Report: Flawed acquisition strategy derails DOD's procurement system

The Defense Department may be forced to spend at least $70 million on additional training, development and help-desk support before its main computer system for standardizing paperless contracting and procurement procedures is deemed functional, according to an internal DOD report.

A report, released this week by the department's inspector general, concluded that the Standard Procurement System, a $326 million computer system designed to automate DOD's contracting and procurement processes, may not meet the needs of users due to a flawed acquisition strategy and poor program guidance. The goal of SPS was to fully automate DOD's process for writing, awarding and managing contracts electronically in time to meet the department's paperless contracting deadline, which deputy secretary of Defense John Hamre has set at Jan. 1, 2000.

According to the report, SPS may not meet the requirements of its projected 44,000 users because DOD issued unclear guidance on how to purchase commercial products for major automated information systems and because the director of Defense procurement selected an acquisition strategy that targeted commercial software that required "substantial" modifications. In addition, the report found that DOD's SPS acquisition strategy limited DOD's rights to modify and maintain the software, and there were no standard policies in place for using the system.

"By procuring SPS as a commercial product, DOD obtained limited rights to install, operate and use SPS software to support DOD requirements for 30 years," the report concluded.

In addition, because DOD chose not to negotiate additional rights to the software, DOD "is reliant on [SPS prime contractor American Management Systems Inc.] throughout the life cycle of the system for modifications and maintenance of the software," the report said. "However, AMS may determine in the future that they no longer want to upgrade or maintain SPS," resulting in DOD being forced to find a new contractor to develop a new procurement system from scratch. The current contract precludes DOD or any other contractor from using any ideas or templates from SPS to design a new system.

AMS won the SPS contract in 1997 and developed the system around its own commercial Procurement Desktop software but has run into several problems developing the system [FCW, May 24].

In one example of SPS' shortfalls, personnel at the Naval Surface Warfare Center in China Lake, Calif., complained that 97 percent of their contracting transactions were conducted using electronic purchasing cards, but neither current nor future versions of SPS will support purchase cards or the ability to track such transactions, according to the report.

In addition, the Army's Training and Doctrine Command declined to accept SPS after pilot testing because the system did not provide all the functions offered by the command's legacy systems, and SPS had 10 major software problems, according to the report. "The system frequently locked up, resulting in lost work; also, the system did not support indefinite-delivery, indefinite-quantity contracts," the report said.

In DOD's official response to the report, Marv Langston, DOD's chief information officer, agreed to provide enhanced guidance on procuring major automated information systems, including licensing rights that would enable DOD to modify and maintain software.

However, Eleanor R. Spector, director of Defense procurement, said the report does not consider the rationale behind the acquisition strategy. "A contractor cannot be compelled to sell [software modification] rights and can charge whatever the market will bear for a license that includes those rights," Spector said. "Competition for downstream modifications was considered impracticable because the continually evolving procurement environment makes it difficult to determine the scope and complexity of, and a reasonable price for, the work to be performed."