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United States Government Accountability Office: 

GAO: 

Testimony before the Committee on Government Reform, House of 
Representatives: 

For Release on Delivery: 
Expected at 10:00 a.m. EST: 
Thursday, July 27, 2006: 

Homeland Security: 
Challenges in Creating an Effective Acquisition Organization: 

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

GAO-06-1012T: 

GAO Highlights: 

Highlights of GAO-06-1012T, a testimony before the Committee on 
Government Reform, House of Representatives. 

Why GAO Did This Study: 

The Department of Homeland Security (DHS) has some of the most 
extensive acquisition needs within the U.S. government. In fiscal year 
2005, the department reported that it obligated almost $17.5 billion to 
acquire a wide range of goods and services. DHS‘s acquisition portfolio 
is broad and complex, including procurements for sophisticated 
screening equipment for air passenger security; technologies to secure 
the nation’s borders; trailers to meet the housing needs of Hurricane 
Katrina victims; and the upgrading of the Coast Guard’s offshore fleet 
of surface and air assets. 

This testimony summarizes GAO reports and testimonies, which have 
reported on various aspects of DHS acquisitions. It addresses (1) areas 
where DHS has been successful in promoting collaboration among its 
various organizations, and (2) challenges it still faces in integrating 
the acquisition function across the department; and (3) DHS’ 
implementation of an effective review process for its major, complex 
investments. The information in this testimony is based on work that 
was completed in accordance with generally accepted government auditing 
standards. 

[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-1012T]. 

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Michael Sullivan at (202) 
512-4841 or sullivanm@gao.gov. 

What GAO Found: 

Since its establishment in March 2003, DHS has been faced with 
assembling 23 separate federal agencies and organizations with multiple 
missions and cultures into one department. This mammoth task involved a 
variety of transformational efforts, one of which is to design and 
implement the necessary management structure and processes for the 
acquisition of goods and services. We reported in March 2005 that DHS 
had opened communication among its acquisition organizations through 
its strategic sourcing and small business programs. With strategic 
sourcing, DHS’ organizations quickly collaborated to leverage spending 
for various goods and services—such as office supplies, boats, energy, 
and weapons—without losing focus on small businesses, thus leveraging 
its buying power and increasing savings. Its small business program, 
whose reach is felt across DHS, is also off to a good start. 
Representatives have been designated in each DHS procurement office to 
ensure small businesses can compete effectively for the agency’s 
contract dollars. 

We also reported that DHS’ progress in creating a unified acquisition 
organization has been hampered by policy decisions that create 
ambiguity about who is accountable for acquisition decisions. To a 
great extent, we found that the various acquisition organizations 
within DHS were still operating in a disparate manner, with oversight 
of acquisition activities left primarily up to each individual 
organization. DHS continues to face challenges in integrating its 
acquisition organization. Specifically, dual accountability for 
acquisitions exists between the Chief Procurement Officer (CPO) and the 
heads of each DHS component; a policy decision has exempted the Coast 
Guard and Secret Service from the unified acquisition organization; the 
CPO has insufficient capacity for department-wide acquisition 
oversight; and staffing shortages have led the Office of Procurement 
Operations, which handles a large percentage of DHS’ contracting 
activity, to rely extensively on outside agencies for contracting 
support—often for a fee. We found that this office lacked the internal 
controls to provide oversight of this interagency contracting activity. 
This last challenge has begun to be addressed with the hiring of 
additional contracting staff. 

Some of DHS’ organizations have major, complex acquisition programs 
that are subject to a multi-tiered investment review process intended 
to help reduce risk and increase chances for successful outcomes in 
terms of cost, schedule, and performance. While the process includes 
many best practices, it does not include two critical management 
reviews, namely a review to help ensure that resources match customer 
needs and a review to determine whether a program’s design performs as 
expected. Our prior reports on large DHS acquisition programs, such as 
the Transportation Security Administration’s Secure Flight program and 
the Coast Guard’s Deepwater program, highlight the need for improved 
oversight of contractors and adherence to a rigorous management review 
process. 

[End of section] 

Mr. Chairman and Members of the Committee: 

Thank you for inviting me here today to discuss the Department of 
Homeland Security’s (DHS) acquisition organization. Since its 
establishment in March 2003, DHS has been faced with assembling 23 
separate federal agencies and organizations with multiple missions, 
values, and cultures into one cabinet-level department. This mammoth 
task— one of the biggest mergers ever to take place within the federal 
government— involved a variety of transformational efforts, one of 
which is to design and implement the necessary management structure and 
processes for the acquisition of goods and services. 

DHS has some of the most extensive acquisition needs within the U.S. 
government. In fiscal year 2005, the department reported that it has 
obligated almost $17.5 billion to acquire a wide range of goods and 
services. The DHS acquisitions portfolio is broad and complex. For 
example, it has purchased increasingly sophisticated screening 
equipment for air passenger security; acquired technologies to secure 
the nation’s borders; purchased trailers to meet the housing needs of 
Hurricane Katrina victims; and is upgrading the Coast Guard’s offshore 
fleet of surface and air assets. DHS has been working to integrate the 
many acquisition processes and systems that the disparate agencies and 
organizations brought with them while still addressing ongoing mission 
requirements and emergency situations such as responding to Hurricane 
Katrina. As you know, we designated the establishment of the department 
and its transformation as high risk;[Footnote 1] we also pointed out 
that not effectively addressing DHS’ management challenges and program 
risks could have serious consequences for our national security. 

Based on work done for this committee last year,[Footnote 2] today I 
would like to discuss areas where DHS has been successful in promoting 
collaboration among its various organizations and areas where it still 
faces challenges, such as integrating and unifying the acquisition 
function across the department. I will also discuss our assessment of 
the department’s progress in implementing an effective review process 
for its major, complex investments, highlighting some recent GAO work 
related to these issues. This testimony is based on GAO reports and 
testimonies that were done in accordance with generally accepted 
government auditing standards. 

Summary: 

Designing and implementing the necessary management structure and 
processes for the acquisition of goods and services for 23 separate 
federal agencies and organizations, with multiple missions and 
cultures, has been a mammoth task for DHS and, while it has had some 
success, there are many challenges remaining. DHS has opened 
communication among its acquisition organizations through its strategic 
sourcing and small business programs. DHS’ organizations quickly 
collaborated to leverage spending for various goods and services 
without losing focus on small businesses, thus leveraging its buying 
power and increasing savings. 

We reported in March 2005 that DHS’ efforts to create a unified, 
accountable acquisition organization have been hampered by policies 
that create ambiguity as to who is accountable for acquisition 
decisions. Further, we found that, to a great extent, the various 
acquisition organizations within the department are still operating in 
a disparate manner, with oversight of acquisition activities left 
primarily up to each individual organization. DHS continues to face 
challenges in creating a more effective acquisition organization. For 
example: 

* A policy directive intended to integrate the acquisition function 
relies on a system of dual accountability for acquisitions between the 
Chief Procurement Officer (CPO) and the heads of each DHS component. 
This directive does not apply to the U.S. Coast Guard and the Secret 
Service, which is likely to hinder the formation of a unified 
acquisition organization. 

* Although the CPO has issued guidance providing a framework for 
acquisition oversight, implementation of the oversight program has been 
limited due to insufficient staffing in the CPO’s office. 

* Staffing shortages in the Office of Procurement Operations, which 
handles a significant portion of DHS’ contracting activity—over $4 
billion last year—have led this office to rely heavily on outside 
agencies for contracting support, often for a fee. The office did not 
have adequate internal controls in place to effectively oversee this 
interagency contracting. Due to the challenges associated with 
interagency contracts, we recently designated interagency contracting 
as a government-wide high risk area.[Footnote 3] To protect its major, 
complex investments, DHS has put in place an investment review process 
that adopts many best practices—that is, proven methods, processes, 
techniques, and activities—to help the department reduce risk and 
increase the chances for successful acquisition outcomes. However the 
process does not include two critical management reviews that would 
help ensure that (1) resources match customer needs prior to beginning 
a major acquisition and (2) program designs perform as expected before 
moving to production. We also found that some critical information is 
not addressed in DHS’ investment review policy or the guidance provided 
to program managers. For example, before a program is approved to 
begin, DHS does not require that cost and schedule estimates be 
established for the acquisition based on knowledge from preliminary 
designs. The review process also does not fully address how program 
managers are to conduct effective contractor tracking and oversight. 
Our prior reports on large DHS acquisition programs, such as the 
Transportation Security Administration’s (TSA) Secure Flight program 
and the U.S. Coast Guard’s Deepwater program, have highlighted the need 
for improved oversight of contractors and a management review that 
provides decision makers with critical information at the right time. 

Early Initiatives to Leverage Buying Power and Small Business Programs 
Fostered Collaboration Among DHS Organizations: 

In the three years since its creation, DHS realized some successes 
among its various acquisition organizations in opening communication 
through its strategic sourcing and small business programs. Both 
efforts have involved every principal organization in DHS, along with 
strong involvement from the CPO, and both have yielded positive 
results. DHS’ disparate acquisition organizations quickly collaborated 
on leveraging spending for various goods and services, without losing 
focus on small businesses. This use of strategic sourcing—formulating 
purchasing strategies to meet departmentwide requirements for specific 
commodities, such as office supplies, boats, energy, and weapons—helped 
DHS leverage its buying power, with savings expected to grow. At the 
time of our March 2005 review, DHS had reported approximately $14 
million in savings across the department. We also found that the small 
business program, whose reach is felt across DHS, was off to a good 
start. In fiscal year 2004, DHS reported that 35 percent of its prime 
contract dollars went to small businesses, exceeding its goal of 23 
percent. Representatives have been designated in each DHS procurement 
office to help ensure that small businesses have opportunities to 
compete for DHS’ contract dollars. 

However, some officials responsible for carrying out strategic sourcing 
initiatives have found it challenging to balance those duties with the 
demands and responsibilities of their full-time positions within DHS. 
Officials told us that strategic sourcing meetings and activities 
sometimes stall because participants must shift attention to their full-
time positions. Our prior work on strategic sourcing shows that leading 
commercial companies often establish full-time commodity managers to 
more effectively manage commodities. Commodity managers help define 
requirements with internal clients, negotiate with potential vendors, 
and resolve performance or other issues arising after a contract is 
awarded and can help maintain consistency, stability, and a long-term 
strategic focus. 

DHS Faces Key Challenges In Creating An Integrated Acquisition 
Organization: 

DHS continues to faces challenges in creating a unified, accountable 
acquisition organization due to policies that create ambiguity as to 
accountability for acquisition decisions, inadequate staffing to 
conduct department-wide oversight, and heavy reliance on interagency 
contracting in the Office of Procurement Operations, which is 
responsible for a large portion of DHS’ contracting activity. 

Policy Directive Relies on Dual Accountability and Exempts Coast Guard 
and Secret Service: 

Achieving a unified and integrated acquisition system is hampered 
because an October 2004 policy directive relies on a system of dual 
accountability between the CPO and the heads of the department’s 
principal organizations. Although the CPO has been delegated the 
responsibility to manage, administer, and oversee all acquisition 
activity across DHS, in practice, performance of these activities is 
spread throughout the department, reducing accountability for 
acquisition decisions. 

This system of dual accountability results in unclear working 
relationships between the CPO and heads of DHS’ principal 
organizations. For example, the policy leaves unclear how the CPO and 
the director of Immigration and Customs Enforcement are to share 
responsibility for recruiting and selecting key acquisition officials, 
preparing performance ratings for the top manager of the contracting 
office, and providing appropriate resources to support CPO initiatives. 

The policy also leaves unclear what enforcement authority the CPO has 
to ensure that initiatives are carried out because heads of principal 
organizations are only required to “consider” the allocation of 
resources to meet procurement staffing levels in accordance with the 
CPO’s analysis. Agreements had not been developed on how the resources 
to train, develop, and certify acquisition professionals in the 
principal organizations would be identified or funded. 

While the October 2004 policy directive emphasizes the need for a 
unified, integrated acquisition organization, achievement of this goal 
is further hampered because the directive does not apply to the U.S. 
Coast Guard and U.S. Secret Service. The Coast Guard is one of the 
largest organizations within DHS, with obligations accounting for about 
$2.2 billion in fiscal year 2005, nearly 18 percent of the department’s 
total. The directive maintains that these two organizations are 
exempted from the directive by statute. We disagreed with this 
conclusion, as we are not aware of any explicit statutory exemption 
that would prevent the application of the DHS acquisition directive to 
either organization. We raised the question of statutory exemption with 
the DHS General Counsel, who shared our assessment concerning the 
explicit statutory exemptions. He viewed the applicability of the 
management directive as a policy matter. 

Chief Procurement Officer’s Staffing for Oversight Is Insufficient: 

DHS’ goal of achieving a unified, integrated acquisition organization 
is in part dependent on its ability to provide effective oversight of 
component activities. We reported in March 2005 that the CPO lacked 
sufficient staff to ensure compliance with DHS’ acquisition oversight 
regulations and policies. To a great extent, the various acquisition 
organizations within the department were still operating in a disparate 
manner, with oversight of acquisition activities left primarily up to 
each individual organization. In December 2005, DHS implemented a 
department wide management directive that establishes policies and 
procedures for acquisition oversight. The CPO has issued guidance 
providing a framework for the oversight program and, according to DHS 
officials, as of May 2006, five staff were assigned to oversight 
responsibilities. We have ongoing work in this area and will be 
reporting on the department’s progress in the near future. 

The challenge DHS faces overseeing its various components’ contracting 
activities is significant. For example, in May 2004[Footnote 4] we 
reported that TSA had not developed an acquisition infrastructure, 
including organization, policies, people, and information that would 
facilitate successful management and execution of its acquisition 
activities. The development of those areas could help ensure that TSA 
acquires quality goods and services at reasonable prices, and makes 
informed decisions about acquisition strategy. 

Office of Procurement Operations’ Heavy Use of Interagency Agreements: 

To support the DHS organizations that lacked their own procurement 
support, the department created the Office of Procurement Operations. 
In 2005, we found that, because this office lacked sufficient 
contracting staff, it had turned extensively to interagency contracting 
to fulfill its responsibilities. At the time of our review, we found 
that this office had transferred almost 90 percent of its obligations 
to other federal agencies through interagency agreements in fiscal year 
2004. For example, DHS had transferred $12 million to the Department of 
the Interior’s National Business Center to obtain contractor operations 
and maintenance services at the Plum Island Animal Disease Center. 
Interior charged DHS $62,000 for this assistance. We found that the 
Office of Procurement Operations lacked adequate internal controls to 
provide oversight of its interagency contracting activity. For example, 
it did not track the fees it was paying to other agencies for 
contracting assistance. Since our report was issued, the office has 
added staff and somewhat reduced its reliance on interagency 
contracting. Recently, DHS officials told us that the office has 
increased its staffing level from 42 to 120 employees, with plans to 
hire additional staff. As reported by DHS, the Office of Procurement 
Operations’ obligations transferred to other agencies had decreased to 
72 percent in fiscal year 2005. 

Review Process for Major Investments, Despite Use of Best Practices, 
Was Inconsistent and Lacked Some Management Controls: 

To protect its major, complex investments, DHS has put in place a 
review process that adopts many acquisition best practices—proven 
methods, processes, techniques, and activities—to help the department 
reduce risk and increase the chances for successful investment outcomes 
in terms of cost, schedule, and performance. One best practice is a 
knowledge-based approach to developing new products and technologies 
pioneered by successful commercial companies, which emphasizes that 
program managers need to provide sufficient knowledge about important 
aspects of their programs at key points in the acquisition process, so 
senior leaders are able to make well-informed investment decisions 
before an acquisition moves forward. 

While DHS’ framework includes key tenets of this approach, in March 
2005 we reported that it did not require two critical management 
reviews. The first would help ensure that resources match customer 
needs before any funds are invested. The second would help ensure that 
the design for the product performs as expected prior to moving into 
production. We also found that some critical information is not 
addressed in DHS’ investment review policy or the guidance provided to 
program managers. In other cases, it is made optional. For example, 
before a program is approved to start, DHS policy requires program 
managers to identify an acquisition’s key performance requirements and 
to have technical solutions in place. This information is then used to 
form cost and schedule estimates for the product’s development to 
ensure that a match exists between requirements and resources. However, 
DHS policy does not establish cost and schedule estimates for the 
acquisition based on knowledge from preliminary designs. Further, while 
DHS policy requires program managers to identify and resolve critical 
operational issues before proceeding to production, initial 
reviews—such as the system and subsystem review—are not mandatory. 

In addition, while the review process adopts other important 
acquisition management practices, such as requiring program managers to 
submit acquisition plans and project management plans, a key practice— 
contractor tracking and oversight—is not fully incorporated. We have 
cited the need for increased contractor tracking and oversight for 
several large DHS programs. While many of DHS’ major investments use 
commercial, off-the-shelf products that do not require the same level 
of review as a complex, developmental investment would, DHS is 
investing in a number of major, complex systems, such as TSA’s Secure 
Flight program and the Coast Guard’s Deepwater program, that 
incorporate new technology. Our work on these two systems highlights 
the need for improved oversight of contractors and greater adherence to 
a best practices approach to management review. Two examples follow. 

We reported in February 2006[Footnote 5] that TSA, in developing and 
managing its Secure Flight program, had not conducted critical 
activities in accordance with best practices for large scale 
information technology programs. Program officials stated that they 
used a rapid development method that was intended to enable them to 
develop the program more quickly. However, as a result of this 
approach, the development process has been ad hoc, with project 
activities conducted out of sequence. TSA officials have acknowledged 
that they have not followed a disciplined life cycle approach in 
developing Secure Flight, and stated that they are currently 
rebaselining the program to follow their standard systems development 
life cycle process, including defining system requirements. TSA 
officials also told us they are taking steps to strengthen contractor 
oversight for the Secure Flight program. For example, the program is 
using one of TSA’s support contractors to help track contractors’ 
progress in the areas of cost, schedule, and performance and the number 
of TSA staff with oversight responsibilities for Secure Flight 
contracts has been increased. TSA reports it has identified contract 
management as a key risk factor associated with the development and 
implementation of Secure Flight. 

The Coast Guard’s ability to meet its responsibilities depends on the 
capability of its deepwater fleet, which consists of aircraft and 
vessels of various sizes and capabilities. In 2002, the Coast Guard 
began a major acquisition program to replace or modernize these assets, 
known as the Deepwater program. Deepwater is currently estimated to 
cost $24 billion. We have reported[Footnote 6] that the Coast Guard’s 
acquisition strategy of relying on a prime contractor (“system 
integrator”) to identify and deliver the assets needed carries 
substantial risks. We found that well into the contract’s second year, 
key components for managing the program and overseeing the system 
integrator’s performance had not been effectively implemented. As we 
recently observed, the Coast Guard has made progress in addressing our 
recommendations, but there are aspects of the Deepwater program that 
will require continued attention. The program continues to face a 
degree of underlying risk, in part because of the unique, system-of-
systems approach with the contractor acting as overall integrator, and 
in part because it is so heavily tied to precise year-to year funding 
requirements over the next two decades. Further, a project of this 
magnitude will likely continue to experience other concerns and 
challenges beyond those that have emerged so far. It will be important 
for Coast Guard managers to carefully monitor contractor performance 
and to continue addressing program management concerns as they arise. 

In closing, I believe that DHS has taken strides toward putting in 
place an acquisition organization that contains many promising 
elements. However, the steps taken so far are not enough to ensure that 
the department is effectively managing the acquisition of the multitude 
of goods and services it needs to meet its mission. More needs to be 
done to fully integrate the department’s acquisition function, to pave 
the way for the CPO’s responsibilities to be effectively carried out in 
a modern-day acquisition organization, and to put in place the strong 
internal controls needed to manage interagency contracting activity and 
large, complex investments. DHS’ top leaders must continue to address 
these challenges to ensure that the department is not at risk of 
continuing to exist with a fragmented acquisition organization that 
provides stopgap, ad hoc solutions. DHS and its components, while 
operating in a challenging environment, must have in place sound 
acquisition plans and processes to make and communicate good business 
decisions, as well as a capable acquisition workforce to assure that 
the government receives good value for the money spent. 

Mr. Chairman, this concludes my statement. I would be happy to respond 
to any questions you or other Members of the Committee may have at this 
time. For further information regarding this testimony, please contact 
Michael Sullivan at (202) 512-4841 or sullivanm@gao.gov. 

[End of section] 

Footnotes: 

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

[2] GAO, Homeland Security: Successes and Challenges in DHS’s Efforts 
to Create an Effective Acquisition Organization, GAO-05-179, 
(Washington, D.C.: Mar. 29, 2005). 

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

[4] GAO, Transportation Security Administration: High-Level Attention 
Needed to Strengthen Acquisition Function, GAO-04-544 (Washington, 
D.C.: May 28, 2004). 

[5] GAO-05-356 and GAO-06-374T. 

[6] GAO, Coast Guard: Changes to Deepwater Plan Appear Sound, and 
Program Management Has Improved, but Continued Monitoring Is Warranted, 
GAO-06-546 (Washington, D.C.: Apr. 28, 2006; Contract Management: Coast 
Guard’s Deepwater Program Needs Increased Attention to Management and 
Contractor Oversight, GAO-04-380 (Washington, D.C.: Mar. 9, 2004). 

[End of section] 

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