A Long Flight to Nowhere
Wednesday, August 25, 2004
By: Angela French

Wastewatcher, August 2004

Following the revelations of the Pentagon’s $436 hammer and $640 toilet seat, Congress enacted the Competition in Contracting Act in 1984 (“CICA”) to provide “full and open competition” for all Government contracts.  While progress has been made, much waste and abuse remains in the contracting system.  The latest nightmare for taxpayers is the Department of Defense’s (“DoD”) Defense Travel System (“DTS”), which has produced miserable results after six years of development and an investment of more than $500 million.

In May 1998, the Defense Travel System Program Management Office (“DTS PMO”) awarded—competitively—a $263.7 million contract to Northrop Grumman (“Northrop”) to develop an “eTravel system” which would function as an automated, electronic in-house travel agency for the entire DoD.

The eTravel system was supposed to make business travel quicker, easier, and more efficient.  Essentially, it would eliminate the processing of paper travel orders and direct communications with travel agents.  Those functions would be done on each traveler’s PC.  The development, testing, and implementation of the eTravel system was to be completed within 120 days of the contract award, and the system was to be up and running in 11,000 DoD sites worldwide by September 2001.

According to the original contract, all costs associated with developing, testing, and deploying DTS were to be paid by Northrop, and the company would receive no revenue until the system was completed, proven effective, and operationally deployed.  At that time, Northrop would then receive a one-time, fixed price of $20.00 per DoD user connected to the DTS, plus a fixed fee of approximately $5.27 for each DoD trip performed using the travel system.

But in early 2002, after four years of test failures, the contract with Northrop was completely restructured by the DTS PMO.  Recognizing Northrop was still years away from having a functional eTravel system, DoD increased the scope of the contract to include traditional travel management services at premium rates.  This contract revision was not competitively bid, and may have cost taxpayers an additional $14-$16 million.

In addition, the expense and risk of development, testing, and deployment of the DTS throughout DoD was shifted from Northrop to the taxpayers.  Even worse, more than $50 million of taxpayers’ money was paid to Northrop for the company’s previous unsuccessful efforts, and DoD agreed to pay approximately $35-$50 million each year to continue efforts to develop a functional system.  The revised contact limited Northrop’s development efforts to only a web-based (e.g., Internet) system similar to commercial systems already available.  Although the government was now paying all development costs, DoD allowed Northrop to retain full ownership of DTS—thus ensuring that once the system was operationally deployed, Northrop could never be replaced.

In July 2002, the DoD inspector general (“IG”) released a report that estimated the costs of DTS had grown from the original $263.7 million to $491.9 million—about 87 percent higher than the original contract amount.  The IG concluded DTS would not be finished until 2006, five years behind schedule, and criticized the management of the DTS program.  Although the IG recommended that DTS be cancelled, DoD continued to fund its development.

In 2003, a competitor challenged the legality of the revised Northrop contract and sought to have DoD’s requirement for a worldwide, web-based travel system and the traditional travel services be opened to competition.  According to an opinion by the U.S. Court of Federal Claims on July 26, 2004, the lack of competitive bidding for the restructured Northrop contract in 2002 was a violation of CICA and unlawful.  In a small victory for taxpayers, the Court has ordered the government to terminate the traditional travel services portion of the contract and conduct a competitive procurement that will result in a new contractor performing these services by November 2004.

However, the Court stated that even if it assumed the remainder of the restructured DTS contract was unlawful due to the pricing and technical changes, it was too late to terminate the contract and re-compete the web-based travel management system.  Thus, despite a violation of law, the Court decided that it would be too great a hardship on the government to terminate the contract.

Unfortunately, the Court’s opinion was not supported by the facts.  Although the Court concluded that DTS is substantially complete, hundreds of millions of additional dollars will be required to finish the system by late 2006.  While DTS has been operationally deployed at a number of military facilities, it is rarely used by DoD travelers.  DTS also has significant functional problems:  DTS frequently cannot find or guarantee the lowest applicable airfare available, nor can it be used for international travel, and it has great difficulty booking hotels to coincide with travel schedules.  Travel agents who have tested DTS estimate that it automatically books flights which can cost as much as $1,200 more per ticket than applicable fares available for government travelers.

DoD issues around 5 million tickets each year, but only 15,000 have been bought through DTS since 1998.  The cost of DTS was estimated in 2002 at $491.9 million.  Each of the 15,000 tickets issued to date by DTS has therefore cost taxpayers approximately $33,000.  The DTS PMO has not made available current estimates of the cost to finish the system, but the final costs are likely to be well in excess of $500 million.  Notwithstanding the exorbitant cost to develop DTS, the most significant expense actually may be the potential excess ticketing prices that could be as much as $400 million annually.  The $436 hammer and $640 toilet seat pale in comparison to this excessive waste, abuse, and mismanagement.

In June 2004, the Government Accountability Office issued a series of reports on waste and fraud within DoD’s travel program (none of which were related to the DTS and its problems).  In response, DoD testified before Congress that “the long-term answer will be the automated DTS that controls the travel order and payment process from beginning to end.”  It is difficult to believe that a system which costs $33,000 per ticket and cannot find the lowest-priced airfare will eliminate the waste.

Northrop continues to be able to provide eTravel services to the Pentagon because the Court of Federal Claims concluded that DoD would have to start over if the Northrop contract were terminated, face a five-year delay, and the additional expenditure of hundreds of millions of dollars for a new system.  Unfortunately, the Court ignored the readily available eTravel services from privately-funded systems developed by EDS and CW Government Travel, Inc., which have been approved by the General Services Administration (GSA).  DoD could quickly procure their eTravel services at substantially lower rates from one of these GSA-approved vendors.  But instead of being removed from DoD, the Northrop system appears to be migrating to the civilian side of the federal government.

GSA has recently approved CW Government Travel, Inc., EDS, and Northrop for eTravel services for all federal agencies, including DoD.  Every agency will have to choose one of the three vendors for their eTravel services by January 1, 2005.  The GSA requires CW Government Travel, Inc. and EDS to absorb their own development costs and their revenues are contingent on the successful use of their eTravel system.  Northrop, however, is being allowed to compete for GSA business with taxpayer financing.  Even so, Northrop charges more than its competitors for the same travel services.

Unfortunately, three civilian agencies recently have chosen Northrop, apparently due to misleading information from the Pentagon touting the success of the DTS.  If this trend continues, Northrop may end up with a virtual perpetual monopoly on all automated government travel services.  Should this occur, taxpayers will be big losers.

The U.S. is fighting two wars overseas and the national deficit is at a record level.  The DoD and other agencies should look to spend their limited resources more wisely than on the DTS.  Once again, taxpayers are footing the bill on a high tech boondoggle that is not getting off the ground.

CAGW will be issuing a special report on the DTS scandal in early September.  v