	Background

Over the past decade, DOD has increasingly relied on private sector  contractors to provide a range of services, including management and  information technology support. For example, DOD’s obligations on  service contracts rose from $82.3 billion in fiscal year 1996 to $141.2 billion  in fiscal year 2005 (see table 1). DOD committed 20 percent of its total  service obligations in fiscal year 2005 for professional, administrative, and  management support contracts. Managing Service Acquisition Requires Both a Strategic and a Transactional Focus

Several key factors are necessary to improve DOD’s service acquisition  outcomes—that is, obtaining the right service, at the right price, in the  right manner. Success factors to achieve these goals can be  defined at both the strategic and the transactional level, as shown in   figure 1. The strategic level is where the enterprise sets the direction or vision for  what it needs, captures the knowledge to enable more informed  management decisions, ensures deparmentwide goals and objectives are  achieved, determines how to go about meeting those needs, and assesses  the resources it has to achieve desired outcomes. The strategic level also  sets the context for the transactional level, where the focus is on making  sound decisions on individual transactions. Several factors are needed to implement a strategic approach, including  (1) strong leadership to define and articulate a corporate vision, including  specific goals and outcomes; (2) results-oriented communication and  metrics; (3) defined responsibilities and associated support structures; and  (4) increased knowledge and focus on spending data and trends. Key  factors at this transactional level include (1) clearly defined and valid  requirements; (2) appropriate business arrangements; and (3) effective  contractor management and oversight. See  figure 3 for key factors for effectively managing service acquisitions at the  transaction level. DOD Service Acquisition Approach Does Not Fully Address Key Elements at the Strategic or Transactional Levels

DOD and the military departments have not yet fully addressed the key  elements for managing service acquisition at a strategic or a transactional  level. Also, the reviews have not positioned DOD to regularly identify  opportunities to leverage buying power. The current transactional- level approach does not always take the necessary steps to ensure  customer needs are translated into well-defined contract requirements or  that post-contract award activities result in expected outcomes. Specifically, we recommend that the Secretary of Defense take  the following six actions:    establish a normative position of how and where service acquisition  dollars are currently and will be spent (including volume, type, and  trends);    determine areas of specific risk that are inherent in acquiring services  and that should be managed with greater attention (including those  areas considered sensitive or undesirable in terms of quantity or  performance);    on the basis of the above, clearly identify and communicate what  service acquisition management improvements are necessary and the  goals and timelines for completion;    ensure that decisions on individual transactions are consistent with  DOD’s strategic goals and objectives;    ensure that requirements for individual service transactions are based  on input from key stakeholders; and    provide a capability to determine whether service acquisitions are  meeting their cost, schedule, and performance objectives. To assess the extent to which the Department of Defense (DOD)  approach, including its current management structure, exhibited these  characteristics, we reviewed relevant DOD guidance and policy  memoranda, including those that established its current management  structure and review processes.
Why GAO Did This Study

Department of Defense (DOD) obligations for service contracts rose from $82.3 billion in fiscal year 1996 to $141.2 billion in fiscal year 2005. DOD is becoming increasingly more reliant on the private sector to provide a wide range of services, including those for critical information technology and mission support. DOD must maximize its return on investment and provide the warfighter with needed capabilities and support at the best value for the taxpayer. GAO examined DOD's approach to managing services in order to (1) identify the key factors DOD should emphasize to improve its management of services and (2) assess the extent to which DOD's current approach exhibited these factors.

What GAO Found

Several key factors are necessary to improve DOD's service acquisition outcomes--that is, obtaining the right service, at the right price, in the right manner. These factors can be found at both the strategic and the transactional levels and should be used together as a comprehensive, but tailored approach to managing service acquisition outcomes. At the strategic level, key success factors include (1) strong leadership that defines a corporate vision and normative goals; (2) sustained, results-oriented communication and metrics; (3) defined responsibilities and associated support structures; and (4) increased knowledge and focus on spending and data trends. The strategic level also sets the context for the transactional level, where the focus is on making sound decisions on individual transactions. Success factors at this level include having (1) valid and well-defined requirements; (2) properly structured business arrangements; and (3) proactively managed outcomes. DOD's current approach to managing service acquisition has tended to be reactive and has not fully addressed the key factors for success at either the strategic or transactional level. At the strategic level, DOD has yet to set the direction or vision for what it needs, determine how to go about meeting those needs, capture the knowledge to enable more informed decisions, or assess the resources it has to ensure departmentwide goals and objectives are achieved. For example, despite implementing a review structure aimed at increasing insight into service transactions, DOD is not able to determine which or how many transactions have actually been reviewed. The military departments, while having some increased visibility, have only reviewed proposed acquisitions accounting for less than 3 percent of dollars obligated for services in fiscal year 2005 and are in a poor position to regularly identify opportunities to leverage buying power or otherwise change existing practices. Actions at the transactional level continue to focus primarily on awarding contracts and do not always ensure that user needs are translated into well-defined requirements or that post-contract award activities result in expected performance.