oversight

Consulting Services: Role and Use in Acquiring Three Weapon Systems

Published by the Government Accountability Office on 1990-08-20.

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

GAO

hu~llst   l!j!M)
                                CONSULTING
                                SERVICES
                                Role and Use in
                                Acquiring Three
                                Weapon Systems



                                                                                142267




                        -Not                   to be released outside the
                         General Accounting Office unless specifically      1
                         approved by the Office of Congressional            I
                         Relations.


GAO/NSIAI)-90-I    19
        _   __   .   .   ._   “.”   ,.”   ..”   .   “.   I^..*   _   “...   II   -...   -I---




---____--
National &cur&y and
International Af’faim Division

B-220748

August 20,199O

The Honorable Les Aspin
Chairman, Committee on Armed
  Services
House of Representatives

The Honorable David H. Pryor
Chairman, Subcommittee on Federal Services,
  Post Office and Civil Service
Committee on Governmental Affairs
United States Senate

This report responds to your requests that we examine the role and use of consulting
services in the acquisition of weapon systems. In conducting this review, we focused on those
services obtained by both the Department of Defense and its contractors to support the
development of three specific systems-the Army’s Fiber Optic Guided Missile, the Navy’s
V-22 tiltrotor aircraft, and the Air Force’s Peacekeeper Rail Garrison missile basing system.

Unless you announce its contents earlier, we plan no further distribution of this report until
30 days from the date of this letter. At that time, we will send copies to the Chairmen, House
Committees on Appropriations and Government Operations, and the Chairmen, Senate
Committees on Armed Services and Appropriations; the Secretaries of Defense, Army, Navy,
and Air Force; the Director, Office of Management and Budget; and other interested parties.

This report was prepared under the direction of Paul L. Jones, Director, Defense Force
Management Issues (202) 276-3990. Other major contributors to this report are listed in
appendix II.




Frank C, Conahan
Assistant Comptroller General
                                                                                             I
Executive Summq


                   As part of its ongoing efforts to assess the government’s use of con-
Purpose            sulting services, GAO reviewed three Department of Defense (DOD)
                   weapon systems to determine

                   how DOD used consulting services in acquiring these systems;
                   how the systems’ contractors used consultants; and
                   whether consultants worked for both the government and defense con-
                   tractors on these systems, and if so, whether any conflicts of interest
                   existed.

                   GAO also examined how well DOD identified and reported its use of con-
                   sulting services.

                   This report responds to questions raised by the Chairmen, House Com-
                   mittee on Armed Services, and the Subcommittee on Federal Services,
                   Post Office and Civil Service, Senate Committee on Governmental
                   Affairs.


                   DOD uses the term “contracted   advisory and assistance services” to
Background         describe consulting services, which include individual experts and con-
                   sultants, studies and analyses, management support services, and engi-
                   neering and technical services. By law, DOD is required to establish an
                   accounting mechanism to track these services and to provide, as part of
                   the defense budget, data on proposed expenditures. DOD estimates that it
                   spends about $1.6 billion annually on such services.

                   Rules governing organizational conflicts of interest are contained in the
                   Federal Acquisition Regulation. It defines such a conflict as existing
                   when, because of the nature of the work to be performed, a contractor
                   could gain an unfair competitive advantage or might provide biased
                   advice unless appropriate safeguards concerning future activities are
                   included in its contract. In addition, in December 1989, in response to
                   the requirements of the Department of Defense Appropriations Act of
                   1989, the Office of Federal Procurement Policy issued a policy letter
                   providing further guidance on contractor conflicts of interest.


                   Consulting services played an important role in the three weapon sys-
Results in Brief   tems GAO studied-the Army’s Fiber Optic Guided Missile, the Navy’s
           u       V-22 tiltrotor aircraft, and the Air Force’s Peacekeeper Rail Garrison
                   missile basing system. DOD used such services in developing system



                   Page 2                                     GAO/NSLAD-99-119
                                                                             Consulting Services
                          Executive   Summary




                          specifications, preparing cost estimates, and reviewing requests for
                          proposals.

                          Defense contractors for these systems used consultants to obtain a
                          variety of services, ranging from advice on government business to tech-
                          nical assistance in preparing bids for defense contracts.

                          GAO did not find, based on its review of contract documentation, any
                          basis to conclude that conflicts of interest existed in the three instances
                          it identified where consultants worked for both the government and a
                          defense contractor on matters related to the same weapon system. GAO'S
                          review, although limited to three specific systems, does highlight key
                          principles to guide the government’s approach to addressing conflict-of-
                          interest concerns, among them (1) the need for government awareness of
                          consultant employment relationships in order to make informed judg-
                          ments about potential conflicts and (2) the use of appropriate contract
                          clauses to avoid or mitigate identified conflicts.

                          GAO also found that DoD did not accurately identify or report its use of
                          consulting services, due to difficulties in interpreting the definitions of
                          these services or other internal control weaknesses. Without improve-
                          ments in these areas, DOD and the Congress will continue to lack accurate
                          information on how much DOD is relying on consulting services to
                          develop its weapon systems.



Principal Findings

DOD’s Use of Consulting   From 1984 to 1989, the Army obligated at least $9 million in consulting
Services                  services for the Fiber Optic Guided Missile to support cost estimates,
                          acquisition strategy development, and reviews of draft requests for pro-
                          posals. For the V-22, the Navy obligated $18 million between 1983 and
                          1989 to define aircraft requirements, develop logistics support specifica-
                          tions, and track cost schedules. During fiscal years 1987 and 1988, the
                          Air Force contracted for similar services to support the Peacekeeper
                          Rail Garrison. GAO could not calculate the amounts obligated for con-
                          sulting services under the Air Force contracts because in a number of
                          cases, these services were combined with other services in the same con-
                          tracts and not separately identified.




                          Page 3                                     GAO/NSIAD-99-119Conmlting Services
                              Executive Summary




Contractor Use of             Information GAO obtained from 6 defense contractors showed that 3
Consultants                   retained a total of 18 consultants for the weapon systems GAO reviewed,
                              generally to provide advice on dealing with DOD. Four of the 6 contrac-
                              tors also reported using an additional 40 companies or individuals to
                              obtain more technical services, such as reviewing bids or system
                              requirements.


Conflict-of-Interest Issues   Of the three instances where consulting firms worked both for DOD and a
                              contractor, one firm that provided cost-estimating services to the Army
                              Missile Command for the Fiber Optic Guided Missile system was later
                              employed by a defense contractor for similar types of services. In the
                              other two cases, the Air Force contracted with consulting firms to obtain
                              services for the Peacekeeper Rail Garrison; these firms also worked for
                              a defense contractor on matters related to the system.

                              GAO'S review of the contracts and the products prepared by the con-
                              sulting firms, such as briefing materials and summaries of hearings and
                              public meetings, did not provide any basis to conclude that the firms
                              acquired an unfair competitive advantage or were unable to provide
                              impartial advice. However, in one case the contractor did not comply
                              with the conflict-of-interest provisions contained in its contracts with
                              the government. For example, the contractor did not submit required
                              written certifications stipulating that it had no financial or other inter-
                              ests that could represent a conflict.

                              Moreover, in two of the cases, the government was aware of the con-
                              sulting firms’ proposed work and therefore was in a position to judge
                              that no conflicts of interest existed.


Reporting Weaknesses          GAO identified one Fiber Optic Guided Missile contract and seven Rail
                              Garrison contracts that should have been classified, in whole or in part,
                              as advisory and assistance services but were not so designated by the
                              respective Army and Air Force commands managing those systems.
                              Individual commands also had differing interpretations of what consti-
                              tutes advisory and assistance services. For example, the Naval Air Sys-
                              tems Command considered such services to include logistics support
                              services, but the Air Force Ballistic Systems Division did not.

                              GAO found other errors in the militaryservices’ identification of these
                              services and their budget submissions to the Congress, such as omissions



                              Page 4                                      GAO/NSIAD-99-119Ckmsulting Services
                      Executive Sumnuuy




                      of data and failure to record obligations for these services in the
                      accounting systems as required.

                      Several factors contributed to DOD'S failure to provide accurate data on
                      its use of consulting services, including difficulties in interpreting con-
                      sulting services definitions, inadequate procedures and controls to iden-
                      tify and report these services, and, more generally, a lack of oversight
                      by DOD and the military services.


                      GAO makes a number of recommendations to the Secretary of Defense to
Recommendations       improve WD'S identification and reporting of consulting services. (See
                      pp. 47 and 48.)


                      In commenting on a draft of this report, DODagreed with GAO'S findings
Agency and            and recommendations, and advised that it has begun action to
Contractor Comments   strengthen its management and reporting of contracted advisory and
                      assistance services. DOD'S planned efforts include providing clear gui-
                      dance on management and use of these services and establishing a
                      database capability to report and track them. DOD believes that its initia-
                      tive, when fully implemented, will satisfy GAO’S recommendations.

                      The principal defense contractors and consulting firms that commented
                      on the report agreed with the information presented on their respective
                      firms.




                      Page 6
Contents


Executive Summary                                                                                      2

Chapter 1                                                                                              8
Introduction             What Is a Consultant?                                                         8
                         Legislation Governing Consulting Services                                     9
                         Related Audits, Studies, and Investigations                                  10
                         Objectives, Scope, and Methodology                                           11

Chapter 2                                                                                             16
DOD’s Use of             DOD Uses a Variety of Consulting Services                                    15
                         Case Studies: How Consulting Services Were Used on                           16
Consulting Services in       Individual Weapon Systems
Weapon System            Reducing Reliance on Contractors in Sensitive                                21
Acq&siti&                    Procurement Areas
                         Conclusions                                                                  22

Chapter 3                                                                                             23
Defense Contractors’     Guidelines and Procedures for Employing Consultants                          23
                         Use of Consulting Services on Specific Weapon Systems                        25
Use of Consulting        Technical Services That Contractors Did Not Categorize                       28
Services                     as Consulting Services
                         Conclusions                                                                 29
                         Contractor Comments                                                         29

Chapter 4                                                                                            30
Conflict-of-Interest     Regulations Governing Organizational Conflicts of                           30
                             Interest
Issues                   Consulting Firms Working for Both Government and                            32
                             Industry
                         Conclusions                                                                 37
                         Agency and Consulting Firm Comments and Our                                 38
                             Evaluation

Chapter 5                                                                                            40
Identifying and          Requirements for Identifying and Reporting CAAS                             40
                         Problems in Identifying and Reporting CAAS                                  41
Reporting Consulting     Factors Impeding Accurate Reporting of Consulting                           46
Services y                   Services
                         Conclusions                                                                 47
                         Recommendations                                                             47


                         Page 6                                        GAO/NSIAD-90-119Ckmmlting Services
                       Contents




                       Agency Comments and Our Evaluation                                      48

Appendixes             Appendix I: Comments From the Department of Defense
                       Appendix II: Major Contributors to This Report

Related GAO Products                                                                           68

Tables                 Table 2.1: CAAS Contracts Used to Support the FOG-M,                     17
                           V-22, and Peacekeeper Rail Garrison Systems
                       Table 3.1: Numbers of Consultants Used by Case Study                    25
                           Contractors
                       Table 5.1: DOD Definitions of CAAS                                      41
                       Table 5.2: Additional CAAS Contract Services Identified                 42
                           by GAO for FOG-M and Rail Garrison Systems




                       Abbreviations

                                  Contracted Advisory and Assistance Services
                       DOD        Department of Defense
                       FOG-M      Fiber Optic Guided Missile
                       GAO        General Accounting Office
                       OMB        Office of Management and Budget
                       OSD        Office of the Secretary of Defense


                       Page7                                     GAO/NSLAD-o-119Consulting Services
Chapter 1

Introduction


                        The executive and legislative branches of government have long been
                        concerned about the federal government’s use of consulting services.
                        That concern stems from the recognition that, although government can
                        benefit from the advice and expertise consultants offer, their use can
                        also cause problems, such as the potential for conflicts of interest that
                        their employment by both government and industry creates.


                        The Office of Management and Budget (OMB) and the Department of
What Is a Consultant?   Defense (DOD) use the term “contracted advisory and assistance ser-
                        vices,” or C&U, to describe consulting services. As defined by DOD in its
                        1986 directive on CAAS,these services are

                        “acquired directly by the Department of Defense from nongovernmental sources to
                        support or improve agency policy development or decision-making, or to support or
                        improve the management of organizations or the operation of weapon systems,
                        equipment, and components.”

                        The four CAAScategories are the following:

                        1. Individual experts and consultants who possess special knowledge or
                        skills and provide information, advice, or recommendations.

                        2. Studies, analyses, and evaluations that provide formal assessments of
                        complex issues.

                        3. Management support services in the form of training, advice, or direct
                        assistance to ensure the more efficient or effective operation of manage-
                        ment systems.

                        4. Engineering and technical services in the form of instruction or
                        hands-on training to ensure the more efficient or effective operation of
                        weapon systems, equipment, components, and related software.

                        The services of individual experts or consultants may be obtained
                        through temporary appointment’ or by contract, depending on the cir-
                        cumstances. In cases where both CAASand non-c&@ items, such as
                        system hardware, are included in a single contract, the w is to be sep-
                        arately identified and priced.



                        ‘DODhas authority, under 6 USC. 3109,to employexperts and consultants,in accordancewith
                        other requirementssuch ss financial disclosurerules.



                        Page 8                                               GAO/NSIAD-90419Cbnaulting Services
                        Chapter 1
                        Introduction




                        The Congress has enacted several laws governing federal agencies’
Legislation Governing   reporting and management of consulting services. Pertinent legislation
Consulting Services     includes 31 U.S.C. 1114, which requires agencies to include in their
                        budget justifications the amounts requested for consulting services and
                        a description of the need for such services. In addition, inspectors gen-
                        eral must submit annual evaluations of their agencies’ progress in imple-
                        menting effective management controls over consulting services and
                        improving the accuracy and completeness of contract data on such
                        services.

                        The Department of Defense Authorization Act of 1986 requires DOD to
                        establish an accounting procedure to “aid in the identification and con-
                        trol of expenditures for services identified as contracted advisory and
                        assistance services.” The act further requires DOD to implement regula-
                        tions defining such services and to present, with its budget, data on the
                        amounts requested for MA% The legislation specifies that DOD is to sepa-
                        rately identify those services carried out in direct support of a weapon
                        system and essential to the development, production, or maintenance of
                        the system.

                        The Congress has also periodically set limits on spending for consulting
                        services. For example, the Department of Defense Authorization Act of
                        1986 limited M)D funding for consulting and related services to $1.3 bil-
                        lion The Department of Defense Appropriations Act of 1990 set a
                        $1 .&billion CAASspending limit.

                        The Department of Defense Appropriations Act of 1989 sought to
                        strengthen conflict-of-interest controls governing consultants. Section
                        8141 required the Office of Federal Procurement Policy to issue a policy
                        establishing (1) conflict-of-interest standards governing consulting ser-
                        vices provided to the government and those related to the preparation
                        or submission of bids and proposals for federal contracts and (2) proce-
                        dures to promote compliance with these standards, including, if appro-
                        priate, registration and certification.2




                        2TheOffice’sPolicy Letter 89-1wanpublishedin the FederalRegisterDecember18,1989,and will
                        apply to contract solicitations issuedafter implementingregulationsare promulgated.



                        Page 9                                               GAO/NSIAD-99.119CkuuudtingServices
                  Chapter 1
                  Introduction




                  Numerous audits and studies of DOD’S use of consulting services have
Related Audits,   been conducted over the past several years, Our reviews of DOD services
Studies, and      contracts highlighted long-standing problems in accurately reporting
Investigations    and managing those services3 As part of our continuing efforts to assess
                  the federal government’s controls over consulting services, we have in
                  progress or planned a number of related reviews, among them assess-
                  ments of (1) the adequacy of controls to identify and address organiza-
                  tional conflicts of interest and (2) management controls over contractor
                  support in the operational test and evaluation area. In addition, the DOD
                  Inspector General, in response to the legal requirement to conduct
                  annual evaluations, has issued seven reports, the latest in June 1989.4
                  These reports identified inaccuracies in DOD’S reporting of consulting
                  services and noted other problems in the department’s implementation
                  of procedures to account for these services.

                  Other initiatives have also focused on identifying and correcting
                  problems in managing and reporting consulting services. The President’s
                  Council on Integrity and Efficiency has headed an effort to, among other
                  things, have selected agencies, including DOD, conduct a comprehensive
                  audit of management controls over CAAS.An OMB interagency task force
                  issued its own report in September 1988 calling for better management
                  and reporting of CAAZLIn addition, OMB is assessing the need for changes
                  in the CAASdefinitions and categories.

                  In the wake of the Ill Wind defense procurement investigation, DOD has
                  taken additional actions. The Secretary of Defense established a pro-
                  curement task force to address problems uncovered by the investigation
                  and identify any needed changes to the acquisition system. The Secre-
                  tary directed the Defense Contract Audit Agency to conduct a special
                  audit of consulting service costs and also sent letters to 200 major
                  defense contractors urging them to establish effective ethics programs
                  and ensure that appropriate controls had been established over the use
                  of consultants.




                  4Heporton the Audit of the Statusof ConsultingServices,Office of the DODInspectorGeneral,No.
                  89-084,June 28,19S9.The InspectorGeneral’snext report is scheduledto be issuedin late July or
                  early August 1990.



                  Page 10                                                GAO/NSIAD43O-119
                                                                                        Consulting Services
                            Chapter 1
                            Introduction




                            In response to requests from the Chairmen, House Committee on Armed
Objectives, Scope,and       Services, and the Subcommittee on Federal Services, Post Office and
Methodology                 Civil Service, Senate Committee on Governmental Affairs, we reviewed
                            the use of consultants by DOD and its contractors on specific weapon sys-
                            tems and the existence of any conflicts of interest arising from cases
                            where consultants worked for both DOD and contractors. More specifi-
                            cally, our review focused on (1) identifying consulting services used by
                            DOD in the acquisition of individual weapon systems, particularly in such
                            early stages of the process as the development of requests for proposals
                            and the source-selection process, (2) identifying defense contractors’ use
                            of consultants for specific systems, (3) assessing the existence of con-
                            flicts of interest in cases where consultants were employed by both DOD
                            and contractors, and (4) assessing DOD’S identification and reporting of
                            consulting services.

                            To determine how DOD uses consulting services, we selected three
                            weapon systems as case studies. We chose a case study approach to
                            describe specific consulting services used in weapon system acquisition.
                            This approach does not, however, allow us to draw overall conclusions
                            about the types of consulting services DOD uses or the extent of their use.
                            The three systems we selected, one each from the Army, Navy, and Air
                            Force, are the following:

                        . the Fiber Optic Guided Missile (FUG-M), one of several components of the
                          Army’s Forward Area Air Defense System;
                        l the Navy’s V-22 Osprey, a tiltrotor aircraft program; and
                        . the Peacekeeper Rail Garrison, an Air Force system to deploy the mis-
                          siles on rail cars.

                            The three principal criteria we used to select these systems were (1) the
                            significance of the systems, as represented by their inclusion in DOD’S
                            Selected Acquisition Reports to the Congress, (2) stage of develop-
                            ment-around     the full-scale development phase,5 thereby far enough
                            along to allow us to identify a full range of consulting services but not so
                            old that documentation would be unavailable, and (3) our knowledge of
                            the systems based on ongoing or prior work. We also considered other
                            factors, such as avoiding highly classified systems.


                            ‘DOD acquisitionsgenerally proceedthrough four phases:conceptexploration, when alternative
                            systemconceptsare identified and evaluated;demonstrationand validation, where test articles are
                            fabricatedand tested;full-scale development,where severalprototypesare madeand testedto
                            ensurethat the designmeetssystemrequirements;and production,where the systemis producedand
                            fielded.



                            Page 11                                                GAO/NSIAD-90-119Cmsulting Services
Ch8pter 1
Introduction




For our review, we used DOD’S definition of CAAS.To identify services
used to support each of our case study systems, we concentrated on
those obtained by the commands responsible for managing them-Army
Missile Command, Naval Air Systems Command, and Air Force Ballistic
Systems Division.. At each of these commands, we (1) reviewed contracts
classified as CAAP,contracts by the commands, (2) reviewed selected
other contracts to test the accuracy of the commands’ identifications,
(3) discussed contract scopes of work with command representatives,
and (4) traced, on a limited basis, funding issued to other agencies to
obtain CAAS.

At the Army Missile Command, we reviewed a judgmental sample” of 37
contracts out of a total of 94 contracts the Command used to fund the
FUG-M system’s development from March 1983 to April 1989. For the
V-22, we reviewed 69 contracts identified from Naval Air Systems Com-
mand records-26 contracts designated as support contracts by the
Naval Air Systems Command and 33 additional contracts not classified
as CAASby the Command. At the Air Force’s Ballistic Systems Division,
we reviewed all 41 contracts with Rail Garrison funding, including the
one CAAScontract identified by the Division.

To supplement our command-level work, and to more fully describe the
range of consulting services used by DOD in weapon system acquisition,
we (1) searched the Defense Technical Information Center database to
identify applicable studies, (2) reviewed lists of studies undertaken by
the Defense Science Board, Army Science Board, Naval Research Advi-
sory Committee, and Air Force Scientific Advisory Board, (3) met with
Office of the Secretary of Defense (DSD) and military service headquar-
ters representatives, and (4) reviewed OSD and Army, Navy, and Air
Force personnel records to identify individual consultants. We limited
our review of individual consultants to those hired by the DOD or service
organizations most likely to be involved in weapon system acquisition-
for example, the Office of the Under Secretary of Defense for Acquisi-
tion and the Office of the Assistant Secretary of the Navy for Research,
Engineering, and Systems.

To determine how defense contractors use consultants, we obtained
information from six full-scale development contractors for our case
study systems: Hughes Aircraft Company and Boeing Military Airplanes
Company (FOG-M), Boeing Helicopters and Bell Helicopter Textron (V-22

‘iWeselectedthis sampleusing FederalProcurementDataSystemcodesthat are associatedwith
CAAStransactions.



Page 12                                             GAO/NSIAD-99-119Chsulting Services
--.
        Chapter 1
        Introduction




        Osprey), and Boeing Aerospace and Rockwell International
        (Peacekeeper Rail Garrison). We reviewed these companies’ policies and
        procedures for hiring and using consultants and obtained data on con-
        sultants they employed on our case study systems. In some cases, we
        conducted follow-up work and met with company representatives.
        Where available, we reviewed documentation obtained by the Defense
        Contract Audit Agency during its review of consultant costs. In those
        instances where the consultants employ& by the contractors were
        former DOD employees, we also assessedcompliance with the reporting
        requirements and employment restrictions contained in the “revolving
        door” legislation- the provisions of )O U.S.C. 2397, 239713,and 2397c.7

        To address conflict-of-interest issues, we identified consultants working
        for both DOD and defense contractors by comparing DOD contract data
        with the information supplied by the six defense contractors we
        reviewed. We limited our review to consultants working directly for con-
        tractors; we did not attempt to identify consultants working for subcon-
        tractors. We reviewed contract scopes of work and conflict-of-interest
        provisions, examined products prepared by the consultants, and dis-
        cussed their work with program and contracting officials. In those cases
        where a consultant’s contract with the government contained an organi-
        zational conflict-of-interest clause, we assessed whether the consultant’s
        work for the defense contractor was inconsistent with the clause. Fur-
        ther, in all cases where we identified consultants working for both the
        government and a defense contractor on the same system, we assessed
        the potential for bias or unfair competitive advantage that existed in
        these circumstancesR

        To assess CAASidentification and reporting, we (1) reviewed DOD and mil-
        itary service regulations, procedures, and budget submissions,
        (2) assessed methods used at the local command level to identify and
        report CAAS,and (3) reviewed case study contracts awarded after the
         1986 issuance of the DOD directive on CAAK

        We performed our fieldwork at the following locations:

      . Office of the Secretary of Defense, Washington, D.C;
      . Departments of the Army, Navy, and Air Force, Washington, D.C.;

        ‘The Ethics ReformAct of 1989suspendedthe applicationof 10 USC. 2397bfor oneyear, beginning
        December1,1989.
        ‘Inability to render impartial adviceand unfair competitiveadvantageare the criteria the Office of
        FederalProcurementPolicy usedto define “conflict of interest” in its Policy Letter 89-l.



        Page 13                                                   GAO/NSlAD-90-119Conmlting Services
    Chapter 1
    Introduction




l   Army Materiel Command, Alexandria, Virginia;
l   Army Missile Command, Redstone Arsenal, Huntsville, Alabama;
.   Naval Air Systems Command, Naval Sea Systems Command, and Space
    and Naval Warfare Systems Command, Crystal City, Virginia;
l   Naval Air Development Center, Warminster, Pennsylvania;
.   Air Force Ballistic Systems Division, Norton Air Force Base, California;
l   Bell Helicopter Textron, Inc., Fort Worth, Texas;
l   Boeing Aerospace, Seattle, Washington;
l   Boeing Helicopters, Philadelphia, Pennsylvania;
9   Boeing Military Airplanes, Huntsville, Alabama; and
.   Hughes Aircraft Company, Canoga Park, California.

    We conducted our review from July 1988 through March 1990 in accor-
    dance with generally accepted government auditing standards.

    DOD provided written comments on a draft of this report, which are dis-
    cussed in chapter 6 and are included in appendix I. We also provided
    portions of the draft to the principal defense contractors and consulting
    firms cited in the report. Their comments are discussed in chapters 3
    and 4.




    Page 14                                    GAO/NSIAD99-119Consulting Servkm
Chapter 2

DOD’s Use of Consulting Servicesin Weapon
System Acquisition

                            DOD uses various consulting services-individual   consultants, studies
                            and analyses, management support, and technical and engineering ser-
                            vices-to support its acquisition of weapon systems. Such services
                            played an important role in the development of the specific systems we
                            studied-the Army’s Fiber Optic Guided Missile, the Navy’s V-22 air-
                            craft, and the Air Force’s Peacekeeper Rail Garrison. Each of the ser-
                            vices used consulting services in procurement areas that the Navy has
                            characterized as “sensitive,” such as reviews of requests for proposals.
                            In mid-1988, the Navy decided to reduce its reliance on contractor sup-
                            port in these areas.


                            DOD’S budget submission for CAASprovides examples of the types of con-
DOD Uses a Variety of       sulting services it and the services use in weapon system acquisition. In
Consulting Services         the fiscal years 1988-1989 and 1990-1991 submissions, DOD and the ser-
                            vices sought c%s funding to

                        l develop briefings and provide other support for high-level reviews of
                          the Navy’s SSN-21 Seawolf submarine program;
                        . maintain logistics planning documents, such as the integrated logistics
                          support plan, for the Air Force Maverick missile;
                        . review and evaluate sensor requirements for space surveillance sys-
                          tems; and
                        l provide maintenance support training for the Army’s Ml tank.

                            These services fall within the categories of studies and analyses, man-
                            agement support, or engineering services. Generally, DOD organizations
                            requesting the services would obtain them by awarding contracts.

                            DOD also employs consultants as individuals or as members of an advi-
                            sory board to advise on a variety of issues, including weapon systems.
                            We identified a limited number of individual consultants who were
                            involved in some aspect of weapon system development. For example,
                            OSDhired a consultant to advise on “technical issues related to the devel-
                            opment of tactical ballistic missile defense and missile and aircraft
                            detection systems.”

                            Four advisory committees-the Defense Science Board, the Army Sci-
                            ence Board, the Naval Research Advisory Committee, and the Air Force
                            Scientific Advisory Board-also conducted studies focused on specific
                            weapon systems. For example, the Naval Research Advisory Committee
                            issued a 1983 report on torpedoes and antisubmarine warfare weapons.



                            Page 16                                     GAO/NSIAD-90-119Cmaulting Services
                      Chapter 2
                      DOD’sUse of Conwlting Sendceein Weapon
                      System Acquisition




                      DOD and the services obtain consulting services at different organiza-
                      tional levels to support varying aspects of weapon system development.
                      For example, the Office of the Under Secretary of Defense for Acquisi-
                      tion requested funds for studies to address the “operational aspects of
                      developing new weapon systems for improving warfighting capability.”
                      The Department of the Navy sought funds to support different types of
                      cost analyses for specific systems. The “buying” commands1 contract for
                      a range of managerial and technical services to support their acquisition
                      of weapon systems. For example, the Naval Sea Systems Command,
                      which develops the Navy’s ships and shipboard combat systems (e.g.,
                      torpedoes), requested $290 million in w for fiscal year 1990, or 30
                      percent of the Navy’s CAASrequest for that fiscal year.2


                      The military services used consulting services to support each of the
CaseStudies: How      three weapon systems we reviewed. These services were primarily in
Consulting Services   the management support category. We did not find any individual con-
Were Used on          sultants specifically working on our case study systems, other than
                      those associated with studies conducted by the various advisory boards.
Individual Weapon
Systems               Table 2.1 summarizes the CAAScontracts used by the Army Missile Com-
                      mand, Naval Air Systems Command, and Air Force Ballistic Systems
                      Division for our case study systems. In many instances, these contracts
                      are “omnibus” ones used to support a number of different systems; only
                      CAASobligations for the case study systems are shown.




                      ‘The buying commands,which have responsibility for managingweaponsystems,include the Army
                      Materiel Commandand its subordinatecommands;three Air Forcecommands,amongthem the Air
                      Force,SystemsCommandand its various divisions; and the Navy’s systemscommands.
                      2Similarcalculationsare not possiblefor Army and Air Forcebuying commandsdue to a lack of data.



                      Page 10                                                GAO/NSIAIMKb-119 Consulting Services
                                    chapter 2
                                    DOD’sUse of Consul-        Services in Weapon
                                    System Acqtiition




Table 2.1: CAAS Contracts Used to
Support the FOQ-M, V-22, and        Dollars in millions
Peacekeeper Rail Oarrison Systems                                                           Number of       Period of            Obligated
                                    System                Buying activity                    contracts    obligations              amount
                                    FOG-M                 Army Missile Command                         5a 1984-1989                    $9.0
                                    v-22                  Naval Air Systems
                                                          Command                                     26b     1983- 1989                 17.0b
                                    Feacekeeper    Rail   Air Force Ballistic
                                    Garrison              Systems Division                             IO     1987-1988                      c

                                    aThe Army Missile Command also used two purchase orders, totaling $49,564, to obtain consulting ser-
                                    vices for the FOG-M.
                                    bThis does not include an additional five contracts awarded by the Naval Air Development   Center;
                                    funding for the V-22 under these contracts totaled $650,296.
                                    ‘We could not calculate the CAAS obligations under these contracts because the Air Force did not
                                    separately identify these services.


                                    The services we are describing are those that the commands designated
                                    as CAAS,S  plus other services that we believe meet the intent of the CAAS
                                    definitions. The Ballistic Systems Division did not agree with our
                                    including all these services, based on its different interpretation of what
                                    constitutes W. (See ch. 6.)

                                    The figures in table 2.1 are not likely to represent all the consulting ser-
                                    vices supporting these systems, for at least three reasons. First, con-
                                    sulting services used to establish requirements or assess technologies for
                                    potential systems may not be directly linked to a particular system. For
                                    example, a consultant might examine aspects of vertical-take-off-and-
                                    landing aircraft, such as the V-22, prior to that system’s actual
                                    development.

                                    Second, when different organizations and agencies are involved in the
                                    acquisition process, identifying all the services any of these organiza-
                                    tions may have used is further complicated. For example, the Defense
                                    Acquisition Board directed the Army to conduct a number of studies as
                                    a result of its review of the Forward Area Air Defense System.
                                    According to an Army official, Army headquarters would not know
                                    whether those studies were conducted by the Army or contracted out.

                                    Third, documentation on individual consultants was either unavailable
                                    or too general to determine whether these consultants worked on a par-
                                    ticular weapon system. For example, four consultants who worked in

                                    SForthe V-22,this includessupport servicescontractsawardedprior to 1986,as well as contracts
                                    designatedas CAASafter the DODdirective was issuedin 1986.



                                    Page 17                                                     GAO/NSIAD-99-119Consulting Services
                             Chapter 2
                             DOD’sUse of Consulting Services in Weapon
                             System Acquisition




                             the Office of the Under Secretary of Defense for Acquisition did not pro-
                             vide written products, but instead advised office directors.


Army CaseStudy: Fi.ber       The FOG-Mis one component of the Army’s Forward Area Air Defense
Optic Guided Missile         System, which will provide new weapons for strengthening air defenses
                             in forward combat zones. As the “non-line-of-sight” component, the
                             FOG-Mis intended to protect ground troops and vehicles by attacking
                             enemy helicopters and tanks hidden by the terrain. The system consists
                             of a missile, a launcher, a gunner station, and communication and navi-
                             gation equipment.

                             We identified five contracts the Army Missile Command used to obtain
                             consulting services for the FOG-M, including one contract awarded by an
                             Air Force activity. The Missile Command acquired additional consulting
                             services for the FOG-Musing two purchase orders. The specific types of
                             consulting services obtained included the following:

                         . reviewing program documentation, such as the acquisition plan, inte-
                           grated logistics support plan, and program schedules to determine cost
                           and schedule risks;
                         l conducting analyses and recommending approaches to help the program
                           office manage the dual-source acquisition strategy adopted for the FOG-M
                           program; and
                         . performing life cycle cost estimates used to support system requirement
                           documents, cost and operational effectiveness analyses, and the annual
                           budget preparation.

                             According to KG-M program officials, they depended on a contractor for
                             cost support because of the firm’s experience and resident knowledge of
                             the FOG-Msystem. Although the Missile Command has since acquired the
                             computer modeling capability to perform such estimates, it still relies on
                             contractor support because of a lack of in-house resources.

                             The FOG-Mprogram office also obtained services under the Forward Area
                             Air Defense System integration contract. The contractor has overall
                             responsibility for integrating the various components of the air defense
                             system, including (1) maintaining system baseline cost estimates,
                             (2) monitoring progress of the component systems such as FOG-M,
                             (3) advising the government on overall program deficiencies and recom-
                             mending corrective actions, and (4) providing administrative and other
                             support to meetings and major program reviews, such as those con-
                             ducted by the Defense Acquisition Board.


                             Page 18                                     GAO/NSIAD-99-119Consulting Services
                           chapter2
                           DOD’SUse of Con~ultJngServices in Weapon
                           System Acqtiitlon




Navy CaseStudy: V-22       The V-22 Osprey is a tiltrotor aircraft designed to take off and land ver-
Osprey                     tically like a helicopter and to fly like an airplane by tilting its wing-
                           mounted rotors to function as propellers. The Navy is developing the
                           V-22 to perform various combat missions, including medium lift assault
                           for the Marine Corps.

                           The Navy has relied extensively on contractor services to support the
                           development of the V-22. From July 1983 to December 1988, the Naval
                           Air Systems Command used 26 such contract@ to obligate $17 million
                           for the system. The Naval Air Development Center contracted for
                           $660,296 for the V-22 from 1987 to 1988 using five additional contracts.
                           The Navy justified its use of w by citing a lack of in-house expertise
                           and the inability to hire sufficient numbers of qualified personnel.

                           The services obtained for the V-22 ranged from relatively simple man-
                           agement tasks to complex engineering studies and analyses for the air-
                           craft’s design and development, The services generally fell into three
                           broad categories: logistics planning and analysis, engineering and other
                           technical support, and program management.

                           First, C&W contractors have been involved in virtually all aspects of
                           logistics planning and analysis for the V-22 program, undertaking such
                           tasks as (1) developing a Joint Integrated Logistics Support Plan and
                           (2) preparing logistics support specifications for the full-scale develop-
                           ment contract. Decisions on logistics support (e.g., maintenance plans,
                           support and test equipment, and repair facilities) can affect system
                           design, costs, and the program acquisition strategy.

                           Second, contractors provided engineering support, which is critical in
                           developing the initial aircraft requirements and specifications. For
                           example, contractors

                       l supported the creation of the initial specifications for the full-scale
                         development contract;
                       9 analyzed various aspects of the aircraft design, including proposed
                         structural design criteria; and
                       l assisted in developing requirements for training systems hardware, such
                         as cockpit simulators and air crew trainers.



                           4Wedid not review oneadditional contractbecausesupporting documentationfor it had beenstored
                           in the Navy recordscenterand was unavailable.



                           Page 19                                               GAO/NSIAD-90-119Consulting Services
                           Chapter 2
                           DOD’6Use of Consulting Services in Weapon
                           System Acquisition




                           Third, CAAScontractors have supported the program manager in overall
                           management of the V-22. The program office tracks actual schedule and
                           engineering progress against program goals to identify problems and
                           take needed corrective measures. Since 1983, the program office has
                           engaged contractors to perform such tasks as program schedule moni-
                           toring, evaluations of prime contractor status reports, and other admin-
                           istrative support services (e.g., monitoring engineering changes and
                           preparing briefing materials).


Air Force CaseStudy:       The Peacekeeper Rail Garrison basing system consists of trains carrying
PeacekeeperRail Garrison   Peacekeeper missiles that will be deployed in secure garrisons at Air
                           Force bases throughout the continental United States. Each garrison will
                           include train alert shelters to house the train and a maintenance area or
                           facility. When needed, the missiles would move onto the nation’s rail-
                           road network, or if necessary, could be launched from within the train
                           alert shelters. The system’s principal mission is to deter nuclear and con-
                           ventional attacks against the United States and its allies.

                           The Air Force has used consulting services at both the headquarters and
                           activity levels to support the Rail Garrison system. In fiscal years 1987
                           and 1988, the Ballistic Systems Division used eight Division-awarded
                           contracts and two contracts awarded by another Air Force activity to
                           obtain CAASfor the system. Rail Garrison obligations under these con-
                           tracts totaled roughly $96 million. We could not calculate how much of
                           this amount represented CAASbecause these services were, in many
                           instances, “embedded” in contracts that also contained non-c%@ ser-
                           vices. Air Force Headquarters obtained an additional $6.2 million in
                           management support services for the Peacekeeper Rail Garrison as part
                           of its intercontinental ballistic missile modernization program.

                           The Ballistic Systems Division uses one contractor to provide engi-
                           neering and technical assistance for various weapon systems, including
                           the Rail Garrison. This contractor provides, among other things, general
                           management support and technical advice in developing program plans
                           and schedules, preparing cost analyses, and appraising other contrac-
                           tors’ work. According to a Ballistic Systems Division official, this con-
                           tractor has the Division’s “corporate memory” and also the technical
                           expertise essential to the Division’s knowledgeable administration of its
                           weapon system contracts.




                           Page 20                                     GAO/NSIAD-90-1190msulting Services
                              Chapter 2
                              DOD’sUse of ConmltIng Bervices in Weapon
                              System Acqulaltlon




                              Other CAAScontractors have supported the Rail Garrison system by

                          l assisting in developing cost estimates and ways to improve existing cost-
                            estimating methodologies;
                          9 aiding in base evaluation studies and the base selection process, with
                            responsibility for preparing various briefing materials and providing
                            management and cost support; and
                          . performing studies and analyses of programs to mitigate the environ-
                            mental impact of the system, and determine its effect on the economy,
                            population, public services and facilities, and natural resources.

                              The Office of the Assistant Secretary of the Air Force for Acquisition
                              also sought assistance from ck~s contractors to, among other things,
                              (1) analyze federal, state, and local regulations affecting missile deploy-
                              ment, (2) prepare briefing materials for Air Force congressional wit-
                              nesses and other materials on hearings, budget actions, and legislative
                              bills, and (3) support the budget process by, for example, analyzing the
                              effect of reduced funding on the system’s schedule. In addition, the
                              Office of the Under Secretary of Defense for Research and Engineering
                              employed a contractor to conduct a study on various missile basing
                              system options, including Rail Garrison.


                              In August 1988, the Navy announced a plan to reduce its reliance on
Reducing Reliance on          contractor support in the more sensitive aspects of the procurement pro-
Contractors in                cess. These areas include requirements definition, acquisition planning,
Sensitive   Procurement       preparation of justifications and approvals, requests for proposals, pro-
                              curement requests, source-selection plans, and the source selection
Areas                         process.

                              The Under Secretary of the Navy directed the systems commands to
                              review their use of contractor support in these areas and to begin transi-
                              tioning from contractor support to in-house capability. In response, the
                              Naval Air Systems Command identified 605 headquarters staff years for
                              conversion to in-house resources by the end of fiscal year 1992;
                              according to command records, that total included 5.1 staff years calcu-
                              lated for the V-22. In December 1988, OSDapproved the Navy’s planned
                              conversion of a total of 3,132 staff years by the end of fiscal year 1994,
                              including 533 staff years for the Naval Air Systems Command.
                              According to Navy officials, the conversion will not require any addi-
                              tional government funding, and may ultimately result in some savings.




                              Page 21                                     GAO/NSIADsO-119Consulting Services
              Chapter 2                                                                   I
              DOD’sUse of Ckmsulting Servicesin Weapon
              System Acquisition




              The Navy’s decision to limit its use of contractors in sensitive procure-
              ment areas stemmed from two principal concerns. First, the Navy
              wanted to limit access to procurement information to lessen its vulnera-
              bility to the improper disclosure of sensitive data. Second, the Navy
              wanted to ensure that it retained the resources necessary to perform
              basic governmental functions-policy      or managerial responsibilities
              that should not be contracted out.

              We found that the Army and Air Force also used contractor support for
              our case study weapon systems in one or more sensitive procurement
              areas, For example, one contractor assists the Air Force Ballistic Sys-
              tems Division in reviewing responses to requests for proposals as part of
              the source-selection process. For the Army’s FOG-Msystem, a consulting
              firm reviewed the draft request for proposals and suggested areas
              needing updating or revising. According to DOD officials, the Air Force
              and Army have not identified any significant problems in existing pro-
              curement policies that would require a reduction in their current use of
              consulting services in the acquisition process. As a result, they have no
              initiatives planned to reduce their use of consulting services in sensitive
              areas of the process.


              Our case study weapon systems illustrate the range and types of con-
Conclusions   sulting services DOD and the services use to support major weapon sys-
              tems, from acquisition strategy analyses to cost estimates to briefing
              and testimony materials. The case studies also indicate how DOD relies
              on such services to augment, or in some cases substitute for, internal
              capabilities. The Naval Air Systems Command depends on logistics sup-
              port firms, the Air Force Ballistic Systems Division uses an engineering
              and technical assistance contractor, and the Army Missile Command
              employs a cost-estimating firm. These are all examples of external ser-
              vices acquired because of a lack of internal resources or expertise
              needed to accomplish those tasks.

              The Navy’s plan to reduce its reliance on outside contractors in sensitive
              procurement areas is intended to limit access to sensitive information
              and lessen the risks of transferring government functions to the private
              sector. We believe this action has merit because it represents an initia-
              tive intended to reduce opportunities for compromising the procurement
              process. Because our work focused on individual weapon systems, how-
              ever, we are not in a position to judge whether the Army and the Air
              Force should take similar steps to reduce their use of consulting services
              in these sensitive areas.


              Page 22                                    GAO/NSIAD-90-119Consulting Services
Chapter 3

DefenseContractors’ Use of Consulting Services


                         We reviewed consulting services used by two full-scale development
                         contractors for each of our case study systems-Hughes Aircraft Com-
                         pany and Boeing Military Airplanes for the FOG-M;Bell Helicopter Tex-
                         tron and Boeing Helicopters for the V-22; and Boeing Aerospace and
                         Rockwell International for the Peacekeeper Rail Garrison. We found the
                         following:

                         The contractors generally have policies that define consulting services
                         and outline hiring and billing procedures.
                         Four of the six contractors reported using consultants on our case study
                         systems, for advice on their government business or for technical
                         assistance.
                         Contractors use other technical services that are not always easy to dis-
                         tinguish from consulting services.


                         All six firms have established policies on consulting services that define
Guidelines and           these services and prescribe the procedures for obtaining them,
Procedures for           including procedures for identifying potential conflicts of interest and
                         billing consulting services costs to the government.
Employing
Consultants

Company Definitions of   Boeing has three categories of consultants: government affairs consul-
                         tants, individual consultants, and international sales consultants. Boeing
Consulting Services      defines a government affairs consultant as an individual or firm oper-
                         ating as an independent contractor who is retained to “communicate
                         with, attempt to influence or have any involvement in any other manner
                         with” a U.S. government agency, employees of the executive branch, or
                         Members of the Congress or their staffs. An individual consultant,
                         which can include a company when it is intended to obtain the personal
                         services of one or more specific individuals, advises Boeing on its busi-
                         ness administration and management; production and design techniques;
                         and product development, technology development, and new business
                         applications. An international sales consultant markets and sells Boeing
                         products worldwide.

                         Hughes Aircraft Company defines consulting services as those acquired
                         from individual consultants and consultant firms for the purpose of
                         obtaining advice on specific company projects or problems. Such individ-
                         uals or firms work for specified periods as independent contractors not



                         Page 23                                    GAO/NSLADSO-119
                                                                                  Ckmsulting Services
                                                                                                                          c
                             chapter 3
                             Defense Chtrfhctore’ Ueeof
                             Consulting Sen4ces




                             under the direct supervision of Hughes personnel. Rockwell defines con-
                             sulting services as “services of an advisory nature performed by an
                             outside firm or individual in connection with special studies, surveys,
                             analyses, and other special projects in which management seeks inde-
                             pendent expert advice, opinions, evaluations, and appraisals.” Bell Heli-
                             copters defines consultants as those who “advise officers and employees
                             of Bell on how to perform their duties more effectively.”


Procedures for Hiring and    The contractors have similar procedures for hiring consultants, gener-
Billing Consultant Costs     ally by using a consulting agreement. Under these procedures, the office
                             requesting the services prepares a formal request that outlines the ser-
                             vices to be performed. The review and approval process generally
                             includes justifications as to why the task cannot be performed in-house,
                             the rationale for selecting a particular consultant, and a description of
                             the work.

                             The contractors who reported using consultants on our case study sys-
                             tems billed their cost to the government indirectly through overhead
                             accounts.* For example, one contractor’s overhead account consists of
                             five principal overhead categories, or “pools.” The contractor allocates
                             consulting services costs to a particular pool based on the nature of the
                             services. A percentage of these pool amounts is charged against the com-
                             pany’s government contracts.


Requirements Dealing         The contractors review prospective consulting arrangements to deter-
With Conflicts of Interest   mine the existence of any conflicts of interest. The goal is to prohibit
                             consultants from having government or other business relationships
                             that could create a conflict of interest or violate the companies’ ethics
                             rules. We found that contractors included clauses to prevent such con-
                             flicts in the consulting agreements we reviewed. These clauses require,
                             for example, that the consultants be aware of and comply with the com-
                             panies’ ethics policies as well as current conflict-of-interest laws and
                             limitations on activities of former government officials. One contractor
                             engaged a number of former government officials as government affairs
                             consultants. In each case, the contractor’s legal department prepared a
                             memorandum to the file outlining the activities thr: consultant was pro-
                             hibited from participating in based on his prior government service.


                             ‘We did not audit theseaccountsto determinewhether amountsincluded were allowableunder the
                             costprinciples applicableto governmentcontracts.



                             Page 24                                              GAO/NSIALI-90-119Consulting Services
                                         Chptfx 8
                                         DefenseContractom’ Use of
                                         ConsultingServices




                                         Four of the 6 contractors reported using 58 consultants on our case
Use of Consulting                        study weapon systems, as shown in table 3.1.
Services on Specific
Weapon Systems
Table 3.1: Numbers of Consultants Used
by Case Study Contractor8                                                                    Service
                                                                          Government/new               Technical and other
                                         Company                           business advice                      assistance
                                         Boeing Military Airplanes                       0                               1
                                         biuahes Aircraft ComPanv                        4                               6
                                         Boeing Helicopters                              6                              23
                                         Bell Helicopter Textron                         a                              IO
                                         Boeing Aerospace                                0                               0
                                         Rockwell International                          0                               0
                                         Total                                          18                              40


                                         We grouped the companies’ consulting services into two general catego-
                                         ries. The first category includes consultants who advise the companies
                                         on their U.S. government business or otherwise assist in developing new
                                         business opportunities. The second category includes companies or indi-
                                         viduals who have engineering or other technical expertise and provide
                                         assistance in such areas as reviewing system requirements, aiding in
                                         resolving technical problems, and reviewing and modifying system bids
                                         or proposals.


Use of Consultants to                    Three contractors employed a total of 18 consultants to obtain advice on
                                         their government business or marketing efforts. As viewed by one con-
Advise on Government                     tractor, these consultants provide insights into government operations
Business                                 and attitudes that allow the contractor to identify and address govern-
                                         ment concerns.

                                         For example, Bell Helicopter Textron hired a former Navy admiral to
                                         assist its marketing effort for an antisubmarine warfare variant of the
                                         V-22. According to Bell officials, the consultant critiqued Bell’s proposal
                                         for the variant and advised the Joint Program Office (the Bell-Boeing
                                         office managing the program) on marketing and engineering issues. He
                                         was also employed by Bell to confer with U.S. government officials to




                                         Page 26                                      GAO/NSLAD-90-119
                                                                                                     Consulting Servicee
Chapter 3                                                                                       I
DefenseContractors’ Use of
cOn.8ultln.gServices




acquire technical information about the government’s future needs,
which was, according to a Bell official, legally available to contractors.2

Boeing Helicopters employed a former Marine Corps officer because of
his understanding of how the Marine Corps viewed the V-22. According
to Boeing officials, he helped to identify Marine Corps concerns
regarding aircraft schedule delays and recommended ways to address
those concerns. A second consultant, a former Navy officer, was hired
by Boeing to, among other things, assist the company in developing
briefings to help promote the V-22 variant to the Navy. According to
Boeing officials, the company did not pay the consultant to contact Navy
personnel, but they believed he was in regular contact with Navy offi-
cials to “keep up to date with Navy thinking and provide competent
services.”

Hughes Aircraft Company obtained advice from three individuals and
one firm to support the FOG-M. For example, Hughes employed one con-
sultant because of his expertise in mission and operational analyses of
air defense and land combat systems. According to Hughes’ documenta-
tion, the consultant’s expertise allowed the contractor to tailor its
system to meet the Army’s needs and enhance its ability to capture new
programs. Hughes also hired a former congressional staffer on a retainer
basis for a 3-year period to advise senior corporate executives on
various programs, including the FOG-M, and to assist in devising new bus-
iness strategies.

As illustrated by several of the above examples, a large majority of
these consultants were former military officers or government officials
who could be subject to specific DOD post-employment rules-the so-
called “revolving door” legislation. These include individual and con-
tractor reporting requirements (10 USC. 2397 and 2397c) and a 2-year
employment restriction affecting certain former DOD employees who per-
formed procurement functions during their employment with DOD
(10 USC. 2397b).

We identified only 1 of the 18 consultants as subject to any of these
requirements within the time period covered by our review. We believe
that this consultant was required under 10 USC. 2397 to advise DOD of

2Formermilitary officers are subjectto certain restrictionson their subsequentdealingswith govern-
ment agencies(see,e.g.,the provisions of 37 U.S.C.801(b)and 18 U.S.C.207).Thesestatutesdo not
prohibit all contactswith an official’s former department,but are directedto particular situations
such as representingother personson mattersin which that official had personallyparticipated.We
did not conductan investigation to determinecompliancewith thesestatutes.



Page 26                                                 GAO/NSIAD-99-119Consulting Services
                            Chapter 3
                            DefenseContractors’ Use of
                            C4m3ultingServices




                            his defense contractor employment. Based on our review of DOD records,
                            however, we were unable to find any documentation that he had filed.3
                            We therefore advised DOD of this non-filing to enable them to take appro-
                            priate follow-up action. The defense contractor complied with its
                            reporting requirement (10 U.S.C. 2397c) and, based on that information,
                            DOD determined that the consultant was in compliance with the provi-
                            sions of 10 USC. 239713.


Use of Technical Services   Four contractors retained 40 consultants to provide various technical
Consultants                 services, which ranged from engineering analyses to reviews of con-
                            tractor proposals or bids. These consultants generally did not deal with
                            government officials.

                            Bell hired a consulting firm to evaluate its adherence to the fixed-wing
                            fatigue requirements of the detailed system specifications. Boeing Heli-
                            copters employed consultants to analyze composite materials for the
                            fuselage and study potential aircraft variants. One such consultant, the
                            retired chief of the company’s structures department, provided detail
                            design work for the V-22 airframe. He was also a member of Boeing
                            Helicopters’ weight reduction team tasked with identifying weight
                            reduction measures and developing additional design changes to meet
                            the aircraft’s remaining weight shortfall.

                            Boeing Military Airplanes contracted with an individual consultant to
                            assist the company’s engineering team. The consultant participated in
                            conceptual design trade-off studies and in the technical editing of the
                            engineering volume of the FUG-Mproposal for the full-scale development
                            contract.

                            The technical consultants, all former company employees, hired by
                            Hughes Aircraft Company helped develop the fiber optics technology
                            critical to the K&M system. For example, one employee was retained as
                            a consultant immediately upon his retirement because he was consid-
                            ered to be one of the best fiber optic/winding payout experts in the
                            world.




                            ‘IIn an earlier GAO report we concludedthat only about 30 percentof thoseprobably required to
                            report actually did so.SeeDODRevolvingDoor:ProcessesHave Improvedbut Post-DODEmployment
                            ReportingStill Low (GAO/NSIAD-89-221,Sept.13,1989).



                            Page 27                                              GAO/NSIAD-99419 Co~ulting Services
                       Chapter 3
                       Defense Contractors Use of
                       Com3ultingServices




                       In addition to consulting services, the contractors also supplement their
Technical Services     in-house capabilities with other technical services. These services are
That Contractors Did   referred to by Boeing’s operational units as supplier technical assis-
Not Categorize as      tance; by Hughes as personal services; by Rockwell as purchased time
                       and technical services; and by Bell as purchased services.
Consulting Services
                       Limited information we obtained from four of the contractors on their
                       use of technical services indicates that it is not always easy to distin-
                       guish between these and consulting services. In two instances, contrac-
                       tors categorized the type of service based on who provided it rather
                       than the nature of the service itself.

                       For example, Boeing Aerospace hired a firm under a supplier technical
                       assistance arrangement to help prepare competitive proposals for the
                       Peacekeeper Rail Garrison system. The firm prepared an evaluation
                       standard used to draft Boeing’s proposal, and briefed Boeing’s proposal
                       team on its approach. This firm was established by two former Air
                       Force officers, one of whom was instrumental in developing source-
                       selection procedures for the Air Force Ballistic Systems Division-the
                       office responsible for managing the Rail Garrison and other missile sys-
                       tems. According to Boeing officials, they categorized this as technical
                       assistance because the company had contracted with the firm rather
                       than specified individuals of the firm. If the contract had designated a
                       specific person, the services would have been categorized as consulting
                       services.

                       Boeing Military Airplanes contracted with five technical assistance sup-
                       pliers, for example, to revise the FOG-Mmaster test plan, evaluate the
                       missile’s aerodynamics design, and review the request for proposals to
                       discuss Boeing’s approach. According to Boeing, these types of engi-
                       neering services were similar to those provided by the one consultant it
                       hired. In that case, the company employed the individual as a consultant
                       because company policy precludes obtaining the services of a “one man
                       firm” under a technical supplier arrangement.

                       The contractors’ different interpretations of what constitutes consulting
                       services may also result in inconsistent characterizations of technical
                       services. For example, Boeing Helicopters hired a firm under a con-
                       sulting agreement to prepare cost-effectiveness studies for the V-22.
                       Boeing and Bell Helicopter Textron equally shared the cost of the study.
                       According to Bell officials, using their company’s definition of con-
                       sulting services, they would have treated this as other purchased ser-
                       vices and not consulting services.


                       Page 28                                     GAO/NSIAD-99-119Consulting Services
                      Chapter 3
                      Defense Contract4m’ Use of
                      Consulting Services




                      The provision of the Federal Acquisition Regulation governing con-
                      sultant costs does not specifically define what contractors should clas-
                      sify as consulting services. In conducting its review of consultant costs,
                      the Defense Contract Audit Agency encountered difficulty in isolating
                      consulting services costs due to the lack of a universally accepted defini-
                      tion of such services. As a result, the Agency recommended that the
                      acquisition regulation be amended to better define consultant costs.


                      Our case study contractors used a mix of consulting or technical services
Conclusions           in developing these weapon systems, ranging from advice on dealing
                      with the government to technical engineering analyses. We found that
                      most of the consultants in the government affairs category were former
                      military or government officials, although we identified only one who
                      had any current requirement to report his post-government employ-
                      ment. We found no evidence that the consultant complied with this
                      requirement, and have so informed DOD. However, DOD determined,
                      based on information supplied by the defense contractor that hired the
                      consultant, that the consultant’s work was not in violation of the appli-
                      cable employment restrictions.

                      The contractors in some cases obtained technical services to support
                      their efforts that they did not characterize as consulting services. These
                      services, however, were not always easy to distinguish from those iden-
                      tified by some contractors as consulting services.


                      The contractors advised us that they agreed with the information
Contractor Comments   presented about their respective firms.




                      Page 29                                     GAO/NSIAD-90419 Consulting Services
Chapter 4
                                                                                                                            ,
conflict-of-Interest Issues


                          For our three weapon system case studies-the Fiber Optic Guided Mis-
                          sile, the V-22 aircraft, and the Peacekeeper Rail Garrison-we found
                          three instances where a contractor providing consulting services to the
                          government was also employed by a defense contractor for work related
                          to the same system. We found no basis to conclude that any of these
                          specific instances resulted in a conflict -i.e., that the contractor gained
                          an unfair competitive advantage or was unable to provide impartial
                          advice. However, in one case the contractor did not comply with the
                          organizational conflict-of-interest provisions contained in its contracts
                          with the government. More generally, these cases illustrate the impor-
                          tance of the government’s awareness of consultant employment relation-
                          ships in order to make informed judgments about potential conflicts.


                          The Federal Acquisition Regulation establishes the general rules for
Regulations Governing     identifying, evaluating, and resolving organizational conflicts of
Organizational            interest. As definedin the regulation, such a conflict exists when
Conflicts of Interest     “the nature of the work to be performed under a proposed Government contract
                          may, without some restriction on future activities, (a) result in an unfair competi-
                          tive advantage to the contractor or (b) impair the contractor’s objectivity in per-
                          forming the contract work.”

                          The regulation also notes that although organizational conflict-of-
                          interest concerns are not limited to any particular type of procurement,
                          conflicts are more likely to occur in contracts involving such matters as
                          management support services or other professional services that fall
                          within the definition of contracted advisory and assistance services.

                          The Federal Acquisition Regulation charges the contracting officer with
                          the responsibility for analyzing proposed procurements and determining
                          the need for any actions to avoid or mitigate potential conflicts. It also
                          recognizes the need to use judgment and discretion in making these
                          decisions.

                          The regulation provides the following general rules to assess potential
                          organizational conflicts of interest:

                        . A contractor that provides systems engineering or technical direction
                          for a system’ but does not have overall contractual responsibility for its
                          development may not (1) be awarded a contract to supply the system or

                          ‘Theseare defined to include such areasas determiningspecifications,developingtest requirements
                          and evaluating test data, developingwork statements,and directing other contractors’operations.



                          Page 30                                                GAO/NSIAlMO-119 Consulting Services
    chapter 4
    Cmflict~f-Interest Issues




  any of its major components or (2) be a subcontractor or consultant to a
  supplier of the system or any of its major components. This rule is
  intended to prevent a contractor that has a key role in determining a
  system’s basic concept from being in a position to favor its own products
  or capabilities.
l A contractor that prepares complete specifications for nondevelop-
  mental items to be used in a competitive acquisition may not furnish
  these items either as a prime contractor or as a subcontractor. This rule
  is intended to ensure that the government obtains unbiased advice by
  avoiding situations where a contractor could draft specifications
  favoring its own products or capabilities.
. A contractor that prepares work statements to be used in competitively
  acquiring a system or services may not supply the system, its major
  components, or services, unless (1) it is the sole source, (2) it has partici-
  pated in the development and design work, or (3) more than one con-
  tractor was involved in preparing the work statement. This rule is
  intended to avoid the possibility of bias that could occur if a contractor
  is in the position of favoring its own products or capabilities.
l Development contractors involved in preparing either specifications or
  work statements are not prohibited from the award of production con-
  tracts. The development contractor has a competitive advantage, but
  one that is unavoidable and not considered unfair.
. Contracts that involve technical evaluations of other contractors’ offers
  or consulting services should not generally be awarded to a contractor
  that would evaluate or advise the government on its own activities or
  those of a competitor, without proper safeguards. This rule is intended
  to ensure the contractor’s objectivity.
+ A contractor that obtains other companies’ proprietary information
  must agree with these companies to protect their information and
  refrain from using it for any unauthorized purpose. This rule is intended
  to ensure that a contractor does not obtain an unfair competitive
  advantage.

    In response to the requirements of section 8141 of the Department of
    Defense Appropriations Act of 1989, the Office of Federal Procurement
    Policy issued Policy Letter 89-1 on December 8, 1989.2 The letter pro-
    vides guidance on contractor conflicts of interest to supplement the
    organizational conflict-of-interest provisions contained in the Federal
    Acquisition Regulation. Basically, while the regulation emphasizes
    restrictions on future activities of contractors because of the nature of

    ‘The Appropriations Act alsorequired us to review the effectivenessof regulationsto bepromul-
    gatedto implementthe policy letter; asof July 1990,final regulationshad not beenissued.



    Page 31                                                 GAO/NSIAD-90-119Cmmlting Services
                             Chapter 4
                             Couflictaf-Interest Issues




                             their work for the government, the policy letter authorizes contracting
                             officers not to award a contract at all when a conflict of interest is found
                             to exist. Such a conflict could exist, for example, when the advice to be
                             provided to the government could benefit the contractor’s other clients.

                             Neither the Federal Acquisition Regulation nor the Office of Federal
                             Procurement Policy letter automatically precludes companies from
                             working for both the government and the private sector. Rather, both
                             stress the need to review the specifics of proposed procurements and to
                             make judgments about the potential for conflicts and the need for
                             actions to avoid or mitigate them. The policy letter, by incorporating
                             notification and certification requirements, further emphasizes the
                             importance of making sufficient information available to the contracting
                             officer to allow for informed judgments about potential or actual
                             conflicts.


                             Under what circumstances, and how frequently, consulting firms are
Consulting Firms             engaged by both DOD and defense contractors has been a subject of par-
Working for Both             ticular concern, given the potential for conflicts of interest such situa-
Government and               tions create. In reviewing a combined total of 52 contracts for our 3
                             weapon system case studies, we found 3 instances where a firm worked
Industry                     for both the government and a contractor on matters related to the same
                             system-l involving the Army’s FOG-Msystem and 2 involving the Air
                             Force’s Peacekeeper Rail Garrison system. We did not identify any sim-
                             ilar cases associated with the Navy’s V-22 aircraft.


Fiber Optic Guided Missile   The Army Missile Command used a consulting firm primarily to main-
                             tain baseline and life cycle cost databases and program software in sup-
                             port of its FOG-Mprogram. The company provided these services to the
                             Missile Command between April 1984 and September 1986 under a
                             direct contract with the Command and through a second contract with
                             the Air Force for specialized cost reports.3 In all, the Command paid the
                             company approximately $1.1 million between 1984 and 1988 for these
                             and other services related to the FOG-M.~


                             “The MissileCommandobtainedservicesunder this contractby issuing“military interdepartmental
                             procurementrequests”to the Air Forcecontractingactivity-the ElectronicSystemsDivision of the
                             Air ForceSystemsCommand.
                             4TheFVG-Mcostsrepresentonly a portion of the total contract feespaid the companyfor work on a
                             numberof MissileCommandweaponsystems.



                             Page 32                                               GAO/NSIAD90-119 Consulting Services
Chapter 4
cImPuct.of.Intemst Issue6




In December 1986, the Command awarded a letter contract to a second
firm for FOG-Mintegration, which was later definitized for about $48 mil-
lion. The integration contractor is responsible for integrating and testing
the missile and related components during the system’s initial operation
evaluation phase. This contractor in turn subcontracted with the Missile
Command’s consulting firm for $1.6 million to obtain cost estimating and
other services. The consulting firm’s subcontract responsibilities include
maintaining life cycle cost databases and program software to respond
to “real time” cost charges and preparing life cycle cost estimates-
essentially the same types of services as those it provided the Missile
Command earlier, but at different stages as the estimates required
updating. The Command was aware of the integration contractor’s plans
to use the consulting’firm as a subcontractor; the firm was listed in the
contractor’s proposal submitted to the Command during the process of
definitizing the contract.

The consulting firm’s contracts with the Missile Command and the Air
Force both contained conflict-of-interest provisions. The Army contract
required the firm to advise the Missile Command of any financial or
other interest involving a possible conflict of interest, or to certify to the
lack of any such interest, at the time the Command issued delivery
orders to the firm. The Air Force contract stipulated that the consulting
firm would not

“perform as a prime contractor or subcontractor or consultant in Hardware/
Software or Services acquisitions related to the systems or segments of systems for
which the Contractor has performed a Specialized Cost Report hereunder nor shall
it perform as a prime contractor, subcontractor, or consultant in studies/analyses in
the cost estimation area as related to the systems or segments of systems for which
it has performed a Specialized Cost Report hereunder . . .”

The consulting firm did not comply with either of these clauses. It did
not notify the Command of any interests involving possible conflicts of
interest, or certify to their nonexistence, at the time it received delivery
orders for FOG-Mwork. In addition, the company’s work as a subcon-
tractor to the FOG-Mintegration contractor appears to violate the Air
Force contract provision that it would not perform as a subcontractor on
a related acquisition, Because the Missile Command used the Air Force
contract to obtain cost estimating services from the consulting firm for
the FOG-Msystem, the provisions of that contract would apply to any
future work on that bystem, including the work for the integration con-
tractor. According to the Air Force contracting officer, however, this
clause was not intended to exclude the kind of future effort performed



Page 33                                          GAO/N&W-90-119 Consulting Services
                       Chapter 4
                       Conflict*f-Interest Issues




                       by the consulting firm. To avoid such interpretations, the clause was
                       formally amended in 1989, as a result of concerns stemming from a
                       planned Air Force procurement.

                       Army Missile Command representatives acknowledged that the con-
                       tracting officer should have monitored the Command contract to ensure
                       compliance with its notification requirements, but could not, at the time
                       of our review, explain why no such effort was made. With respect to the
                       Air Force contract, Command officials stated that they were not aware
                       of its conflict-of-interest clause, and that it would be the consulting
                       firm’s responsibility to advise the government of any problem. Repre-
                       sentatives of the consulting firm acknowledged that it may have been in
                       technical noncompliance with these contract clauses, However, both
                       Command and company representatives stressed that no conflict
                       occurred-the       company did not acquire an unfair competitive advan-
                       tage as a result of its government work, nor did it provide biased advice
                       to the government.

                       Our review of the contract scopes of work and products prepared by the
                       company, such as cost estimates, did not disclose evidence that a conflict
                       of interest occurred as a result of the consulting firm’s work for both the
                       Missile Command and the integration contractor. The firm may have
                       had a competitive advantage in obtaining its subcontract with the inte-
                       gration firm based on prior FOG-Mcost-estimating work and its own,
                       company-developed expertise. However, that advantage was obtained
                       by winning a competitive government contract.

                       We also found no evidence of bias because the consulting firm was not
                       placed in the position of representing competing interests. It performed
                       essentially the same type of work for the integration contractor and the
                       Army Missile Command, but at different stages of the system’s develop-
                       ment, by providing cost estimates as the program parameters and acqui-
                       sition strategy were revised.


Rail Garrison Case#l   The Air Force Ballistic Systems Division contracted with a consulting
                       firm in November 1985 for work related to a “deep basing” mode for the
                       intercontinental ballistic missile, a basing mode that ultimately was not
                       selected. The contract was modified in March 1988 to add work for the
                       Rail Garrison basing system. The firm’s tasks for Rail Garrison consisted
                       of system-level trade studies and analyses of such areas as tactical doc-
                       trine and mission planning. The firm was also responsible for main-
                       taining the system mission model (flow charts and decision trees for


                       Page 34                                    GAO/NSIADo-119 Consulting Services
                       chapter 4
                       CvnfUct-of-Interest Issues




                       operating the system) and preparing an information handbook.
                       According to the Ballistic Systems Division contracting official, the con-
                       tract contained no organizational conflict-of-interest clause because the
                       Division did not believe the services involved required its inclusion.

                       In early 1989, one of the Rail Garrison’s principal contractors contracted
                       with the same consulting firm to obtain system test support services
                       valued at $4,566. The services included inspecting certain missile com-
                       ponents and assessing the quality and suitability of those components
                       for nuclear hardness and survivability tests. The contractor requested
                       the services of a specific consulting firm engineer who had previously
                       been involved in missile testing for the Ballistic Systems Division,

                       According to Division officials, the Division is generally aware of the
                       subcontractors that its contractors use in performing work on Division
                       weapon systems, but there is no formal requirement that the Division be
                       informed of every such arrangement.

                       Our review of available work products prepared by the consulting firm
                       for the Ballistic Systems Division (the information handbook and por-
                       tions of the mission model documentation”) as well as the amended con-
                       tract scope of work does not indicate that the company reviewed its own
                       or other contractors’ work. The limited engineering tasks performed for
                       the contractor appear, based on available documentation, to be unre-
                       lated to the consulting firm’s Rail Garrison work but instead were the
                       result of engineering expertise gained from its previous work for the
                       Division. In addition, the consulting firm does not appear to have
                       acquired an unfair competitive advantage based on its Rail Garrison
                       work for the Ballistic Systems Division, nor does the limited nature of its
                       work for the contractor (at less than $5,000) appear to have placed it in
                       the position of having competing interests. As a result, we did not find
                       any basis to conclude that a conflict of interest existed.


Rail Garrison Case#2   In June 1988, the Air Force contracted with a consulting firm to obtain
                       analytical support on the deployment of a number of intercontinental
                       ballistic missile systems, including the Peacekeeper Rail Garrison. In
                       response to specific task orders issued by the Office of the Assistant
                       Secretary of the Air Force for Acquisition, the firm prepared Rail


                       “Wedid not examinetrade studiesor analysespreparedby the consultingfirm becausethe Division
                       was unableto locateany for our review.



                       Page 36                                              GAO/NSIAD-90-119Consulting Services
Chapter 4
CmfUct-of-Interest Issues




Garrison-related products, such as (1) summaries of congressional hear-
ings and bill markups, (2) briefing papers on negotiating mitigation
agreements between DOD and jurisdictions affected by missile deploy-
ment, (3) summaries of local environmental meetings and public hear-
ings, (4) analyses of security issues, and (5) drafts of public affairs
guidance and strategies for enhancing public understanding of the inter-
continental ballistic modernization program. As of June 1989, the Air
Force had paid the consulting firm approximately $2.6 million for these
services.

One of the Rail Garrison’s principal contractors has used the same con-
sulting firm to assist in the development and dissemination of informa-
tion on the Peacekeeper and small intercontinental ballistic missile
programs. The firm’s work for the contractor included preparing and
disseminating a reference manual on intercontinental ballistic missile
systems. The manual provides, among other things, background material
on missile systems and a summary of executive and legislative branch
positions on the missile modernization program. In calendar year 1988,
the consulting firm received $40,000 for its services.”

The consulting firm’s contract with the Air Force stipulates that it

“will participate in the technical evaluation of other contractors’ proposals or prod-
ucts, or provide consulting services. To ensure objectivity, the contractor is pre-
cluded from award of any supply or service contract or subcontract for the system
or its major components.”

The contract also requires the firm to safeguard any proprietary infor-
mation it obtains from other companies and to refrain from using such
information in any manner other than its intended purpose.

According to Air Force officials, this is a standard clause used in various
contracts; in this particular contract, the consulting firm is not per-
forming technical evaluations of other contractors’ work, nor has it
obtained access to any other firms’ proprietary data. Neither Air Force
nor consulting firm officials interpreted this clause to prohibit the work
undertaken for the contractor. As explained by consulting firm repre-
sentatives, the firm did not assist the contractor in any work on its Rail
Garrison contract to design and fabricate parts of the system, nor did it
participate in contract negotiations or proposal preparation.


“According to the systemcontractor,it did not chargethe governmentfor any servicesit obtained
from the consulting firm.



Page 36                                                GAO/NSIA.D9O-119Consulting Services
              Chapter 4
              Conflict-of-Interest Issues




              Officials of the Air Force’s Office of the Assistant Secretary for Acquisi-
              tion stated that the consulting firm had advised them of its plans to
              work for the contractor, and they had informed the firm that this would
              not pose a problem. These officials emphasized that the nature of the
              consulting firm’s work for the government did not place it in a conflict-
              of-interest position -the services do not have any effect on the procure-
              ment of particular missile systems, nor do they provide the consulting
              firm with the opportunity to provide biased advice.

              Based on our review of the consulting firm’s contract scope of work and
              the work products it prepared, we did not find evidence that a conflict
              of interest existed. The company did not, according to the Air Force,
              obtain proprietary data that could unfairly benefit it or the contractor,
              nor did it engage in work that could have provided such an advantage-
              for example, reviewing other contractors’ bids or preparing system spec-
              ifications. We also found no basis to conclude that the firm was unable
              to provide impartial advice because the nature of the work the firm
              undertook for the Air Force-for example, summaries of legislative
              actions, synopses of public environmental meetings, and assistance in
              preparing materials for the system’s environmental impact statement-
              as well as its work for the contractor, did not involve efforts to acquire
              the system contract or work directly related to it.


              We found three instances where a consulting firm that was engaged by
Conclusions   the government also performed services for a defense contractor related
              to the same weapon system. We found no basis to conclude that any of
              these specific cases resulted in a conflict of interest. However, in one of
              these cases the consulting firm did not comply with the conflict-of-
              interest clauses contained in its government contracts.

              Because our review was limited to three individual case studies, we
              cannot draw general conclusions about the extent to which consulting
              firms work for both the government and defense contractors on the
              same weapon systems or the likelihood that conflicts of interest result.
              However, we believe that our work does highlight key principles and
              concerns to guide the government’s approach to addressing conflict-of-
              interest concerns.

              First, conflicts of interest must be assessed on a case-by-case basis, using
              the individual circumstances of a particular situation to determine the
              potential or actual conflicts of interest that may exist. This principle is



              Page 37                                     GAO/NSLAD-90-119
                                                                         Consulting Services
                                                                                                 ,
                   Chapter 4
                   CkmfUctd-Interest Issues




                   contained in existing regulations and is reinforced in the Office of Fed-
                   eral Procurement Policy letter on conflicts of interest.

                   Second, contracting officers are empowered to include appropriate
                   conflict-of-interest safeguards in contracts as needed to ensure that
                   potential conflicts of interest are mitigated or avoided. Our case studies
                   suggest that conflict-of-interest clauses are not always tailored to meet
                   the needs of specific contracting situations, and therefore may be less
                   useful in protecting against conflicts of interest.

                   Third, and perhaps most important, the government needs to have
                   access to information necesary to make informed judgments about
                   potential or actual conflicts. As it happens, in two of the three cases we
                   reviewed, the government was aware of the consultant’s planned work
                   for a defense contractor, and had the opportunity to limit that activity if
                   conflict-of-interest concerns had existed. The second Air Force Rail Gar-
                   rison example is a good illustration of how, on an informal basis, the
                   process worked to ensure that the government, through information
                   provided by the consultant, was aware of the consultant’s work for a
                   defense contractor. The December 1989 policy letter seeks to formalize
                   this notification process by requiring prospective contractors to report
                   their other contractual relationships.

                   The Department of Defense Appropriations Act of 1989 requires us to
                   assess forthcoming regulations to implement the policy letter. The prin-
                   ciples and issues discussed above, as well as the results of our ongoing
                   work to assess controls over the federal government’s use of consul-
                   tants, will guide our analysis of these regulations.


                   DOD concurred with the information    discussed in this chapter, and indi-
Agency and         cated that such information would be helpful as it moves to fully imple-
Consulting Firm    ment the policy letter issued by the Office of Procurement Policy on
Comments and Our   consultant conflict-of-interest issues.
Evaluation         The consulting firm discussed in the second Rail Garrison example
                   agreed with the information presented and otherwise had no comments.
                   The FOG-Mconsulting firm commented that existing conflict-of-interest
                   clauses should be rewritten to clearly denote the specific activities that
                   are prohibited, and should be tailored to a specific procurement activity
                   or procurement system. According to the firm, narrowing the clauses to
                   specific areas would make them less restrictive; enforcing strict
                   conflict-of-interest clauses would “hamper the competitive process that


                   Page 38                                     GAO/NSIAD-90-119Consulting Services
Chapter 4
Conflict~f~Intmest Issues




guarantees the U.S. government the best products at the lowest, most
realistic price.” In the view of this firm, conflict-of-interest clauses
should not restrict a company from doing business in a specific area
because of expertise gained from previous work in the same or a related
field.

As noted above, we believe that our case studies highlight the need to
better ensure that contract conflict-of-interest clauses address specific
contracting situations.




Page 39                                     GAO/NSIAD-O-119 cOnsulting Services
Chapter 6

Identifying and Reporting Consulting Services *


                   Our review indicated some individual commands did not consistently
                   identify CAASin accordance with DOD guidance or include these services
                   in their required submissions to the Congress. These and other data
                   problems were caused by a variety of factors, including difficulties in
                   interpreting the CAASdefinitions and weaknesses in review and
                   reporting procedures. The result is a budget exhibit and reporting
                   system that provide neither DOD managers nor the Congress with accu-
                   rate information on how much DOD is spending for CAAS.


                   The Department of Defense Authorization Act of 1986 requires DOD,
Requirements for   among other things, to (1) present, as part of the budget, data on pro-
Identifying and    posed CLW expenditures, which are to be reported by type of service
Reporting CAAS     and whether in direct support of a weapon system and (2) establish
                   accounting procedures to identify and control CAASexpenditures. To
                   comply with these requirements, DOD'S January 1986 CAASdirective
                   requires the DOD comptroller to establish procedures for reporting CAAS
                   data, which are included in a separate budget exhibit (the “PB-27”
                   exhibit). As explained by DOD officials, this exhibit consolidates informa-
                   tion reported in other portions of the DOD budget submission to identify
                   expenditures for CAAS.In the fiscal years 1990-1991 exhibit, DOD esti-
                   mated that it spends about $1.6 billion annually for CAM.

                   The directive defines the CAAScategories and describes the types of ser-
                   vices to be included and excluded, as shown in table 5.1.




                   Page40                                      GAO/NSIADSO-119CmsultingServices
                                                   Chapter 6
                                                   Identifying and Reporting
                                                   Consulting Services




Table 5.1: DOD Definltlono of CAAS
Category
---- --_.. -.-__-__        Definitions and areas of application                           Major exclusions
Individual experts and            Persons possessing special knowledge or skill, who      None cited in the DOD regulation
consultants                       provide information, opinions, advice, or
                                  recommendations in subjects, issues, or’problems
                                  involving policy development or decision-making in
                                  DOD
Studies, analyses, and            In-depth analytic assessments needed to understand      Basic research and system-specific engineering
evaluations                       complex issues and improve policy development or        studies (studies related to specific physical or
                                  decision-making, in the form of formal, structured      performance characteristics of existing or proposed
                                  documents containing or leading to conclusions or       systems)
                                  recommendations
Management support                Advice, training, or direct assistance to ensure the    Managerial or administrative services by the designer
services                          more effective or efficient operation of managerial,    or producer of end-item hardware that are
                                  administrative, or related kinds of systems, in such    nonseparable from the development, production, or
                                  areas as acquisition management, project monitoring     operational support processes
   -_ _- .._ _...--.--._. ..--___ and reporting, data collectron, and budgeting
._._
Engineering and technical         Engineering and technical services provided to DOD      Engineering and technical services procured to
services                          personnel by manufacturers of weapon systems or         increase a weapon system, equipment, or
                                  technically qualified DOD contractor representatives,   component’s design performance capabilities-i.e.,
                                  including information, instruction, and training        systems engineering or efforts associated with
                                                                                          engineering change proposals


                                                   The directive also instructs DOD components to establish the necessary
                                                   procedures to account for and report CAAS. In response, the services
                                                   submit budget data for inclusion in the DOD budget exhibit and have
                                                   established various mechanisms to track CAAS.For example, the Army
                                                   has designated certain existing accounting codes (used to categorize
                                                   types of goods or services) to be assigned to CAM obligations. Each of
                                                   the services has issued instructions governing its use of advisory and
                                                   assistance services. The Navy and Air Force directives closely parallel
                                                   the DOD guidance; the Army directive predates the DODdirective and
                                                   does not conform to it in some respects. For example, the Army directive
                                                   does not require that CAASportions of contracts (so-called “embedded
                                                   GUS”) be separately identified. It also includes systems engineering
                                                   under the professional and management support services category.


                                                   Our case studies indicated that individual commands or activities were
Problems in                                        not accurately or consistently identifying CAAScontracts, based on dif-
Identifying and                                    fering interpretations of what constitutes CAAS.We also found instances
Reporting CAAS                                     of inadequate accounting and reporting controls. One command did not
                                                   use the appropriate accounting codes for CAAStransactions and another
                         Y                         activity did not report CAAScontracts in its budget submission. Lastly,
                                                   our review of the budget exhibit disclosed other errors and omissions, as



                                                   Page 41                                                GAO/NSIAD-90-119ConsultingServices
                                       Chapter 5
                                       IdentIf’yhg and Reporting
                                       consulting service6




                                       well as problems in assessing trends in DOD’S use of CAASdue to changes
                                       in the data categories.


Inaccurate and                         The Army Missile Command and the Air Force Ballistic Systems Division
Inconsistent Identification            identified three and one CAAScontracts for the FOG-Mand Rail Garrison
                                       systems, respectively. As shown in table 6.2, we identified one addi-
of CAAS Contracts                      tional FUG-M contract and seven Rail Garrison contracts’ that we believe
                                       contained at least some portion of CAASbased on our interpretation of
                                       the DOD definitions. The services we identified generally fell within the
                                       CAASmanagement support category-services used to assist program
                                       managers in their acquisition management or project monitoring func-
                                       tions (e.g., cost estimating or schedule preparation). We did not find any
                                       additional contracts that we believe the Naval Air Systems Command
                                       should have classified as CAASfor the V-22.

Table 5.2: Additional CAAS Contract
Servlcer Identified by QAO for FOQ-M   System                    CAAS contract servicesa
and Rail Garrkon Systems
                                       FOG-M                     1. Revise logistics plan and prepare cost estimates and program
                                                                 schedules.
                                       Rail Garrison             1. Conduct environmental planninc and develop system-
                                                                 environmental impact statement. -
                                                                 2. Provide integrated logistics support, cost modeling, program
                                                                 planning, and other support tasks.
                                                                 fasXsnduct follow-on effort to contract cited above, with similar

                                                                 4. Provide program and database management, including program
                                                                 schedule/cost support, librarv manaaement, etc.
                                                                 5. Support development of management information system, with
                                                                 development of software programs.
                                                                 6. Provide integrated logistics support.
                                                                 7. Perform system studies and analyses, prepare mission model and
                                                                 system handbook.
                                       aDescribes only CAAS; contracts in some cases also contain non-CAAS services or materials.


                                       A representative of the Army Missile Command’s legal office, which
                                       reviews potential CAASprocurements,2 agreed that part of the one addi-
                                       tional IWG-M contract we identified represented C&Q. According to the

                                       ‘This doesnot include contractsawardedby other activities that were usedby the MissileCommand
                                       and the Ballistic SystemsDivision to obtain CAAS.
                                       2TheMissile Commandhaaa review and approval processfor CAASprocurementsthat involves the
                                       requestingoffice (such as the FOG-Mprogramoffice), a management support services coordinator
                                       who initially reviews the requestto seeif it constitutesCAAS,a review by the legal office, and final
                                       approval by the Command’sDeputy for Procurementand Readiness.



                                       Page 42                                                    GAO/NSIAD-99-119Consulting Services
Chapter 6
Identifying and Reporting
coni3ultlng servicea




representative, the Command did not classify the contract as CAAS
because it also contained non-w   items, and Army guidance, unlike the
DOD directive, does not require W   portions of contracts to be sepa-
rately identified.

The Air Force Ballistic Systems Division did not categorize the contracts
we reviewed as CAASprincipally because the services constituted
weapon system-level tasks, such as logistics support, that are required
to accomplish some element of weapon system full-scale development.
The Division believes such services cannot be considered CAASbecause
they do not constitute the policy-oriented support tasks encompassed in
the CAASdefinitions.

The DOD directive on CAM permits the exclusion of engineering studies
related to the specific physical or performance characteristics of
weapon systems. However, we do not believe this exclusion applies to
the types of Ballistic Systems Division contract services we identified.
For example, one contractor prepared a handbook that included syn-
opses of press articles on issues related to the Rail Garrison and a roster
of organizations involved in the system. A second contractor (respon-
sible for systems engineering as well as management support services)
provided cost-estimating support similar to that provided under another
contract the Division agreed was CAAS.

In our view, these services are not directly related to a system’s physical
or performance characteristics, but rather support the program manager
in performing his acquisition management functions. This contrasts with
other Division contracts that we agree provide services related to the
actual physical or performance characteristics of a system. An example
would be the Division’s contract to obtain modeling support services to
determine the effects of gravitational forces on missile trajectories.

Our case studies also showed that various commands and activities
interpret the CAASdefinitions differently, which affects the accuracy of
DOD's budget exhibit provided to the Congress. For example, the Ballistic
Systems Division did not consider logistics support services for its sys-
tems to be W, whereas the Naval Air Systems Command considered
these services to fall within the CAASmanagement support category. The
Navy expressly defines the management support category to include
logistics support plans and logistics support services. In contrast, the
Ballistic Systems Division does not believe these services are CAAS
because they provide direct support to a specific weapon system.



Page 43                                     GAO/NSIAIMJO-119Cmsultln9 Services
                                                                                                                            I
                            Chapter 5
                            Identifying and Reporting
                            Consulting Services




                            Similarly, the Naval Air Development Center, a laboratory supporting
                            the V-22, did not consider such services as tracking contract progress
                            and funding as CAAS.In contrast, the Naval Air Systems Command clas-
                            sified similar services as CAASmanagement support. According to Center
                            officials, the CAASdefinitions are both vague and confusing, and have
                            changed over time; what constitutes CAAS is therefore subject to a great
                            deal of interpretation.

                            Such differences inevitably result in inaccurate budget exhibits. For
                            example, if one took the position that the Ballistic Systems Division’s
                            exclusion of logistics support services is appropriate, the Naval Air Sys-
                            tems Command is overreporting its use of CAAS,possibly by as much as
                            $7 million per year. This is the average amount the Command reported
                            for research and development funding in the logistics support services
                            category for the fiscal year 1988-1989 budget submission. Conversely,
                            assuming that the Navy’s interpretation is the correct one, the Ballistic
                            Systems Division underreported its use of CAASby at least $5 million.”


Inaccurate Accounting for   The Army Missile Command had procedures to identify prospective C&Q
and Reporting of CAAS       procurements, but it did not have adequate controls to ensure that it
                            accurately recorded actual CAASobligations or submitted complete
                            budget estimates. We found that the Command had recorded no CAAS
                            obligations for the FOG-M, even though it had identified and authorized
                            three CAAScontracts used to support the system. This occurred because
                            the FOG-Mprogram office did not assign the correct accounting classifica-
                            tion codes for CAASas required. However, according to a FOG-Mprogram
                            analyst, the office had routinely assigned non-&&3 codes and the ana-
                            lyst was not aware of any requirement to use the m-designated
                            accounting codes. The Command has since taken action to correct this
                            problem by issuing instructions to command offices to use the proper
                            CAAScodes.

                            Further, the Command did not submit complete CAASestimates for inclu-
                            sion in the Army’s CAASbudget exhibit. For the fiscal years 1990-1991
                            exhibit, the Command reported CAASrequirements submitted from three
                            program offices. Only one of the CAAScontracts we reviewed was
                            included, and it was reported by the Forward Area Air Defense System
                            Program Executive Office. The Command did not include the two other
                            contracts it considered CAAS,nor did the FOG-Mprogram office prepare a
                            GUS submission. According to Missile Command officials, the Command

                            “This representstotal contract obligations,including thosefor the Rail Garrison,asof February 1988.



                            Page 44                                                  GAO/NSLAD-90-119
                                                                                                    Consulting Services
                          Chapter 5
                          Identlryhg and Reporting
                          Chwulting Service6




                          did not verify the information provided by the program offices, and it
                          did not have any follow-up procedures to determine why a program
                          office did not submit any budget data.

                          We also found that the Air Force did not report the three management
                          support contracts used by its Office of the Assistant Secretary for
                          Acquisition to support its intercontinental ballistic missile moderniza-
                          tion programs, including Peacekeeper Rail Garrison. The total value of
                          one of these contracts alone was $71 million as of mid-1989, repre-
                          senting obligations since the contract was awarded in March 1986. This
                          means the Air Force has underreported its use of CAASby at least that
                          much. According to the Air Force, these amounts were not included in
                          the budget estimates because the contracting officers did not classify
                          them as CAAS.


Other Problems With the   Other errors in DOD'S budget exhibit compound the types of problems
CAAS Budget Exhibit       noted above. For example, in the fiscal years 1988-1989 budget, the Air
                          Force reported no budgeted or actual funding for individual appointed
                          consultants, although it did employ such consultants. The Air Force did
                          include funding for this category in the subsequent exhibit. Similarly,
                          the Army included funding for federally funded research and develop-
                          ment centers in the fiscal years 1990-1991 budget exhibit, inconsistent
                          with other DOD components, which included no funding for these cen-
                          ters. According to DOD, w-related    efforts by the centers will be
                          reported in the budget exhibit beginning in fiscal year 1991.

                          In addition to these data accuracy problems, DOD'S budget exhibit has
                          limited usefulness as an indicator of trends because the categories
                          included in the submissions have not remained consistent over time. For
                          example, in the amended fiscal years 1988-1989 budget request, infor-
                          mation technology was included as a separate, identifiable CAASline
                          item. However, in response to a DOD Inspector General recommendation,
                          DOD merged information technology into the four basic CAAScategories in
                          the subsequent budget exhibit, but only that portion that would meet
                          the definitional tests of those categories. As a result, it is unclear to
                          what extent changes in these categories from one budget exhibit to the
                          next are the result of the inclusion of information technology funding or
                          are due to other factors.




                          Page 46                                   GAO/NSIADM-119 Consulting Services
                                                                                                       I
                            Chapter 5
                            Identifying and Reporting
                            coneulting services




                            Difficulty in understanding the definitions of the CAAScategories
Factors Impeding            remains a key impediment to improving DOD'S reporting of CAA!LWe
Accurate   Reporting   of   found wide disparities in individual command interpretations, which
Consulting Services         ranged from the Naval Air System Command’s including virtually all
                            services to the Air Force Ballistic Systems Division’s excluding almost
                            all such services. Our discussions with contracting officers and program
                            officials for our case study systems also showed differences in famili-
                            arity with the definitions and no common understanding of how to inter-
                            pret the CKU guidance.

                            Over a number of years, DOD'S Office of Inspector General has also found
                            problems with DOD'S management and reporting of consulting services.
                            For example, a 1988 Inspector General’s audit found discrepancies in
                            DOD'S identification of CAAScontracts and recommended issuing further
                            guidance and providing training to improve reporting.

                            OMB'S September 1988 report on the government’s use of CLW concluded
                            that the definitions were too broad, overly complex, and subject to
                            varying interpretations. OMB, in consultation with DOD and other agen-
                            cies, has been working since 1988 to revise and clarify the definitions.
                            As of early 1990, no immediate changes were anticipated, pending the
                            outcome of a proposed test to develop a working definition of advisory
                            and assistance services,

                            A second factor discouraging accurate reporting may be the perception
                            that reporting C&W could cause funding for these services to be cut. As
                            noted in the OMB report, problems with the CAASdefinitions are exacer-
                            bated by the concern that the CAASidentified would be used as the basis
                            for congressional budget cuts.

                            Other indicators suggest that DOD has not, at least until recently, empha-
                            sized C&W reporting or exercised adequate oversight. The CAASdirector
                            position for DOD was filled recently on a permanent basis; for over
                            2 years, the job was held by acting directors on a part-time basis. The
                            Army is using an outdated 1981 directive that does not conform to DOD'S
                            current guidance. The types of errors we found in the budget exhibits
                            suggest that neither the DOD nor WD component W directors are ade-
                            quately reviewing them.




                            Page 46                                    GAO/NSLAD-90-119
                                                                                      Consulting Services
                  Chapter 5
                  Identifying and Reporting
                  Coneulting Services




                  In response to OMB direction, DOD discussed its efforts to manage CAASin
                  its 1988 Financial Integrity Act report,4 and noted its plan to conduct
                  internal assessments of its CAASprogram. In 1989, OMB identified five
                  “highest risk” areas for DOD, which it expected the department to
                  include in its fiscal year 1989 report. One of these was CAM. In its
                  report, DOD noted that it was giving “special attention” to the manage-
                  ment of CAAS,but added that “unless proper incentives for accurate
                  reporting are combined with educational initiatives, data collection of
                  CAASis unlikely to improve.”


                  Long-standing problems in accurately identifying and reporting CXM
Conclusions       have not been corrected. These range from failure to record CAAS obliga-
                  tions to inconsistent or inaccurate interpretations of the CAASdefini-
                  tions, These findings are similar to those reported by DOD’S Office of the
                  Inspector General and can be attributed to, among other things, unclear
                  definitions or inadequate guidance.

                  The CAASguidance needs to be clarified to improve DOD’S reporting. The
                  definitions in DOD’S directive, coupled with numerous exceptions and
                  qualifiers, do not always clearly indicate what services should be cate-
                  gorized as CAAS.OMB’S effort to revise the existing governmentwide defi-
                  nitions has not yet resulted in any changes or additional guidance, nor
                  are any revisions expected in the near future.

                  DOD needs to implement controls to oversee and ensure accurate
                  reporting, including (1) providing additional guidance on how to inter-
                  pret the existing definitions, given the likelihood that governmentwide
                  changes will not soon be forthcoming, (2) establishing mechanisms to
                  review the CAASbudget data, and (3) performing command-level reviews
                  of accounting systems used to record CAASobligations. Without these
                  actions, the agency and the Congress will continue to lack accurate
                  information on how much DOD is relying on consulting services to
                  develop and field its systems.


                  To improve DOD’S identification            and reporting of CAA&we recommend
Recommendations   that the Secretary of Defense
                  -
                  4TheFederalManagers’Financial Integrity Act of 1982requiresheadsof executiveagenciesto eval-
          Y       uate their internal control systemsagainstspecificstandardsand to report annually to the President
                  and the Congress.If the agencyheaddecidesthat the agency’ssystemsdo not complywith the stan-
                  dards,the report is to identify any material control weaknessesand the agency’splans for correcting
                  them.



                  Page 47                                                  GAO/NSLAD-90-119
                                                                                          Consulting Services
                                                                                                     .
                          Chapter S
                          Identifying and Reporting
                          Consulting Services




                      l review and clarify existing guidance on CAASto preclude differing inter-
                        pretations among the military services;
                      l direct the DOD and component CAASdirectors to strengthen their review
                        procedures to ensure that the services accurately report CAASbudget
                        data; and
                      . direct the Secretaries of the Army, Navy, and Air Force to review, and
                        where necessary, develop or revise component instructions and proce-
                        dures to ensure that        is accurately identified and entered into the
                                                      CAM


                        accounting systems.


                          DOD agreed with our findings and recommendations to improve the iden-
Agency Comments and       tification and reporting of W. According to DOD, it will develop an
Our Evaluation            “action plan” to strengthen CAASmanagement and reporting controls.
                          The plan will (1) provide assurances of adequate internal controls over
                          consulting and contractor support services, (2) provide for training of
                          CAASusers, resource managers, and procurement personnel, and (3) pro-
                          vide a database capability to report, document, and track CAA%DOD
                          believes that its initiative, when fully implemented, will satisfy our
                          recommendations.

                          DOD stated the inaccuracies and inconsistencies referred to are the result
                          of the vague and confusing definitions used to identify individual C&Q
                          efforts in the budget exhibit. DOD said that it is time to take a “fresh
                          approach” to solving the many documented problems. To that end, DOD
                          said that it will try to identify what specific services need to be man-
                          aged and controlled as a basis for determining what a revised definition
                          should encompass.




                          Page 48                                    GAO/NSIAD-90-119Cmsulting Services
Page 49   GAO/NSIAIMO-119Co~ulting Services
Appendix I

Comments From the Department of Defense                                                                                  ’


Note: GAO comments
supplementing those in the
report text appear at the
end of this appendix.                              ASSISTANT    SECRETARY      OF     DEFENSE
                                                         WASHINGT0N.D.C. 20301.8000




                                                                                                   2 6 JUN 1Bg)

                             Mr . Frank C. Conahan
                             Assistant  Comptroller General
                             National Security and International
                               Affairs  Division
                             U.S. General Accounting Office
                             Washington, DC 20548
                             Dear Mr. Conahan:
                                    This is the Department of Defense (DOD) response to the
                             General Accounting Office (GAO) draft report,   "CONSULTING
                             SERVICES: Role and Use in Acquiring Three Wt?apOnSystems,”
                             dated May 17, 1990 (GAO Code 391102/050 Case 8026-A).    The
                             Department concurs with the report findings   and recommenda-
                             tions.
                                   The portion of the report describing       the use of consul-
                             tants by systems' contractors,       and those instances where the
                             GAO identified   consultants    working for both the government      and
                             defense contractors     on those systems, is very helpful as the
                             Department fully    implements the Office of Federal Procurement
                             Policy Letter 89-1, "Conflict      of Interest   Policies Applicable
                             to Consultants,"    issued December 8, 1989.
                                    The department agrees that the difficulty    with interpreting
                             the definition     of contracted advisory and assistance services as
                             reported in Office of Management and Budget Circular       No. A-120,
                             "Guidelines    for the Use of Advisory and Assistance Services,"
                             January 4, 1988, and other implementing directives,      affects the
                             reporting    accuracy of the Services.
                                      Earlier    this year, the Department began action to strengthen
                             its management and reporting         of contracted advisory and assis-
                             tance services.          With the many different    and yet legitimate
                             interpretations         of what is a reportable   advisory and assistance
                             service,       developing a consistent    and easy-to-use      definition  is
                             the key to improved management. When fully               implemented, this
                             initiative       will respond fully    to the GAO recommendations and
                             will:
                                   0        provide assurance of the adequacy of internal
                                            management controls for the use of contractor/
                                            consultant support;
                    Y




                                  Page 50                                                 GAO/NSLAD-90-119
                                                                                                         Consulting Services
      AppendixI
      CommentsFromthe Departmentof Defense




      0      provide for the training    of CAM users, resource
             managers, and procurement personnel to consistently
             apply appropriate   procedures and policies  for its
             acquisition,   management and use; and
      0      provide for a data-base capability  to report,
             document and track the use of contracted  advisory      and
             assistance services in DOD.
      The overall  report was a balanced presentation    of the
facts and related findings    and recommendations.    The detailed
DOD comment8 are provided in the enclosure.      The DOD
appreciates   the opportunity  to comment on the Draft Report.
                                  #ncerely   ,


                                  Da& J. Berteau
                                  Principal Deputy


Enclosure:




      Page51                                     GAO/NSIAD-90-119
                                                               ConsultingServices
                                   AppendlxI
                                   Canment8FYomtheDepartmentofDefense




                                              GAO DRAFT REPORT- DATEDW4Y 14, 1990
                                                uao CODE 3911021 OSD CASE 8026-A
                                       "CONSULTINGSERVIZES: NILIS AND USN IN ACQUIRING
                                                   TNNENWEAPONSYSTBIS'

                                                   DEPARTMKMT
                                                            OF DEFENSECGMKEWTS

                                                                *****

                                                                FINDINGS

                              0   FINDING A:
                                  krvices.       T~~rt~~~~t~e~~s~~~sa~~e~~~~tance
                                  "contracted     advisorv and assistance services"         (CAAS) and
                                  defines CAAS to inciude consulting          services.     The GAO
                                  explained that the four categories         of such services are
                                   (1) individual     experts and consultants,       (2) studies,     analyses
                                  and evaluations,       (3) management support services,         and
                                   (4) engineering     and technical   services.      The GAO further
                                  reported that, by law, the DOD is required to establish                 an
                                  accounting mechanism to track such services and to provide
                                  data on proposed expenditures        (as part of the defense
                                  budget).     The GAO noted that the DoD January 1986 contracted
                                  advisory and assistance services directive            requires the DOD
                                  Comptroller     to establish   procedures for reporting         the data.
                                  The GAO observed that, in its FY 1990-FY 1991 exhibit,                the
                                  DOD estimated it spends about $1.6 billion            annually on
                                  contracted     advisory and assistance services.
                                  The GAO noted that rules governing organizational             conflicts
                                  of interest    are contained in the Federal Acquisition
                                  Regulation,    which defines that such a conflict         exists when,
                                  because of the nature of the work performed, a contractor
                                  would gain an unfair competitive        advantage or might provkde
                                  biased advice unless appropriate        safeguards are included in
                                  its contract.       The GAO further noted that, in 1989, the
                                  office of Federal Procurement policy issued a letter
                                  providing   further guidance on contractor       conflicts      of
                                  interest.     The GAO observed that, while neither automatically
                                  precludes companies from working for both the Government and
                                  the private sector, both stress the need to review the
                                  specifics   of proposed procurements and make judgements about
                                  the potential     for conflicts    and actions needed to avoid them.
Now on pp. 2,8-9,30-32,            (PP. 3-4, PP. 12-15, pp. 52-56, pp. 69-71/GAO Draft Report)
40-41.
                                  DOD RESPONSE: Concur.



                          Y                                                      Page 1 of 13




                                   Page52                                          GAO/NSIAD9O-119Co~ul~Services
                               APpendkI
                               CvmmentsFromtheDepartmentofDefense




                           0   FINDING B: Related AUdit8, Studies and Investigations.
                               The GAO reported that numerous studies of the use of
                               consulting-services      by the DOD have been conducted over
                               the past several years.          The GAO cited two of its prior
                               reports as highlighting        long-standing     problems in
                               accurately    reporting   and managing contracted adviSory and
                               management assistant      services     ("Controls Over DOD'S
                               Management Support Service         Contracts Need Strengthening,"
                               dated March 31, 1981--0sD Case 5592: "SUPPORTSERVICES:
                               Actions to Gain Management Control Over DOD'S Contract
                               Support Services,"      dated November 22, 1985--0SD Case
                               6838) ) . In addition,      the GAO noted that the Inspector
                               General, DoD, had issued seven reports in response to the
                               legal requirement to conduct annual evaluations.                 The GAO
                               observed that those reports also identified               inaccuracies
                               in the DOD reporting      of consulting      services,      as well as
                               other problem5 in the DOD implementation             of procedures to
                               account for the services.          The GAO also noted several DOD
                               initiatives     focused on identifying       and correcting      problems
                               in managing and reporting         consulting    services.
Nowon pp. 10-14.                (pp. 16-23/GAO Draft Report)
                               DOD RESPUNSB: Concur.
                           0   FINDING C: The DODUses a Variety of Consulting      Services.
                               The GAO noted several examples of consulting   services from
                               the DOD budget submission, including the following:
                                     developing briefings        and providing      support    for high
                                     level reviews;
                                     maintaining     logistics    planning    documents;      and
                                     providing     maintenance    support    training.
                               The GAO observed that the cited examples fall within the
                               categories     of studies and analyses, management support or
                               engineering     services.     The GAO found that the DOD also
                               employs consultants       as individuals    or as members of an
                               advisory board (such a5 the Defense Science Board) on a
                               variety of technical       issues, including     those related to
                               weapon systems.        The GAO specifically     noted that the DOD
                               and the Services obtain consultant          services at different
                               organizational      levels to support varying aspects of weapon
Now on pp. 2, 15-16.           system development.         (p. 4, pp. 24-26/GAO Draft Report)
                               DUD RESPONSEt Concur.
                           0   FINDING Dr Case Studies:      How Consulting   Services Were
                               Used on Individual    Weapone. The GAO found that consulting
                               services played an important role in three weapon svstems
                               the GAO Selected for study--i.e.,     (1) the Army-Fibe; optic
                               Guided Missile,    (2) the Navy V-22 tiltrotor   aircraft, and

                       Y
                                                                                 Page 2 of 13




                               Page63                                            GAO/NSIAD-DO-IlBConsultingServices
     Appendix I
     CommentsFrom the Department of Defenee




 (3) the Air Force PEACEKEEPER     Rail Garrison.      Table 2.1 of
the report summarizes the contracted advisory and
assistance services contracts      for the three systems that
the GAO found were used by the Army Missile Command, the
Naval Air Systems Command, and the Air Force Ballistic
Systems Division.      The GAO noted it is very likely      that
the figures do not represent all of the consulting
services supporting the three systems because (1) there
were applicable    consultant  services before the system's
development,    (2) there were different    organizations     and
agencies involved,     and (3) documentation on individual
consultants   was unavailable   or too general.
00     Fiber Optic Guided Missile,            The GAO reported that,
       from 1984 to 1989, the Army obligated            at least $9
       million    for consulting     services    related to the Fiber
       Optic Guided Missile system. The GAO specifically
       identified     five contracts      and two purchase orders the
       Army Missile Commandused to obtain consulting
       services    for the Fiber Optic Guided Missile.           The GAO
       found the following       types of consulting      services:
       --      reviewing      program documentation;
       --      training      plans and support;
       --      conducting      analyses of the dual-source
               acquisition      strategy; and
       .a.-    performing      life   cycle   cost estimates.
       In addition,    the GAO found that the Fiber Optic
       Guided Missile program office also obtained
       consulting-type    services under the related Forward
       Area Air Defense System integration    contract.
                     The GAO reported that the Navy relied
"=%F-F-
     eXtens ve y on contractor     services to support the
     development of the V-22. The GAO found that, from
     July 1983 to December 1988, the Naval Air Systems
     Commandused 26 such contracts,        obligating     $17
     million   for consulting-type   services for the v-22
     Osprey system. The GAO also found that the Naval Air
     Developoment Center contracted       for $650,296 in
     Consulting-type   services from 1987 to 1988, using
     five additional   contracts.    The GAO observed that the
     services obtained for the v-22 ranged from relatively
     simple management tasks to complex engineering
     studies and analyses for the aircraft's          design and
     development.
co     PBACBKEEPER Rail Garrison.      The GAO reported that the
       Air Force used consulting     services at both the head-
       quarters and activity   levels to support the
       PEACEKEEPER Rail Garrison system. The GAO found
                                                    Page 3 of 13




     Page 84                                            GAO/NSLAD-BO-119
                                                                      Consulting Services
                               AppendixI
                               CommentsFromthe Departmentof Defense




                                     that, in FY 1987 and EY 1988, the BalliStiC             Systems
                                     Division    used eight Division-awarded       contracts     and
                                     two contracts awarded by another Air Force activity
                                     to obtain contracted advisory and assistance services
                                     for the system. The GAO could not calculate              how much
                                     of the total for the contracts         represented
                                     consulting-type      services because the Division        did not
                                     separately     account for those services.        The GAO also
                                     reported that the Ballistic        Systems DiViSiOn uses one
                                     contractor     to provide engineering      and technical
                                     assistance for various weapons, with other
                                     contractors     having supported the Rail Garrison system
                                     by (1) assisting      in developing cost estimates,         (2)
                                     aiding in base evaluation       and base selection,        and (3)
                                     performing studies and analyses on environmental
                                     impact.     The GAO reported that, in addition,          the
                                     Office of the Assistant       secretary of the Air Force
                                     for Acquisition      sought assistance from contracted
                                     advisory and assistance services contractors,              and the
                                     Office of the Under Secretary of Defense for Research
                                     and Engineering employed a consultant           to conduct a
                                     study on the various missile-basing          system options.
                               The GAO observed that the Naval Air systems Command
                               depends on logistical     support firms, the Air Force
                               Ballistic   Systems Division   uses an engineering        and
                               technical   assistance contractor,      and the Army Missile
                               Command employs a cost estimating        firm.    The GAO concluded
                               that the case studies indicate how and the extent to which
                               the DOD relies on consulting      services to augment or, in
                               some cases, substitute     for internal     capabilities.     The GAO
                               further   concluded that contracted advisory and assistance
                               services played an important role in the development of
Now on   pp. 2,3, 16.22.       all three of the systems it studied.           (PO 4, P. 6,
                               pp. 26-35, pp. 37-38/GAO Draft Report)
                               DOD RBSPOIWE: Concur.
                           0   FINDING E: Reducing Beliance on Contractors                in Sensitive
                               Procurement Areas.         The GAO reported that, in August 1988 I
                               the Navy announced a plan to reduce its reliance on
                               contractor    support in-the more sensitive           aspects of the
                               procurement process, including           requirements definition,
                               acquisition     planning,    preparation    of justifications      and
                               approvals,     requests for proposals,        procurement requests,
                               source-selection       plans, and the source selection         process.
                               The GAO noted that that decision stemmed from two
                               principal    Navy concerns, as follows:
                               00    to lessen vulnerability       to disclosure    of sensitive
                                     information;  and
                               oo    to ensure that the Navy retained the resources            to
                                     perform basic Governmental functions.
                                                                             Page 4 of 13




                               Page65                                        GAO/NS~~-1UConsultineServices
                           AppendixI
                           CommentsFromthe Departmentof Defense




                           The GAO found that the Army and the Air Force also used
                           contractor     support in one or more procurement sensitive
                           areas, at least for the weapons that were studied.             The
                           GAO found that one contractor          assists the Ballistic
                           system8    Division    in reviewing responses for requests for
                           proposals.       The GAO also found that, for the Army system,
                           a COnsUlting firm reviewed the draft request for
                           proposals.       The GAO noted that, according to DOD
                           officials,     the Air Force and Army have no plans to reduce
                           their use of consulting        services in sensitive     areas of the
                           acquisition      process.   The GAO concluded that the Navy
                           action has merit but, because the GAO work focused on
                           individual     weapon systems, the GAO is not in a position         to
                           judge whether the Army and Air Force should take similar
Now on pp. 15,21-22.       steps.      (p. 24, pp. 36-38/GAO Draft Report)
                           DOD RESPOIWE: Concur.
                       0   FINDING F: Defense Contractors             Guidelines    and Procedures
                           for Epployins Consultants.             The GAO reported that it
                           reviewed consultinc          servrces used bv two full-scale
                           development contractors           for each of-the three weapons
                           systems     studied.       The GAO found that all six firms have
                           established       policies    that define consulting       services and
                           prescribe      the procedures for obtaining         them. The GAO
                           reported that the procedures also cover hiring of
                           consultants.        The GAO observed that the contractors
                           included in its study that hired consultants,                 generally
                           billed    their cost to the Government indirectly              through
                           overhead accounts.           The GAO found that the contractors
                           reviewed prospective          consulting   agreements to determine
                           the existence of any conflicts            of interest.       (The GAO
                           noted that the goal is to prohibit             consultants     from hav
                           Government or other business relationships               that create
                           conflicts      of interest      or would violate    the companies'
                           ethics rules.)          The GAO also found that the contractors
                           included clauses         to prevent such conflicts--in         the
                           consulting       agreements that the GAO reviewed.
Now on pp.23-24.            (pp. 39-42/GAO Draft Report)
                           DOD RESPONSE: Noted.
                       0   FINDING G: Contractors       Use of Consulting    Services on
                           Specific Weapon Systems. The GAO reported that three
                           contractors    employed a total of 18 consultants        to obtain
                           advice on their Government business or marketing efforts.
                           The GAO noted the view of one contractor         that these
                           consultants    provide insights    into Government operations
                           and attitudes,     which allow a contractor     to identify   and
                           address Government concerns.         The GAO observed that a
                           large majority of the consultants        were former military
                           officers    or former Government officials,      although it
                           identified    only one who had any current requirement to
                                                                           Page 5 of 13




                           Page56                                          GAO/NSL4D-90-119
                                                                                         ConsultingServices
                               AppendixI
                               CommentsFromthe Departmentof Defense




                               report his post-Government employment.            (The GAO reported
                               it found no evidence that the consultant           complied with
                               this requirement but, based on information           supplied by the
                               defense contractor,       the consultant's   work was found by the
                               DoD not to be in violation         of the applicable    employment
                               restrictions.)       The GAO also found that four contractors
                               retained 40 consultants         to provide various technical
                               services,      which ranged from engineering      analyses to
                               reviews of contractor        proposals for bids.      (p. 4, pp. 6-7,
Now on pp. 3-4, 2527, 29       pp. 43-47, p. SO/GAODraft Report)
                               DOD RESPONSE: Concur.
                           0   FINDING H: Technical Services that Contractors                  Did Not
                               characterize       as Consulting     Services.     The GAO reported
                               that, in addition         to consultinq    services,     the contractors
                               also-supplemented         their in-house capabilities        with other
                               technical     services.       The GAO observed the limited
                               information      it obtained from four of the contractors
                               indicates     that it is not abways easy to distinguish
                               between those technical          services and consulting        services.
                               The GAO found that, in two instances,               the contractors
                               categorized      the type of service based on who provided it
                               rather than the nature of the service itself.                 The GAO
                               also observed that the contractors'             differing
                               interpretations        of what constitutes      consulting    services
                               may also result in inconsistent            characterization      of
                               technical     services.       The GAO noted that the Federal
                               ACqUiSitiOn Regulation governing consultants                does not
                               specifically       define what contractors        should classify      as
                               consulting      services.      The GAO also noted that, in
                               conducting its review of consultant             costs, the Defense
                               Contract Audit Agency encountered difficulty                in isolating
                               consultant      services and costs--due        to the lack of a
                               universally      accepted definition       of such services.
Now on pp. 28-29.               (pp. 48-51/GAO Draft Report)
                               DOD RESPONSE: Concur.
                           0   FINDING I:        Contractors   Working for Both Government and
                               Industry.        As a result of reviewing a combined total of 52
                               contracts      for the three weapon system case studies,     the
                               GAO found      three instances where a firm worked for both the
                               Government       and a contractor   on matters related to the same
                               system.

                                         w.        The GAO reported that the Army used a
                                         consulting    firm primarily    to maintain baseline and
                                         life cycle cost databases and program software.          The
                                         GAO found that the Fiber Optic Guided Missile
                                         integration     contractor   subcontracted  with the same
                                         consulting    firm to obtain cost estimating     and other
                                         services.     The GAO reported that the consulting
                                         firm's contracts      with the Government contained
                                                                                 Page 6 of 13




                               Page57                                           GAO/NSL4D-90-119ConsultingServicee
     AppendixI
     CommentsFromthe Departmentof Defense




       conflict-of-interest         provisions,    with which the
       company did not comply. The GAO observed that the
       applicable       clause was not intended to exclude the
       kind of future efforts          performed by the consulting
       firm and that both Commandand company
       representatives        stressed that no conflict       occurred.
       The GAO review of the contract scopes of work and
       products did not disclose evidence that a conflict               of
       interest      actually    occurred as a result of the
       consulting       firm's working for both the Missile
       Commandand the contractor.              The GAO also found no
       evidence of bias, because the consulting             firm was not
       placed in the position          of representing    competing
       interests.
                           The GAO reported that a March 1988
00     contract mo ification
       *--                         by the Ballistic        Systems
       Division    for work on the Rail Garrison provided for
       the consultant       to conduct studies and analyses in
       such areas as tactical       doctrine     and mission planning.
       The GAO noted that the consulting           services also
       involved maintaining       the system mission model and
       preparing an information        handbook.     The GAO found
       that, in 1989, one of the principal           Rail Garrison
       contractors     contracted with the same consultant            firm
       to obtain system test support services.               The GAO
       study did not identify        any situations      in which the
       company reviewed its own or any other contractors'
       work. The GAO observed that the limited               engineering
       tasks performed by the contractor           appeared to be
       unrelated     to the consulting     firm's Rail Garrison work
       and the GAO did not find that any conflict               of
        interest   existed.
                             The GAO further        reported that, in June
Oc)    *me         e A r Force contracted with a consulting                 firm
       to obtain analytical          support on the deployment of
       PEACEKEEPER       Rail Garrison and a number of other
       missile systems.          The GAO found that one of the
       principal      Rail Garrison contractors             used the same
       consulting      firm to assist in the development and
       dissemination       of information         on the PEACEKEEPER      and
       small    intercontinental        ballistic       missile programs.
       The GAO noted Air Force officials                 claimed that the
       standard clause in the consultant                 contract dealing
       with technical        evaluation      of other contractors'
       proposals was not applicable               because the company was
       not performing such evaluations,                  The GAO also noted
       that neither the Air Force nor the contractor
       interpreted       the clause as prohibiting             work undertaken
       for the contractor.           The GAO further          reported that
       Air force officials         had been advised by the
       consultant      of its plans to work for the contractor
       and had informed the consulting                firm that this would
                                                    Page 7 of 13




     Page68                                             GAO/NSIAD-SO-119
                                                                     ConsultingServices
  .
                                 Appendix I
                                 CommentsFkomthe Department of Defense




                                       not pose a problem, as its work for the Government
                                       did not place it in a conflict-of-interest position.
                                       The GAO review did not find evidence that a conflict
                                       of interest  existed.
                                 In summary, the GAO review did not provide any basis to
                                 conclude that the consulting      firms acquired an unfair
                                 advantage or were unable to provide impartial         advice.     The
                                 GAO also observed that, because its review was limited            to
                                 three individual    case studies,    it could not draw general
                                 conclusions    about the extent to which consulting       firms
                                 work for both contractors     and the Government or the
                                 likelihood   that conflicts   of interest    result.   The GAO
                                 found that, in two of the three cases, the Government was
                                 aware of the consultants'     planned work for a defense
                                 contractor   and had the opportunity      to limit that activity.
                                 The GAO highlighted     some key principles     and concerns, as
                                 follows:
                                 oo    conflicts   of interest     must be assessed on a case-by-
                                       case basis;
                                 oo    contracting    officers      are empowered to include
                                       appropriate    conflict-of-interest        safeguards in
                                       contracts    as needed to assure that conflicts        of
                                       interest    are mitigated       or avoided; and
                                 00    the Government needs access to information   necessary
                                       to make informed judgements about potential   or actual
Now on pp. 3-4, 30, 32-38.             conflicts    (pp. 4-5, pp. 7-8, p. 52, pp. 56-68/GAO
                                       Draft Report)
                                 DOD RESPONSE: Concur.
                             0   FINDING J: Inaccurate         Identification        of Contracted
                                 Mvisory      and Assistance Services Contracts.              The GAO
                                 reported that its weapon system case studies indicated
                                 that individual       commands or activities         were not accurately
                                 identifying      contracted advisory and assistance services
                                 contracts --due to differing          interpretations       on what
                                 constitutes      contracted advisory and assistance services.
                                 The GAO reported that the Army Missile Commandand the Air
                                 Force Ballistic       Systems Division,       respectively,     identified
                                 three, and one contracted advisory and assistance services
                                 contracts     for the Fiber Optic Guided Missile and the Rail
                                 Garrison systems.         The GAO, however, identified          eight
                                 other contracts       that the GAO concluded contained at least
                                 some portion of contracted advisory and assistance
                                 services,     based on the GAO interpretation           of the DOD
                                 definitions.        (The GAO listed      these in table 5.2 of the
                                 report.)


                                                                                  Page 8 of 13




                                 Page59
                                  AppendixI
                                  CommentiFromthe Departmentof Defense




                                  00    Army.    The GAO noted that a representative   of the
                                        Army   Missile Commandlegal office agreed that part of
                                        the one Army contract the GAO identified     represented
                                        contracted advisory and assistance services,      but the
                                        Army did not identify     it as such because it contained
                                        non-contracted    advisory and assistance services
                                        items.    The Army guidance, unlike the DOD directive,
                                        does not specify the requirement to separately
                                        identify    and report CAAS resources embedded in
                                        non-CAAS contracts.
                                  00    Air   Force.      The GAO found that the Air Force
                                        Ballistic     Systems    Division did not categorize        the
                                        seven contracts       that the GAO listed      as contracted
                                        advisory and assistance services principally              because
                                        the services constituted          weapon system-level     tasks,
                                        such as logistics        support.      The GAO noted that the
                                        DiViSiOn claimed that such services cannot be
                                        considered contracted          advisory and assistance
                                        services because they do not constitute             the policy-
                                        oriented support tasks encompassed in the contracted
                                        advisory and assistance services definitions.                The
                                        GAO observed that the DODdirective             on contracted
                                        advisory and assistance services permits the
                                        exclusion of engineering           studies related to the
                                        specific     physical or performance characteristics            of
                                        weapon systems.        The GAO held, however, that the
                                        exclusion does not apply to the types of BalliStiCS
                                        Systems     Division    contract services that the GAO
                                        identified.        The GAO concluded that the identified
                                        services are not directly           related to a system’s
                                        physical or performance characteristics,             but rather
                                        support the program manager in performing his
Now   on pp. 3-5,40,4 l-43,             acquisition       management functions.       (P* 5, PP. 8-9,
47.                                     p. 69, pp. 73-75, p. 82/GAO Draft Report)
                                  DDD RBSPOUSE: Concur.
                              0   PImIHG      lCr     Inconsistent    Identification         of Contracted
                                  Advisory      and     Assistance   Services      Contracts.     The GAO
                                  reported that its case studies showed that various
                                  commands and activities     interpreted     the contracted
                                  advisory   and assistance services definitions         differently.
                                  For example, the GAO found that the Ballistic           Systems
                                  DiVisiOn did not consider logistics         support services to be
                                  contracted advisory and assistance services,           whereas the
                                  Naval Air Systems Commanddid.          Similarly,   the GAO found
                                  that the Naval Air Development Center did not classify
                                  services,   such as tracking contract progress and funding,
                                  as contracted advisory and assistance services,             whereas
                                  the Naval Air Systems Commanddid.           The GAO noted that
                                  Center officials    stated the contracted advisory and
                                  assistance services definitions        are vague and confusing
                                  and have changed over time.        The GAO concluded that these
                     Y
                                                                                       Page 9 of    13




                                  Page 60                                              GAO/NSlAD-BO-119Cmsulting Services
                                 AppendixI
                                 Comment.8 Fromthe Departmentof Defense




                                 Center officials      stated the contracted  advisory and
                                 assistance services definitions       are vague and confusing
                                 and have changed over time.       The GAO concluded that these
                                 inconsistencies     inevitably  result in inaccurate budget
Now on   pp, 3-5,40,43-44,       submissions.     (p. 5, pp. 8-9, p. 69, pp= 73-77,
47.                              p. 82/GAO Draft Report)
                                 MID RESPGWSE: Concur.    However, the Department does not
                                 submit inaccurate budget submissions when requesting
See comment 1.                   resources for CAAS. The inaccuracies    and inCOnSiStenCieS
                                 referred to are as a result  of vague and confusing
                                 definitions  used to specify individual  CAAS efforts       in the
                                 PB-27 Budget Exhibit.
                             0   FIImIleG Lx Inaccurate         Accounting       and Other Problems in
                                 Reporting of Contracted         Mvisory        and Aesistance     Services.
                                 The GAO reported that the Army Missile Commandhad
                                 procedures to identify         prospective        contracted    advisory and
                                 assistance services procurements.                 The GAO found, however,
                                 that the command did not have adequate controls                   to ensure
                                 that it accurately       recorded actual contracted             advisory and
                                 assistance services obligations             or    submitted complete
                                 budget estimates.        The GAO found that the Army had
                                 recorded no contracted advisory and assistance services
                                 obligations      for the Fiber Optic Guided Missile,              even
                                 though it had identified          and authorized         three contracted
                                 advisory and assistance services contracts                   used to support
                                 the system. The GAO observed that that occurred because
                                 the program office did not assign the correct accounting
                                 classification       codes. The GAO further            found that the
                                 Commanddid not submit complete estimates for inclusion                       in
                                 the Army contracted advisory and assistance services
                                 budget exhibit.        The GAO also found that the Air Force did
                                 not report three contracts used by its Office of the
                                 Assistant      Secretary for Acquisition.             The GAO noted that,
                                 according to the Air Force , these were not included
                                 because the contracting         officers       did not identify      them as
                                 contracted advisory and assistance services.                    In addition,
                                 the GAO found other errors in the Budget submission--such
                                 as the Air Force omission of funding for individual
                                 appointed consultants         and the Army inclusion           of costs at
                                 Federally      Funded Research and Development Centers (FFRDCe)
                                  (which should not be included).               The GAO observed that the
                                 DoD submission on contracted advisory and sup ort services
                                 has limited      the report's     usefulness as an ina '1cator of
                                 trends because the categories            included in the submissions
Now on   pp. 44-45.              have not remained consistent           over     time.      (P. 9,
                                 pp. 77-79/GAO Draft Report)
                                 DOD RRSPOUSB: Concur.       Beginnin  in Fiscal Year 1991,
                                                fforts  are reported 9n the PB-27, Contracted
                                 Advisory    and Aaaistance Services Budget Exhibit.

                                                                                    Page 10 of 13




                                 Page61                                             GAO/NSIAD9@119
                                                                                                Ckuwlting Services
                                Appendix I
                                CommentaFromthe Departmentof Defense




                       r-

                            0   FINDING Wt Factors Immding Accurate Reporting of
                                Consulting     Services.       The GAO reported that difficulty          in
                                understanding       the definitions      of the contracted advisory
                                and assistance services categories               remains a key
                                impediment to improving DoD reporting.                 The GAO found wide
                                disparities       in individual      command interpretations.        The
                                GAO discussion8 with contracting             officers    and program
                                officials     also showed differences          in familiarity    with the
                                definitions       and no common understanding          of how to
                                interpret     the guidance.         The GAO noted that the September
                                1988 Office of Management and Budget report on the
                                Government’s use of contracted advisory and assistance
                                services concluded that the definitions                were (1) too
                                broad, (2) overly complex , and (3) subject to varying
                                interpretations.          The GAO found that office has been
                                working with the DOD and other agencies since 1988 to
                                revise the definitions,            but as of early 1990, no immediate
                                changes were anticipated.             The GAO observed that a second
                                factor discouraging          accurate reporting       may be the
                                perception      that reporting       CAAS in the PB-27 Budget Exhibit
                                could cause funding for these services to be cut.                   The GAO
                                also observed that other indicators               suggest that, until
                                recently,     the DOD had not emphasized contracted advisory
                                and assistance services reporting              or exercised adequate
                                oversight.       The GAO found, for example, that the Army is
                                using an outdated 1981 directive--which                has not been
                                revised to conform to DOD guidance.                The GAO also observed
                                that the errors it found indicate              that contracted advisory
                                and assistance services directors              are not adequately
                                reviewing submissions.            The GAO noted that, in response to
                                guidance from the Office of Management and Budget, the DOD
                                identified     contracted advisory and assistance services in
                                its 1988 Financial         Integrity    Act report and is expected to
                                include it in the 1989 report.              Finally,    the GAO noted
                                that, over the years, the DOD Inspector General has also
                                found problems with DODmanagement and reporting                  of
                                consulting      services.      The GAO concluded (1) that long-
                                standing problems in identifying             and reporting    contracted
                                advisory and assistance services have not been corrected
                                and (2) that the continuing            problems are attributable,        in
                                part, to unclear definitions            and inadequate guidance.
                                The GAO further concluded that the present reporting
                                system provides neither DODmanagers nor the Congress with
                                accurate information          on how much the Department is
                                spending for contracted advisory and assistance services.
Now on pp.5,40,46-47             (P. 9, p. 69, pp. 79-82/GAO Draft Report)
                                DOD RESFONSE: Concur.    It is important to note that on at
                                least five different  occasions over the last 15 years, the
                                Office of Management and Budget and/or the Office of
                                Federal Procurement


                  Y
                                                                                Page 11 of 13




                                Page 62                                         GAO/NSIAD-B&119Consulting Semicee
                        AppendixI
                        Commenta From the Department of Defense




                        policy,    with the help of the agencies, have attempted to
                        define, redefine or clarify           contract support services and
                        contracted advisory and assistance services categories               and
                        definitions.      This has resulted in confusion and
                        inconsistent     determinations       of what are contracted
                        advisory and assistance services and has reflected
                        negatively     on the Department in numerous GAO and DoDIG
                        audit findings.       The Department btlieves        it is time to
                        take a fresh approach to solving the many documented
                        problems.      Therefore,      before developing a more consistent
                        and easy-to-use      definition      of contracted advisory and
                        assistance services,         the Department will attempt to
                        identify     what service contracts        a revised definition   is
                        intended to encompass. Implicit             in this task is the
                        necessity to determine exactly what it is we want to
                        manage and control.          The Department will need and will
                        seek the help of Congress and other Government Agencies
                        to define these management objectives.

                                                    * * * * *




                    0   RECOMMENDATION  1: The GAO recommended the Secretary of
                        Defense review and clarify  existing  guidance on contracted
                        advisory and assistance services to preclude differing
Now on pp. 47-40.       interpretations  among the Military  Services.  (p. 83/GAO
                        Draft Report)
                        DOD RESPONSE: Concur.         An action plan for strengthening
                        the DODmanagement and reporting         controls over CAAS will
                        be developed and approved by the Deputy Secretary of
                        Defense by June 30, 1990. Full implementation            of the plan
                        will take one year.       Detailed plan milestones will be
                        defined by July 31, 1990, by the VAAS Management Plan
                        Working Group to be led by the Director,           DoD Contracted
                        Advisory and Assistance Services.          Monitoring   and
                        oversight    of plan implementation     will be done by the
                        Assistant     Secretary of Defense, Production and Logistics.
                        Plan implementation      will result in clear guidance for the
                        management and use of CAAS and will preclude differing
                        interpretatiOnS      among the DoD Components.




                                                                       Page 12 of 13




                        Page 63                                        GAO/NSIAD-90-119 Consulting Services
                        Appendix I
                        Comments From the Department of Defense




                    0   RBCOElMENDATION 2: The GAO recommended the Secretary of
                        Defense direct the DOD and component contracted   advisory
                        and assistance services directors  to strengthen their
                        review procedures to ensure the Services accurately    report
                        contracted advisory and assistance services budget data.
Now on pp. 47-40.       (p. 83/GAO Draft Report)
                        DOD RESPONSE:      Concur.   A major objective of the CAAS
                        ManagemeL?nlan      is to ensure that the DOD Components
                        report accurate     and consistent  CAAS budget data.  This
                        recommendation     will be completed upon full implementation
                        of the P?.an.

                    0   RBC!CMt4ENEATION 3: The GAO recommended the Secretary of
                        Defense direct the Secretaries     of the Army, Navy, and Air
                        Force to review and, where necessary, develop or revise
                        component instructions    and procedures to ensure that
                        contracted advisory and assistance services are defined
                        accurately  and entered into accounting systems.
Now on pp, 47-40         (p. 83/GAO Draft Report)
                        Ml0   RESPCNSE:  Concur.      A major objective   of the CAAS
                        Management Plan is to provide for a data-base capability
                        to report, document and track the parameters of CAAS in
                        the Department of Defense.        Full implementation   of the
                        Plan includes the DODComponents developing or revising
                        component instructions      and procedures so that CAAS
                        activities   are consistently     identified,   entered and
                        tracked into accounting systems.




                                                                                      Page 13 of 13




                        Page 64


                                                             i:   ,I,   ““4,’
                                                             II                 ,.’
  .


               Appendix I
               Comment8 From the Department of Defense




               The following are GAO'S additional comments on DOD'S letter dated
               June 26,199O.


               1. Where necessary, we have clarified the report to indicate that we are
GAO Comments   referring to inaccuracies in the CAASbudget exhibit, rather than DOD'S
               budget submission. The exhibit is intended to accurately present DOD'S
               planned and actual expenditures for CAAS




               Page 06                                   GAO/NSIAD-90419 Consulting Services
Appendix II                                                                                           ,.
Major Contributors to This Report


                        Sharon Chamberlain, Assistant Director
National Security and   David Combs, Senior Evaluator
International Affairs   Brenda Farrell, Senior Evaluator
                        Ilene Fliegel, Senior Evaluator
Division,
Washington, DC.
                        William Woods, Assistant General Counsel
Office of the General   Raymond Wyrsch, Senior Attorney
Counsel
                        Fannie Bivins, Site Senior
Atlanta Regional        Raymond Murphy, Evaluator
Office                  Ronald Heisterkamp, Evaluator


                        Larry Aldrich, Site Senior
Los Angeles Regional    Karen Kirch, Evaluator
Office

Philadelphia Regional ~~c~~a~~~$~u~~
                              ,
Office




                        Page 66                                    GAO/NSIAD-96419 hun&ing   lh’vi-
Page 67   GAO/NSLAD-90-119 CMsulting Services
“‘I,
                                                                                                       -
       Related GAO Products


                     Use of Consulting Services in Defense Acquisition     (GAO/T-NSIAD-89-36,
                     June 7,1989).

                     Government Consultants: Agencies’ FY 1987 Consulting Services Obliga-
                     tions at Specified Reduction Levels (GAo/GGD-~~-~~~Fs, June 24, 1988).

                     Government Consultants: Agencies’ Consulting Services Contract Obliga-
                     tions for Fiscal Year 1987 (oAo/ocww%ws, June 23, 1988).

                     Federal Government’s Use of Consulting Services      (GAO/T-GGD-88-39,
                     June 13,1988).

                     Support Services: Actions to Gain Management Control Over           DOD’S   Con-
                     tract Support Services (GAO/NSIAD-86-8, Nov. 22, 1985).

                     Controls Over   DOD’S   Management Support Service Contracts Need
                     Strengthening   (MASAD-81-19, Mar. 31, 1981).

                     Government Earns Low Marks on Proper Use of Consultants             (~~~-80-48,
                     June 5,198O).

                     Controls Over Consulting Service Contracts at Federal Agencies Need
                     Tightening (~~~~-80-36, Mar. 20, 1980).




       (iw1102)      Page 08                                     GAO/NSIAD-90-119    Cmwulting   Services
                                           --




1ttv~11t~sl.sfor copit+ of’ (;A() wport,s sliorrld tw stbtlt lo: