommendation in 
the revisions to the Department's directives and guidance.

GAO Recommendation 6: Require Program Managers to specifically address 
contractor oversight in their submission to IRB.

Concur. Currently, DHS requires an Acquisition Program Baseline (APB) 
to gain better cost, schedule and performance visibility for each 
investment project. To further improve project oversight, the 
department will deploy an Earned Value Management System (EVMS). This 
initiative will require selection of a reporting tool that will include 
a set of dashboard gauges to monitor program adherence to cost, 
schedule and performance. The APB requires cost, schedule and 
performance information and from the projects, and the EVMS includes 
contractor oversight. At any time, the IRB may require further review 
of any program.

GAO Recommendation 7: Give stakeholders, specifically DHS CPO, time to 
review submission prior to IRB and JRC.

Concur. The DHS CPO is represented on both the JRC and on the IRB, and 
staffs will ensue adequate review time for principals.

We thank you again for the opportunity to review the report and provide 
comments.

Sincerely,

Signed by: 

Steven J. Pecinovsky: 
Acting Director, Departmental GAO/OIG Liaison Office: 

[End of section]

Appendix III: Office of Procurement Operations' Customers:

Chief Financial Officer: 
Chief Human Capital Officer: 
Chief Information Officer: 
Chief Procurement Officer: 
Chief of Administrative Services: 
Chief of Staff: 
Citizenship and Immigration Services: 
Citizenship and Immigration Services Ombudsman: 
Civil Rights and Civil Liberties: 
Communications Director: 
Counter Narcotics Officer: 
Deputy Secretary: 
Executive Secretary: 
General Counsel: 
Headquarters Operational Integration Staff: 
Homeland Security Advisory Council: 
Homeland Security Operations Center: 
Immigration Statistics: 
Information Analysis and Infrastructure Protection: 
International Affairs: 
Office of the Secretary: 
Legislative Affairs: 
National Capital Region: 
Office of the Under Secretary--Border and Transportation Security: 
Press Secretary: 
Privacy Officer: 
Private Sector: 
Public Affairs: 
Science and Technology: 
Security: 
State and Local Government Coordination (includes Office of Domestic 
Preparedness): 
Under Secretary for Management: 
White House Liaison:

[End of section]

Appendix IV: Summary of Selected Commodity Council Strategic Sourcing 
Initiatives:

Commodity council: Office Supplies; 
Strategic sourcing actions taken: Leverages DHS's purchasing power and 
reduces amount spent on office supplies: 
* For its main strategic sourcing initiative, this council partnered 
with the Department of Defense's Electronic Mall (DOD Emall). DOD Emall 
is an Internet-based catalog ordering system that provides 24-hour-a-
day, 7-day-a-week access to over 200 small and large office supply 
vendors; 
* Because many military services also purchase office supplies through 
DOD Emall, DHS can take advantage of large volume discounts to increase 
its buying power; 
* As of June 1, 2004, DHS mandated all of its purchase cardholders to 
exclusively use DOD Emall to buy office supplies. As a result, DHS has 
already become the third-largest federal government user of DOD Emall. 
For the 4-month period starting June 1, 2004, DHS spent over $14.5 
million on DOD Emall, representing 16.7 percent of the total dollars 
spent on Emall; 
* Before the full implementation of DOD Emall, the council also 
generated savings by using an office supplies blanket purchase 
agreement that the Transportation Security Administration had in place 
to provide office supplies to other DHS principal organizations; 
* Through September 30, 2004, the council estimated cost savings of $8 
million.

Commodity council: Boats; 
Strategic sourcing actions taken: Establishes standard boat 
procurements to decrease life cycle costs, facilitate interoperability, 
reduce training burden, and provide immediate cost savings: 
* For example, Customs and Border Patrol needed six boats in fiscal 
year 2004. Instead of creating a new contract, the council explored 
whether there were any existing contract vehicles within DHS that could 
satisfy the need; 
* The council purchased the six boats through an existing Coast Guard 
contract and took advantage of large volume discounts; 
* As a result of these strategic sourcing efforts, the council was able 
to acquire each boat for $50,000 less than anticipated, resulting in a 
total of $300,000 in cost savings.

Commodity council: Weapons; 
Strategic sourcing actions taken: Identifies and consolidates emerging 
firearms and ammunition requirements for DHS: 
* In fiscal year 2004, the council planned to acquire pistols for DHS 
organizations to meet critical, mission-driven requirements; 
* The council surveyed all DHS organizations interested in weapons, 
factored in the end users' requirements, and established a list of 
potential vendors that could provide best value for pistols and satisfy 
requirements; 
* As a result, DHS awarded contracts to two vendors for 65,000 pistols 
each over 5 years--the largest pistol acquisition in the history of 
U.S. law enforcement; 
* As of September 20, 2004, the council has reported cost savings of 
over $4.1 million and $915,000 in cost avoidance.

Commodity council: Energy; 
Strategic sourcing actions taken: Identifies strategies for aggregating 
and centralizing DHS's energy procurements to take advantage of 
economies of scale and negotiate more competitive prices with 
suppliers: 
* Although DHS spent approximately $58 million for electricity in 
fiscal year 2003, only $9 million of the spending was for negotiable 
energy services in states with deregulated electricity industries. 
Nevertheless, the council estimates more than $705,000 in cost savings 
through September 30, 2004.

Source: DHS (data); GAO (presentation).

[End of table]

[End of section]

Appendix V: Selected Acquisition Management Best Practices:

Best practices: Acquisition planning; To ensure that reasonable 
planning for all parts of the acquisition is conducted; 
Activity: Plans are prepared during acquisition planning and maintained 
throughout the acquisition; Planning addresses the entire acquisition 
process, as well as life cycle support of the products being acquired; 
The acquisition organization has a written policy for planning the 
acquisition; Responsibility for acquisition planning activities is 
designated.

Best practices: Contract tracking and oversight; To ensure that 
contract activities are performed in accordance with contractual 
requirements; 
Activity: The acquiring organization has sufficient insight into the 
contractor's activities to manage and control the contractor and ensure 
that contract requirements are met; The acquiring organization and 
contractor maintain ongoing communication; commitments are agreed to 
and implemented by both parties; All contract changes are managed 
throughout the life of the contract; The acquisition organization has a 
written policy for contract tracking and oversight; Responsibility for 
contract tracking and oversight activities is designated; The acquiring 
organization involves contracting specialists in the execution of the 
contract; A quantitative set of software and system metrics is used to 
define and measure product quality and contractor performance; In 
addition to incentives for meeting cost and schedule estimates, 
measurable, metrics-based product quality incentives are explicitly 
stated in the contract.

Best practices: Risk management; To ensure that risks are proactively 
identified and systematically mitigated; 
Activity: Projectwide participation in the identification and 
mitigation of risks is encouraged; The defined acquisition process 
provides for the identification, analysis, and mitigation of risks; 
Milestone reviews include the status of identified risks; The 
acquisition organization has a written policy for managing acquisition 
risk; Responsibility for acquisition risk management activities is 
designated.

Source: GAO (data); GAO (presentation).

Note: See GAO, Information Technology: DoD's Acquisition Policies and 
Guidance Need to Incorporate Additional Best Practices and Controls, 
GAO-04-722 (Washington, D.C.: July 30, 2004) for a complete list of the 
acquisition management practices and required activities.

[End of table]

[End of section] 

Appendix VI: GAO Contacts and Staff Acknowledgments:

Contacts:

Michael J. Sullivan, (937) 258-7915 Michele Mackin, (202) 512-4309:

Staff Acknowledgments:

In addition to those named above, Daniel Chen, Lily Chin, Benjamin 
Federlein, Arthur James Jr., John Krump, Jose Ramos, and Russell Reiter 
made key contributions to this report.

FOOTNOTES

[1] The President signed legislation to create DHS on November 25, 
2002. Homeland Security Act of 2002, Pub. L. No. 107-296, 116 stat. 
2135, Nov. 25, 2002.

[2] When the department was established, 22 agencies and organizations 
were brought in; Plum Island Animal Disease Center joined DHS 
afterward.

[3] GAO, High-Risk Series: An Update, GAO-03-119 (Washington, D.C.: 
January 2003).

[4] Federal Acquisition Regulation 2.1, Definitions.

[5] Strategic sourcing is a process used by leading commercial 
companies and a small number of federal agencies to establish an 
organizationwide approach to leveraging the organization's buying power 
and fostering new ways of doing business.

[6] The Small Business Reauthorization Act of 1997 directed the 
President to establish a goal of not less than 23 percent of the 
federal government's prime contracting dollars to be awarded to small 
businesses each fiscal year. The Small Business Administration is 
charged with ensuring that federal agencies' goals, in the aggregate, 
meet or exceed the 23 percent goal. Pub. L. No. 105-135, 111 stat. 
2592, Dec. 2, 1997.

[7] Spend analysis is a tool that organizations use to acquire 
knowledge about how much is being spent for what goods and services, 
who are the buyers, and who are the suppliers. GAO, Best Practices: 
Using Spend Analysis to Help Agencies Take a More Strategic Approach to 
Procurement, GAO-04-870 (Washington, D.C.: Sept. 16, 2004).

[8] Our review found that the department's strategic sourcing cost 
savings methodologies appear reasonable. However, we did not verify the 
accuracy of any strategic procurement cost savings reported to us.

[9] GAO, Best Practices: Taking a Strategic Approach Could Improve 
DOD's Acquisition of Services, GAO-02-230 (Washington, D.C.: Jan. 18, 
2002).

[10] DOD Emall is an Internet-based marketplace that allows DOD and 
other federal purchasers to access DOD's wide variety of vendors and 
catalogs and acquire off-the-shelf items from the commercial 
marketplace.

[11] GAO, High-Risk Series: An Update, GAO-05-207 (January 2005, 
Washington, D.C.)

[12] Two prior GAO reports, Transportation Security Administration: 
High-Level Attention Needed to Strengthen Acquisition Function, 
GAO-04-544 (Washington, D.C.: May 28, 2004), and Contract Management: 
INS Contracting Weaknesses Need Attention from the Department of 
Homeland Security, GAO-03-799 (Washington, D.C.: July 25, 2003), 
address the importance of having clear lines of authority to ensure 
that contracting activity is effective and enables the department to 
get best value on goods and services.

[13] Pub. L. No. 107-296, § 888(b) November 25, 2002.

[14] Id. at § 888(d).

[15] Pub. L. No. 107-296, § 888(e), November 25, 2002.

[16] Id. at §§104 and 888(g).

[17] Pub. L. 107-296, § 521, November 25, 2002.

[18] Pub. L. 108-334, § 528, October 18, 2004. "None of the funds 
available in this Act shall be available to maintain the United States 
Secret Service as anything but a distinct entity within the Department 
of Homeland Security and shall not be used to merge the United States 
Secret Service with any other department function, cause any personnel 
and operational elements of the United States Secret Service to report 
to an individual other than the Director of the United States Secret 
Service, or cause the Director to report directly to any individual 
other than the Secretary of Homeland Security." Department of Homeland 
Security Appropriations Act, 2005, Pub. L. No. 108-334, § 521, 118 
stat. 1298, Oct. 18, 2004.

[19] Given the similarity of the issue pertaining to the Coast Guard, 
we did not separately seek the view of the DHS General Counsel 
concerning the exemption of the Secret Service.

[20] GAO-02-230 and GAO-04-544.

[21] DHS Office of the Inspector General, Semiannual Report to the 
Congress, (Washington, D.C.: April 30, 2003), and Review of the Status 
of Department of Homeland Security Efforts to Address Its Major 
Management Challenges, OIG-04-21 (Washington, D.C.: March 2004).

[22] OIG-04-21.

[23] GAO-03-799.

[24] Contracting officers' technical representatives represent the 
contracting officer in monitoring the contractor's performance. 

[25] See appendix I for details on our methodology and sampling error 
rates.

[26] Determination and findings is a written approval by an authorized 
official to take certain contract actions. The determination is a 
conclusion or decision supported by the findings. The findings are 
statements of fact or rationale essential to support the determination.

[27] At the time of our review, the Coast Guard had revised its 
requirements for the Deepwater program based on the new homeland 
security mission. We did not have information on the new cost of the 
program.

[28] US-VISIT is a governmentwide program to collect, maintain, and 
share information on foreign nationals. The program's goals are to 
enhance national security, facilitate legitimate trade and travel, 
contribute to the integrity of the U.S. immigration system, and adhere 
to U.S. privacy laws and policies.

[29] Counter-MANPADS (man-portable air defense systems) is a protective 
system for U.S. commercial aircraft against shoulder-fired missiles. We 
recently issued a report that recommended additional information be 
provided at key decision points. See GAO, The Department of Homeland 
Security Needs to Fully Adopt a Knowledge-based Approach to Its 
Counter-MANPADS Development Program, GAO-04-341R (Washington, D.C.: 
Jan. 30, 2004).

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