oversight

Sourcing and Acquisition: Challenges Facing the Department of Defense

Published by the Government Accountability Office on 2003-03-19.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                            United States General Accounting Office

GAO                         Testimony
                            Before the Subcommittee on Readiness
                            and Management Support, Committee on
                            Armed Services, United States Senate

For Release on Delivery
Expected at 9:30 a.m. EST
Wednesday, March 19, 2003   SOURCING AND
                            ACQUISITION
                            Challenges Facing the
                            Department of Defense
                            Statement of David M. Walker
                            Comptroller General of the United States




GAO-03-574T
Chairman Ensign, Ranking Member Akaka, and Members of the
Subcommittee:

I am pleased to be here today to participate in the Subcommittee’s hearing
on the acquisition and sourcing practices of the Department of Defense
(DOD). Today’s hearing occurs at a critical time—with DOD on the brink
of operations in Iraq while seeking to respond to changes in security
threats and still meeting the challenge of transforming the military.

DOD spends an average of $150 billion annually on acquisitions that
support these and other missions. Moreover, this investment is expected
to grow considerably in the future as DOD works to keep legacy systems
while investing in future capabilities such as unmanned aircraft, satellite
networks, and information and communications systems.

Such demands clearly require DOD to be as efficient and effective as
possible in obtaining the systems, services, and equipment it needs to
carry out its mission. But our reviews continue to show that DOD is not
carrying out acquisitions cost-effectively and that the acquisitions
themselves are not always achieving DOD’s objectives. Pervasive
problems persist regarding high-risk acquisition strategies and unrealistic
cost, schedule, and performance estimates.

My testimony today will focus on two aspects fundamental to successful
acquisitions in DOD.

•   The first is the implementation of sound policies for making sourcing
    decisions. Last April, the congressionally chartered Commercial
    Activities Panel, which I chaired, and on which I was privileged to
    serve along with my fellow panelists here today, Angela Styles and Pete
    Aldridge, made a number of recommendations for improving the
    policies and procedures governing the competitive sourcing of
    commercial activities. I welcome this opportunity to discuss the work
    of the Panel and the progress to date in implementing its
    recommendations. These recommendations should lay a good
    foundation for improving sourcing decisions within DOD.

•   The second is the adoption of best practices. DOD itself recognizes the
    need to ensure that it can match its needs to its resources and to follow
    a knowledge-based acquisition process. It is seeking to adopt practices
    that have proven successful in the commercial sector in the
    procurement of both systems and services. It also recognizes the need
    to reshape its acquisition workforce to meet growing demands. Yet it


Page 1                                      GAO-03-574T Sourcing and Acquisition
                        still faces a considerable challenge in putting these practices to work
                        and instituting the cultural changes needed for their success. I would
                        like to recognize the Subcommittee’s leadership in sponsoring the work
                        on the best practices used by leading commercial firms in acquiring
                        services, information technology, and major systems, and in working to
                        get them accepted within DOD.

                     Before I begin my testimony, I would like to note that the environment in
                     which these changes must be made is a challenging one—not just for
                     DOD, but for other agencies as well. It consists of new and changing
                     security threats, the public’s growing expectations for demonstrable
                     results, demographic changes, rapidly evolving science and technology,
                     and serious and growing fiscal constraints. All of these challenges demand
                     that the federal government engage in a fundamental review of its mission
                     and priorities and to consider the long-term impact of the decisions it
                     makes today. The recommendations and practices I will be discussing
                     today, however, should position DOD to meet these broader challenges
                     since they focus on taking a more knowledge-based, and longer-term
                     approach to acquisitions. And they have proved successful in reducing
                     costs.


                     Government agencies increasingly are relying on services to accomplish
Improving Sourcing   their missions. The Department of Defense now spends more than half its
Decisions            contracting dollars acquiring services, about $77 billion in fiscal year 2001,
                     the latest year for which complete data are available. In addition, the
                     Department reports that it has over 400,000 employees performing
                     commercial-type services. Determining whether to obtain required
                     services using federal employees or through contracts with the private
                     sector is an important economic and strategic decision. In fact,
                     competitive sourcing is a key component of the President’s Management
                     Agenda. But historically, the process for determining whether the public
                     or the private sector should perform services needed by federal agencies –
                     set forth in Office of Management and Budget (OMB) Circular A-76 — has
                     been difficult to implement. The impact such decisions have on the federal
                     workforce has been profound, and there have been concerns in both the
                     public and private sectors concerning the fairness of the process and the
                     extent to which there is a “level playing field” for conducting public-
                     private competitions.




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Recommendations of the   It was against this backdrop that the Congress enacted Section 832 of the
Commercial Activities    Defense Authorization Act for fiscal year 2001, which mandated that I
Panel                    establish a panel of experts to study the process used by the government
                         to make sourcing decisions. Given the importance of this issue, I elected to
                         chair this Panel myself and ensured that it was comprised of highly
                         qualified and empowered representatives from the groups specified in the
                         Act and other knowledgeable individuals.

                         The Commercial Activities Panel conducted a yearlong study, and heard
                         repeatedly about the importance of competition and its central role in
                         fostering economy, efficiency, and continuous performance improvement.
                         The Panel held eleven meetings, including three public hearings in
                         Washington, D.C.; Indianapolis, Indiana; and San Antonio, Texas. In these
                         hearings, Panelists heard first-hand both about the current process,
                         primarily the cost comparison process conducted under Circular A-76, as
                         well as alternatives to that process. Panel staff conducted an extensive
                         amount of additional research, review, and analysis in order to supplement
                         and evaluate the public testimony. Recognizing that our mission was a
                         challenging, complex, and controversial one, the Panel agreed that a
                         supermajority of two-thirds of the Panel members would have to vote for
                         any finding or proposal in order for it to be adopted by the Panel.
                         Importantly, the Panel unanimously agreed upon a set of principles to
                         guide all sourcing decisions:




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                             Guiding Principles for Sourcing Policy

The Panel believes that federal sourcing policy should:

1. Support agency missions, goals, and objectives.
2. Be consistent with human capital practices designed to attract, motivate, retain, and reward a
    high-performing federal workforce.
3. Recognize that inherently governmental and certain other functions should be performed by
    federal workers.
4. Create incentives and processes to foster high-performing, efficient, and effective organizations
    throughout the federal government.
5. Be based on a clear, transparent, and consistently applied process.
6. Avoid arbitrary full-time equivalent or other arbitrary numerical goals.
7. Establish a process that, for activities that may be performed by either the public or the private
    sector, would permit public and private sources to participate in competitions for work
    currently performed in-house, work currently contracted to the private sector, and new work,
    consistent with these guiding principles.
8. Ensure that, when competitions are held, they are conducted as fairly, effectively, and
    efficiently as possible.
9. Ensure that competitions involve a process that considers both quality and cost factors.
10. Provide for accountability in connection with all sourcing decisions.




                                In addition, a supermajority of the Panel agreed on a package of additional
                                recommendations. Chief among these was a recommendation that public-
                                private competitions be conducted using the framework of the Federal
                                Acquisition Regulation (FAR). Although a minority of the Panel did not
                                support the package of additional recommendations, some of these
                                Panelists indicated that they supported one or more elements of the
                                package, such as the recommendation to encourage high-performing
                                organizations throughout the government. Importantly, there was a good
                                faith effort to maximize agreement and minimize differences among
                                Panelists. In fact, changes were made even when it was clear that some
                                Panelists seeking changes were highly unlikely to vote for the
                                supplemental package of recommendations. As a result, on the basis of
                                Panel meetings and my personal discussions with Panel members at the
                                end of our deliberative process, the major differences among Panelists
                                were few in number and philosophical in nature. Specifically,
                                disagreement centered primarily on (1) the recommendation related to the
                                role of cost in the new FAR-type process and (2) the number of times the
                                Congress should be required to act on the new integrated process,


                                Page 4                                     GAO-03-574T Sourcing and Acquisition
                       including whether the Congress should specifically authorize a pilot
                       program that tests that process for a specific time period.


The Administration’s   As part of the administration’s efforts to implement the recommendations
Proposed Changes       of the Commercial Activities Panel, OMB published proposed changes to
                       Circular A-76 for public comment in November 2002. The administration is
                       now considering the comments received as it finalizes the revisions to the
                       Circular.

                       I provided comments on the proposal to the Director of OMB this past
                       January. My assessment of the proposed revision concluded that in many
                       ways it is consistent with the sourcing principles and recommendations
                       adopted by the Commercial Activities Panel. In particular, the proposal
                       stresses the use of competition in making sourcing decisions and, through
                       reliance on procedures contained in the FAR, should result in a more
                       transparent, expeditious, and consistently applied competitive process.
                       The proposal should promote sourcing decisions that reflect the best
                       overall value to the agencies, rather than just the lowest cost. Importantly,
                       the proposed revision also should result in greater accountability for
                       performance, regardless of the service provider selected. Of course,
                       successful implementation will require that adequate resources and
                       technical support be made available to federal employees.

                       There are several areas, however, where the proposed revisions to the
                       Circular are not consistent with the principles or recommendations of the
                       Commercial Activities Panel. Specifically, these include the absence of a
                       link between sourcing policy and agency missions, unnecessarily
                       complicated source selection procedures, certain unrealistic time frames,
                       and insufficient guidance on calculating savings. I am confident that the
                       administration is carefully considering these and other comments on the
                       proposal, and look forward to reviewing the final product.

                       One area of particular importance for all affected parties is how the
                       government’s sourcing policies are implemented. In this regard, one of the
                       Panel’s sourcing principles was that the government should avoid arbitrary
                       numerical or full-time equivalent (FTE) goals. This principle is based on
                       the concept that the success of government programs should be measured
                       by the results achieved in terms of providing value to the taxpayer, not the
                       size of the in-house or contractor workforce. Although the proposed
                       revision of the Circular contains no numerical targets or goals for
                       competitive sourcing, this has been a controversial area in the past. It has
                       been our view that the administration needs to avoid arbitrary targets or

                       Page 5                                      GAO-03-574T Sourcing and Acquisition
                    quotas, or any goal that is not based on considered research and analysis.
                    Congress recently put this principle into legislation; a provision in the
                    recent consolidated appropriations legislation requires sourcing goals and
                    targets to be “based on considered research and sound analysis of past
                    activities”. 1


DOD’s Competitive   DOD has been at the forefront of federal agencies in using the A-76
Sourcing Agenda     process in recent years. After several years of limited use of Circular A-76,
                    the deputy secretary of defense gave renewed emphasis to the A-76
                    program in August 1995 when he directed the services to make
                    outsourcing of support activities a priority in an effort to reduce operating
                    costs and free up funds to meet other priority needs. This effort was
                    subsequently incorporated as a major component of the Defense Reform
                    Initiative, and the program became known as competitive sourcing—in
                    recognition of the fact that either the public or the private sector could
                    win the competitions.

                    Recently, DOD’s A-76 study goals have increased because of the
                    President’s Management Agenda, which includes competitive sourcing as
                    one of its five key government-wide initiatives.2 Under that program, OMB
                    directed agencies to directly convert or complete A-76 competitions on 15
                    percent of their 2000 Federal Activities Inventory Reform (FAIR) Act
                    inventories by the end of fiscal year 2003, with the ultimate goal of
                    competing 50 percent of the FAIR Act positions. However, we understand
                    that this broader goal may be subject to negotiations between DOD and
                    OMB. DOD’s ongoing A-76 efforts should permit it to meet OMB’s goal for
                    2003. However, a greater challenge remains for DOD to complete studies
                    on an additional 158,000 positions in the out-years (FY 2004 through FY
                    2009). This is double what DOD has been able to accomplish in the past
                    over a similar timeframe. For example, DOD completed studies on 71,000
                    positions between fiscal years 1997 and 2002, and found it increasingly
                    difficult to identify study candidates over time. DOD hopes to be able to
                    meet this larger goal through a combination of A-76 competitions and
                    other alternatives.




                    1
                        Consolidated Appropriations Resolution, 2003, P.L. 108-7.
                    2
                     In addition to competitive sourcing, the other initiatives are strategic management of
                    human capital, improved financial performance, expanded electronic government, and
                    budget and performance integration.



                    Page 6                                                GAO-03-574T Sourcing and Acquisition
                         DOD’s experience with competitive sourcing since 1996 contains
                         important lessons for civilian agencies as they implement their own
                         sourcing initiatives. As we have tracked DOD’s progress in implementing
                         its A-76 program since the mid to late 1990s, we have identified a number
                         of challenges and concerns with the program. They include (1) the time
                         required to complete the studies, (2) the resources required to conduct
                         and implement the studies, (3) selecting and grouping positions to
                         compete, and (4) developing and maintaining reliable estimates of
                         projected savings expected from the competitions.


                         At the request of this Subcommittee, GAO has conducted a number of
The Department Can       engagements to identify best practices in the commercial sector for
Benefit From             addressing the sourcing and acquisition challenges facing the Department.
                         We believe the Department could significantly improve its performance in
Adopting Best            a number of areas by adopting some of the best practices we have
Practices                identified.


Information Technology   For example, we reviewed the practices used by leading companies
Outsourcing              involved in outsourcing certain information technology (IT) functions. In
                         November 2001, we issued a guide on outsourcing IT services that
                         provides a generic framework of practices from leading commercial
                         organizations that can improve purchasing decisions and manage the
                         resulting government/provider relationship.3

                         At the further request of this Subcommittee, we have been reviewing the
                         extent to which selected DOD projects are using leading commercial
                         practices laid out in our November 2001 guide. We have shared our draft
                         report with this Subcommittee, which is currently with DOD for comment.
                         In brief, we found that the five projects in our review were generally
                         implementing these practices. This is a positive sign because although
                         implementing these practices does not guarantee the success of an
                         outsourcing project, our November 2001 study reflected a consensus view
                         that these practices were the most critical to success.4 Accordingly,



                         3
                          U.S. General Accounting Office, Information Technology: Leading Commercial Practices
                         for Outsourcing of Services, GAO-02-214 (Washington, D.C.: Nov. 30, 2001).
                         4
                          This consensus view was based on interviews with managers in leading commercial
                         organizations, discussions with academic and professional authorities, and extensive
                         research on IT acquisition practices.



                         Page 7                                             GAO-03-574T Sourcing and Acquisition
                        application of these practices increases the probability of a successful
                        outsourcing project.

Acquiring Information   Since the 1990’s, DOD has spent billions of dollars each year attempting to
Technology Systems      leverage the vast power of modern technology to replace outdated ways of
                        doing business. However, the Department has had limited success in
                        modernizing its information technology environment, and we have
                        designated DOD’s systems modernization as high risk since 1995.5 A major
                        reason for this designation is DOD’s inconsistent use of best practices for
                        acquiring IT systems.

                        We have categorized IT system acquisition practices into three groups and
                        apply leading practices, as appropriate, in our evaluations of systems
                        acquisitions within DOD. A brief description of the three categories and
                        what we have found at DOD follows:

                        Acquisition of systems in accordance with mature processes. Our work
                        shows that DOD’s implementation of mature acquisition management
                        processes is uneven, as are its proactive efforts to improve these
                        processes. For example, our review of the Defense Logistics Agency’s
                        system acquisition processes showed that one major system was following
                        mature processes, while another was not.6 We made recommendations to
                        correct these weaknesses, and DOD has generally concurred.

                        There are also published best practices for acquiring systems that are built
                        from commercial components. Generally, these practices advocate an
                        acquisition approach that is not driven primarily by system requirements,
                        but rather an approach that proactively manages the tradeoff among
                        various acquisition issues, such as the organization’s system requirements
                        and the commercially available system components. Accordingly, we have
                        ongoing and planned work at a number of federal agencies, including
                        DOD, which includes determining whether these practices are being
                        employed.




                        5
                         See U.S. General Accounting Office, High-Risk Series: An Update GAO-03-119
                        (Washington, D.C.: January 2003) for our most recent high-risk report.
                        6
                         U.S. General Accounting Office, Information Technology: Inconsistent Software
                        Acquisition Processes at the Defense Logistics Agency Increase Project Risks (GAO-02-9,
                        Jan. 10, 2002).



                        Page 8                                            GAO-03-574T Sourcing and Acquisition
Use of an enterprise architecture to guide and constrain system
acquisitions. Effectively managing a large and complex endeavor requires,
among other things, a well-defined and enforced blueprint for operational
and other technological change, commonly referred to as an enterprise
architecture. In May 2001, we reported that DOD had neither an enterprise
architecture for its financial and financial-related business operations, nor
the management structure, processes, and controls in place to effectively
develop and implement one.7 In addition, the National Defense
Authorization Act for Fiscal Year 2003 required DOD to develop such an
architecture by May 1, 2003, along with a transition plan for its
implementation. At the request of this Subcommittee, we reported last
month that DOD had taken a number of steps to address this issue, such as
establishing a program office responsible for managing the enterprise
architecture effort.8 However, the Department had yet to implement some
of the recommendations from our May 2001 report and commercial
leading practices for developing and implementing architectures.
Accordingly, we made additional recommendations related to DOD’s
architecture effort, with which DOD concurred.

Acquiring systems in a series of economically justified incremental
builds. Both federal law and guidance advocate the use of incremental
investment management9 when acquiring or developing large systems.10
Using these system investment practices helps to prevent discovering too
late that a given acquisition/development effort is not cost beneficial. We
have previously reported that certain DOD system acquisitions were not
utilizing incremental management best practices or were just beginning to
do so. For example, in July 2001 we reported that although DOD had
divided its multi-year, billion-dollar Standard Procurement System into a



7
 U.S. General Accounting Office, Information Technology: Architecture Needed to Guide
Modernization of DOD’s Financial Operations, GAO-01-525 (Washington, D.C.: May 17,
2001).
8
 U.S. General Accounting Office, DOD Business Systems Modernization: Improvements to
Enterprise Architecture Development and Implementation Efforts Needed, GAO-03-458
(Washington, D.C.: Feb. 28, 2003).
9
 Incremental management involves three fundamental components: (1) acquiring a large
system in a series of smaller increments; (2) individually justifying investment in each
separate increment on the basis of cost, benefits, and risks; and (3) monitoring actual
benefits achieved and costs incurred on ongoing increments and applying lessons learned
to future increments.
10
 Clinger-Cohen Act of 1996, P.L. 104-106, and Office of Management and Budget Circular A-
130 (Nov. 30, 2000).


Page 9                                             GAO-03-574T Sourcing and Acquisition
                       series of incremental releases, it had not treated each of these increments
                       as a separate investment decision.11

Acquiring Services     With respect to services acquisitions generally, we found that the
                       experiences of leading private-sector companies to reengineer their
                       approach to acquiring services offer DOD both valuable insights and a
                       general framework that could serve to guide DOD’s efforts. In January
                       2002, we reported that our work at six leading companies found that each
                       had reengineered its approach to acquiring services to stay competitive,
                       reduce costs, and improve service levels. These changes generally began
                       with a corporate decision to pursue a strategic approach to acquiring
                       services. Taking a strategic approach involve a range of activities from
                       developing a better picture of what a company was spending on services
                       to taking an enterprise-wide approach to procuring services and
                       developing new ways of doing business. Pursuing such an approach
                       clearly paid off, as the companies found that they could save millions of
                       dollars and improve the quality of services received.

                       DOD already has in place certain elements critical to taking a strategic
                       approach, such as the commitment by senior DOD leadership to improve
                       practices for acquiring services and to adopt best commercial practices.
                       Moreover, the fiscal year 2002 national defense authorization legislation
                       directs DOD to improve its management and oversight of services
                       acquisitions. To implement these requirements, DOD issued new policy in
                       May 2002 that was intended to elevate major purchases of services to the
                       same level of importance as purchases of major defense systems. The
                       Department still faces a long journey, however, as it begins to take on the
                       more difficult tasks of developing a reliable and accurate picture of service
                       spending across DOD.


Major Weapon Systems   DOD relies heavily on its major weapons acquisitions to modernize its
Acquisitions           forces and expects to spend on average about $150 billion annually over
                       the next 5 years for the research, development and procurement of
                       weapon systems. However, its history of acquiring major weapon systems
                       all too frequently has been characterized by poor cost, schedule, and
                       performance outcomes that have delayed delivery of new capabilities to



                       11
                        U.S. General Accounting Office, DOD Systems Modernization: Continued Investment in
                       Standard Procurement System Has Not Been Justified, GAO-01-682 (Washington, D.C.:
                       July 31, 2001).



                       Page 10                                        GAO-03-574T Sourcing and Acquisition
the warfighter and created significant opportunity costs that have slowed
the Department’s overall modernization efforts.

Because of the pressures in DOD’s acquisition environment to get new
acquisition programs approved and funded, many programs are initiated
with requirements that make a proposed weapon system stand out from
others. The systems engineering necessary to identify gaps between
requirements and resources is often not accomplished until after the
program is started. In these cases, performance requirements can outstrip
the resources—technologies, funding, time, and expertise—available to
meet them. This creates a need for immature, fledgling technologies that
are difficult to develop and usually results in unstable and incomplete a
product design for which there is insufficient time to mature before
starting production. Sufficient time or effort may not be available during
product development to understand the product’s critical characteristics
or to bring key manufacturing processes in control to meet cost, schedule,
and quality targets. In addition, there is not enough emphasis on building
in reliability and reducing total ownership cost.

Typically, the results of this process are weapons that have superior
performance, but that create longer-term collateral consequences such as:

•   Higher acquisition costs that reduce buying power and force tradeoffs
    in other acquisitions,
•   Increased costs to operate and support weapon systems at required
    readiness rates,
•   Significant delays in getting weapon systems to warfighters,
•   Reduced quantities,
•   Early obsolescence, and
•   A diminishing supply base for critical parts and components.

DOD understands that it must get better outcomes from its acquisition
process if it is to modernize its forces quickly within projected resources.
To that end, it is currently revising acquisition policies to emphasize an
evolutionary, knowledge-based process that incorporates best practices
proven by successful companies in developing complex new products. We
believe the policy changes, while not yet finalized, promise to be a good
first step in changing DOD’s acquisition outcomes. If implemented
properly, programs would face less pressure to deliver all of the ultimate
capabilities of a weapon system in one “big bang.” The new policy has
many positive features. For example, it:




Page 11                                    GAO-03-574T Sourcing and Acquisition
•   Separates technology development, which is unpredictable by nature,
    from product development, which requires major investments and is
    delivery-oriented;
•   Articulates the concept of a knowledge-based approach, providing
    guidelines for achieving knowledge of technologies prior to beginning
    product development, stability of the system’s design by about midway
    through product development, and control over critical manufacturing
    processes for building a weapon system prior to a production decision;
•   Places a greater emphasis on evolutionary product development, which
    provides a more manageable environment for achieving knowledge;
    and
•   Recognizes the benefits of best practices for product development
    from leading companies in capturing knowledge at critical junctures
    during product development.

While these policy changes represent tangible leadership action for getting
better weapon system acquisition outcomes, unless the policies are
implemented through decisions on individual programs, outcomes are not
likely to change. Both form and substance are essential to getting desired
outcomes. At a tactical level, we believe the policies could be made more
explicit in several areas to facilitate such decisions. First, the regulations
provide little or no controls at key decision points of an acquisition
program that force a program manager to report progress against
knowledge-based metrics. Second, the new regulations, once approved,
may be too general and may no longer provide mandatory procedures.
Third, the new regulations may not provide adequate accountability
because they may not require knowledge-based deliverables containing
evidence of knowledge at key decision points.

At a strategic level, some cultural changes will be necessary to translate
policy into action. At the very top level, this means DOD leadership will
have to take control of the investment dollars and to say “no” in some
circumstances, if programs are inappropriately deviating from sound
acquisition policy. In my opinion, programs should follow a knowledge-
based acquisition policy—one that embraces best practices—unless there
is a clear and compelling national security reason not to. Other cultural
changes instrumental to implementing change include:

•   Keeping key people in place long enough that they can affect decisions
    and be held accountable;
•   Providing program offices with the skilled people needed to craft
    acquisition approaches that implement policy and to effectively
    oversee the execution of programs by contractors;


Page 12                                     GAO-03-574T Sourcing and Acquisition
                        •   Realigning responsibilities and funding between science and
                            technology organizations and acquisition organizations to enable the
                            separation of technology development from product development;
                        •   Bringing discipline to the requirements-setting process by demanding a
                            match between requirements and resources;
                        •   Requiring readiness and operating cost as key performance parameters
                            prior to beginning an acquisition; and
                        •   Demanding reliability testing early in design.

                        Ultimately, the success of the new acquisition policy will be seen in
                        individual program and resource decisions. Programs that are
                        implementing knowledge-based policies in their acquisition approaches
                        should be supported and resourced, assuming they are still critical to
                        national needs. Conversely, if programs that repeat the approaches of the
                        past are approved and funded, past policies—and their outcomes—will be
                        reinforced.


Acquisition Workforce   To effectively implement best practices and properly manage the goods
Challenges              and services it purchases each year requires that DOD have the right skills
                        and capabilities in its acquisition workforce. This is a challenge given
                        decreased staffing levels, increased workloads, and the need for new skill
                        sets. Procurement reforms and the ongoing technological revolution have
                        placed unprecedented demands on the workforce, and contracting
                        personnel are now expected to have a much greater knowledge of market
                        conditions, industry trends, and technical details of the commodities and
                        services they procure.

                        In response to these challenges, DOD has made progress in laying a
                        foundation for reshaping its acquisition workforce. The agency has
                        initiated a substantial long-term strategic planning effort to identify the
                        competencies needed for the future and to address what reshaping of the
                        workforce will be needed to achieve the desired mix. DOD is continuing
                        with an effort to test various human capital innovations and has begun
                        making significant changes to its acquisition workforce-training program.
                        Part of this long-term effort will involve making a cultural shift as well as
                        developing better data to manage risk by spotlighting areas for attention
                        before crises develop and to identify opportunities for improving results.


                        The continuing war on terrorism, regional instability, demographic and
Conclusion              technological changes, as well as the federal government’s short-and long-
                        term budget pressures have created a challenging environment for the


                        Page 13                                     GAO-03-574T Sourcing and Acquisition
           Department of Defense. It faces a number of difficult missions that will put
           its strategies, personnel, and resources under enormous strains.
           Consequently, it is important for the Department to adopt business
           practices that will enable it to acquire the systems and services to allow it
           to operate effectively in this environment. Doing so will help ensure that
           its resources are used in the most efficient manner possible. I am
           confident that the leadership of the Department is committed to that
           objective. Success over the long term will depend on the leadership
           sustaining its commitment to improving business practices through a
           strategic, integrated, and DOD-wide approach to ensure that these efforts
           achieve their intended results.

           Mr. Chairman, this concludes my statement. I will be pleased to respond to
           questions from the Subcommittee.




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