DLA is DOD’s  largest combat support agency, providing worldwide logistics support in  both peacetime and wartime to the military services as well as civilian  agencies and foreign countries. DLA supplies almost every consumable  item the military services need to operate. Sound Practices Vital to Ensuring DLA Receives Value When Acquiring Commodities

		Proper Requirements Definition Is Essential to Obtaining Value

DLA determines what and how many items it buys based on requirements  from its military service customers. Without a good understanding of  customers’ projected needs, DLA is not assured it is buying the right items  in the right quantities at the right time. Our prior work has identified instances where  problems in properly defining requirements can lead to ineffective or  inefficient management of commodities. Similarly, while  DLA had a model to forecast supply requirements for contingencies,  this model did not produce an accurate demand forecast for all items,  including Meals Ready-to-Eat. As a result, they underestimated the  demand for some items. Some combat support units came within a day or two of  exhausting their Meals Ready-to-Eat rations, putting Army and Marine  Corps units at risk of running out of food if the supply distribution  chain was interrupted. Selecting the  appropriate type is important because certain contracting arrangements  may increase the government’s cost risk whereas others transfer some of  that cost risk to the contractor. We have previously testified before this  committee that once the decision has been made to use contractors to  support DOD’s missions or operations, it is essential that DOD clearly  defines its requirements and employs sound business practices, such as  using appropriate contracting vehicles. Similarly we noted in a 2007 report on the Army Corps of Engineers  Restore Iraqi Oil Contract that DLA’s Defense Energy Support Center was  able to purchase fuel and supply products for the forces in Iraq more  cheaply than the contractor because the Defense Energy Support Center  was able to sign long-term contracts with the fuel suppliers, an acquisition  strategy the contractor did not pursue because of the incremental funding  provided by the Army. As we reported in 2006, DLA has recognized that the prime  vendor concept may not be suitable for all commodities and has begun  adjusting acquisition strategies to reassign programs to a best  procurement approach. Proper Contract Oversight and Management Key to Obtaining Value

In addition to ensuring requirements for contracts awarded through DLA  have been properly defined and the appropriate type of contract has been  put in place, proper contract oversight and management is essential to  ensure DOD gets value for taxpayers’ dollars and obtains quality  commodities or services in a cost-efficient and effective manner. Failure to  provide adequate oversight hinders the department’s ability to address  poor contractor performance and avoid negative financial and operational  impacts. Our prior  work has found while these challenges have affected DLA’s ability to  obtain value, in some cases DLA has also taken actions to address these  challenges. While much of our work on contract management has been focused on  weapons system acquisition and service contractors, we have found  similar challenges with DOD’s acquisition of commodities. In June 2006, we found that DLA officials were not conducting  required price reviews for the prime vendor contracts for food service  equipment and construction and equipment commodities. Both logistics agency and supply center officials  acknowledged that these problems occurred because management at  the agency and supply center level were not providing adequate  oversight to ensure that contracting personnel were monitoring prices. DLA has established  contracting officer’s representative training requirements to ensure  these individuals are properly trained to carry out their  responsibilities.
Why GAO Did This Study

The nation's ability to project and sustain military power depends on effective logistics. As the Department of Defense's (DOD) largest combat support agency, providing worldwide logistics support in both peacetime and wartime, the Defense Logistics Agency (DLA) supplies almost every consumable item the military services need to operate, from Meals Ready-to Eat to jet fuel. Given current budgetary pressures and the crucial role DLA plays in supporting the military service in the United States and overseas, it is vital that DOD ensure DLA is getting value for the commodities and services it acquires. The committee asked GAO to identify the challenges DOD faces in ensuring DLA gets value for the taxpayer's dollar and obtains quality commodities in a cost-efficient and effective manner. This testimony focuses on sound practices GAO has identified regarding obtaining value when contracting and how they can also apply to DLA's acquisition of commodities. GAO has made numerous recommendations aimed at improving DOD's management and oversight of contractors, and DOD has concurred with many of them. GAO is not making any new recommendations in this testimony.

What GAO Found

DOD faces challenges ensuring DLA gets value for the taxpayer's dollar and obtains quality commodities in a cost-efficient and effective manner. GAO's previous testimonies before this committee on weapons system acquisition and service contracts highlighted how essential it is that DOD employ sound practices when using contractors to support its missions or operations to ensure the department receives value regardless of the type of product or service involved. These practices include clearly defining its requirements, using the appropriate contract type, and effectively overseeing contractors. With regard to DLA, GAO's prior work has identified the following challenge areas: (1) Accurate Requirements Definition - Without a good understanding of customers' projected needs, DLA is not assured it is buying the right items in the right quantities at the right time. GAO's prior work has identified instances where problems in properly defining requirements can lead to ineffective or inefficient management of commodities. For example, GAO reported in 2005 that while DLA had a model to forecast supply requirements for contingencies, this model did not produce an accurate demand forecast for all items, including Meals Ready-to-Eat. As a result, the demand for these items was underestimated and some combat support units came within a day or two of exhausting their Meals Ready-to-Eat rations. (2) Sound Business Arrangements - Selecting the appropriate type is important because certain contracting arrangements may increase the government's cost risk where others transfer some of that cost risk to the contractor. For example, GAO noted in 2007 that DLA's Defense Energy Support Center was able to purchase fuel and supply products for the forces in Iraq more cheaply than an Army Corps of Engineers contractor because DLA was able to sign long-term contracts with the fuel suppliers. (3) Proper Contract Oversight and Management - Failure to provide adequate contract oversight and management hinders DOD's ability to address poor contractor performance and avoid negative financial and operation impacts. For example, in June 2006, GAO found that DLA officials were not conducting required price reviews for the prime vendor contracts for food service equipment and construction and equipment commodities. Agency officials acknowledged that these problems occurred because management at the agency and supply center level were not providing adequate oversight to ensure that contracting personnel were monitoring prices. DLA has taken some actions to address these challenges. For example, DLA has begun adjusting acquisition strategies to reassign programs to a best procurement approach. DLA has also established contracting officer's representative training requirements to ensure these individuals are properly trained to carry out their responsibilities.