text:
This is the accessible text file for GAO report number GAO-11-192
entitled 'Defense Acquisitions: Further Action Needed to Better
Implement Requirements for Conducting Inventory of Service Contract
Activities' which was released on January 18, 2011.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to Congressional Committees:
Defense Acquisitions:
Further Action Needed to Better Implement Requirements for Conducting
Inventory of Service Contract Activities:
GAO-11-192:
GAO Highlights:
Highlights of GAO-11-192, a report to congressional committees.
Why GAO Did This Study:
The Department of Defense (DOD) relies on contractors to perform
myriad functions, which can offer benefits and flexibility for DOD.
GAO�s work has shown that reliance on contractors to support core
missions, however, can place the government at risk of transferring
government responsibilities to contractors. In April 2009, the
Secretary of Defense announced his intent to reduce the department�s
reliance on contractors.
In 2008, Congress required DOD to compile and review an annual
inventory of the number of contractor employees working under service
contracts and the functions and activities they performed. The fiscal
year 2010 National Defense Authorization Act directed GAO to report
annually on these inventories. GAO assessed (1) the approaches used to
compile the fiscal year 2009 inventories and how the approaches have
changed, and (2) how the inventories have been reviewed and used to
inform workforce decisions. GAO reviewed guidance; compared the
approaches used to develop the fiscal year 2008 and 2009 inventories;
and interviewed acquisition and manpower officials from DOD, the
military departments, and selected defense components.
What GAO Found:
DOD implemented a more uniform approach to compile its fiscal year
2009 inventories to reduce inconsistencies that resulted from DOD
components using different approaches in fiscal year 2008. To do so,
in May 2010 the Under Secretary of Defense for Acquisition, Technology
and Logistics (AT&L) issued guidance to the Navy, Air Force, and other
components that specified the categories of services to be included in
the inventories; instructed them to use the Federal Procurement Data
System�Next Generation (FPDS-NG) as the basis for most of the
inventory data requirements; and provided a formula to estimate the
number of contractor full-time equivalent personnel working under
those contracts. This guidance also authorized the Army to continue to
use its existing process, which incorporates contractor-reported data,
including direct labor hours, from its Contractor Manpower Reporting
Application. The changes in DOD�s approach, in particular how DOD
reflected research and development services and the use of a new
formula for estimating contractor personnel for the Air Force and
Navy, as well as better reporting by the Army, affected the reported
fiscal year 2009 inventory data. Collectively, these changes make
comparing the fiscal year 2008 and 2009 inventory data problematic.
DOD officials acknowledged several continuing limitations associated
with the fiscal year 2009 inventories, including the inability of FPDS-
NG to provide information for all of the required data elements, and
concerns about AT&L�s estimating approach. AT&L�s May 2010 guidance
indicated that it planned to move towards collecting manpower data
from contractors and indicated AT&L would work with the Office of the
Under Secretary of Defense for Personnel and Readiness and other
organizations to issue preliminary guidance and a proposed plan of
action by August 2010. However, DOD has not yet done so.
The military departments differ both in their approaches to reviewing
the activities performed by contractors and the extent to which they
have used the inventories to inform workforce decisions. The Army has
implemented a centralized approach to identify and assess the
functions being performed by contractors and has used such assessments
to inform workforce decisions, including those related to identifying
functions being performed by contractors that could be converted to
performance by DOD civilian personnel. In contrast, the Air Force and
Navy have implemented decentralized approaches that rely on major
commands to review their contracted activities and report the results
back to their respective headquarters. The Air Force implemented its
initial review but experienced challenges, including that it did not
obtain adequate information, that will likely cause its approach to
evolve in the future. The Navy issued guidance on completing reviews
to its commands in September 2010, but the results of the reviews had
not been reported as of November 2010. Additionally, Air Force and
Navy officials said that to date they have made limited use of the
inventories to date to help inform their workforce decisions.
What GAO Recommends:
GAO recommends DOD develop and issue a plan of action to collect
manpower data and, in the interim, improve its estimating approach.
DOD concurred with the recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-11-192] or key
components. For more information, contact John Hutton at (202) 512-
4841 or huttonj@gao.gov or William M. Solis at (202) 512-8365 or
solisw@gao.gov.
[End of section]
DOD's Fiscal Year 2009 Inventories Reflect a More Uniform Approach,
but Limitations Remain:
Military Departments Differ in How They Have Reviewed and Used the
Inventories:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Scope and Methodology:
Appendix II: GAO Contacts and Staff Acknowledgments:
Table 1: Spending on Services and Contractor FTEs as Reported in DOD's
Fiscal Years 2008 and 2009 Service Contract Inventory:
Figure 1: Relationship between the Inventory, In-sourcing, and Budget
Documentation Requirements:
Figure 2: Estimating the Number of Contractor FTEs on a $400,000
Contract for Systems Engineering Services Using AT&L's May 2010
Guidance:
Figure 3: Comparison of the Number of Contractor FTEs Estimated by
Fiscal Year 2008 and Fiscal Year 2009 Formulas:
AFMC: Air Force Materiel Command:
AT&L: Under Secretary of Defense for Acquisition, Technology and
CMRA: Contractor Manpower Reporting Application:
COR: contracting officer's representative:
DOD: Department of Defense:
DPAP: Office of Defense Procurement and Acquisition Policy:
FAR: Federal Acquisition Regulation:
FMMR: Office of Force Management Manpower and Resources:
FPDS-NG: Federal Procurement Data System--Next Generation:
FTE: full-time equivalent:
IMCOM: Installation Management Command:
PDC: Panel for the Documentation of Contractors:
TRADOC: Training and Doctrine Command:
Washington, DC 20548:
Congressional Committees:
functions as varied as professional and management support,
information technology support, and weapon system and intelligence
support. DOD's obligations on services have increased in recent years,
more than doubling from fiscal years 2001 to 2009. Further, Congress
has raised questions about DOD's management and use of contractors.
While there are benefits to using contractors to perform services for
the government, our work has shown that reliance on contractors to
support core missions can place the government at risk of transferring
government responsibilities to contractors. In 2008, we concluded that
the increased reliance on contractors required DOD to engage in a
fundamental reexamination of when and under what circumstances it
should use contractors versus civil servants or military
personnel.[Footnote 1] In April 2009, the Secretary of Defense
announced his intent to reduce the department's reliance on
contractors and increase funding for new civilian authorizations. More
recently, in August 2010 the Secretary of Defense announced plans to
reduce funding for service support contractors by 10 percent per year
from fiscal years 2011 to 2013.
Over the past decade, our work has identified the need for DOD to
obtain better data on its contracted services to enable it to make
more strategic decisions. For example, in 2006, we reported that DOD's
approach to managing services acquisition tended to be reactive and
had not fully addressed the key factors for success at either a
strategic or transactional level.[Footnote 2] The strategic level is
where the enterprise sets a direction for what it needs, captures
knowledge to make informed management decisions, ensures
departmentwide goals and objectives are achieved, and assesses the
resources it has to achieve desired outcomes. The strategic level sets
the context for the transactional level, where the focus is on making
sound decisions on individual service acquisitions using valid and
well-defined requirements, appropriate business arrangements, and
adequate management of contractor performance.
DOD has put a number of efforts in place to gain better insights into
its acquisition of services, but its efforts have had mixed success to
date. For example, DOD has struggled to obtain accurate and reliable
information on contracts and the contracted workforce supporting
contingency operations in Iraq and Afghanistan.[Footnote 3] Further,
while DOD has long-standing guidance that requires DOD components to
assess the mix of military, civilian, and contractor personnel, we
reported in March 2009 that DOD lacks information on the contractor
component of its total workforce.[Footnote 4] More recently, in
September 2010, we noted that DOD's civilian strategic human capital
plan had only partially addressed the statutory requirement to assess
the appropriate mix of military, civilian and contractor personnel
capabilities.[Footnote 5]
Congress has passed legislation in recent years to improve the
department's ability to manage its services acquisitions; to make more
strategic decisions about the right workforce mix of military,
civilian, and contractor personnel; and to better align resource needs
through the budget process to achieve that mix. For example, Section
807 of the National Defense Authorization Act for Fiscal Year 2008
required DOD to annually compile and review an inventory of activities
performed pursuant to contracts for services to help provide better
insights into, among other things, the number of contractors providing
services to the department and the functions they are performing.
To date, DOD has submitted annual inventories for fiscal years 2007,
2008, and 2009. In January 2010, we reported that the military
departments used different approaches to compile their fiscal year
2008 inventories, relying on a mixture of existing data systems,
contractor-entered data, manual compilation of some data elements, or
estimates.[Footnote 7] Further, we identified differences in the
approaches taken by the military departments to identify activities
performed by service contractors, which categories of services were
included in each of their inventories, and how each military
department determined the number of contractor full-time equivalents
(FTE) performing these activities. We also found that the data
included in each of the fiscal year 2008 inventories were not complete
and identified other limitations associated with the military
departments' fiscal year 2008 inventories. As part of this review, we
did not assess the extent to which DOD components implemented
processes to review the contracts and activities included in the
fiscal year 2008 inventories, nor did we make recommendations at that
time. In May 2010, the Office of the Under Secretary of Defense for
Acquisition, Technology, and Logistics (AT&L) issued new guidance on
the approaches to be used by DOD components for compiling the fiscal
year 2009 inventories. DOD submitted its consolidated fiscal year 2009
inventory to Congress on July 20, 2010.
Section 803(c) of the National Defense Authorization Act for Fiscal
Year 2010 directed GAO to report annually on the inventories submitted
in each of 2010, 2011, and 2012.[Footnote 8] To satisfy the mandate,
we assessed (1) the approaches used to compile the fiscal year 2009
inventories and how the approaches have changed, and (2) how the
inventories have been reviewed and used to inform workforce decisions.
Because the military departments represent the majority of the
spending on services and contractor FTEs reported in the fiscal year
2009 inventories, we focused our review on the Army, Navy, and Air
Force. To gain additional insights into the inventory compilation and
review processes at the command level, we selected a nongeneralizable
sample of four commands using (1) data from the Federal Procurement
Data System-Next Generation (FPDS-NG)[Footnote 9] on dollars obligated
against contracts for professional, administrative, and management
support services, which may be more likely to be closely associated
with inherently governmental functions,[Footnote 10] (2) military
department data on planned in-sourcing activity in fiscal year 2010,
and (3) recommendations from agency officials. Using these criteria,
we selected the Army's Training and Doctrine Command (TRADOC) and the
Installation Management Command (IMCOM), the Air Force Materiel
Command (AFMC), and the Naval Air Systems Command.
To conduct our work, we reviewed relevant guidance related to the
inventory compilation and review processes and analyzed the fiscal
year 2009 inventory data for the Army, Navy, and Air Force. We
interviewed officials from AT&L's Office of Defense Procurement and
Acquisition Policy (DPAP); the Office of the Under Secretary of
Defense for Personnel and Readiness, Requirements and Program and
Budget Coordination Directorate; the departments of the Army, Navy,
and Air Force; and other defense agencies; and from the commands we
selected those who were responsible for the inventory compilation and
review processes, as well as for identifying candidates for
converting, or in-sourcing, functions currently performed by
contractors to DOD civilian personnel. Using guidance and information
obtained from these officials, we compared the approaches used to
compile the fiscal year 2009 inventories with the approaches used to
compile the fiscal year 2008 inventories. We did not independently
assess the accuracy or reliability of the underlying data supporting
the Army, Navy, or Air Force fiscal year 2009 inventories. However, we
found the data to be sufficiently reliable for the purpose of
assessing the change in approaches from fiscal years 2008 to 2009. A
more detailed description of our scope and methodology is included in
appendix I.
We conducted this performance audit from May 2010 through November
2010 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
As part of Congress's efforts to improve the availability of
information on and management of services acquisitions, it enacted
Section 801 of the National Defense Authorization Act for Fiscal Year
2002, which required the Secretary of Defense to establish a data-
collection system to provide management information with regard to
each purchase of services by a military department or defense agency.
[Footnote 11] For example, the information to be provided includes the
services purchased, the total dollar amount of the purchase, and the
extent of competition provided in making the purchase, among other
In 2008, Congress amended this provision in section 807 of the
National Defense Authorization Act for Fiscal Year 2008 to add a
requirement for the Secretary of Defense to submit an annual inventory
of the activities performed pursuant to contracts for services for or
on behalf of DOD during the preceding fiscal year.[Footnote 12] The
inventory is to include a number of specific data elements for each
identified activity, including:
* the function and missions performed by the contractor;
* the contracting organization, the component of DOD administering the
contract, and the organization whose requirements are being met
through contractor performance of the function;
* the funding source for the contract by appropriation and operating
agency;
* the fiscal year the activity first appeared on an inventory;
* the number of full-time contractor employees (or its equivalent)
paid for performance of the activity;
* a determination of whether the contract pursuant to which the
activity is performed is a personal services contract; and:
* a summary of the information required to be collected for the
activity under 10 U.S.C. � 2330a(a).
As indicated in AT&L's May 2010 guidance, DOD components are to
compile an inventory of activities performed on their behalf by
contractors and submit it to AT&L, which formally submits a
consolidated DOD inventory to Congress. Once compiled, the inventory
is to be made public and, within 90 days of the date on which the
inventory is submitted to Congress, the Secretary of the military
department or head of the defense agency responsible for activities in
the inventory is to review the contracts and activities for which they
are responsible and ensure that any personal services contract
included in the inventory was properly entered into and is being
performed appropriately; that the activities in the inventory do not
include inherently governmental functions; and to the maximum extent
practicable, activities on the list do not include any functions
closely associated with inherently governmental functions. In
addition, the Secretary of the military department or head of the
defense agency is to identify activities that should be considered for
conversion to performance by civilian employees pursuant to 10 U.S.C.
� 2463 or to an acquisition approach that would be more advantageous
to the department.
Congress added Section 2463 to title 10 of the U.S. Code in the
National Defense Authorization Act for Fiscal Year 2008. This section
required the Under Secretary of Defense for Personnel and Readiness to
develop guidelines and procedures to ensure that consideration is
given to using DOD civilian employees to perform new functions and
functions that are currently performed by contractors and could be
performed by DOD civilian employees.[Footnote 13] In particular, these
guidelines and procedures are to provide special consideration for,
among other instances, in-sourcing functions closely associated with
inherently governmental functions that are currently being performed
by contractors, or new requirements that may be closely associated
with inherently governmental functions. Congress required the
Secretary of Defense to make use of the inventories created under 10
U.S.C. � 2330a(c) for the purpose of identifying functions that should
be considered for performance by DOD civilian employees under this
provision. DOD issued initial in-sourcing guidance in April 2008 and
additional guidance in May 2009 to assist DOD components in
implementing this legislative requirement.[Footnote 14]
The National Defense Authorization Act for Fiscal Year 2010 provided
for a new section 115b in title 10 of the U.S. Code that requires DOD
to annually submit to the defense committees a strategic workforce
plan to shape and improve the civilian workforce. Among other
requirements, the plan is to include an assessment of the appropriate
mix of military, civilian, and contractor personnel capabilities. The
Office of the Under Secretary of Defense for Personnel and Readiness
is responsible for developing and implementing the strategic plan in
consultation with AT&L.[Footnote 15]
Finally, Section 803 of the National Defense Authorization Act for
Fiscal Year 2010 requires the Secretary of Defense to include
information in DOD's annual budget justification materials related to
the procurement of contract services. Specifically, the legislation
requires, for each budget account, to clearly and separately identify
(1) the amount requested for the procurement of contract services for
each DOD component, installation, or activity, and (2) the number of
contractor FTEs projected and justified for each DOD component,
installation, or activity based on the inventory and associated
reviews.[Footnote 16]
Collectively, these statutory requirements indicate that the inventory
and the associated review process are to serve as a basis for
identifying candidates for in-sourcing contracted services, supporting
development of DOD's annual strategic workforce plan, and specifying
the number of contractor FTEs included in DOD's annual budget
justification materials. Figure 1 below illustrates the relationship
between the related statutory requirements.
[Refer to PDF for image: illustration]
Service contract inventory:
* Activity performed by contractors;
* Whether contract is for personal services;
* Number of contractor FTEs performing activity;
* Funding source for the contract;
* Organizations for which activity performed.
90-day review process:
Candidates for in-sourcing:
Identification of:
* Inherently governmental functions;
* Unauthorized personal services contract;
* Closely supporting inherently governmental functions.
Annual budget justification:
* Amount requested for contract services and number of contractor FTEs
projected and justified for each budget account, by component,
installation, or activity.
Source: GAO analysis of 10 U.S.C. � � 235, 2330a, and 2463.
[End of figure]
DOD initially planned to use a phased approach to implement the
inventory requirement, relying first on submission in October 2008 of
a prototype inventory covering activities performed for the Army
pursuant to contracted services for fiscal year 2007, and gradually
producing inventories for the remaining military departments and
defense agencies over subsequent years. The Army served as the
prototype as it had started collecting information in 2005 to obtain
better visibility of its contractor workforce. To do so, the Army
developed its Contractor Manpower Reporting Application (CMRA), a
system that is designed to collect information on labor-hour
expenditures by function, funding source, and mission supported on
contracted efforts.
In response to direction from Congress, DOD revised its implementation
schedule and in July and September 2009 submitted inventories covering
the fiscal year 2008 service contracting activities of the military
departments and 13 other defense agencies. For fiscal year 2009,
inventories were submitted by the military departments, as well as a
larger group of other defense agencies, 17 in total, as well as the
U.S. Special Operations Command and the U.S. Transportation Command.
DOD officials noted that the components submitting inventories are
those components with acquisition authority.
AT&L implemented a more uniform approach for compiling the fiscal year
2009 inventories compared with fiscal year 2008, and the changes in
the approach affected both the reported spending on service contracts
and the number of contractor FTEs. For example, changes in the
categories of services included in the inventories influenced the Air
Force's reported increase and the Navy's reported decrease in spending
on services in fiscal year 2009. Similarly, the use of a new formula
based on AT&L guidance for estimating contractor FTEs reduced the
number of contractor FTEs the Navy and Air Force would have reported
had they used the formulas each used for their fiscal year 2008
inventories. AT&L's guidance also authorized the Army to continue
using its existing process, which incorporates data reported by
contractors through the Army's CMRA system, as the basis for its
inventory. Army officials attributed the reported increases in
spending and number of contractor FTEs in the Army's inventory to
better reporting in the CMRA system in fiscal year 2009. DOD and
military department officials identified continuing limitations
associated with the fiscal year 2009 inventories, including the
inability of FPDS-NG, which was to be used by DOD components other
than the Army, to provide information for all of the required data
elements. Similarly, Army officials we spoke with expressed some
concerns with the process used to ensure the accuracy of data reported
in CMRA. AT&L characterized its May 2010 guidance as an interim
measure for circumstances in which actual contractor manpower data
have not been collected. The department has stated that it plans to
move towards collecting such data from contractors as the basis for
future inventories, but it has not issued guidance or a plan of action
for doing so.
2009 Inventories:
In May 2010, AT&L issued guidance that provided more uniform direction
to be used by DOD components other than the Army to compile their
fiscal year 2009 inventories, while allowing the Army to continue
using its existing process that reports manpower data collected
directly from its contractors. AT&L noted that the move towards a more
uniform approach in fiscal year 2009 was meant to reduce
inconsistencies that resulted from DOD components using different
approaches in fiscal year 2008 and was an interim measure for
circumstances in which actual contractor manpower data have not been
collected. AT&L's guidance for fiscal year 2009 standardized the
process for compiling the inventories for most DOD components by
defining:
* the categories of services to be included in the inventories,
* the data sources to be used to populate the required data elements,
* the method to estimate the number of contractor FTEs.
For example, the guidance indicated that all categories of services
identified in FPDS-NG were to be included in the fiscal year 2009
inventories, with the exception of those associated with the early
stages of research and development, lease and rental of facilities and
equipment, and construction. By contrast, for the fiscal year 2008
inventories, the Air Force did not include any research and
development services, while the Navy had included all stages of
research and development services. Further, the guidance required that
FPDS-NG be used as the source for the majority of the inventory's data
elements, such as the service purchased, the total dollar amount of
the purchase, the organization whose requirements are being met by
contracted performance, and the function and mission being performed
by the contract. DPAP officials noted that as DOD currently lacks a
single data source that contains information for all the data elements
required in the inventories, DOD determined that FPDS-NG provided the
most readily available data departmentwide, though it acknowledged
that there were limitations in using FPDS-NG to meet the inventory
requirements. In instances where FPDS-NG did not contain information
for the required inventory data element, such as for the funding
source for the contract, AT&L indicated that DOD components were to
use other existing data sources.
Additionally, the AT&L guidance provided a formula and identified
specific information needed for DOD components other than the Army to
estimate the number of contractor FTEs paid for the performance of an
activity.[Footnote 17] In contrast, DOD components used several
different approaches in fiscal year 2008. For example, the Air Force
relied on three approaches for fiscal year 2008, though it primarily
relied on its own formula to estimate the number of contractor FTEs.
[Footnote 18] Similarly, the Navy relied solely on a formula it had
developed using a sample of Navy contracts to estimate FTEs. The
formula provided under the AT&L guidance for fiscal year 2009
incorporated the amount obligated on the contract as reported in FPDS-
NG, the estimated portion of those obligations that were associated
with a contractor's direct labor expense, and the estimated cost of
that labor. For these two latter factors, DPAP computed averages it
derived from the Army's CMRA data for each type of service and
provided them to DOD components to use to estimate contractor FTEs. As
noted in the AT&L guidance, these averages were used because other DOD
components currently lack a data system to collect data from
contractors on the number of direct labor hours associated with the
services they perform. Figure 2 provides an illustration of how these
averages were to be used to estimate the number of contractor FTEs on
a contract for systems engineering services under which approximately
half of the $400,000 obligated under the contract was the direct labor
provided by contractor employees.
AT&L formula:
A. Total obligations:
B. Average ratio of direct labor dollars to total invoiced dollars per
divided by:
C. Average direct labor rate per type of service:
equals:
Contractor FTEs.
A. $400,000:
B. 0.51:
divided by C. $131,000:
equals: 1.6 Contractor FTEs.
Source: GAO analysis of May 2010 AT&L guidance.
The AT&L guidance authorized the Army to continue to use its existing
process to compile its inventory, which differs from the approach used
by other DOD components, because it relies on contractor-reported data
from the CMRA data system. CMRA captures data directly reported by
contractors on services performed at the contract line item level,
including information on the direct labor dollars, direct labor hours,
total invoiced dollars, the functions and mission performed, and the
army unit on whose behalf the services are being performed. In
instances where contractors are providing different services under the
same order, or are providing services at multiple locations, they can
enter additional records in CMRA to capture information associated
with each type of service or location.[Footnote 19]
Under its approach, the Army included all categories of research and
development services in its inventory, rather than the portion
included by the Air Force and Navy, as well as identified the services
provided under contracts for goods. To report the number of contractor
FTEs, the Army indicated that it divided the number of direct labor
hours reported by a contractor in CMRA for each service provided by
2,088, the number of labor hours in a federal employee work year.
[Footnote 20] For other data elements in its inventory, such as the
funding source and contracting organization, the Army also relied on
the Army Contract Business Intelligence System and updates from
resource managers, contracting officer's representatives (COR), and
other officials.
Changes in DOD's Approach Affected Reported Inventory Data:
DOD reported that the amount obligated on service contracts rose to
about $140 billion in fiscal year 2009, while the number of contractor
FTEs under those contracts increased to nearly 767,000 FTEs, as shown
in table 1. However, the changes in DOD's approach, in particular how
DOD reflected research and development services, and the use of a new
formula for estimating contractor FTEs, affected the reported changes
in inventory data from fiscal years 2008 to 2009. Further, while the
Army approach did not change from fiscal year 2008, Army officials
stated that the increase in the amount of fiscal year 2009 spending
reported in the Army inventory reflects better reporting in the CMRA
system. Consequently, we and DOD officials agree that caution should
be exercised when making direct comparisons between the fiscal year
2008 and 2009 inventory data.
(Dollars in billions).
Reported spending on services: [Empty].
Army:
Reported spending on services: FY 2008: $34.1 billion[A];
Reported number of contractor FTEs: FY 2008: 213,133;
Reported number of contractor FTEs: FY 2009: 262,282.
Navy:
Reported spending on services: FY 2008: $41.1 billion;
Air Force:
Defense agencies and commands:
Reported number of contractor FTEs: FY 2008: 58,301;
Reported number of contractor FTEs: FY 2009: 65,027.
Reported spending on services: FY 2008: $127.2 billion;
Source: DOD July 2009, September 2009, and June 2010 summary reports
to Congress on the fiscal year 2008 and 2009 service contract
inventories.
Notes: Data for fiscal years 2008 and 2009 are not directly comparable
due to different approaches used by the Air Force and Navy and better
reporting by the Army.
[A] Army data reflect total invoiced dollar amounts reported in CMRA,
rather than obligations.
[End of table]
The Air Force's fiscal year 2009 inventory shows an increase of about
$12.1 billion, whereas the Navy's inventory shows a decrease of about
$1.2 billion. Several factors accounted for these changes. For example:
* Based on the AT&L guidance, the Air Force included $6.7 billion in
research and development, $2.9 billion in maintenance of real property
contracts, and $0.1 billion in miscellaneous construction, education
and training, and transportation contracts in fiscal year 2009 that it
had previously excluded in fiscal year 2008. The remaining $2.4
billion increase reflects additional obligations in fiscal year 2009
on services that were included in both fiscal years.
* Based on the AT&L guidance, the Navy excluded $5.3 billion of
services associated with early stages of research and development
activities in fiscal year 2009 that it had previously included. In
addition, the Navy included a net increase of about $0.3 billion in
contract actions under $100,000 and deobligations in fiscal year 2009
that had previously been excluded. This overall $5 billion decrease,
however, was partially offset by a $3.8 billion increase in
obligations in fiscal year 2009 on services that were included in both
fiscal years.
The Navy and Air Force reported an increase in the number of
contractor FTEs in their inventories from fiscal year 2008 to 2009,
although our analysis found that the Navy's reported increase was in
error. According to a Navy official, the Navy used a different set of
labor rates and ratios from those specified under the AT&L approach to
simplify the FTE calculations. Had the Navy used AT&L's proscribed
approach, the Navy would have reported 207,604 contractor FTEs for
fiscal year 2009, a decrease of 14 percent from fiscal year 2008. More
generally, our analysis indicates that the use of the AT&L formula for
fiscal year 2009 produced a lower number of contractor FTEs for the
Navy and Air Force than their respective fiscal year 2008 formulas
would have produced had the approach not changed, as shown in figure
3.[Footnote 21]
[Refer to PDF for image: vertical bar graph]
Number of contractor FTEs:
Fiscal year 2008 formula: 239,000;
Fiscal year 2009 AT&L formula: 208,000.
Source: GAO analysis of Navy and Air Force data.
Note: The figures reflect GAO analysis of the number of contractor
FTEs estimated by applying the fiscal year 2008 and fiscal year 2009
formulas to the fiscal year 2009 inventory data.
The effect of the change in estimating contractor FTEs was even more
pronounced on specific categories of services. For example, applying
AT&L's formula resulted in the Air Force reporting 7,902 contractor
FTEs associated with systems engineering services for fiscal year
2009. If the Air Force's fiscal year 2008 formula were applied, the
inventory would have shown 12,661 FTEs. At the same time, the Air
Force spent more on systems engineering services in fiscal year 2009
than it did in fiscal year 2008. For the Navy, even though it
obligated more for program management support services in fiscal year
2009, using the AT&L formula would have resulted in 3,374 contractor
FTEs whereas using the Navy's fiscal year 2008 formula would have
produced 8,025 FTEs.
Although the Army's approach for compiling its inventory did not
change from fiscal year 2008 to 2009, officials attributed the $8.9
billion increase in the amount of spending reported and the 23 percent
increase in the number of contractor FTEs to better reporting through
the CMRA system. In particular, Army officials responsible for CMRA
said that the fiscal year 2009 inventory contains more data for weapon
systems support services than was included in the fiscal year 2008
inventory. These officials also noted that reporting improvements
resulted from steps taken to identify missing contractor manpower data
and their efforts to follow up with officials and contractors to
ensure that required data were reported. For example, subsequent to
the deadline for reporting data in CMRA, officials responsible for
CMRA stated that they provide a report identifying contracts that were
missing data to Army contracting offices and contracting officer's
representatives (COR), who are to ensure that contractors report
required data.
Limitations Persist in Compilation of Inventories:
DOD noted the approach taken to compile the fiscal year 2009
inventories, while providing more consistency in certain areas,
reflected continued limitations. In the absence of a single
departmentwide data system that could provide data that directly
responded to the legislative reporting requirements, DPAP officials
stated that they relied on the best information currently available,
including data from FPDS-NG. Similarly, Army officials acknowledged
that they are taking steps to continue to improve the Army's process
for collecting data in CMRA. In acknowledging limitations associated
with the fiscal year 2009 inventories, DOD plans to release future
guidance to move towards the department's stated goal of collecting
actual contractor manpower data.
AT&L's use of FPDS-NG as the primary basis for the inventories
presented several limitations, including that it does not currently
contain information on the number of contractor FTEs. Further, the
legislation required information on all activities performed pursuant
to contracts for services during the fiscal year, but DOD noted that
because contract actions are recorded in FPDS-NG as being used either
to purchase goods or services, instances in which services were
provided under a contract action coded as one for goods were not
captured in the Air Force, Navy, and defense agencies' inventories. In
contrast, because the Army's CMRA enables it to identify services
acquired under contracts for goods, we found that the Army's inventory
included about $5.5 billion in services that were purchased under
contracts consistently coded as goods in FPDS-NG in both fiscal year
2008 and 2009. In addition, components using the AT&L approach were
instructed to use the funding office as recorded in FPDS-NG as the
basis for responding to the legislation's requirement to identify the
requiring organization. However, the organization identified as the
funding office in FPDS-NG may not necessarily be the organization
whose requirements are being met through the contract. Similarly,
AT&L's guidance instructed DOD components to record in the inventory
the category of service with the predominant amount of dollars,
although more than one category of service may be purchased under a
contract action. As a result, this approach may not provide visibility
into all the services purchased under a contract action. Further, DOD
acknowledged that it did not account for service contracts that were
awarded on behalf of DOD by non-DOD agencies, as was the case with its
fiscal year 2008 inventories. According to FPDS-NG data, non-DOD
agencies awarded contracts totaling just under $1 billion on behalf of
the Army, Navy, and Air Force in fiscal year 2009.[Footnote 22]
Several officials from DOD and the military departments also expressed
concerns about the formula provided under the AT&L guidance for
calculating contractor FTEs. For example, Air Force and Navy officials
expressed concerns that the average direct labor rates and average
ratios of direct labor dollars to total invoiced dollars specified in
the AT&L approach may not reflect the services for which they
contract, because the AT&L averages were derived from data reported in
the Army's CMRA system. They agreed, however, to implement the AT&L
approach given the absence of a departmentwide system containing
information on the number of contractor FTEs paid to perform
activities under contracts for services. Officials from the Army Force
Management, Manpower and Resources (FMMR) office, the Office of Cost
Assessment and Program Evaluation, and the Office of the Under
Secretary of Defense for Personnel and Readiness raised concerns about
the use of average labor rates and ratios to estimate contractor FTEs
given the tendency of those averages to obscure variation in the
underlying data.
In this regard, our analysis showed that when applying the AT&L
formula to the Army's reported fiscal year 2009 inventory data, the
AT&L formula approximated the aggregate number of contractor FTEs
reported by the Army, but resulted in significant variations for some
specific categories of services and particular contracts. At the
aggregate level, the AT&L formula estimated the number of contractor
FTEs at about 3 percent below the Army's reported 262,282 FTEs.
However, the Army reported 113,713 contractor FTEs performing
professional, administrative, and management support services whereas
the AT&L formula estimated significantly fewer, 65,408 FTEs.
Additionally, the Army reported 264 FTEs on an individual $23.6
million task order for engineering technical services, whereas the
AT&L formula estimated 115 FTEs. These types of differences occurred
because the average labor rates and ratios calculated by DPAP for use
in the AT&L formula were heavily influenced by a small number of large
dollar value contracts included in the Army's inventory.
At the same time, officials from the Army's financial management and
manpower planning offices and the Army commands we spoke with
expressed some concerns with the process used to ensure the accuracy
of data reported in CMRA. According to CMRA guidance, CORs are to
review data entered by contractors in CMRA and edit incorrect data.
Specifically, Army officials responsible for CMRA stated that CORs are
to help ensure that contractors report data in CMRA, and are to
validate entries such as the requiring organization, the function
performed by the contractor, the funding source, and the total
invoiced amount. They also noted, however, that CORs are not
responsible for validating the number of direct labor hours reported
by contractors, which is used to report contractor FTEs in the Army's
inventory. This is in part because the CORs do not have direct
knowledge of or access to contractor information regarding the number
of direct labor hours for fixed-price or performance-based contracts.
Officials responsible for CMRA oversight and officials from the Office
of the Assistant Secretary of the Army for Acquisition, Logistics, and
Technology and IMCOM stated that they have efforts underway to better
clarify COR responsibilities with regard to CMRA data, including
providing additional training to CORs and implementing guidance that
clearly defines responsibility for ensuring the completeness and
accuracy of the Army's inventory data.
AT&L characterized the purpose of its May 2010 guidance as providing
an interim measure for circumstances in which actual contractor
manpower data has not been collected. AT&L's guidance stated that the
department recognizes the need and benefit of doing so, in part to
help make well-informed in-sourcing decisions, and is committed to
doing so. In addition, the guidance stated that AT&L planned to work
with the Office of the Under Secretary of Defense for Personnel and
Readiness and the Office of Cost Assessment and Program Evaluation to
issue preliminary guidance and a proposed plan of action by August
2010. The guidance noted that this process would require close
collaboration between the component acquisition and manpower
organizations. At the time of our review, such guidance indicating how
the department will move towards achieving its stated objectives,
including anticipated time frames and the necessary resources to do
so, had not been issued.[Footnote 23] Senior officials from DPAP and
the Office of the Under Secretary for Personnel and Readiness
indicated, however, that the approach in the short term will likely
remain the same until the department implements a longer-term solution.
The military departments differ in their approaches to the required
reviews of the activities performed by contractors and in the extent
to which they have used the inventories to inform workforce decisions,
including in-sourcing. The Army has used a centralized, headquarters-
level approach to identify contractors performing functions that are
inherently governmental or closely associated with inherently
governmental functions, unauthorized personal services, and other
functions on a command-by-command basis. Since January 2009, the Army
has completed at least one review for 24 of 26 commands and
headquarters organizations and identified approximately 2,357
contractor FTEs performing inherently governmental functions, 45,934
contractor FTEs performing activities closely associated with
inherently governmental functions, and 1,877 contractor FTEs providing
unauthorized personal services. Army officials have indicated that
these reviews contributed to decisions to insource selected functions
for performance by Army personnel. In contrast, the Air Force and Navy
have implemented decentralized approaches that rely on their major
commands to review the activities performed by contractors listed in
their inventories and report the results back to their respective
headquarters. The Air Force implemented its initial review in January
2010, but experienced challenges in doing so, including receiving
inadequate information for many of its contracts. These challenges
will likely cause its approach to evolve in the future. Air Force
officials reported that the inventory has provided limited utility for
informing decisions such as in-sourcing to date. The Navy issued
guidance to its commands in September 2010, but the results of the
Navy's initial review had not yet been reported as of November 2010.
The Army Has Implemented a Centralized Approach to Review Contracts
and Activities in Its Inventory:
The Army has implemented a centralized approach that relies on two
processes--a review prior to contract award and a headquarters-level
review of all functions performed by contractors--to meet the
requirement to annually review the service contracts and activities in
its inventory. In combination, these processes are intended to inform
decisions on the use of contractors for services, including in-
sourcing. Army officials report that they have completed reviews of 24
of 26 command and headquarters organizations as of November 2010. Army
officials noted that the length of time to conduct reviews for each
command and the need to reconcile the various data sources used to
conduct the reviews have posed challenges that they are working to
Both of these processes are relatively recent initiatives. On October
2, 2008, the Assistant Secretary of the Army for Acquisition,
Logistics and Technology issued guidance stating that starting in
fiscal year 2009, officials from requiring activities must receive
written approval to initiate a contract or exercise an option for
services from the cognizant General Officer or member of the Senior
Executive Service.[Footnote 24] To obtain approval, the requiring
activity must complete a service contract approval form and a series
of worksheets that are designed to help identify whether the function
to be performed by the contractor to meet the contract requirement is
inherently governmental, closely associated with an inherently
governmental function, or a personal service, and whether the function
should be insourced. The General Officer or Senior Executive must
certify that special consideration was given to having federal
employees perform functions that are closely associated with an
inherently governmental function, sufficiently trained and experienced
officials are available to oversee the contract, and that the contract
is or will be reported in CMRA.
Additionally, in January 2009, the Army established the Panel for
Documentation of Contractors (PDC), which was tasked to review
functions being performed by contractors on an annual basis at each
command.[Footnote 25] The PDC consists of officials from the Office of
the Assistant Secretary of the Army for Manpower and Reserve Affairs,
Force Management, Manpower and Resources (FMMR), along with
headquarters officials from the acquisition and manpower planning
communities. Army guidance directed commands to provide data to the
PDC on the functions being performed by contractors and an assessment
of whether those functions were inherently governmental, closely
associated with inherently governmental functions, or unauthorized
personal services. To carry out this assessment, commands identify
functions that are being performed by contractors, the organizational
unit for which the function is being performed, the funding
information associated with the contract under which the function is
being performed, and the number of contractor FTEs performing the
function. In addition, for each function, command officials are to
include a detailed description and categorize it according to whether
the function is appropriate for contracting, constitutes an
unauthorized personal service, is closely associated with an
inherently governmental function, or is an inherently governmental
function. The service contract approval form and associated worksheets
are to inform the commands' categorization of contractor functions.
In turn, commands provide this information to the PDC officials, who
make a separate determination as to the appropriate categorization of
the function being performed by the contractor. FMMR and command
officials reported that they engage in further discussion in instances
where there is a difference of opinion on the appropriate
categorization of a function in order to reach agreement. Once the PDC
has completed its review, FMMR issues a memorandum to the commands
summarizing the results of the review, including the number of
contractor FTEs categorized as performing inherently governmental
functions, closely associated with inherently governmental functions,
or providing unauthorized personal services. The command is to use the
results of the PDC review to inform decisions regarding the need to
insource certain functions, whether to continue using contractors to
perform the functions, or in some cases, to determine the command no
longer requires those functions. FMMR officials noted that commands
are responsible for integrating the results of the PDC process into
their manpower planning efforts.
Since the PDC reviews of contractor functions started in 2009, FMMR
officials indicated that they have completed reviews for 24 of 26 Army
commands and headquarters organizations as of November 2010. Through
its reviews, the Army reported that it identified approximately 2,357
unauthorized personal services. For example, the PDC review completed
in August 2010 of 12,805 contractor FTEs performing functions for
TRADOC identified 9 contractor FTEs that were performing inherently
governmental functions and 53 contractor FTEs performing unauthorized
personal services. Similarly, in March 2010, the Army completed its
review of the over 36,000 contractor FTEs performing functions for
IMCOM, and identified 6 contractor FTEs that were performing
inherently governmental functions and 657 contractor FTEs providing
unauthorized personal services.[Footnote 26] Both TRADOC and IMCOM
officials reported that in-sourcing decisions either have been
informed by the PDC review, or will be based on PDC reviews going
forward. For example, TRADOC is in the process of in-sourcing 5
contractor FTEs that had been performing military analyst functions
that were identified as candidates in the PDC review. IMCOM officials
noted, however, that other factors, such as budgetary changes and
other statutory requirements, also contributed to in-sourcing
decisions. For example, IMCOM officials said that most in-sourcing for
fiscal year 2010 will result from a loss of statutory authority to
contract for certain security guard functions, and in fiscal year 2011
most in-sourcing decisions will be the result of requirements to
reduce service contract costs.
Army FMMR and command officials have identified a number of challenges
in conducting the initial reviews, including the length of time to
conduct reviews for each command, and the need to reconcile data used
to conduct the reviews to data in the inventory. As of October 2010,
the Army had been working through the PDC reviews for about 18 months,
and in that time, the PDC has reviewed functions associated with over
100,000 contractor FTEs across most commands and headquarters
organizations. FMMR officials noted that the process has taken time to
implement because they engaged in discussions with command officials
in a number of instances to revise the initial information provided to
the PDC to ensure that the criteria for categorizing functions are
applied appropriately and consistently. TRADOC officials said that
they went through two rounds of PDC reviews of their contracted
functions to improve the accuracy of the service contract data the
command submitted to the PDC for its reviews. Army officials stated
that for future PDC reviews, it may be possible to focus efforts on
functions that are new or have changed from prior reviews as a way to
more efficiently implement the review process. The length of time it
has taken to implement the PDC reviews has also resulted in challenges
related to incorporating the final determinations that come out of the
reviews into Army manpower documents in a way that aligns with the
annual budget and planning processes, according to Army force
management officials.
FMMR and command officials also reported difficulties reconciling
service contractor information used for the review process with the
inventory data provided through the Army's CMRA system, including the
numbers of contractor FTEs reported as performing various activities.
For example, to help determine whether a contractor is performing an
inherently governmental function, the commands collect more detailed
information on the functions being performed by the contractor than is
collected by CMRA and reported in the Army's inventory of services.
FMMR and command officials indicated that the inventory data is
generally used to check whether the data on the total number of
contractor FTEs reported to the PDC appears reasonable. For example,
at IMCOM, the number of contractor FTEs it reported to the PDC for
review was 10,639 higher than the number of contractor FTEs reported
in CMRA. IMCOM officials stated that this difference occurred because
contractors were not fully reporting the required data in CMRA and
contracting officer's representatives (COR) were not verifying whether
contractors had reported the data. FMMR and IMCOM officials are
working together to reconcile this discrepancy. FMMR officials also
stated that they are working with Army commands to better align
contractor function data provided to the PDC with data in CMRA and
noted that the use of data from both CMRA and the PDC has been helpful
in gaining greater insight into the contracted component of the Army's
workforce.
Air Force and Navy Utilize Decentralized Inventory Review Approach:
The Air Force and Navy each issued inventory review guidance that
delegates responsibility for determining the approach, as well as for
conducting the actual review, to their major commands. The Air Force
reported that its commands completed their initial effort at
conducting the reviews in March 2010, but the department is revising
its review process to address several issues encountered during this
process, including a substantial number of contracts in the inventory
for which inadequate information was provided. The Navy issued
guidance to its commands in September 2010 requiring them to conduct a
review, but the results of the commands' reviews were not available as
of November 2010.
Initial Air Force Review Affected by Incomplete Information and Other
In January 2010, the Secretary of the Air Force issued guidance
instructing its major commands to conduct an initial review of its
fiscal years 2008 and 2009 activities performed under service
contracts.[Footnote 27] To do so, Air Force headquarters inventory
officials provided each major command with a spreadsheet containing
its portion of the department's inventory from which command officials
were to review and determine, with a yes or no answer, whether the
activity performed under the contract was an inherently governmental
function, closely associated with an inherently governmental function,
a personal service, or whether the activity is being considered for in-
sourcing. The guidance included broad definitions, based on existing
DOD guidance and the Federal Acquisition Regulation (FAR), for
commands to use to make these assessments.[Footnote 28] According to
an Air Force inventory official, a headquarters review of the initial
information submitted by the commands in March 2010 in response to the
January 2010 guidance found that approximately 40 percent of the
contracts included for review did not contain adequate responses to
the required review elements.
Air Force Materiel Command (AFMC) inventory officials explained that
they experienced a number of difficulties during the initial review
process, and command data show that AFMC did not provide the required
determinations for approximately 22 percent of its contract actions.
An AFMC official noted that in many cases it was difficult to
determine the requiring activity for a given contract action, which in
turn made it difficult to determine who was the most appropriate
manager to provide the required information. Additionally, even when
AFMC officials were able to identify the appropriate subordinate units
and responsible managers, the AFMC official expressed concern that the
managers were not consistently applying the criteria indicated in the
January 2010 guidance to identify contractors performing inherently
governmental or services closely associated with inherently
governmental functions. For example, AFMC identified 152 contract
actions that potentially involved performance of an inherently
governmental function, but the official responsible for the command's
review process was unsure of the extent to which these determinations
were correct.
As a result of the challenges experienced throughout the department
during its initial inventory review, the Secretary of the Air Force
issued additional guidance in October 2010 requiring major commands to
complete the review of activities under service contracts reflected in
its fiscal year 2009 inventory that may have been missed during the
initial review as well as some activities from fiscal year 2010.
[Footnote 29] Additionally, Air Force acquisition officials stated
that the department is considering how to further address the
challenges encountered.
Notwithstanding these challenges, Air Force headquarters and AFMC
officials stated that they rely on other processes to mitigate the
risk of contractors performing inherently governmental functions. For
example, they stated that requirements are reviewed prior to contract
award to prevent contracting for inherently governmental functions in
accordance with existing Air Force guidance.[Footnote 30]
Additionally, an AFMC official explained that they rely on the CORs to
monitor contractor performance and ensure that the functions being
performed do not evolve into inherently governmental functions.
Air Force in-sourcing and AFMC officials noted that to-date the
inventory has provided limited utility during the in-sourcing decision-
making process. AFMC officials indicated that the inventory can
provide command officials with a list of contracts from which they may
be able to identify potential cost savings, but Air Force officials
stated that additional analysis including detailed cost comparisons
and command stakeholder input is required to make cost-based in-
sourcing decisions. According to the Air Force's fiscal year 2010 in-
sourcing plan, the majority of its decisions to insource were to be
based on analyses of whether the performance of services by government
employees would be more cost-effective, which is one of several
criteria indicated in DOD's guidance on in-sourcing.[Footnote 31]
Initial Navy Review Not Yet Complete:
The Navy issued guidance in September 2010 requiring Navy
organizations to review the fiscal year 2009 inventory and report the
results within 45 days, but at the time of our review in November
2010, the department had not yet completed this initial inventory
review.[Footnote 32] The guidance requires the head of the contracting
activity to validate that its respective contracts for services were
reviewed to determine if the contracted functions include inherently
governmental or closely associated functions, or unauthorized personal
services, based, for example, on criteria in the FAR.[Footnote 33]
Following completion, each contracting activity must provide a letter
to the Assistant Secretary of the Navy for Research, Development, and
Acquisition certifying that it completed the review, identifying the
number of contracts that were found to be unacceptable based on the
review criteria, and including a plan of corrective action for those
contract activities deemed unacceptable.
Navy headquarters acquisition and command officials stated although
the department's initial inventory review remains in progress, other
processes are used to review contractor functions and inform workforce
management-related decisions such as in-sourcing. For example, Navy
officials responsible for organizing the inventory compilation and
review processes explained that commands review contracts during the
preaward and option exercise phases in an effort to prevent the award
of contracts that include inherently governmental functions and
unauthorized personal services. Additionally, Naval Air Systems
Command officials reported that CORs are to monitor contracted
employees during contract performance to ensure that the scope or
nature of the function does not evolve to include inherently
governmental functions. Finally, command officials explained that they
rely on existing command staffing processes, which includes input from
functional managers to determine the most appropriate blend of
military, civilian, and contractor personnel to meet command workload
and mission requirements, as well as identify opportunities for in-
sourcing.
DOD has acknowledged the need to rebalance its workforce, in part by
reducing its reliance on contractors. To do so, however, the
department needs good information on the roles and functions played by
contractors, which the department currently does not have. The
required inventories that DOD is developing are intended to provide an
additional source for such information to assist DOD in determining
whether or not contracted services should be performed by government
employees, to mitigate the risk of transferring government
responsibilities to contractors. At this point, DOD has been working
to implement the inventory requirements since the legislation was
passed in 2008. With regard to reviewing the functions and activities
reflected in the inventories, the department's efforts are less
mature. Given this early state of implementation, the inventories and
associated review processes are being used to varying degrees by the
military departments to help inform workforce decisions such as in-
sourcing. Overall, the Army has used the inventories to a greater
degree than the other military departments.
The department's primary focus has been on identifying ways by which
it can compile the information required by the legislation, and in
particular, estimating the number of contractor personnel providing
services. AT&L's latest approach for the fiscal year 2009 inventories
was intended, in part, to provide the Navy and Air Force with a more
uniform approach than previously used for estimating the number of
contractors. To do so, AT&L's guidance provided a formula for them to
use and specified that FPDS-NG be used as the basis for the majority
of the data elements in the inventory. DOD officials expressed
concerns, however, about AT&L's estimating approach, which we found
resulted in significant variations for specific categories of
services. DOD officials also expressed concern about the type of data
that can be obtained through the FPDS-NG to meet the inventory
requirements. AT&L's guidance also authorized the Army to continue
using the approach it has put in place to obtain contractor-reported
data on direct labor hours. For its part, the Army acknowledged that
it needs to continue to improve its process for collecting contractor-
reported data, including clarifying responsibilities for ensuring the
completeness and accuracy of the data.
AT&L stated that its latest approach was an interim measure for
components that do not currently have the capability to collect actual
contractor manpower data in a manner similar to that of the Army. To
move toward the department's stated goal of collecting such data,
AT&L's guidance noted that it intended to work jointly with the Office
of the Under Secretary of Defense for Personnel and Readiness and
other organizations to issue new guidance and plans by August 2010,
but it has not yet done so. Developing a plan of action, including
time frames and the resources needed to implement it, would provide an
important tangible step in meeting the inventory requirements. The
real benefit of the inventory, however, will ultimately be measured by
its ability to inform decision-making. At this point, the absence of a
way forward hinders the achievement of this objective.
To help implement the requirements for conducting the inventory of
service contract activities, we recommend that the Secretary of
Defense direct the Under Secretary of Defense for Acquisition,
Technology and Logistics, and the Under Secretary of Defense for
Personnel and Readiness to work jointly to take the following two
* develop a plan of action, including anticipated time frames and
necessary resources, to facilitate the department's stated intent of
collecting manpower data and to address other limitations in its
current approach to meeting inventory requirements, including those
specific to FPDS-NG; and:
* assess ways to improve the department's approach to estimating
contractor FTEs until the department is able to collect manpower data
from contractors.
DOD provided oral comments on a draft of this report. Mr. Shay Assad,
Director, Defense Procurement and Acquisition Policy, stated that DOD
concurred with the recommendations. DOD also provided technical
comments, which were incorporated as appropriate.
We are sending a copy of this report to the Secretary of Defense and
interested congressional committees. In addition, this document will
be available at no charge on GAO's Web site at [hyperlink,
http://www.gao.gov].
If you or your staff have any questions, please contact us at (202)
512-4841 or huttonj@gao.gov or (202) 512-8365 or solisw@gao.gov.
Contact points for our Offices of Congressional Relations and Public
Affairs may be found on the last page of this report. GAO staff who
made contributions to this correspondence are listed in appendix II.
John P. Hutton:
Director, Acquisition and Sourcing Management:
William Solis:
Director, Defense Capabilities and Management:
List of Committees:
The Honorable Carl Levin:
The Honorable John McCain:
Ranking Member:
Committee on Armed Services:
United States Senate:
The Honorable Howard P. McKeon:
The Honorable Adam Smith:
House of Representatives:
2010 directs GAO to report annually on the inventory of activities
performed pursuant to contracts for services that are to be submitted
by the Secretary of Defense, in 2010, 2011, and 2012
respectively.[Footnote 34] To respond to this mandate, we assessed (1)
the approaches used to compile the fiscal year 2009 inventories and
how the approaches have changed, and (2) how the inventories have been
reviewed and used to inform workforce decisions.
As the military departments accounted for 83 percent of the reported
obligations on service contracts and 92 percent of the reported number
of contractor full-time equivalents (FTE) in the fiscal year 2009
inventories, we focused our efforts on the Army, Navy, and Air Force.
To gain additional insights into the inventory compilation and review
processes at the command level, we selected a nongeneralizable sample
of four commands based on (1) a combination of data from the Federal
Procurement Data System-Next Generation (FPDS-NG)[Footnote 35] on
dollars obligated under contracts for professional, administrative,
and management support services,[Footnote 36] (2) military department
data on in-sourcing activities planned for fiscal year 2010, and (3)
recommendations from military department officials. Using these
criteria, we selected the Army's Training and Doctrine Command and the
Installation Management Command; the Naval Air Systems Command; and
the Air Force Material Command. We also selected a nongeneralizable
sample of other defense components that were among those obligating
high-dollar amounts under contracts for services in fiscal year 2009
according to FPDS-NG to gain their perspectives on the inventory
compilation and review processes, including the TRICARE Management
Activity, the Defense Information Systems Agency, and the U.S. Special
Operations Command. While we used information from these components to
further inform our understanding of the inventory compilation and
review processes, we did not focus on these organizations for purposes
of this report.
To assess the approaches used to compile the fiscal year 2009
inventories and how the approaches have changed, we reviewed the
guidance issued in May 2010 by the Office of the Under Secretary of
Defense for Acquisition, Technology and Logistics (AT&L), as well as
additional guidance and documents from the military departments, and
interviewed officials responsible for compiling the inventories. We
compared this guidance with similar guidance and documents related to
the fiscal year 2008 inventories, as well as information from our
January 2010 report that assessed DOD's approach.[Footnote 37] We also
obtained the inventories submitted by AT&L for each of the military
departments. For the Navy and Air Force, we replicated the criteria
included in the AT&L guidance using data we extracted from FPDS-NG on
service contracts active in fiscal year 2009 to determine whether
their inventories complied with instructions in the guidance. For
example, we verified that the Navy and Air Force inventory included
the contract services specified under AT&L's guidance and that the
information on the number of and obligations on those contracts were
consistent with the data reflected in FPDS-NG. The Army used the
Contractor Manpower Reporting Application (CMRA) data system, which
captures data reported by contractors at the contract line item level,
in both of its fiscal year 2008 and 2009 inventories. We did not
compare the Army's fiscal year 2009 inventory with data in FPDS-NG to
assess the completeness due to differences in the data captured
between the two systems. We discussed with Army officials responsible
for the inventories the factors that contributed to changes in the
Army's reported spending on services and the number of contractor
FTEs. We did not independently assess the accuracy or reliability of
the underlying data supporting the Army, Navy, or Air Force fiscal
year 2009 inventories. However, we found the data to be sufficiently
reliable for the purpose of assessing the effect of changes in the
approach from fiscal year 2008 to 2009.
In addition, we analyzed the extent to which the change in approach
from fiscal year 2008 to fiscal year 2009 affected the reported amount
of obligations on services included in their inventories. Similarly,
we analyzed the extent to which the change in approach affected the
estimated number of contractor FTEs reported in the inventories at
either the aggregate level and for specific types of services by (1)
applying the formulas used by the Navy and Air Force to estimate the
number of contractor FTEs in fiscal year 2008 to the contracts
included in their fiscal year 2009 inventories; and (2) comparing that
figure with the estimated number of contractor FTEs using the formula
prescribed by AT&L in the May 2010 guidance.[Footnote 38] Because
AT&L's approach for estimating contractor FTEs was based, in part, on
the labor rates and the ratios of direct labor to total expenditures
derived from the Army's CMRA data system, we assessed the extent to
which the AT&L approach would have produced similar estimates of the
number of contractor FTEs as reported by the Army at the summary level
as well as for specific categories of services. Specifically, we
applied the average direct labor rates and the average ratios of
direct labor to total obligations computed by AT&L's Office of Defense
Procurement and Acquisition Policy (DPAP) to the total invoiced dollar
amount for each contract included the Army's inventory. We then
compared the number of contractor FTEs estimated by the AT&L formula
to the number of contractor FTEs reported in the Army's inventory.
To assess how the inventories have been reviewed in accordance with
the requirements contained in 10 U.S.C. � 2330a(e), we reviewed
guidance and interviewed officials from each of the military
departments and selected commands to discuss the review processes and
to identify any challenges encountered in conducting these reviews and
any steps taken to address those challenges. For the Army and the Air
Force, we reviewed data on the results of their respective inventory
reviews as of November 2010. In conducting the inventory reviews,
officials made determinations as to whether contracts included the
performance of inherently governmental functions, closely associated
with inherently governmental functions, or involved the performance of
unauthorized personal services by contractor personnel. We did not
independently assess whether such determinations were consistent with
existing regulations and guidance, but focused our work on the
processes used to conduct the reviews. To assess how the inventories
have been used to inform workforce decisions, we focused our work on
the extent to which the inventories have been used to help identify
candidates for in-sourcing work currently performed by contractor
personnel. To do so, we interviewed officials from the Office of the
Under Secretary of Defense for Personnel and Readiness and from each
of the military departments who were responsible for in-sourcing
efforts to determine whether and how information contained in the
inventories was used as the basis for informing decisions related to
in-sourcing.
To conduct our work, we interviewed officials from the following
Office of the Secretary of Defense:
* Office of the Under Secretary of Defense for Acquisition, Technology
and Logistics (AT&L), Office of Defense Procurement and Acquisition
Policy (DPAP);
* Office of the Under Secretary of Defense for Personnel and
Readiness, Requirements and Program and Budget Coordination
Directorate;
* Office of Cost Assessment and Program Evaluation;
Department of the Army:
* Office of the Assistant Secretary of the Army for Manpower and
Reserve Affairs, Office of Force Management, Manpower and Resources;
* Office of the Assistant Secretary of the Army for Acquisition,
Logistics, and Technology, Deputy Assistant Secretary of the Army for
Procurement;
* Office of the Deputy Chief of Staff for Personnel;
* Office of the Deputy Chief of Staff for Programs, Program Analysis
and Evaluation;
* Office of the Assistant Secretary of the Army, Financial Management
and Comptroller, Deputy Assistant Secretary of the Army for Budget,
Formulation Division;
* Office of the Deputy Chief of Staff for Operations, Army Force
Accounting and Documentation Division;
* Installation Management Command, Resource Management Directorate;
* Training and Doctrine Command, Resource Management Directorate;
Department of the Navy:
* Office of the Assistant Secretary of the Navy for Research,
Development, and Acquisition, Deputy Assistant Secretary of the Navy
for Acquisition and Logistics Management;
* Office of the Assistant Secretary of the Navy for Manpower and
Reserve Affairs, Office of Civilian Human Resources;
* Office of the Assistant Secretary of the Navy, Financial Management
and Comptroller, Office of Budget;
* Office of the Chief of Naval Operations, Deputy Chief of Naval
Operations for Manpower, Personnel, Education and Training, Strategic
Resourcing Branch;
* Naval Air Systems Command, Analysis and Planning Office, Office of
the Deputy Assistant Commander for Contracts and Office of Command
Strategic Force, Planning and Management;
Department of the Air Force:
* Secretary of the Air Force, Office of Acquisition Integration;
* Secretary of the Air Force, Program Executive Office for Combat and
Mission Support;
* Directorate of Manpower, Organization and Resources, Strategic
Sourcing Division;
* Assistant Secretary of the Air Force for Financial Management and
Comptroller, Deputy Assistant Secretary for Budget, Directorate of
Budget Operations;
* Air Force Materiel Command, Strategic Plans and Programs Business
Integration Office, Office of Manpower and Personnel;
TRICARE Management Activity:
* Office of Acquisition Policy and Compliance;
* Business Operations Directorate, Operations Department;
Defense Information Systems Agency:
* Procurement Directorate, Policy, Quality Assurance and Procedures
Division;
* Manpower, Personnel, and Security Directorate, Manpower and
Personnel Systems Support Division;
U.S. Special Operations Command:
* Directorate of Procurement, Procurement Management Division; and:
* Assessment and Manpower Validation Branch.
GAO Contacts:
John P. Hutton, (202) 512-4841 or huttonj@gao.gov:
William Solis, (202) 512-8365 or solisw@gao.gov:
Staff Acknowledgments:
In addition to the contacts named above, Timothy J. DiNapoli,
Assistant Director; Celina Davidson; Morgan Delaney Ramaker; Kathryn
Edelman; Meriem Hodge; Julia Kennon; John Krump; Jean McSween; Kenneth
Patton; Roxanna Sun; Grant Sutton; Jeff Tessin; and Rebecca Wilson
made key contributions to this report.
[1] GAO, Defense Management: DOD Needs to Reexamine Its Extensive
Reliance on Contractors and Continue to Improve Management and
Oversight, [hyperlink, http://www.gao.gov/products/GAO-08-572T]
(Washington, D.C.: Mar. 11, 2008).
[2] GAO, Defense Acquisitions: Tailored Approach Needed to Improve
Service Acquisition Outcomes, [hyperlink,
http://www.gao.gov/products/GAO-07-20] (Washington, D.C.: Nov. 9,
[3] GAO, Iraq and Afghanistan: DOD, State, and USAID Face Continued
Challenges in Tracking Contracts, Assistance Instruments, and
Associated Personnel, [hyperlink,
http://www.gao.gov/products/GAO-11-1] (Washington, D.C.: Oct. 1, 2010).
[4] GAO, Department of Defense: Additional Actions and Data Are Needed
to Effectively Manage and Oversee DOD's Acquisition Workforce,
[hyperlink, http://www.gao.gov/products/GAO-09-342] (Washington, D.C.:
Mar. 25, 2009).
[5] GAO, Human Capital: Further Actions Needed to Enhance DOD's
Civilian Strategic Workforce Plan, [hyperlink,
http://www.gao.gov/products/GAO-10-814R] (Washington, D.C.: Sept. 27,
[6] Pub. L. No. 110-181.
[7] GAO, Defense Acquisitions: Observations on the Department of
Defense Service Contract Inventories for Fiscal Year 2008, [hyperlink,
http://www.gao.gov/products/GAO-10-350R] (Washington, D.C.: Jan. 29,
2010). We conducted this review pursuant to House Armed Services
Committee Report 111-116, which accompanied the National Defense
Authorization Act for Fiscal year 2010.
[8] Pub. L. No. 111-84 (2009).
[9] FPDS-NG is the federal government's primary data system for
tracking information on contracting actions.
[10] Inherently governmental functions, as a matter of policy, are so
intimately related to the public interest as to require performance by
government employees, and include functions that require discretion in
applying government authority or value judgments in making decisions
for the government. FAR section 7.503(c) provides examples of such
functions. Closely associated with inherently governmental functions
are those that, while not inherently governmental, may approach the
category because of the nature of the function, the manner in which
the contractor performs the contract, or the manner in which the
government administers performance under a contract. FAR section
7.503(d) provides examples of such functions.
[11] Pub. L. No. 107-107, � 801(c) (2001) (codified as amended at 10
U.S.C. � 2330a).
[12] Pub. L. No. 110-181 � 807.
[13] Pub. L. No. 110-181 � 324 (codified at 10 U.S.C. � 2463).
[14] Deputy Secretary of Defense, Implementation of Section 324 of the
National Defense Authorization Act for Fiscal Year 2008--Guidelines
and Procedures on In-sourcing New and Contracted-Out Functions (Apr.
4, 2008) and In-sourcing Contracted Services Implementation Guidance
(May 28, 2009).
[15] Pub. L. No. 111-84, � 1108(a) (2009).
[16] Pub. L. No. 111-84 � 803(a) (2009) (codified at 10 U.S.C. � 235).
We did not assess DOD's implementation of this requirement as part of
this review.
[17] DPAP also allowed the TRICARE Management Activity to report
contractor FTEs based on an actual count of its contractor FTEs, in
addition to reporting the number of contractor FTEs according to the
AT&L formula, due to the unique nature of TRICARE's contracts for
medical services.
[18] The Air Force also relied on information included in its annual
budget documentation to identify contractor FTEs for advisory and
assistance services contracts, and information provided by contracting
offices on the number of contractor FTEs associated with contract
actions that were $10 million and above.
[19] Army Federal Acquisition Regulation Supplement, Subpart
5137.9601, requires contracting officers to include in Army contracts,
task orders, and modifications the requirement to report contractor
manpower information in CMRA. This requirement applies to all
services, with the exception of those related to foreign military
sales, utilities, and construction.
[20] Office of Management and Budget Circular A-11.
[21] The Air Force used multiple approaches, including a formula for
the majority of contracts, to determine the number of contractor FTEs
in its fiscal year 2008 inventory. This analysis does not take into
account the number of contractor FTEs that would have been reported in
fiscal year 2009 through the use of information included in its annual
assistance services contracts, or information provided by contracting
[22] Our previous work has found that data in FPDS-NG, more generally,
were not always accurate and complete.See, for example, GAO, Defense
Contracting: Enhanced Training Could Strengthen DOD's Best Value
Tradeoff Decisions, [hyperlink, http://www.gao.gov/products/GAO-11-8]
(Washington, D.C.: Oct. 28, 2010); and Federal Contracting:
Observations on the Government's Contracting Data Systems, [hyperlink,
http://www.gao.gov/products/GAO-09-1032T] (Washington, D.C.: Sept. 29,
[23] The Ike Skelton National Defense Authorization Act for Fiscal
Year 2011 was signed in January 2011. Section 321 specified that the
Under Secretary of Defense for Personnel and Readiness, the Under
Secretary of Defense (Comptroller), and the Under Secretary of Defense
for Acquisition, Technology and Logistics are responsible for issuing
guidance for compiling the inventory. Section 321 also states that DOD
is to use direct labor hours and associated cost data reported by
contractors as the basis for the number of contractor FTEs identified
in the inventory, though it provides that DOD may use estimates where
such data is not available and cannot reasonably be made available in
a timely manner. Pub. L. No. 111-383, � 321.
[24] This policy is reflected in the Army Federal Acquisition
Regulation Supplement Subpart 5107.503.
[25] Headquarters Department of the Army, DAMO-FMP, FY11 Command Plan
Guidance, memorandum (Jan. 16, 2009).
[26] Assessing the extent of any follow-up action on these reviews was
beyond the scope of our current work.
[27] Secretary of the Air Force, FY08-15 Service Contract Data Call
(Jan. 19, 2010).
[28] For example, the guidance cites Department of Defense Instruction
1100.22, Policies and Procedures for Determining Workforce Mix and FAR
subpart 37.104 on personal services contracts.
[29] Secretary of the Air Force, FY10 Service Contractor Inventory
Review (Oct. 21, 2010).
[30] Air Force Instruction 63-101 Acquisition and Sustainment
Lifecycle Management.
[31] Deputy Secretary of Defense, In-sourcing Contracted Services
Implementation Guidance (May 28, 2009).
[32] Office of the Assistant Secretary of the Navy for Research,
Development, and Acquisition, Guidance for Determining Whether Service
Contracts Inventoried Pursuant to Section 807 of the National Defense
Authorization Act For Fiscal Year 2008 Provide for Unauthorized
Personal Services, Inherently Governmental Functions, or Closely
Associated with Inherently Governmental Functions (Sept. 13, 2010).
[33] For example, the guidance cites FAR subparts 7.503 on inherently
governmental functions and 37.104 on personal services contracts.
[34] Pub. L. No. 111-84 (2009).
[35] FPDS-NG is the primary federal government system for tracking
information on contracts.
[36] We previously identified that professional, administrative, and
management support services contracts are more likely to involve
activities that may be considered closely associated with inherently
governmental functions. See, for example, GAO, Department of Homeland
Security: Improved Assessment and Oversight of Needed to Manage Risk
of Contracting for Selected Services, GAO-07-990 (Washington, D.C.:
Sept. 17, 2007).
[37] GAO, Defense Acqusitions: Observation on the Department of
http://www.gao.gov/products/GAO-10-350R] (Washington D.C.: Jan. 29,
fiscal year 2009 through the head count approach or other information
used by the Air Force in fiscal year 2008. Similarly, there were a
small number of records contained in the Navy's fiscal year 2009
inventory for which the Navy had not calculated a labor rate as part
of its fiscal year 2008 approach, or for which we were not able to
apply the AT&L formula due to missing information from FPDS-NG.
GAO's Mission:
The Government Accountability Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the performance
and accountability of the federal government for the American people.
GAO examines the use of public funds; evaluates federal programs and
policies; and provides analyses, recommendations, and other assistance
to help Congress make informed oversight, policy, and funding
decisions. GAO's commitment to good government is reflected in its core
values of accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO's Web site [hyperlink, http://www.gao.gov]. Each
weekday, GAO posts newly released reports, testimony, and
correspondence on its Web site. To have GAO e-mail you a list of newly
posted products every afternoon, go to [hyperlink, http://www.gao.gov]
and select "E-mail Updates."
The price of each GAO publication reflects GAO�s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black and
white. Pricing and ordering information is posted on GAO�s Web site,
[hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
To Report Fraud, Waste, and Abuse in Federal Programs:
Web site: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]:
E-mail: fraudnet@gao.gov:
Automated answering system: (800) 424-5454 or (202) 512-7470:
Congressional Relations:
Ralph Dawn, Managing Director, dawnr@gao.gov:
(202) 512-4400:
U.S. Government Accountability Office:
441 G Street NW, Room 7125:
Washington, D.C. 20548:
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov: