GAO

United States General Accounting Office

Report to the Chairman, Subcommittee 

on Military Readiness, Committee on 

Armed Services, House of 

Representatives

August 2000 DOD COMPETITIVE 

SOURCING 

More Consistency 

Needed in Identifying 

Commercial Activities

GAO/NSIAD-00-198

Page 1 GAO/NSIAD-00-198 DOD Competitive Sourcing

Contents

Letter 3

Appendixes Appendix I: FAIR Act Challenges and Appeals 24

Appendix II: Objectives, Scope, and Methodology 32

Appendix III: DOD’s DRID 20 Inherently Governmental and 

Commercial Activities Inventory Codes 34

Appendix IV: Comments From the Department of Defense 37

Tables Table 1: Summary of DOD FAIR Act Challengers 25

Table 2: DOD FAIR Act Challenges, Appeals, and Decisions 26

Table 3: FAIR Act Challenges by Military Services, Defense

Agencies, and DOD-wide 28

Table 4: Responses to Challenges by Basis for Decision by 

Component 30

Table 5: 1998 DRID 20 Inventory by Functional Group 36

Figures Figure 1: DRID 20 Inventory of All DOD Functions and Associated 

Positions Categorized as Either Inherently Governmental, 

Commercial but Exempt From Competition, and

Commercial Subject to Competition 10

Figure 2: DRID 20 Civilian and Military Manpower Authorizations by 

Inherently Governmental, Commercial but Exempt From 

Competition, and Commercial Subject to Competition

Categories 11

Figure 3: Manpower Criteria Codes 35

Abbreviations

DOD Department of Defense

DRID Defense Reform Initiative Directive

FAIR Act Federal Activities Inventory Reform Act

OMB Office of Management and Budget
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United States General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-285615 Letr

August 11, 2000

The Honorable Herbert H. Bateman

Chairman, Subcommittee on Military Readiness

Committee on Armed Services

House of Representatives

Dear Mr. Chairman:

The Department of Defense (DOD) has annually compiled an inventory of 

commercial functions and activities1

 performed in-house, in compliance 

with Office of Management and Budget (OMB) Circular A-76. These 

inventories are important as DOD has sought in recent years to identify 

commercial activities involving thousands of positions that could be 

subject to competition to determine whether it would be more cost 

efficient to maintain the activities in-house or contract with the private 

sector for their performance. A commercial activity is one that is 

performed by a federal agency and that provides a product or service, such 

as aircraft maintenance or base operating support, that could be obtained 

from a commercial source.2

 Questions have arisen about the extent to 

which these inventories have fully and consistently identified positions 

associated with commercial activities. 

To improve identification of commercial activities, the Deputy Secretary of 

Defense signed the Defense Reform Initiative Directive 20 in January 1998, 

which directed the Department to develop an inventory that fully 

accounted for positions that performed inherently governmental and 

commercial activities. In October 1998, Congress passed the Federal 

Activities Inventory Reform Act requiring all federal agencies, including the 

Defense Department, to publish annual inventories of commercial 

1

 Functions and activities are used interchangeably in this report.

2

 Office of Management and Budget Circular A-76, Revised Supplemental Handbook (1996) 

Appendix I.
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activities being performed by federal employees and the number of 

employees associated with these activities starting in 1999.3

You asked that we provide information on DOD’s efforts to identify 

functions that could be studied for potential competition between the 

public and private sectors. Accordingly, this report assesses (1) whether 

DOD has improved the identification of commercial activities that could be 

studied under A-76 and (2) the likelihood that DOD will increase the 

number of functions and positions studied under A-76. In addition, as 

requested, we are providing additional information on DOD’s challenges 

and appeals under the Federal Activities Inventory Reform Act in

appendix I. Our scope and methodology are included in appendix II.

Results in Brief The Department of Defense has improved the identification of commercial 

activities that could be studied under A-76. In its 1998 Defense Reform 

Initiative inventory, DOD components identified over 283,000 commercial 

positions (231,000 civilian and 52,900 military)—81,000 more positions than 

had been identified previously. DOD’s 1999 Federal Activities Inventory 

Reform Act inventory, which built upon the Reform Initiative inventory, 

identified commercial functions and activities involving over 300,000 

civilian positions, excluding military personnel that had been included in 

the 1998 Reform Initiative inventory. Both inventories are viewed by DOD 

and Office of Management and Budget officials as having improved the 

quality and consistency of the Department’s data on commercial activities. 

However, our analysis suggests that the military services and Defense 

agencies did not always consistently categorize similar activities, in part 

because of the lack of clear guidance on how to identify which activities 

are inherently governmental, commercial and exempt from competition, 

and commercial and eligible for competition. Although some 

inconsistencies are likely to continue to exist, their resolution could lead to 

more activities, or fewer, being identified as eligible for A-76 study. The 

number of commercial functions and associated positions contained in the 

inventories will likely change over time based on iterative improvements 

the Department plans to make to the inventory process and guidance. In 

addition, DOD’s manpower and business process reengineering initiatives 

and changes in the Defense components’ missions and operations could 

3

Section 5 of the Federal Activities Inventory Reform Act, Public Law No. 105-270, defines 

an inherently governmental activity as “a function that is so intimately related to the public 

interest as to require performance by Federal Government employees.”
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result in changes to the numbers of commercial functions and associated 

positions in the inventories.

The Department does not expect to significantly increase the number of 

functions studied under its A-76 program based on the identification of 

additional positions in functions eligible for competition. Several factors, 

such as geographic dispersion of positions and the inability to separate 

commercial from inherently governmental activities, may prevent DOD 

from developing studies for competition under A-76. 

This report contains a recommendation to the Secretary of Defense 

concerning the need to continue efforts to improve the consistency of 

DOD’s inventory of inherently governmental and commercial activities and 

positions across the Department. DOD agreed with the recommendation 

and noted ongoing actions designed to increase consistency in the 

inventory.

Background Since 1995, DOD has emphasized potential savings from competitive 

sourcing4

 under OMB Circular A-76. This emphasis is in keeping with 

long-standing federal policies that encourage agencies to consider 

contracting with the private sector for commercial activities rather than 

relying on government employees to provide them. However, over time, 

various studies and observers questioned whether DOD had identified all 

its commercial activities that could be competed. The 1995 Report of the 

Commission on Roles and Missions of the Armed Forces, the 1996 Defense 

Science Board report on outsourcing and privatization, and the 1997 

Quadrennial Defense Review5

 all identified outsourcing of commercial-type 

4

 Instead of the term outsourcing, DOD currently uses the term competitive sourcing.

5 Report of the Commission on Roles and Missions of the Armed Forces: Directions for 

Defense, Department of Defense (May 24, 1995); Report of the Defense Science Board Task 

Force on Outsourcing and Privatization, Office of the Under Secretary of Defense for 

Acquisition and Technology (Aug., 1996); Report of the Quadrennial Defense Review, 

Department of Defense (May 1997).
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activities performed by thousands of civilian positions as a source of 

potential savings.6

 Defense components, however, had difficulty identifying 

activities to study under A-76. As a result, the Department decreased its 

goal from studying nearly 230,000 positions between 1997 and 2005 to 

203,000 positions.

To improve the commercial activities inventory process, DOD convened a 

working group in April 1997 to develop standard criteria for identifying 

functions that were inherently governmental and commercial. 

Subsequently, the House National Security Committee directed DOD to 

develop a departmentwide definition for categorizing activities as either 

inherently governmental or commercial.7

 On January 16, 1998, the Deputy 

Secretary of Defense signed the Defense Reform Initiative Directive 

(DRID) 20, directing the Under Secretaries of Defense for Personnel and 

Readiness and for Acquisitions and Technology8

 to coordinate a review of 

inherently governmental and commercial activities performed by all 

authorized military and civilian positions. The directive called for uniform 

guidelines, criteria, and codes to classify functions and positions as 

inherently governmental in nature; commercial but exempt from OMB 

Circular A-76 competition; or commercial activities that should be 

competed. DOD grouped its functions and positions into categories as 

follows:

• Inherently governmental, defined in OMB Policy Letter 92-1 as a 

function so inherently related to the public interest as to mandate 

performance by government employees.9

6

 On the other hand, others believe that DOD needs to assess the extent to which it already 

relies on contractor support. To this end, Congress enacted section 343 of the National 

Defense Authorization Act for Fiscal Year 2000, Public Law 106-65, which requires DOD to 

report by March 1, 2001, the number of direct and indirect labor work years (or equivalent) 

performed by contractors in fiscal year 2000.

7

 Report number 105-132 on H.R. 1119, the National Defense Authorization Act of Fiscal Year 

1998 (June 16, 1997).

8

 Now titled Acquisition, Technology and Logistics.

9

 Office of Federal Procurement Policy Letter 92-1, “Inherently Governmental Functions” 

(Sept. 23, 1992), defines inherently governmental for purposes of executive branch policy 

and provides a list of illustrative services and activities that are as a matter of policy 

considered inherently governmental and a list of activities that are not considered 

inherently governmental.
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• Commercial but exempt from OMB Circular A-76 competition because 

of risks to mission performance, impact on mission effectiveness, or 

other specific reason that the activity should be performed by agency 

employees. For example, functions required to augment combat troops 

or for military rotation between sea and shore assignments are exempt 

from competition. Additional activities that must by law be performed 

by agency employees, such as firefighters on military installations, are 

also exempt from competition. 

• Commercial and eligible for competition, which includes all functions 

and positions not performing inherently governmental activities or not 

otherwise exempt from competition.

DOD used the baseline data derived from the DRID 20 inventory to develop 

the inventory required by the Federal Activities Inventory Reform (FAIR) 

Act10 of 1998. The act directed federal agencies to submit by June 30 of 

each year an inventory of all their activities that are performed by federal 

employees but are not inherently governmental (i.e., are commercial). The 

act does not require that agencies compete positions associated with 

commercial activities identified on the inventory, although it requires 

agencies to review the inventories and to use a competitive process to 

select the provider,11 if it considers contracting with the private sector. The 

act requires each agency to transmit its inventory to Congress, after OMB 

review and consultation, and to make it available to the public. The act also 

established a process under which an interested party12 may challenge an 

activity’s omission from or inclusion on the inventory. We reported on the 

10 P.L. 105-270.

11 The FAIR Act does not apply to Non-appropriated Funds Instrumentalities or certain 

depot maintenance and repair as defined in 10 U.S.C. 2460. 

12 As defined in section 3 of the FAIR Act, interested parties are (1) a private sector source 

that is a prospective or actual offeror for any contract who has a direct economic interest in 

performing the activity and would be adversely affected by a determination not to procure 

the performance of the activity from a private sector source; (2) a representative of any 

business or professional association whose membership includes private sector sources 

described in (1) above; (3) an officer or employee of an organization within the executive 

agency that is an actual or prospective offeror to perform the activity; and (4) the head of a 

labor organization, referred to in 5 U.S.C. § 7103 (a) (4), which includes members who are 

officers or employees within an executive agency involved in performing the activity.
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act’s initial implementation in selected civilian agencies in April 2000 and 

found that the usefulness of the inventories was limited.13

DOD Improved the 

Identification of 

Inherently 

Governmental

and Commercial 

Functions, but 

Inconsistencies 

Remain

DOD’s development and application of standard guidelines and criteria for 

identifying inherently governmental and commercial activities improved 

the quality and consistency of the Department’s information on commercial 

activities compared to its previous efforts, according to DOD and OMB 

officials. Through review and categorization of over 2.95 million14 positions 

held by military and government civilians, DOD identified over 283,000 

positions associated with commercial activities that were potentially 

eligible for competition between the public and private sector in its 1998 

DRID 20 inventory. Having already performed an inventory of its inherently 

governmental and commercial activities for internal management uses, 

DOD used the information as the basis for its response to FAIR Act 

reporting requirements. DOD’s FAIR Act inventory identified functions 

involving 504,000 civilian positions, of which 308,000 positions were 

associated with functions considered potentially eligible for competition. 

Increasing the clarity of the guidance with respect to which activities 

should be exempt from competition and the consistency with which the 

military services and Defense agencies apply the guidance could lead to 

identifying more commercial activities. However, there is a possibility that 

more consistency could reduce the numbers of activities potentially 

eligible for competition. While the DRID 20 inventory improved 

identification of commercial activities over prior efforts, tight time frames 

for completing the inventory, inadequate definitions of function codes, and 

variations among the components in categorizing positions reduced the 

usefulness of the data for identifying similar activities and for ensuring 

consistency, where appropriate, departmentwide. DOD has initiated some 

actions to increase the consistency and accuracy of future DRID 20 and 

FAIR inventories and has identified long-term improvement goals.

13 Competitive Contracting: The Understandability of FAIR Act Inventories Was Limited

(GAO/GGD-00-68, April 14, 2000).

14 DOD included active duty, active guard and reserve, and civilian government personnel in 

the DRID 20 inventory. It excluded nonappropriated fund manpower and some military 

positions (such as transients, patients, prisoners, and students) because they were not 

subject to competition. 
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Improved Guidelines 

Helped Defense 

Components Identify DOD’s 

Inherently Governmental 

and Commercial Functions 

and Associated Positions

In developing the DRID 20 inventory, DOD’s components examined 

functions involving 2.2 million military and 754,160 government civilian 

positions in the military services and Defense agencies in fiscal year 1998. 

The effort involved inventorying activities and positions in the 3 military 

departments, 14 Defense agencies, and 7 field activities. The DRID 20 

guidance directed the military services and Defense agencies to identify 

functions and positions they considered essential to their missions (or 

core), including military and civilian positions associated with inherently 

governmental activities and with commercial activities that required 

performance by federal employees because of national security or 

operational risk concerns. Positions associated with activities that were 

not considered mission essential (noncore) were deemed eligible for 

competition under A-76 unless they were restricted from competition by 

law, executive order, treaty, or international agreement, or as a result of 

legislatively mandated personnel levels or DOD management 

determination. DOD’s inventory guidelines and instructions provided codes 

for categorizing positions that specified (1) the function performed (e.g., 

health services, depot repair, and management headquarters)15 and (2) the 

type of manpower required (whether an activity required military or 

civilian employees or whether the functions could be considered for 

contract performance). (App. III provides additional information on the 

manpower criteria coding used in developing the DRID 20 inventory.) 

These guidelines were designed to help the components determine which 

positions were associated with activities that were (1) inherently 

governmental, (2) commercial but require(s) government performance 

(i.e., exempt from competition) due to legislative restrictions or 

operational concerns, or (3) commercial and subject to competition. The 

Department was directed to report the DRID 20 inventory to the Secretary 

of Defense in December 1998.

DRID 20 Inventory Described 

DOD’s 1998 Workforce

The DRID 20 inventory was based on 1998 manpower data. As figure 1 

shows, DOD categorized 69 percent (about 2.05 million) of the 2.95 million

15 The 12 major functional groups and function codes are listed in OMB Circular A-76 

Revised Supplemental Handbook. DOD added one functional group (Management 

Headquarters and Other Selected Centralized Functions). DOD also created another group 

of codes to define more clearly the core and noncore activities. This was done to show the 

reasons activities were inherently governmental or commercial but exempt or commercial 

and eligible for competition under OMB Circular A-76. 
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total military and civilian positions as being associated with inherently 

governmental activities.16 Overall, 21 percent (618,506 positions) were 

categorized as associated with activities that are commercial but that 

should not be competed for a number of reasons, including national 

security concerns and legislative prohibition. About 10 percent (283,600) of 

the positions examined were categorized as associated with commercial 

activities subject to competition. According to DOD’s analysis, this 

represented about 81,000 more positions than had been identified in the 

1997 commercial activities inventory.

Figure 1: DRID 20 Inventory of All DOD Functions and Associated Positions 

Categorized as Either Inherently Governmental, Commercial but Exempt From 

Competition, and Commercial Subject to Competition

Source: Department of Defense.

Analysis of the inventory that broke out activities and associated positions 

held by military and civilian personnel showed differences in the 

proportion of positions associated with functions categorized as inherently 

governmental, commercial but exempt, or commercial and subject to 

competition. DOD found most military positions were associated with 

activities that were considered either inherently governmental or 

commercial but exempt from competitions. As figure 2 shows, about

1.8 million (82 percent) military positions were associated with activities 

16 The number of positions authorized for 1998 was 82,700 more than authorized for 1999.

Inherently governmental

(2,049,111)

Commercial exempt from

competition (618,506)

Commercial subject

to competition (283,600)

69%

10%

21%
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that were considered inherently governmental; 335,299 (15 percent) with 

activities commercial but exempt; and 52,879 (3 percent) with commercial 

activities subject to competition. On the other hand, it found government 

civilian positions were more evenly divided between being associated with 

functions that were inherently governmental, commercial but exempt from 

competition, or potentially eligible to be considered for competitions. 

About 240,240 civilians (32 percent) were associated with inherently 

governmental activities; 283,207 (37 percent) with commercial activities 

exempt from competition; and 230,715 (31 percent) with commercial 

activities subject to competition.

Figure 2: DRID 20 Civilian and Military Manpower Authorizations by Inherently 

Governmental, Commercial but Exempt From Competition, and Commercial Subject 

to Competition Categories

Source: Department of Defense.

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

Civilian Military Total

Inherently governmental

Exempt from competition

Subject to competition
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FAIR Inventory Identified Over 

308,000 Positions Associated 

With Functions Potentially 

Eligible for Competition 

When the FAIR Act required information on federal agencies’ commercial 

activities, DOD used the civilian portion of its 1998 DRID 20 inventory as 

the baseline for developing its FAIR Act inventory. DOD made several 

changes to its DRID 20 inventory to comply with the FAIR Act 

requirements. In implementing the FAIR Act, OMB revised Circular A-76 

and called for agencies’ inventories to contain “reason codes” that agencies 

used to categorize whether the commercial activities listed were exempt 

from or could be considered for competition. For example, Code A 

indicated that the function is specifically exempt from the cost comparison 

requirements of A-76, while Code B indicated that an activity is performed 

by federal employees and is subject to the cost comparison of the A-76 

process. DOD adapted the manpower mix criteria codes it used in the 

DRID 20 inventory to assign reason codes.17

DOD made its FAIR inventory available to the public on December 30, 1999. 

Of the 904,000 positions associated with commercial activities that were 

reported under the act by 98 federal agencies, DOD’s inventory represented 

over half—about 504,000 (56 percent) civilian positions associated with 

commercial activities. This represents about 67 percent of DOD civilian 

positions. Of the 504,000 civilian positions associated with commercial 

activities, the Department designated activities involving 308,000 positions 

(61 percent) as potentially eligible for competition. The remaining 196,000 

positions (39 percent) were associated with commercial functions 

considered exempt from competition by the military services and Defense 

agencies. 

The FAIR Act inventory of civilian positions associated with commercial 

activities potentially eligible for competition represents a net increase of 

about 25,000 full-time positions (or equivalent) from the 1998 DRID 20 

inventory. In general terms, this difference represents DOD’s exclusion of 

about 53,000 military positions associated with commercial activities that 

were reported in the DRID 20 inventory and the Army’s addition of about 

84,000 civilian positions associated with functions that were candidates for 

competition. DOD excluded military positions associated with commercial 

activities from its FAIR Act inventory because in its opinion, they were not 

subject to the act. After the final guidance for implementing the FAIR Act 

was published, OMB agreed with DOD’s opinion. DOD also excluded 

17 Reason codes are described in appendix 2 of OMB’s Circular A-76 Supplemental 

Handbook. DOD identified some errors in its adaptation of DRID 20 manpower codes to 

OMB reason codes. DOD plans to correct these errors in the 2000 FAIR inventory.
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positions associated with DOD’s Inspector General’s office that were 

reported in conjunction with other Inspectors General. DOD also excluded 

some positions from its published inventory because of national security 

concerns, but it maintains this information in a classified report that is not 

made public.18

Another change by the Defense Finance and Accounting Service 

subsequent to the DRID 20 inventory increased the number of civilian 

positions associated with commercial activities in the FAIR inventory. 

During the 8 months between the completion of the 1998 DRID 20 

inventory and the 1999 FAIR inventory, the agency directed that many 

financial management functions be reclassified from inherently 

governmental to commercial but exempt from competition pending 

restructuring. Based on this shift, functions involving over 85 percent 

(19,224) of the Defense Finance and Accounting Service’s 22,215 positions 

were classified as commercial in the FAIR Act inventory, in contrast to the 

DRID 20 inventory where functions involving only about 10 percent of 

positions (1,781) were categorized as commercial. DOD plans to reflect 

these changes in future updates of the DRID 20 inventory.

Under the FAIR Act, interested parties have 30 days after publication of an 

agency’s inventory of commercial activities to challenge its decision to 

include an activity on or exclude an activity from the inventory. DOD 

published its first FAIR Act inventory on December 30, 1999. Defense’s 

components received a total of 21319 challenges. The services and Defense 

agencies did not agree with any challenges completely. However, the Army, 

Air Force, and Defense Logistics Agency plan to make some changes to 

their inventories based on challenges to functions that result in a net 

decrease of 3,800 positions that will be reflected in the 2000 inventories. 

The components received a total of 50 appeals of their decisions on 

challenges. No changes to the inventory resulted from appeals. (See app. I 

for more information on DOD’s challenges and appeals.) 

18 DOD’s 1999 FAIR Act inventory included about 40,000 foreign national employees 

overseas, according to a DOD official. About 10,000 were considered subject to competition. 

DOD’s General Counsel has advised that foreign nationals should not be included in 

subsequent FAIR Act inventories because they are not covered under the act. DOD will 

continue to include them in future DRID 20 inventories for internal management purposes.

19 As of July 18, 2000, the Defense Logistics Agency had not responded to one challenge and 

three appeals. These are not included in totals.
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As we reported in April 2000, the usefulness of the initial inventories some 

civilian agencies developed under the FAIR Act was limited, in part, 

because of problems with vagueness in functional coding guidelines and 

inconsistency in format across agencies. Users of the DOD inventory made 

similar complaints about vagueness, although they said that DOD’s 

inventory, provided on the Internet,20 was easily accessed and user-friendly 

and the site provided procedures and contacts for challengers. Based on 

the experience governmentwide in implementing the FAIR Act for the first 

time, OMB has revised its guidance to agencies, standardizing the format 

for reporting activities and requiring that all agencies’ inventories be 

available on the Internet.

Clearer Guidance and More 

Consistency in Applying 

Criteria Could Increase 

Competition Opportunities

The DRID 20 process was the first step in what DOD views as an iterative 

process to inventory inherently governmental and commercial activities 

accurately. However, the Department encountered a number of difficulties 

in collecting consistent data across the military services and Defense 

agencies. These included tight time frames, differences in components’ 

approaches, and problems with the guidance and codes DOD used to 

categorize positions by the type of function performed and the type of 

manpower needed to perform the function. Because the FAIR inventory 

was developed from the DRID 20 inventory, it suffered from the same data 

limitations. 

The services and Defense agencies had about 6 months between the time 

the Office of the Secretary of Defense issued guidance on implementing the 

DRID 20 inventory on April 20, 1998, and the inventory’s due date of 

October 31, 1998. DOD officials noted that the tight time frames hampered 

components’ abilities to perform thorough reviews of all functions and 

positions. In particular component officials said they were unable to assess 

workloads and whether in-house manpower was needed. They also 

indicated that they did not have sufficient time to review all inherently 

governmental functions to see if workload could be realigned into fewer 

inherently governmental positions. DOD officials believe that more 

functions and associated positions may be identified as commercial as the 

components have time to complete these assessments. 

20 http://gravity/Lmi.org/dodfair
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DOD Components’ Approaches 

to Identifying Inherently 

Governmental and Commercial 

Positions Differed

DOD components’ differing approaches to categorizing activities and 

positions resulted in some inconsistency in application of codes describing 

functions and what category was appropriate (i.e., inherently 

governmental, commercial but exempt from competition, or commercial 

and eligible for competition). For example, the Army used a centralized 

approach that standardized coding across the Army. In contrast, the Navy, 

Air Force, and Marine Corps used more decentralized approaches to enable 

commands to apply codes reflecting their unique missions and situations. 

These approaches created differences in the coding of similar functions 

and positions within and across the three services. Some Defense agencies 

also took a more decentralized approach. For example, the Defense 

Logistics Agency and Defense Finance and Accounting Service tasked their 

component commands to do the initial coding of their inventories with 

management reviews at the headquarters level. As discussed earlier, 

differing judgements about whether activities were commercial resulted in 

changes to the Defense Finance and Accounting Service’s inventory 

between the 1998 DRID 20 inventory and the 1999 FAIR Act inventory. The 

Service initially categorized activities involving almost 90 percent of its 

positions as inherently governmental in the DRID 20 inventory. 

Subsequently, new management at the Service determined that activities 

initially coded as inherently governmental and involving 85 percent of its 

positions were actually commercial. 

Inadequacies in Codes and 

Guidance Used to Categorize 

Positions

Inconsistencies in the DRID 20 inventory also arose because of 

inadequacies in the codes themselves and lack of clarity in guidance for 

applying them. While the functional codes identified both general 

functional groups (such as social services and base maintenance) and 

particular activities within the larger functional group, components found 

that all the functions they perform were not included in the function codes. 

For such functions, components used miscellaneous “other” function 

codes, which obscured the nature of the work performed and thus reduced 

the usefulness of the inventory for identifying common functions across 

categories. For example, according to DOD, the functions of almost 

11 percent of its manpower were categorized as part of an “other” 

functional group— such as “Other Health Services”—because no specific 

functional code properly identified the type of work being performed. In 

other cases, function codes in the DRID 20 guidance appeared redundant. 

For example, in addition to a functional group for automated data 

processing support, the guidance provided specific function codes for 

automated data processing support in other functional groups. 

Inadequacies in the function codes led to inconsistent coding across and 
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within components, which means that DOD does not have a complete 

picture of the activities being performed by its in-house workforce.

Defense components also encountered problems applying the manpower 

criteria codes to characterize the type of manpower needed due, in part, to 

lack of clear guidance about how to decide which activities could be 

exempted from competition. Differing judgments resulted in 

inconsistencies in the application of codes within and across components 

and reduced the data’s usefulness for meaningful cross-service analysis. 

For example, DRID 20 guidance on manpower criteria codes did not 

include a clear definition of what constitutes core capabilities,21 how to 

define core capabilities, or what would be acceptable risks from 

contracting functions. Components exempted some functions and 

associated positions from competition to ensure availability of core 

capabilities, such as support for combat forces, although DOD officials said 

it was not clear how the components assessed operational risks in making 

their decisions. 

Function Titles Do Not Always 

Indicate Whether Activities Are 

Inherently Governmental or 

Commercial

It is difficult to determine whether a function is inherently governmental or 

commercial based only on its title. For example, motor vehicle operations 

take place on bases and in combat areas and can involve transport of 

widely varying cargo, from people to nuclear weapons. Differing missions 

and functions among the services and Defense agencies can lead to 

differing categorization of manpower. Personnel could be performing 

similar activities but under different circumstances. Circumstances of 

performance should be considered in deciding how to categorize the 

manpower required. However, even with full knowledge of the activity and 

circumstances, making decisions about the amount of risk that contract 

performance of a function would involve is not an easy task. 

The degree to which discretion is exercised in setting policy and managing 

governmental property, for example whether decision authority is 

exercised at the headquarters or installation level, is also a factor in 

determining whether an activity is inherently governmental, according to 

21 According to the A-76 Supplemental Handbook, a minimum of specialized, scientific or 

technical in-house or contract employees, and related commercial workload may be 

maintained, without cost comparison, to ensure that the government has the necessary 

capabilities to fulfill its mission responsibilities or meet emergency requirements. For 

purposes of the inventory, core positions included both military and civilian positions in 

activities that were inherently governmental or commercial but needed to be retained

in-house to meet mission requirements.
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DOD officials. This could lead to justifiable differences in whether 

activities are considered inherently governmental, commercial but exempt 

from competition, or commercial and subject to competition. However, our 

review identified inconsistencies among components’ judgement on 

whether similar functions were inherently governmental or commercial 

where consistency might be expected. For example, the Army determined 

that public affairs activities at its military academy were commercial, while 

the Navy classified most public affairs activities at its academy as 

inherently governmental based on the requirement for civilian direction 

and expertise. 

In performing their analysis of the completed DRID 20 inventory data, DOD 

officials reviewed function codes that indicated activities that might be 

commercial, such as maintenance and repair of buildings, to determine if 

positions associated with those functions were identified as commercial. 

They found that some activities and associated positions that appeared to 

be commercial were identified as inherently governmental or exempt from 

competition in the inventory. For example, about 2,000 positions were 

associated with maintenance and repair of buildings and were categorized 

in the inventory as requiring military manpower. Some of these may result 

from the services’ needs to set aside positions to facilitate rotation and 

career progression. Also, military training functions—including about 600 

civilians—were exempted from competition because of national security 

risk concerns. DOD officials said that the activities’ coding could be correct 

or it could indicate an error in categorizing what type of manpower is 

required. Such anomalies are currently under discussion among DOD and 

component officials. Our review identified child care services as an 

additional activity that was exempted from competition by the services, 

although it is does not appear to be a core capability under A-76 and is 

widely available from the private sector. 

DOD Has Begun Initiatives 

to Improve Accuracy and 

Consistency in Future 

Inventories

DOD expects to update its inventories annually, and it has begun to take 

some steps to improve the accuracy and consistency of the data in future 

DRID 20 and FAIR Act inventories. DOD officials stressed that the 

inventory process is iterative, and improvements in the inventory process 

will evolve as the inventory is updated. The Department’s December 1999 

report on the 1998 DRID 20 inventory process22 concluded that the 

22 Report on the DRID 20 Inventory: Analysis and Recommendations, Department of 

Defense, December 1999.
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inventory process provides the best avenue for identifying opportunities 

for military to civilian conversions and for competitions. The report 

discusses near-, mid-, and long-term actions the Department needs to take 

to improve the inventory process. To date, DOD has taken the following 

actions:

• Established a team of representatives from functional, Joint Staff, and 

Defense components to develop and implement improvements to the 

process. The team, which has met weekly over the past year, is currently 

addressing consistency issues and working on guidance to help the 

components assess risks and determine core capabilities.

• Revised the manpower criteria codes for future inventories by adding 

four new codes—converted to in-house performance based on cost 

comparison, converted to in-house performance without cost 

comparison due to unsatisfactory performance or unreasonable price, 

no satisfactory commercial source, and cost comparison waiver. 

• Clarified how components should classify manpower funded through 

separate accounts and appropriations, such as the Army Corps of 

Engineers’ activities funded through the civil work appropriations, and 

how components should handle positions assigned to joint functions, 

such as military manpower assigned to other Defense agencies. 

Longer term recommendations from the report include (1) analyzing 

inherently governmental and exempt categories of manpower to ensure 

that activities and positions meet the criteria for these categories and

(2) clarifying guidance for determining core capabilities so components 

can determine the manpower needed to provide a minimum core capability 

to meet their mission(s) or emergency requirements. DOD has taken some 

steps to begin implementing these recommendations. For example, 

designated officials from the Defense components and the Office of the 

Secretary of Defense meet weekly to address various issues in categorizing 

activities. According to DOD, these meetings have provided a starting point 

toward improving consistency in coding and have enabled the components 

to gain insight into each other’s coding strategies and philosophies, and 

have, in some instances, resulted in immediate adjustments to mistakes in 

coding.

DOD’s completed, ongoing, and planned actions should help address many 

of the weaknesses identified in its 1998 DRID 20 inventory process. 

Specifically, DOD is taking steps to address some inconsistencies by 

improving definitions and guidance, especially on assessing the risks of 

contract performance of mission-essential requirements. However, 
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additional efforts may be required to address other inconsistencies that do 

not arise from differences in Defense components’ missions and 

requirements, such as coding inconsistencies related to public affairs 

services and exemptions for activities such as child care. 

Unclear Whether DOD 

Will Increase Number 

of Positions It Studies 

in the Near Future 

Based on Recent 

Inventories 

Although it was expected that the DRID 20 inventory process would 

identify more functions and positions that could be reviewed for 

competition, it is unclear whether the Department will significantly 

increase the numbers of functions it studies in the near future. Department 

officials told us that the DRID 20 inventory identified few new functions 

and associated positions that could be studied under A-76 and that the 

increased numbers of positions identified in the inventories did not 

automatically translate into the potential for large numbers of additional 

studies to be initiated. Additionally, service officials told us that they had 

already identified as many competition opportunities as they could to meet 

savings goals, and they believed that their capacity to conduct studies 

beyond those already planned over the next few years was limited.

DOD had established goals for positions that the services and Defense 

agencies should study and the savings to be achieved even before it 

undertook the 1998 DRID 20 inventory. In 1999, the Department’s goal was 

to study nearly 230,000 positions and save $11.2 billion between 1997 and 

2005. As we recently reported, DOD has fallen behind in its timetable for 

initiating A-76 studies and has had difficulties in completing its studies 

within the average 2-year goal it established for these studies.23 For 

example, studies involving nearly 29,000 positions were announced for 

study in fiscal year 1997; however, completed studies covered only 11,716 

positions from fiscal years 1997-1999. Because of these difficulties, DOD 

has recently lowered its goal to studying 203,000 positions and saving

$9.2 billion between 1997 and 2005 and now plans to augment its A-76 

program with business process reengineering efforts to help it achieve 

additional savings. DOD refers to its A-76 and reengineering efforts 

together as strategic sourcing.

While DOD intends to use the results of its future DRID 20 inventories as a 

management tool to identify commercial activities that it can study under 

A-76 and strategic sourcing, it does not expect to study all the functions 

23 DOD Competitive Sourcing: Some Progress, but Continuing Challenges Remain in Meeting 

Program Goals (GAO/NSIAD-00-106, Aug. 8, 2000).
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categorized as commercial and potentially eligible for competition. In 

developing competitions, DOD reviews activities (such as audio-visual 

services or base operating support), which are the basic unit of study under 

A-76, rather than positions. The number of positions that will actually be 

studied for possible competition may be limited by a number of factors. 

These include the following:

• Geographic dispersion of candidate activities. Having positions 

associated with commercial activities that are scattered over many 

locations may prevent some of them from being grouped for 

competition. 

• Whether certain work categorized as commercial can be separated from 

inherently governmental or exempted work. In some cases, commercial 

activities classified as subject to competition are in activities that also 

contain work that is inherently governmental or exempt from 

competition, and the commercial workload may not always be separable 

from the workload performed by the exempted positions.

• Availability of resources for conducting A-76 studies. Officials of several 

military service commands told us that they already have aggressive 

competition programs under way and that they lack sufficient resources 

and staff to conduct more competition studies in the near future.

These are valid reasons why DOD may not compete all the functions and 

positions that are currently categorized as eligible for competition. Some 

positions (about 6,400) categorized as subject to competition have already 

been studied and retained in-house on the basis of a cost comparison with 

the private sector.24 Also, DOD had no means of clearly identifying 

positions associated with commercial activities that had already been 

reviewed and the decision made to keep or bring the activities in-house. 

These functions and positions were identified as eligible for competition, 

although they would probably not be competed again in the near future. In 

addition, the 1998 DRID 20 and FAIR Act inventories were based on 1998 

manpower data, so some of the commercial functions and associated 

positions potentially eligible for competition may have already been 

eliminated as a result of organizational changes or downsizing. Downsizing 

efforts ongoing in DOD will continue to reduce significantly the pool of 

civilian and military positions, included those associated with commercial 

activities. The manpower authorized for DOD for fiscal year 1999 was 

24 Historically, about half of the activities competed between the public and private sectors 

have been won by the public sector.
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about 82,700 positions fewer than that authorized for fiscal year 1998. 

Further, implementation of current efficiency initiatives, such as business 

process reengineering, could increase or decrease the numbers of positions 

in activities that could potentially be studied under A-76. 

Conclusions The 1998 DRID 20 inventory process improved the quality and consistency 

of information on both inherently governmental and commercial activities 

and associated positions, and it identified additional functions that could 

be subject to competition. However, variations in how the Defense 

components developed the DRID 20 and FAIR Act inventories and lack of 

clear guidance on categorizing activities that are not core activities may 

have limited the potential for identifying additional commercial positions. 

DOD’s efforts to resolve inconsistencies in the components’ classifications 

of positions could lead to identifying additional activities that might be 

considered for competition, although it could also mean that activities 

which were erroneously considered commercial are determined to be 

inherently governmental. However, absent clearer guidance for 

determining whether a commercial activity is core and therefore exempt 

from competition, these efforts may not resolve differing judgements. Even 

if additional commercial functions and positions are identified, DOD does 

not expect to increase the number of functions reviewed under the A-76 

process above its already aggressive competition goals. Factors such as the 

inability to group positions due to geographic dispersion or to separate 

commercial activities from inherently governmental work may limit the 

number of functions that could be studied.

Recommendations To improve the way the Department of Defense’s components categorize 

activities, we recommend the Secretary of Defense increase consistency in 

identification of commercial activities among and within the services and 

Defense agencies by making decisions on whether certain activities, such 

as child care and public affairs, are generally to be considered eligible for 

competition.

Agency Comments and 

Our Evaluation

The Department of Defense provided written comments on a draft of the 

report. The Department agreed with our findings and our recommendation 

concerning the need for increased consistency in identification of 

commercial activities that are eligible for competition. DOD’s written 

comments on a draft of this report are reprinted in appendix IV. The 
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Department also provided some technical comments, which have been 

incorporated in the report as appropriate.

In its comments, DOD noted that the inventory was a large undertaking 

and, while improvements will have to be accomplished through an iterative 

process, it has made considerable efforts to address such consistency 

issues, including holding weekly meetings to develop and document clearer 

instructions. It also emphasized that it has been and will continue to work 

to improve the quality of the inventory.

We agree, as we noted in the report, that the inventory was an important 

step toward identifying inherently governmental and commercial activities 

in the Department and that the Department is taking actions that should 

increase consistency within the inventory. However, the Department has 

yet to address additional issues of consistency among the components, 

particularly regarding which activities should not be exempt from 

competition. We believe that the Department’s leadership and sustained 

emphasis on increasing consistency and accuracy in how noncore activities 

are coded and how the coding is justified will be needed to help ensure the 

Defense components identify which activities are commercial and should 

be considered for competition. 

We are providing copies of this report to Representative Solomon Ortiz, 

Ranking Minority Member, Subcommittee on Military Readiness, House 

Committee on Armed Services; Senator James M. Inhofe, Chairman, and 

Senator Charles Robb, Ranking Minority Member, Subcommittee on 

Readiness and Management Support, Senate Committee on Armed 

Services. We are also sending copies of this report to the Honorable William 

S. Cohen, Secretary of Defense; the Honorable Louis Caldera, Secretary of 

the Army; the Honorable F. W. Peters, Secretary of the Air Force; the 

Honorable Richard Danzig, Secretary of the Navy; General James L. Jones, 

Commandant of the Marine Corps; and the Honorable Jacob Lew, Director, 

Office of Management and Budget. Copies will be made available to others 

upon request.
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If you have any questions regarding this report, please contact me on 

(202) 512-8412 or Barry Holman on (202) 512-5581. Other key contributors 

to this report were Marilyn Wasleski, Margaret Morgan, and Robert Poetta.

Sincerely yours,

David R. Warren, Director

Defense Management Issues
Page 24 GAO/NSIAD-00-198 DOD Competitive Sourcing

Appendix I

FAIR Act Challenges and Appeals ApApenednxidexiIs

According to the Federal Activities Inventory Reform (FAIR) Act, 

interested parties have 30 days after an agency publishes a notification of 

the availability of the inventory to file a challenge that a function was 

improperly included on the inventory or improperly omitted from it. The 

agency then has 28 days from receipt of the challenge to respond to the 

challenger in writing. The act also provides for interested parties to appeal 

any adverse decision within 10 days after receiving the decision. The 

agency then has 10 days after receiving the appeal to respond to the 

appellant. The Office of the Secretary of Defense delegated responsibility 

for receiving and responding to challenges and appeals to each component. 

Challenges to DOD’s 1999 FAIR inventory were due by January 31, 2000. As 

of July 18, 2000, the Defense Logistics Agency was the only Defense 

component that had not completed responses to all appeals to the 1999 

FAIR inventory.

The Department of Defense’s (DOD) Internet site1

 contained DOD-wide and 

component specific procedures for mounting challenges and appeals. In 

general, these procedures described how and where to submit challenges 

and appeals, explained the overall decision process and deadlines, and 

defined important terms such as “interested party” and “commercial 

activity.” Some components modified DOD-wide procedures to fit their 

needs. For example, the Army emphasized in its challenge and appeals 

procedures that challengers should review its definitions of activities to 

determine whether an activity was included on the inventory before 

considering a challenge. The Navy required challengers to furnish 

additional information, such as a specific location/installation and state of 

the challenged function, an explanation/justification for the challenge, and 

whether the challenge was directed to a Navy or Marine activity, so it could 

direct the challenge to the particular command or office that could best 

respond. The remaining Department components generally used the DOD 

procedures without change.

As shown in table 1, DOD received 213 challenges to its FAIR Act inventory, 

a majority from individual employees and employee unions challenging the 

Department’s decision to include an activity on the FAIR inventory. 

Challenges from interested parties in industry generally challenged 

omission of a function that they contended should have been included on 

the inventory.

1

 http://gravity/Lmi.org/dodfair
Appendix I

FAIR Act Challenges and Appeals

Page 25 GAO/NSIAD-00-198 DOD Competitive Sourcing

Table 1: Summary of DOD FAIR Act Challengers

Note: Includes two challenges addressing DOD-wide issues sent to each of the military services, some 

of the Defense agencies, and the Office of the Secretary of Defense. The Office of the Secretary of 

Defense prepared one DOD-wide response to each of these challenges.

a

Does not include one challenge that had not been addressed by the Defense Logistics Agency as of 

July 18, 2000.

Source: Department of Defense components and Office of the Under Secretary of Defense 

(Acquisitions, Technology and Logistics).

As shown in table 2, a majority of the challenges to the Department’s FAIR 

Act inventory were directed to the Army. The Army took an aggressive 

approach to identifying commercial activities, presuming that some 

activities were commercial unless otherwise justified. Of the 504,000 

positions associated with commercial activities on DOD’s FAIR Act 

inventory, almost 222,000 (44 percent) were identified by the Army. Overall, 

the Department and its components denied 203 or about 96 percent of the 

challenges received and partially agreed with 10. Of the 203 challenges that 

were denied, challengers submitted 50 appeals. The Department decided 

none of the appeals in favor of the appellant. 

Employees

Employee

unions Industry Total

Army 107 15 5 127

Navy/Marines 25 34 6 65

Air Force 0 2 7 9

Defense agenciesa 1 4 5 10

Office of the Secretary of Defense 0 0 2 2

Total 133 55 25 213
Appendix I

FAIR Act Challenges and Appeals

Page 26 GAO/NSIAD-00-198 DOD Competitive Sourcing

Table 2: DOD FAIR Act Challenges, Appeals, and Decisions 

Note: Challenges and appeals contain two challenges addressing DOD-wide issues sent to each of 

the military services, some of the Defense agencies, and the Office of the Secretary of Defense. The 

Office of the Secretary of Defense prepared one DOD-wide response to each of these challenges.

a

The Army, Air Force, and Defense Logistics Agency did not agree with any challenge completely. The 

number in the chart indicates the number of challenges with which the Army and Air Force agreed in 

part.

b

Does not include one challenge and three appeals that had not been addressed by the Defense 

Logistics Agency as of July 18, 2000.

Source: Department of Defense components and Office of Under Secretary of Defense (Acquisitions, 

Technology, and Logistics).

The components took different approaches in resolving challenges and 

appeals, reflecting their different organizational and management 

structures. The Army centralized the receipt and disposition of challenges 

and appeals delegating the Assistant Secretary of the Army (Manpower and 

Reserve Affairs) to receive and decide challenges. In resolving challenges, 

the Army looked at coding issues on an Army-wide functional basis rather 

than from an installation or employee position basis often described in the 

challenge, as the other military services did. Using this approach, the Army 

has decided to delete from future FAIR Act inventories about 3,800 fulltime employees (or equivalent) that it determined to be performing 

inherently governmental activities in two functions: “Personnel Community 

Activities and Manpower Program Management” (44 labor negotiators 

identified by a specific occupational series and grade) and “Contracting” 

(3,750 employees under one specific occupational series).

The Navy and Marine Corps received challenges at the service level, 

responding to them with input from their commands. The Navy and Marine 

Corps did not change how any functions and positions were categorized 

based on the challenges and appeals process. The Air Force delegated to its 

commands the responsibility for receiving and resolving challenges and 

Challenges Appeals

Received Received Denied Agreeda Received Denied Agreed

Army 127 120 7 25 25 0

Navy/Marines 65 65 0 17 17 0

Air Force 9 7 2 2 2 0

Defense agenciesb 10 9 1 5 5 0

Office of the 

Secretary of Defense

2 2 0 11 0

Total 213 203 10 50 50 0
Appendix I

FAIR Act Challenges and Appeals

Page 27 GAO/NSIAD-00-198 DOD Competitive Sourcing

appeals because commands were more familiar with the reasons for coding 

of particular associated activities and positions. The Air Force did not 

change any coding based on the challenges and appeals process. The Air 

Force Materiel Command agreed with one challenger that family services 

were inherently governmental and should not be part of the inventory 

based on its internal guidance. Although it did not remove the activity from 

the 1999 FAIR inventory, it plans to do so for the 2000 inventory.

FAIR Act Challengers Cited 

Problems With Coding and 

Specificity 

Challengers raised issues about coding decisions the Defense components 

made and the level of detail provided by DOD in the inventory. In many 

cases, challengers questioned a component’s decision to exempt or not to 

exempt particular functions from competition, a decision that may not be 

challenged under the act.2

 They also argued that greater detail was needed 

to enable interested parties to identify specific tasks being performed. 

Table 3 shows the basis for employee and union challenges of functions 

they asserted should be excluded from the FAIR inventory because they 

believed them to be inherently governmental and the basis for industry 

challenges of functions that they believe should be included in the FAIR 

inventory because they were not inherently governmental.

2

 We are currently completing a review of the FAIR Act challenges and appeals processes 

governmentwide and expect to include an analysis of DOD’s challenges and appeals 

processes in a later report.
Appendix I

FAIR Act Challenges and Appeals

Page 28 GAO/NSIAD-00-198 DOD Competitive Sourcing

Table 3: FAIR Act Challenges by Military Services, Defense Agencies, and DOD-wide

Note: We counted challenges received separately, although several challenges were focused on the 

same activity and location and used identical arguments for changing the inventory. We categorized 

challenges based on what appeared to be the primary reason(s) for the challenge.

a

Does not included one challenge that had not been addressed by the Defense Logistics Agency as of 

July 18, 2000.

Source: Department of Defense components and Office of the Under Secretary of Defense 

(Acquisitions,Technology and Logistics).

Representatives of employees and of private industry expressed specific 

concerns about the contents and utility of the Department’s FAIR Act 

inventory through their challenges and in meetings with us. Employees 

usually argued that specific positions and activities should be characterized 

as inherently governmental and should not appear on the inventory. Several 

employees and employee groups took issue with DOD’s characterization of 

some functions as commercial when, they asserted, the activities involved 

sensitive or private information or might create liability for the 

Challenge basis Army Navy/Marines Air Force

Defense

agenciesa DOD

Employee/union challenge of functions that should be 

exempt from FAIR Act inventory

Privacy, confidentiality, and conflict of interest concerns 17 28 2

Has control over government property and appropriations 17 1 2

Actions bind the government to action 20 14

Exempt by statute, regulations, guidance 50

Develops policy and guidance; exercises discretion in 

interpreting laws and developing policy 5 42 1 2

Knowledge not readily available in the private sector 2 1

Function generally meets definition of inherently 

governmental 23 1

Function treated as inherently governmental by other 

components 12

Function is core and should be exempt 3 1

Function not severable from inherently governmental work 1

Other: Similar functions not included in the FAIR inventory 1

Other: Insufficient information in inventory 1 1 1

Industry challenge of functions that should be 

included in FAIR Act inventory

Too many activities exempt from competition 1 4

Function is commercial 2 1

Other: Insufficient information in inventory 3 1 1 2
Appendix I

FAIR Act Challenges and Appeals

Page 29 GAO/NSIAD-00-198 DOD Competitive Sourcing

government. Generally, the services agreed that the government should 

maintain control and oversight of activities through accountable 

government employees, so particular employees might be performing 

inherently governmental activities even when an overall function is 

identified as commercial and is therefore properly included on the FAIR 

Act inventory. However, they said that deciding the appropriate number 

and type of positions associated with commercial functions that could and 

should be competed is part of a competition study.

Interested parties from outside the government generally criticized DOD’s 

FAIR Act inventory as not including enough specific information to help 

them identify activities to challenge. Some challengers stressed that the 

summary level of data was inadequate to help them identify activities that 

should be challenged, particularly in the 30 days allowed under the act. For 

example, industry associations were concerned that the information 

presented did not sufficiently describe positions and tasks associated with 

functions or include information on functions or activities that were 

excluded from the inventory, such as information on inherently 

governmental functions and contractor work years. Industry 

representatives asserted that these limitations precluded informed industry 

review and evaluation of the inventory. Some industry representatives 

stated that the usefulness of the inventory could be improved by including 

the basis for exempting a function from competition due to law or 

executive decision and including information on inherently governmental 

activities. Although noting that DOD had provided the information required 

by the act, DOD officials agreed that it would be difficult for interested 

parties to identify opportunities for appeals from the summary information 

the act required and that DOD presented in its database.

Defense Components 

Rejected Most Challenges 

Primarily for 

Incompleteness 

As table 4 shows, the Defense components rejected FAIR Act challenges 

for a variety of reasons. About 15 percent of all challenges did not meet the 

challenge provisions of the act, which specified that interested parties 

could challenge an agency’s decision to include an activity on the FAIR Act 

inventory or to omit an activity from the inventory. The primary reason for 

rejecting challenges to include activities on the inventory was the failure by 

the challenger to specify an activity being challenged. Some of the reasons 

for rejecting a challenge to remove an activity from the list of commercial 

activities included the availability of the function in the private sector and 

the lack of support from the challenger that a function requires a person to 

have government authority or to make value judgments for the 

government. 
Appendix I

FAIR Act Challenges and Appeals

Page 30 GAO/NSIAD-00-198 DOD Competitive Sourcing

Table 4: Responses to Challenges by Basis for Decision by Component

Note: We categorized challenge decisions based on what appeared to be the primary basis(es) for the 

response. 

a

The component’s responses to challenges often included more than one decision rationale.

b

Does not include one challenge that had not been addressed by the Defense Logistics Agency as of 

July 18, 2000.

c This is Army criteria that is not applicable to the other components.

Source: Department of Defense Components and Office of the Under Secretary of Defense 

(Acquisitions, Technology and Logistics).

Our analysis of the Department’s responses to the challenges indicates that 

the military services and Defense agencies considered the substantive 

issues raised. The responses addressed the major points of challenges that 

related to whether a function was erroneously included in or omitted from 

the inventory. In most instances, the services’ and Defense agencies’ 

responses explained a rationale for their decisions regardless of whether 

Basis for component decisiona Army Navy/Marines Air Force

Defense

agenciesb

DOD

Responses to employee/union challenges

Function does not suggest government authority or 

the making of a value judgment for the government

31 26

Function commonly available in the private sector 64 40 1

Challenge does not meet FAIR Act challenge 

requirements

6 31 2

Function not entirely inherently governmental 54 1

Personnel in function performed at grade lower than 

criteria for inherently governmental of GS-13 and 

abovec

17

Function is inherently governmental and 

erroneously included on list

7 1

Function currently under A-76 study 21

Other reasons 7 16 1 2

Responses to industry challenges

Challenge does not meet FAIR Act challenge 

requirements

4 63 5 2

Function too integrated into military workload to be 

severed for contractor performance

5

Other reasons 2 1 1
Appendix I

FAIR Act Challenges and Appeals

Page 31 GAO/NSIAD-00-198 DOD Competitive Sourcing

they agreed or disagreed with the challenge. To increase the usefulness of 

the challenge process to interested parties, the Army provided selected 

responses to challenges on its Internet site.3

 In the cases of two interested 

parties that raised questions about compliance and format with all of the 

services, the Department responded on behalf of all the components, 

detailing its interpretation of the FAIR Act’s requirements.

3

http://www.asamra.army.pentagon.mil/fair
Page 32 GAO/NSIAD-00-198 DOD Competitive Sourcing

Appendix II

Objectives, Scope, and Methodology ApendxiI

The Chairman, Military Readiness Subcommittee, House Committee on 

Armed Services, requested that we provide information on DOD’s efforts to 

identify functions that could be studied for potential competition between 

the public and private sectors. Accordingly, this report assesses 

(1) whether DOD has improved the identification of commercial activities 

that could be studied under A-76 and (2) the likelihood that DOD will 

increase the number of functions and positions studied under A-76.

To assess whether DOD has improved the identification of commercial 

activities that could be subject to public and private competitions, we held 

discussions on the 1998 DRID 20 inventory process with representatives of 

the Under Secretaries of Defense for Acquisition, Technology and Logistics 

and for Personnel and Readiness and with commercial activities officials 

from the Army, the Air Force, the Navy, the Marine Corps, the Defense 

Logistics Agency, and the Defense Finance and Accounting Service. To 

obtain a command level of perspective on DRID 20 implementation, we 

visited three Army, two Air Force, and four Navy major commands with 

competitive sourcing and strategic sourcing programs to discuss the 

implementation of the 1998 DRID 20 inventory and their plans to use the 

results of the inventory. We obtained and analyzed summary data from the 

completed 1998 DRID 20 inventory. We discussed the problems 

encountered with the application of the codes and inconsistencies with 

DOD and component officials. We also reviewed DOD’s December 1999 

report on the 1998 DRID 20 inventory, including information on its 

implementation, and discussed the recommendations and proposed 

improvements to the inventory process with DOD officials. Further, we 

analyzed DOD’s FAIR Act inventory of commercial positions, including the 

functions eligible for competition and exempted from competition by 

military services and Defense agencies. We discussed implementation of 

the FAIR Act with representatives of the Under Secretaries for Acquisition, 

Technology and Logistics and for Personnel and Readiness.

To assess the likelihood that DOD will increase the number of positions 

studied under A-76, we reviewed our previous work on DOD’s competitive 

sourcing programs and conducted interviews with cognizant DOD and 

component officials. We also reviewed DOD’s analysis of the DRID 20 

process and discussed the prospects for increasing the numbers of A-76 

studies conducted in the near future with DOD and component officials.

To provide information on challenges and appeals to DOD’s FAIR Act 

inventory, we reviewed the FAIR Act legislation and OMB’s guidance on 

implementing the legislation. We also discussed implementation of the 
Appendix II

Objectives, Scope, and Methodology

Page 33 GAO/NSIAD-00-198 DOD Competitive Sourcing

FAIR Act and its results with DOD and service representatives and 

obtained pertinent guidance from representatives of the Under Secretaries 

of Defense for Acquisition, Technology and Logistics and for Personnel and 

Readiness; officials from the military services; selected Army, Air Force, 

and Navy commands, as discussed earlier; and officials from the Office of 

Management and Budget. We obtained and analyzed the basis for the 

challenges and appeals as well as DOD responses to the challenges and 

appeals, and we discussed DOD’s decisions with DOD and component 

officials. As of July 18, 2000, the Defense Logistics Agency had not 

completed its responses to one challenge and three appeals; therefore, 

these are not included in our analysis. We met with representatives of the 

American Federation of Government Employees, a federal employee union, 

and industry groups, including the Coalition for Outsourcing and 

Privatization and the Information Technology Association of America, to 

obtain their views on DOD’s implementation of the FAIR Act and its 

processes for challenges and appeals.

We performed our review from July 1999 through June 2000 in accordance 

with generally accepted government auditing standards.
Page 34 GAO/NSIAD-00-198 DOD Competitive Sourcing

Appendix III

DOD’s DRID 20 Inherently Governmental and 

Commercial Activities Inventory Codes ApendxiI

To help in identifying commercial activities performed in-house that would 

be studied for competitive sourcing, the Defense Reform Initiative 

Directive (DRID) 20 directed the military services and Defense agencies to 

(1) use uniform criteria and guidelines for categorizing positions based on 

function and type of manpower required and (2) include in the review all 

manpower reported in the fiscal year 1999 President’s Budget and DOD 

Manpower Requirements Report. The Office of the Under Secretaries of 

Defense for Acquisition, Technology and Logistics and for Personnel and 

Readiness established a senior-level working group and an action 

officer-level team to develop the guidance, criteria, and codes for the 

inventory. The criteria and guidelines used in the 1998 DRID 20 inventory 

are described below.

Manpower Coding 

System 

DOD’s inventory guidelines and instructions provided codes that 

(1) specified the reason for whether a position should be military, civilian 

employees, or contractors (manpower criteria codes) and (2) identified the 

function performed (function codes). Building on prior practices, the 

Department graphically portrayed the manpower criteria codes that 

differentiate between work that must be performed by the military or 

civilian employees as well as what work could be performed by contract 

employees if that proved cost-effective. Core positions are essential to the 

components’ national defense mission and should be performed by 

department employees, and noncore activities are those that were not 

associated with essential functions and that can be performed by 

contractors with acceptable levels of risk. This coding scheme also enabled 

DOD to group the positions as inherently governmental, commercial but 

exempt from competition, or commercial and eligible for competition. 

Figure 3 shows the codes in relationship to core and noncore positions.
Appendix III

DOD’s DRID 20 Inherently Governmental and 

Commercial Activities Inventory Codes

Page 35 GAO/NSIAD-00-198 DOD Competitive Sourcing

Figure 3: Manpower Criteria Codes

a

Government performance is required.

Source: Department of Defense.

DOD used function codes to categorize activities by the type of work 

performed so that it could identify similar activities being performed by 

different components departmentwide. The codes identified both general 

functional groups and particular activities within the larger functional 

group. Each function code begins with a letter associating the activity with 

1 of 13 functional groups, such as social services, health services, 

education and training, and installation services. Table 5 shows the number 

and percent of military and civilian positions in these functional groups. 

Manpower Criteria Codes

Inherently Governmentala

Type of DOD

Manpower

A Military Combat

C Military Unique Knowledge

and Skills

Military

Essential

Core

Manpower

Commercial but Exempt

from Competitiona

Civilian

Essential

Restricted

B Military Combat 

Augmentation

D Military Image and 

Esprit de Corps

E Military Rotation

F Military Career Progression

G Civilian Authority and Direction

H Civilian Expertise and Control

I Civilian National Security

and Operational Risk

J EO, Law, Treaty, or 

International Agreement

L DOD Management

Determination

K Legislatively Mandated 

Floors

Non-Core

Manpower

Not

Restricted

Commercial and Subject to Competition or Direct Conversion

M Based on Cost Comparison

N Pending Contract Award

O Pending Cost Comparison Results

P Pending Restructuring Decision

Q Based on Terminated Cost Comparison

R Subject to Review
Appendix III

DOD’s DRID 20 Inherently Governmental and 

Commercial Activities Inventory Codes

Page 36 GAO/NSIAD-00-198 DOD Competitive Sourcing

Table 5: 1998 DRID 20 Inventory by Functional Group

a

Alpha characters represent the individual functional groups.

Source: Department of Defense.

Numeric codes further categorized the activities by their specific functions. 

For example, the code “H101” represents hospital care within the 

functional group of health services, “J 502” represents aircraft engine 

maintenance within the functional group of intermediate, direct, or general 

repair and maintenance of equipment, and “Y100” represents combat forces 

within the functional group of management headquarters and other 

selected centralized functions. These function codes were used to 

categorize activities in both the DRID 20 and FAIR Act inventories.1

Functional group

Military and civilian

authorizations Percent

(Y)a

 Management headquarters and other selected centralized functions (includes combat 

activities)

1,935,770 66

(S) Installation services 198,012 7

(T) Other nonmanufacturing 192,079 7

(U) Education and training 136,257 5

(H) Health services 134,111 5

(J) Equipment maintenance 98,418 3

(K) Depot repair 67,430 2

(R) Research, development, test, and evaluation 65,465 2

(G) Social services 47,174 2

(Z) Maintenance and repair of real property 46,258 2

(W) Automated data processing 21,000 1

(P) Base maintenance 5,518 0

(X) In-house manufacturing 3,719 0

Total 2,951,211 100

1

 Appendix II of OMB’s Circular A-76 Supplemental Handbook, as revised in June 1999, 

contains a complete list of function codes.
Page 37 GAO/NSIAD-00-198 DOD Competitive Sourcing

Appendix IV

Comments From the Department of Defense ApendxiIV
Appendix IV

Comments From the Department of Defense

(709427) Letr Page 38 GAO/NSIAD-00-198 DOD Competitive Sourcing
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