In 2000, federal procurement law established a performance- based approach as the preferred acquisition method for services. The  Federal Acquisition Regulation requires all performance-based service  acquisitions to include    a performance work statement that describes outcome-oriented  requirements in terms of results required rather than the methods of  performance of the work;    measurable performance standards describing how to measure contractor  performance in terms of quality, timeliness, and quantity; and  the method of assessing contract performance against performance  standards, commonly accomplished through the use of a quality assurance  surveillance plan. Requirements and Standards Definition Influence Program Outcomes

Our work has found that performance-based acquisitions must be  appropriately planned and structured to minimize the risk of the  government receiving services that are over cost estimates, delivered late,  and of unacceptable quality. Prior GAO and DHS Inspector General reviews of complex  DHS investments using a performance-based approach point to a number  of shortcomings. The DHS Inspector General has also indicated  numerous opportunities for DHS to make better use of sound practices,  such as well-defined requirements. While all eight contracts for these investments had outcome- oriented requirements, the requirements were not always well-defined. Further, contracts for half of the investments did not have a complete set  of measurable performance standards. Complex investments with contracts that did not have well-defined  requirements or complete measurable performance standards at the time  of contract award or start of work experienced either cost overruns,  schedule delays, or did not otherwise meet performance expectations. Unreliable Data and Lack of Management Review Constrain Oversight

In managing its service acquisitions, including those that are performance- based, DHS has faced oversight challenges, including a lack of reliable  data and systematic management reviews. Reliable data are essential to overseeing and assessing the implementation  of contracting approaches, acquisition outcomes, and making informed  management decisions. Moreover, the Chief Procurement Officer (CPO),  who has responsibility for departmentwide procurement oversight, has  begun some initial review of performance-based service acquisitions, but  has not conducted systematic management assessments of this acquisition  method. Our analysis of information provided by contracting representatives at the  Coast Guard, CBP, Immigration and Customs Enforcement (ICE), and TSA  showed that about 51 percent of the 138 contracts we identified in FPDS- NG as performance-based had none of the required performance-based  elements: a performance work statement, measurable performance  standards, and a method of assessing contractor performance against  performance standards. Conclusion and Recommendations

Consistent with federal procurement policy, DHS has emphasized a  performance-based approach to improve service acquisition outcomes. The report we are releasing today recommends that the  Secretary of Homeland Security take several actions to increase DHS’s  ability to achieve improved outcomes for its service acquisitions, including  those that are performance-based. These actions include routinely  assessing requirements for complex investments to ensure that they are  well-defined and developing consistently measurable standards linked to  those requirements; systematically evaluating outcomes of major  investments and relevant contracting methods; and improving the quality  of FPDS-NG data to facilitate identifying and assessing the use of various  contracting methods. DHS generally concurred with our  recommendations, noting some departmental initiatives under way to  improve acquisition management.
Why GAO Did This Study

The Department of Homeland Security (DHS) has relied on service acquisitions to meet its expansive mission. In fiscal year 2006, DHS spent $12.7 billion to procure services. To improve service acquisition outcomes, federal procurement policy establishes a preference for a performance-based approach, which focuses on developing measurable outcomes rather than prescribing how contractors should perform services. This testimony focuses on how contract outcomes are influenced by how well DHS components have defined and developed contract requirements and performance standards, as well as the need for improved assessment and oversight to ensure better acquisition outcomes. GAO's statement is based on its report being released today, which reviewed judgmentally selected contracts for eight major investments at three DHS components--the Coast Guard, Customs and Border Protection (CBP), and the Transportation Security Administration (TSA)-- totaling $1.53 billion in fiscal years 2005 and 2006; prior GAO and DHS Inspector General reviews; management documents and plans; and related data, including 138 additional contracts, primarily for basic services from the Coast Guard, CBP, TSA, and Immigration and Customs Enforcement.

What GAO Found

Over the past several years, GAO has found that appropriate planning, structuring, and monitoring of agency service acquisitions, including those that are performance-based, can help minimize the risk of cost overruns, delayed delivery, and unacceptably quality. Several prior GAO and DHS Inspector General reviews of major DHS investments using a performance-based approach point to such shortcomings. While all of the contracts GAO reviewed at the Coast Guard, CBP, and TSA had outcome-oriented requirements, contracts for four of the eight investments did not have well-defined requirements, or a complete set of measurable performance standards, or both at the time of contract award or start of work. These service contracts experienced cost overruns, schedule delays, or did not otherwise meet performance expectations. In contrast, contracts for the other four investments had well-defined requirements linked to measurable performance standards and met the standards for contracts that had begun work. In managing its service acquisitions, including those that are performance-based, DHS has faced oversight challenges that have limited its visibility over service acquisitions and its ability to make informed acquisition management decisions. Notably, the department lacks reliable data on performance-based service acquisitions. About half of the 138 contracts identified by DHS as performance-based had none of the elements DHS requires for such contracts: a performance work statement, measurable performance standards, or a quality assurance surveillance plan. Such inaccurate data limit DHS's ability to perform management assessments of these acquisitions. In addition, the Chief Procurement Officer, who is responsible for departmentwide procurement oversight, has not conducted management assessments of performance-based service acquisitions. To help DHS improve outcomes for its service acquisitions, including those that are performance-based, GAO recommended that DHS routinely assess requirements for complex investments to ensure that they are well-defined, and develop consistently measurable performance standards linked to those requirements. GAO also recommended that DHS systematically evaluate the outcomes of major investments and relevant contracting methods and improve the quality of data to facilitate identifying and assessing the use of various contracting methods. DHS generally concurred with GAO's recommendations, noting some departmental initiatives to improve acquisition management.