STATEMENT OF THE HONORABLE ROBERT J. HENKE
ASSISTANT SECRETARY FOR MANAGEMENT
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
COMMITTEE ON VETERANS' AFFAIRS
U.S. HOUSE OF REPRESENTATIVES

June 27, 2007

Mr. Chairman and members of the Subcommittee, I am pleased to have the opportunity to testify on the Department of Veterans Affairs' acquisition system. VA spends over $10 billion per year through widely dispersed acquisition activities for pharmaceuticals, medical/surgical supplies and equipment, prosthetic devices, information technology, construction, and other acquisition services.

VA procurement practices have been identified by VA's Inspector General as one of the five major management challenges facing the Department. I assure you that VA understands our challenges and is dedicated to improvement. Our leadership is engaged, committed, and is clearly articulating the expectation that VA will work to improve the quality and efficiency of acquisition services. We have many improvement initiatives underway, new people on board, and additional policy and guidance to improve performance.

As VA's Chief Acquisition Officer ( CAO), I am responsible for monitoring the performance of acquisition activities and acquisition programs across the agency, as well as advising on appropriate business strategies to achieve VA's mission. My duties also entail managing the direction of acquisition policy and ensuring that VA's acquisition workforce is trained and capable of providing the highest level of support to our mission-focused programs.

I would like to cover five of my top responsibilities and initiatives as CAO:

1. Advising on proper business strategies to achieve agency mission and monitor the performance of acquisition activities

VA's acquisition system is very large, complex, and decentralized. To determine whether VA acquisition is organized correctly and has the right quantity and types of acquisition professionals, I have directed that a comprehensive study be conducted by an independent third party contractor with extensive knowledge of the acquisition workforce and challenges. The contractor will benchmark our procurement system against other government agencies and provide courses of action for improving VA's acquisition infrastructure and accountability.

We have made very important policy changes within VA to improve our acquisition processes. Contract requirements must be clear, well written and understandable to reduce our risks. To that end we have implemented a collaborative approach to contract requirements definition. For some major acquisitions over $5 million, we now use cross-functional Integrated Product Teams to develop our requirements. Key program, contracting, legal and finance officials work collaboratively to write acquisition plans, performance work statements and other critical acquisition documents. This approach significantly decreases the risks of developing a poorly defined requirement.

To help ensure that contracting officers develop effective contracts, we have implemented the use of Contract Review Boards ( CRBs). CRBs are composed of the most knowledgeable and senior acquisition professionals. As with Integrated Product Teams, CRBs use a collaborative and structured approach to ensure that good contracts are awarded. Although contracting officers have traditionally had their work reviewed by their peers and legal counsel, they are now required to have their major acquisitions reviewed at three critical junctures by the CRB: prior to issuance of the solicitation, prior to negotiations and prior to award. This simple, common-sense approach to acquisition management is vastly improving our contract award process.

Contract administration is critical to ensuring that the government gets what it pays for. We are currently developing a comprehensive plan that will improve contract administration at VA. Our goal is to create a culture where contracting and program officials work collaboratively to manage contracts throughout their life cycle.

In February 2004, VA consolidated oversight and review of VA's acquisition activities under one office, the Office of Business Oversight ( OBO), which reports to me as the VA Chief Financial Officer and CAO. OBO is VA's primary internal quality assurance organization for financial management activities and operations, including acquisition activities. OBO's main focus is to review acquisition activities at decentralized locations for compliance with Federal, Department, and Administration policies and procedures and to provide local management with recommendations to improve their acquisition activities. The consolidation of acquisition oversight within OBO has resulted in a standardization of acquisition review processes and oversight reporting, and has created opportunities to highlight best practices in the field.

The OBO acquisition review team is staffed with a combination of procurement specialists and professional auditors trained in conducting acquisition compliance reviews. The team conducts contract inspections at a number of Veterans Integrated Service Networks each year, reviewing up to 450 contract files at as many as 25 locations. The team also conducts special-topic acquisition audits as needed. OBO began acquisition reviews in the second half of FY 2005 and since that time has issued 11 acquisition reports containing 76 recommendations to improve field station compliance with policies and procedures and to enhance the effectiveness of acquisition operations. This consolidated acquisition oversight team has improved my ability to monitor the performance of acquisition activities across the Department.

We conduct pre- and post-award audits of VA Federal Supply Schedule contracts for medical products and services. We assure that these vendors are charging federal customers the most favorable customer prices and in FY 2006 identified over $20 million that could be recovered. The 25 auditors dedicated to perform these services work in the Office of Inspector General and are under a reimbursable agreement paid for by VA's Supply Fund.

Additionally, we have implemented a robust strategic sourcing program. I chair VA's Strategic Sourcing Council, supported by Assistant Secretaries, senior executives, and stakeholders from VA's three administrations. In fiscal year 2006, VA continued to build on its strategic successes. We benchmarked other government agencies, private firms, and current VA suppliers to continually improve our program. We are actively involved in Federal Strategic Sourcing Initiatives for common commodities, including express/ground delivery services, office supplies, wireless communication services, and copiers. Ever mindful of our commitments to small business, particularly those owned by veterans and service-disabled veterans, one of our goals this fiscal year is to identify strategic sourcing opportunities for these socio-economic groups.

2. Increasing appropriate use of performance-based contracting and performance specifications

The Office of Federal Procurement Policy has mandated that this year agencies will award 40% of eligible service dollars as Performance-Based Service Acquisitions. To that end we targeted two of VA's largest mission-critical services as Performance-Based Service Acquisitions: "Project HERO" (Health Effectiveness thru Resource Optimization) for the Veterans Health Administration ( VHA), and Vocational Rehabilitation and Employment Services ( VR&E) for the Veterans Benefits Administration. Project HERO is a pilot program that will improve delivery of healthcare services under VA's fee-basis program, the intent of which is to consolidate like services under fewer contract providers. In support of the VR&E program, we are implementing a national contract strategy that will further consolidate VR&E services under fewer providers. Both actions are currently in progress. We will also be providing Performance-Based Service Acquisitions training to acquisition and program officials during their certification process.

3. Making acquisition decisions consistent with applicable laws and establish clear lines of authority, accountability, and responsibility for acquisition decision-making

I have designated the Deputy Assistant Secretary for Acquisition and Logistics as VA's Senior Procurement Executive. In that capacity the Deputy Assistant Secretary will serve as my principal advisor in all acquisition matters.

VA currently has 33 Heads of Contracting Activities with 413 contracting officers warranted at the $100,000 and above threshold. These contracting officers are located in VA medical centers, national cemetery offices, and several VA support locations throughout the nation. Each Heads of Contracting Activities and the 413 contracting officers are delegated contracting authority from the Deputy Assistant Secretary for Acquisition and Logistics who reports directly to me. VA has an established warranting program to ensure contracting officers have the requisite education and experience needed to meet the VA mission.

VHA consolidated its contracting organizations into "Network Contracting Centers." To date, 19 of the 21 networks have been consolidated. Each network has hired Chief Logistics Officers and Contract Managers to provide guidance on and oversight of the acquisition activities.

4. Managing the direction of acquisition policy for VA including implementation of the unique acquisition policies, regulations and standards for VA

I am pleased to inform you that VA published a proposed rule in the Federal Register that is its first rewrite of the VA Acquisition Regulation ( VAAR) since 1984. The new VAAR will be easier to understand and consolidates changes and modifications that have occurred in the last 23 years. The new VAAR parallels the Federal Acquisition Regulation and eliminates redundant and outdated information.

On December 22, 2006, President Bush signed Public Law (P.L.) 109-461, the Veterans Benefits, Health Care, and Information Technology Act of 2006. Included in this Act is a unique "Veterans First" approach specific to VA contracting that became effective June 20, 2007. This approach changes the preferences for contracting within VA, placing Service-Disabled Veteran-Owned Small Business and Veteran-Owned Small Business first and second, respectively, in satisfying VA's acquisition requirements designed to meet established VA contracting goals. Certain conditions must be met, however, including the need to achieve a fair and reasonable price. We issued Information Letter (IL) 049-07-08 on June 19, 2007, which provides guidance until a change to the VAAR is published in the Federal Register.

The Secretary recently approved a reorganization of the newly named Office of Acquisitions and Logistics. The reorganization positions Office of Acquisitions and Logistics to better provide the needed leadership to VA's acquisition and logistics community. It separates the policy and operation functions from the purview of a single Associate Deputy Assistant Secretary for Acquisitions into two distinct functions. As a result, operational contracting components will now be separated from the policy development component. This will enable us to provide a greater concentration of effort in both areas, and is designed to improve our overall performance. Acquisition policy will come to the forefront, under the direction of a newly approved Associate Deputy Assistant Secretary for Acquisition and Logistics Programs and Policy. This same senior executive will be responsible for career management of the acquisition workforce, to include development of policies and plans for improvement.

Additionally, VA is well represented in the Chief Acquisition Officer Council and the Civilian Agency Acquisition Council. Our participation ensures that VA's needs are appropriately considered prior to promulgating government-wide acquisition policy.

5. Acquisition Workforce and Career Management

Perhaps the most daunting challenge currently facing VA, as well all federal agencies, is our ability to attract, develop and retain a competent, professional contracting workforce. The dollars obligated by VA have more than doubled since 2000, yet our contracting workforce has remained relatively the same size during this period. The agency-wide acquisition study that I mentioned is designed to include data to assess the size and capability of our services.

Wide-spread problems in our central office contracting organization, the Office of Acquisition and Logistics, led me to direct that a study be done to determine if we were organized properly to perform our mission. That study, which was completed last February, resulted in a major reorganization of the Office of Acquisition and Logistics.

Another result of this study includes formation of a new Center for Acquisition Innovation ( CAI), which will be located outside the DC area. This new organization focuses on quality, innovation and customer service. The CAI will provide a full complement of cost-efficient acquisition solutions and enterprise "best practices" to support our VA customers. It will become the catalyst for change within VA, transforming VA's acquisition process from a tactical and reactive function to a strategically driven function that ensures maximum value for every acquisition dollar spent. The CAI will provide a wide range of specialized acquisition and logistics services to VA customers. The CAI will be organized into two operating activities, Operations and the Acquisition Leadership Academy.

The operation activity will focus on three business lines: major acquisitions with VA-wide implications, strategic sourcing, and emergency response and recovery acquisitions.

The Acquisition Leadership Academy will implement training and certification programs authorized by the Office of Federal Procurement Policy. It will emphasize three areas: contracting certification; program/project management certification; and acquisition internship. The contracting and program/project management certification programs are designed to be first-rate training venues, and it is our intent to provide the type of training that will put us in a government-wide leadership position. The acquisition intern program is our long-term solution to building a professional contracting workforce. Again, this will be a robust, second-to-none effort, which will train interns for deployment to VA contracting organizations across the United States.

Summary

VA has taken meaningful steps to resolve the current challenges concerning our acquisition programs and practices. VA remains committed to improving its processes and we are confident that our challenges can be overcome for the benefit of both the veterans that we serve and the taxpayers.

This concludes my statement. I would be pleased to answer any questions members of the Subcommittee may have.