United States Government Accountability Office

GAO Report to Congressional Committees

DEFENSE BUDGET

Trends in Operation 

and Maintenance 

Costs and Support 

Services Contracting 

May 2007 

 

GAO-07-631 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

May 2007

DEFENSE BUDGET

Trends in Operation and Maintenance 

Highlights of GAO-07-631, a report to Costs and Support Services Contracting 

congressional committees 

The Department of Defense (DOD)

spent about 40 percent of the total

defense budget to operate and

maintain the nation’s military

forces in fiscal year 2005. 

Operation and maintenance (O&M) 

funding is considered one of the 

major components of funding for

readiness. O&M appropriations 

fund the training, supply, and 

equipment maintenance of military

units as well as the infrastructure

of military bases. Over the past 

several years, DOD has 

increasingly used contractors, 

rather than uniformed or DOD

civilian personnel, to provide O&M 

services in areas such as logistics,

base operations support, 

information technology services, 

and administrative support.

The House Appropriations

Committee directed GAO to

examine growing O&M costs and

support services contracting. This 

GAO report (1) identifies the trends

in O&M costs and services

contracts and the reasons for the 

trends, (2) discusses whether 

increased services contracting has 

exacerbated the growth of O&M 

costs, and (3) provides 

perspectives on the benefits and 

concerns associated with increased 

contracting for support services. 

GAO analyzed DOD’s O&M 

appropriations, budgets, and 

services contract costs over a 10-

year period and developed case

studies of outsourced O&M-related

work at three installations. GAO is 

not making any recommendations.

DOD made only technical

comments on a draft of this report. 

DOD’s O&M and services contract costs increased substantially between 

fiscal years 1995 and 2005, with most growth occurring since fiscal year 

2001. DOD’s O&M costs were almost constant between fiscal years 1995 and 

2000. However, between fiscal years 2000 and 2005, DOD’s O&M costs 

increased from $133.4 billion to $209.5 billion—an increase of $76.1 billion, 

or 57 percent, in constant fiscal year 2007 dollars. This growth was primarily 

caused by increased military operations associated with the global war on 

terrorism and other contingencies. In addition to increased O&M costs, DOD 

has increasingly relied on contractors to perform O&M-related work. 

Between fiscal years 2000 and 2005, DOD’s services contract costs in O&Mrelated areas increased by 73 percent. According to DOD and service 

officials, several factors have contributed to the increased use of contractors 

for support services: (1) increased O&M requirements from the global war 

on terrorism and other contingencies, which DOD has met without an 

increase in active duty and civilian personnel, (2) federal government policy, 

which is to rely on the private sector for needed commercial services that 

are not inherently governmental in nature, and (3) DOD initiatives, such as 

its competitive sourcing and utility privatization programs. 

Sufficient data are not available to determine whether increased services 

contracting has caused DOD’s costs to be higher than they would have been 

had the contracted activities been performed by uniformed or DOD civilian 

personnel. Because existing policy generally does not require a 

public/private competition for contractor performance of a new or expanded 

commercial requirement, in-house cost estimates have not been prepared for 

most of the work awarded to contractors as a result of increased O&M 

requirements from expanded military operations. Without this information, 

an overall determination cannot be made of the effect of increased services 

contracting on O&M cost growth. DOD does maintain data from its 

competitive sourcing, or A-76, program. GAO’s analysis of the military 

services’ reported information on 538 A-76 decisions during fiscal years 1995

through 2005 to contract out work formerly performed by uniformed and 

DOD civilian personnel showed that the decisions generally resulted in 

reducing the government’s costs for the work. However, the number of A-76 

public/private competition contracts is relatively small and the results from

this program may not be representative of the results from all services 

contracts for new or expanded O&M work. 

Although DOD officials have cited certain benefits from increased use of 

contractors for support services, such as allowing more uniformed 

personnel to be available for combat missions, concerns have also been 

cited. For example, Congress recently required DOD to prescribe guidelines 

giving consideration to performing more work using government employees 

and GAO has noted concerns over DOD’s approach to services acquisition. 

www.gao.gov/cgi-bin/getrpt?GAO-07-631.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact Brian Lepore at

(202) 512-4523 or leporeb@gao.gov. 
Contents 

Letter 1

Results in Brief 2

Background 6

O&M and Services Contract Costs Have Increased Significantly 7 

Data Are Insufficient to Determine Whether Increased Services 

Contracting Has Exacerbated O&M Cost Growth 18 

Different Perspectives Exist on the Benefits and Concerns 

Associated with Increased Contracting for Support Services 29 

Concluding Observations 32 

Agency Comments 32 

Appendix I Scope and Methodology 35 

Appendix II GAO Contact and Staff Acknowledgments 37 

Tables 

Table 1: Changes in Service Contract Costs in Selected Categories 16 

Table 2: A-76 Public/Private Competition Decisions for Fiscal Years 

1995 through 2005 19 

Figures 

Figure 1: O&M Costs for Fiscal Years 1995 through 2005 8 

Figure 2: Percent Change in DOD Costs by Major Budget Category 

from Fiscal Year 1995 to 2000 9 

Figure 3: Percent Change in DOD Costs by Major Budget Category 

from Fiscal Year 2000 to 2005 10 

Figure 4: Percent Change in the Services’ O&M Costs 11 

Figure 5: Supplemental O&M Appropriations for Fiscal Years 2000 

through 2005 13 

Figure 6: Services’ O&M Costs with and without Supplemental

Funding, Transfers, and Reprogrammings 14 

Figure 7: First Performance Period Results from Army A-76 

Public/Private Competition Decisions to Outsource Work 

between Fiscal Years 1995 and 2005 20 

Page i GAO-07-631 Defense Budget
Figure 8: First Performance Period Results from Navy and Marine 

Corps A-76 Public/Private Competition Decisions to 

Outsource Work between Fiscal Years 1995 and 2005 21 

Figure 9: First Performance Period Results from Air Force A-76 

Public/Private Competition Decisions to Outsource Work 

between Fiscal Years 1995 and 2005 22 

Abbreviations 

DOD Department of Defense 

GWOT global war on terrorism 

O&M operation & maintenance 

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Page ii GAO-07-631 Defense Budget
United States Government Accountability Office

Washington, DC 20548 

May 18, 2007

Congressional Committees 

The Department of Defense (DOD) spent about $210 billion, or 40 percent 

of the total defense budget, to operate and maintain the nation’s military 

forces in fiscal year 2005.

1

 As a major component of DOD’s funding for 

readiness, operation and maintenance (O&M) appropriations fund the 

training, supply, and equipment maintenance of military units as well as 

the administrative and facilities infrastructure of military bases. Over the 

past several years, DOD has increasingly used private sector contractors, 

rather than uniformed or DOD civilian personnel, to provide O&M-related 

services in areas such as logistics, weapon systems, and base operations 

support; information technology services; and administrative support. 

The Department of Defense (DOD) spent about $210 billion, or 40 percent 

of the total defense budget, to operate and maintain the nation’s military 

forces in fiscal year 2005.

1

 As a major component of DOD’s funding for 

readiness, operation and maintenance (O&M) appropriations fund the 

training, supply, and equipment maintenance of military units as well as 

the administrative and facilities infrastructure of military bases. Over the 

past several years, DOD has increasingly used private sector contractors, 

rather than uniformed or DOD civilian personnel, to provide O&M-related 

services in areas such as logistics, weapon systems, and base operations 

support; information technology services; and administrative support. 

In its June 2006 report accompanying the DOD Appropriations Bill, 2007,

the House Appropriations Committee expressed concern about the 

increasing costs of operating our military forces.2

 The committee further 

stated that this trend may have been exacerbated by efforts to contract out 

a substantial portion of the military services’ logistic and support 

activities. To gain better insight about the costs and consequences of 

contracting out, as well as other factors generating an increase in 

operation and maintenance costs, the committee directed us to prepare a 

comprehensive analysis covering fiscal years 1995 through 2005. 

Accordingly, this report (1) identifies the trends in O&M costs and services

contracts and the reasons for the trends, (2) discusses whether increased

services contracting has exacerbated the growth of O&M costs, and 

(3) provides perspectives on the benefits and concerns associated with 

increased contracting for support services. 

In its June 2006 report accompanying the DOD Appropriations Bill, 2007,

the House Appropriations Committee expressed concern about the 

increasing costs of operating our military forces.2

 The committee further 

stated that this trend may have been exacerbated by efforts to contract out 

a substantial portion of the military services’ logistic and support 

activities. To gain better insight about the costs and consequences of 

contracting out, as well as other factors generating an increase in 

operation and maintenance costs, the committee directed us to prepare a 

comprehensive analysis covering fiscal years 1995 through 2005. 

Accordingly, this report (1) identifies the trends in O&M costs and services

contracts and the reasons for the trends, (2) discusses whether increased

services contracting has exacerbated the growth of O&M costs, and 

(3) provides perspectives on the benefits and concerns associated with 

increased contracting for support services. 

To address these objectives, we reviewed and analyzed DOD’s O&M 

appropriations, budget documentation, and services contract costs and 

identified the related trends for fiscal years 1995 through 2005. To consider

inflation, we adjusted cost data to constant fiscal year 2007 dollars using 

To address these objectives, we reviewed and analyzed DOD’s O&M 

appropriations, budget documentation, and services contract costs and 

identified the related trends for fiscal years 1995 through 2005. To consider

inflation, we adjusted cost data to constant fiscal year 2007 dollars using 

 1

Unless otherwise stated, operation and maintenance (O&M) costs in this report are total 

obligation authority and are expressed in constant fiscal year 2007 dollars. 

2

H.R. Rep. No. 109-504, at 46-47 (2006). 

Page 1 GAO-07-631 Defense Budget
DOD’s adjustment factors.3

 We discussed with DOD and service 

headquarters officials the reasons for the trends and how greater reliance 

on the private sector for O&M activities formerly performed in-house has 

affected the overall O&M budget. We also assessed the availability of 

information related to services contracts, reviewed and analyzed 

information from DOD’s competitive sourcing, or A-76, program, and 

visited three installations to develop case study examples of O&M-related 

work that was contracted out either as a result of A-76 public/private 

competitions or because the uniformed personnel who formerly 

performed the work were needed to support other missions. For the case 

study examples, we identified cost estimates for the work when performed 

by government employees, the reasons that the work was contracted out, 

the actual contract costs, and the reasons for any contract cost growth. We 

did not review the actual contracts. In reviewing contract costs, we relied 

on cost data provided by installation officials. We also discussed with 

installation officials any consequences associated with increased 

contracting out of O&M work. Additionally, we examined DOD’s response 

to recent legislation requiring DOD to consider performing more work by 

government employees, reviewed steps recently taken by the military 

services to control support services contract costs, and summarized our 

recent reports concerning DOD’s acquisition of services. 

We conducted our review from August 2006 through March 2007 in 

accordance with generally accepted government auditing standards. A 

more detailed description of our scope and methodology is included in 

appendix I. 

Largely driven by increased military operations related to the global war 

on terrorism (GWOT) and other military contingencies, DOD’s O&M and 

services contract costs increased substantially since fiscal year 2001. 

DOD’s O&M costs were almost constant from fiscal years 1995 to 2000, 

increasing by about 2 percent in the Army and declining about 1 percent in

the Navy and Marine Corps and 2 percent in the Air Force. However, 

between fiscal years 2000 and 2005, DOD’s O&M costs, including 

supplemental O&M funds, increased from $133.4 billion to $209.5 billion, 

an increase of $76.1 billion, or 57 percent. Among the military services 

Results in Brief 

 3

Office of the Under Secretary of Defense (Comptroller), National Defense Budget 

Estimates for Fiscal Year 2007, “Table 5-4, Department of Defense Deflators—Total 

Obligation Authority” (Washington, D.C.: March 2006). 

Page 2 GAO-07-631 Defense Budget
during this period, O&M costs increased by 137 percent in the Army, 30 

percent in the Navy and Marine Corps, and 29 percent in the Air Force. 

Most of this growth occurred since fiscal year 2001 and was primarily 

caused by increased military operations associated with GWOT and other 

contingencies such as hurricane relief. In addition, DOD and service 

officials stated that other factors also contributed to the growth in O&M 

costs, such as the aging of military infrastructure and equipment; 

increased costs for installation security, antiterrorism force protection, 

communications, information technology, transportation, fuel, and 

utilities; and certain changes in acquisition approaches. While O&M costs 

have increased, so has DOD’s reliance on contractors to perform O&Mrelated work. For example, between fiscal years 2000 and 2005, DOD’s 

service contract costs in O&M-related areas increased by 73 percent. 

According to DOD and service officials, several factors have contributed 

to the increased use of contractors for support services. First, the GWOT 

and other contingencies have significantly increased O&M requirements 

and DOD has met these requirements without an increase in active duty 

and civilian personnel. To do this, DOD relied not only on reserve 

personnel activations, but also on increased use of contractor support. 

Second, federal government policy is to rely on the private sector for 

needed commercial services that are not inherently governmental in 

nature, which includes many of the requirements generated from the 

GWOT in areas such as logistics and base operations support. Third, some 

initiatives, such as DOD’s competitive sourcing and utility privatization 

programs, have resulted in greater reliance on the private sector. 

Sufficient data are not available to determine whether increased services 

contracting has caused DOD’s costs to be higher than they would have 

been had the contracted activities been performed by uniformed or DOD 

civilian personnel. Because existing policy generally does not require a 

public/private competition for private sector performance of a new 

requirement or segregable expansion of an existing commercial activity 

performed by government personnel, DOD officials stated that in-house 

cost estimates have not been prepared for most of the work awarded to 

contractors as a result of increased O&M requirements from GWOT and 

other contingencies. Without this information, an overall determination 

cannot be made of the effect of increased services contracting on O&M 

cost growth. DOD does maintain detailed data from its competitive 

sourcing program, commonly referred to as the A-76 program. These data

include information on contracts for work formerly performed in-house 

Page 3 GAO-07-631 Defense Budget
that were awarded to the private sector as a result of a public/private cost

competition.4

 Our analysis of the military services’ reported information on 

538 decisions during fiscal years 1995 through 2005 to contract out work 

formerly performed by uniformed and DOD civilian personnel showed that 

the decisions generally resulted in reducing the government’s costs for the 

work. However, compared to all O&M-related contracts, the number of A76 public/private competition contracts is small and the results from this 

program may not be representative of the results from all services 

contracts for new or expanded O&M work. DOD officials further noted 

that outsourcing work formerly performed by uniformed personnel may 

reduce the cost of the work but also increase O&M costs because military 

personnel appropriations are used to compensate uniformed personnel 

and O&M appropriations are used to pay contractors for their services. 

Differing perspectives exist on the benefits and concerns associated with

increased contracting for support services. DOD officials noted that under 

certain circumstances increased use of contractors for support services 

can be beneficial by allowing more uniformed personnel to be available for 

combat missions and providing certain support capabilities that are in 

short supply in the active and reserve components. On the other hand, 

concerns over increased contracting for support services have been cited 

by the Congress, the military services, and us. For example, the Congress 

recently required DOD to prescribe guidelines giving consideration to 

performing more work using government employees. Section 343 of the 

National Defense Authorization Act for Fiscal Year 2006 required the 

Secretary of Defense to prescribe guidelines and procedures for ensuring 

that consideration is given to using government employees for work that is 

currently performed or would otherwise be performed by contractors.5

 In 

February 2007, DOD officials stated that they plan to issue the required 

guidance in the near future and that the use of government employees 

instead of contractors to meet O&M-related requirements in some 

circumstances might result in savings. Further, citing the need to control 

costs and achieve fiscal efficiencies, the Army and the Air Force recently 

issued policy memorandums calling for a reduction in services contract 

costs. The Secretary of the Army stated in a January 2007 memorandum 

that he expected to see significant reductions in the number of Army 

 4

Under the A-76 program prior to 2003, commercial activities involving 10 or fewer full time 

employees could be directly converted to performance by a private contractor without a

cost comparison under certain circumstances. 

5

National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163, § 343 (2006). 

Page 4 GAO-07-631 Defense Budget
contracted services personnel during the remainder of fiscal year 2007 and

the Secretary of the Air Force set targets for realizing estimated savings in

Air Force support services contract costs.6

 Navy officials stated that 

although they had not issued any new policy on contracted services, the 

issue is a concern and the Navy had reduced its planned contractor 

support budgets in both fiscal year 2007 and 2008. At the three 

installations we visited, local officials also cited concerns over increased

contracting for support services—such as the loss of flexibility that is 

inherent with the use of uniformed and DOD civilian personnel in some 

circumstances, the difficulty in preparing accurate contract statements of 

work to help avoid contract modifications, and the availability of sufficient

resources to ensure adequate contract oversight. Finally, in November 

2006, we reported that DOD’s approach to services acquisition did not 

always take the necessary steps to ensure that customer needs were 

translated into well-defined contract requirements or that postcontract 

award activities resulted in expected outcomes.7

 As a result, DOD was 

potentially exposed to a variety of risks, including purchasing services that

did not fully meet customer needs or that should have been provided in a 

different manner or with better results. DOD concurred with the report’s 

recommendations to address these concerns and stated that the 

department was taking or planned to take actions to improve the 

acquisition of services. 

Although there may be some merit in DOD developing more information 

on the cost-effectiveness of its O&M services contracts that were not 

awarded through the A-76 public/private competitive process, at this time 

we are not recommending that DOD do this because performing the 

analyses to determine the estimated in-house costs to perform this work 

can be expensive and time consuming; contracting with the private sector 

may be the only alternative to meet certain requirements in the short term, 

especially during times of increased operations; and, as long as DOD uses 

competition in its contract solicitations for new and expanded 

requirements and provides adequate contract oversight, cost efficiencies 

could be achieved through normal market forces. DOD made no 

 6

Secretary of the Army, Memorandum for Distribution, Subject: Improved Management 

and Justification of Service Contract Requirements (Washington, D.C.: Jan. 29, 2007); and 

Secretary of the Air Force, Memorandum for All Major Commands, Subject: Contractor 

Support Approval Authority Policy Memo 06A-002 (Washington, D.C.: Mar. 9, 2006). 

7

GAO, Defense Acquisitions: Tailored Approach Needed to Improve Service Acquisition

Outcomes, GAO-07-20 (Washington, D.C.: Nov. 9, 2006). 

Page 5 GAO-07-631 Defense Budget
comments on a draft of this report except for technical comments, which 

we incorporated where appropriate.

O&M appropriations support the training, supply, and equipment 

maintenance of military units as well as the administrative and facilities 

infrastructure of military bases. Along with military personnel costs, which 

are funded with separate military personnel appropriations, O&M funding

is considered one of the major components of DOD’s funding for 

readiness. 

Background 

O&M funds provide for a diverse range of programs and activities that 

include the salaries and benefits for most DOD civilian employees; depot 

maintenance activities; fuel purchases; flying hours; base operations; 

consumable supplies; health care for active duty service personnel and 

other eligible beneficiaries; reserve component operations; and DOD-wide

support functions including several combat support agencies, four 

intelligence agencies, and other agencies that provide common 

information services, contract administration, contract audit, logistics, and 

administrative support to the military departments. 

The Congress provides O&M appropriations to 11 service-oriented O&M 

accounts—the Army, Navy, Marine Corps, Air Force, Army Reserve, Navy 

Reserve, Marine Corps Reserve, Air Force Reserve, Army National Guard, 

Air National Guard, and defensewide—and to program accounts, such as 

the defense health program. In addition to the regular annual O&M 

appropriations, the Congress can make supplemental O&M appropriations 

to finance the incremental costs above the peacetime budget that are 

associated with contingencies, such as the GWOT. 

Since late 1995, DOD has encouraged the services and the defense 

agencies to conduct cost comparison studies as provided for in the Office 

of Management and Budget’s Circular A-76. Under the A-76 process, 

otherwise known as competitive sourcing, the military services and other 

defense components conduct a public/private competition for a 

commercial activity currently performed by government personnel to 

determine whether it would be cost-effective to contract with the private

sector for that activity’s performance. On the other hand, a public/private 

competition is not required for private sector performance of a new 

requirement, private sector performance of a segregable expansion of an 

existing commercial activity performed by government personnel, or 

continued private sector performance of a commercial activity. However, 

before government personnel may perform a new requirement, an 

Page 6 GAO-07-631 Defense Budget
expansion to an existing commercial activity, or an activity performed by 

the private sector, a public/private competition is required to determine 

whether government personnel should perform the commercial activity. 

The DOD Commercial Activities Management Information System is 

DOD’s database of record established to meet reporting requirements on 

the conduct of A-76 competitions and the results from implementing A-76 

decisions, whether the decisions are to continue using government 

employees to perform the work or to outsource the work. For contracts 

awarded to the private sector, the database includes the estimated cost to 

perform the work using government employees, the contract award 

amount, the actual contract cost for each contract performance period,

and brief reasons for any cost growth over the performance periods. A 

contract performance period is normally for 12 months, although the first 

performance period may cover a shorter transition period when the work 

is initially conveyed to the contractor. Contract information is to be 

maintained through the end of the last performance period included in the 

competition. Installation officials are responsible for reporting information 

on the A-76 program for input into the DOD database. 

Driven primarily by increased operations associated with GWOT and other 

contingencies, DOD’s O&M costs increased substantially between fiscal 

years 1995 and 2005, with the most growth occurring since fiscal year 

2001. DOD’s reliance on contractors for support services also increased 

substantially during this period in order to meet increased military 

requirements without an increase in active duty and civilian personnel and 

because federal government policy is to rely on the private sector for 

needed commercial services that are not inherently governmental in 

nature, which includes many of the requirements generated from the 

GWOT in areas such as logistics and base operations support. 

O&M and Services 

Contract Costs Have 

Increased 

Significantly 

Page 7 GAO-07-631 Defense Budget
Although DOD’s O&M costs increased significantly between fiscal years 

1995 and 2005, there was a distinct difference in the rate of growth 

between the early and latter years of this 10-year period. Specifically, as 

shown in figure 1, DOD’s annual O&M costs were practically constant until 

2001, when the costs began to increase. 

Most Growth in O&M 

Costs Occurred since 

Fiscal Year 2001 

Figure 1: O&M Costs for Fiscal Years 1995 through 2005 

0

50

100

150

200

250

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Fiscal year

Fiscal year 2007 dollars in billions

Source: GAO analysis of DOD data.

Note: The costs shown in the figure are actual total obligation authority, which includes regular O&M 

appropriations, any supplemental O&M appropriations, and any funding from other appropriation 

accounts transferred or reprogrammed into the O&M account during budget execution. 

Figure 2 shows that during the first half of the 10-year period from fiscal 

year 1995 to fiscal year 2000, DOD’s O&M costs increased about 1 percent. 

In comparison, costs in DOD’s other major budget categories during this 

period changed as follows: military personnel costs declined about 13 

percent; procurement costs increased about 21 percent; research and 

development costs increased about 4 percent; and other costs increased 

about 1 percent. DOD total costs were almost constant between fiscal year 

1995 and fiscal year 2000. 

Page 8 GAO-07-631 Defense Budget
Figure 2: Percent Change in DOD Costs by Major Budget Category from Fiscal Year 

1995 to 2000 

Percentage

Source: GAO analysis of DOD data.

-20

-10

0

10

20

30

1

-13

21

4

1 0

DOD total

Other

Research and

Procurement

Military

development

pers

O&M

onnel

Figure 3 shows that a significant change in cost growth occurred during 

the subsequent 5-year period from fiscal year 2000 to fiscal year 2005, 

when DOD’s O&M costs increased about 57 percent. In the other major 

budget categories during this period, military personnel costs increased 

about 36 percent, procurement costs increased by about 62 percent, 

research and development increased by about 62 percent, and other costs 

increased about 13 percent. DOD total costs increased about 51 percent 

between fiscal year 2000 and fiscal year 2005. 

Page 9 GAO-07-631 Defense Budget
Figure 3: Percent Change in DOD Costs by Major Budget Category from Fiscal Year 

2000 to 2005 

Percentage

Source: GAO analysis of DOD data.

0

10

20

30

40

50

60

70

57

36

62 62

13

51

DOD total

Other

Research and

Procurement

Military

development

pers

O&M

onnel

Trends in O&M costs at the military service level generally reflect the 

overall DOD trend. As shown in figure 4, between fiscal years 1995 and 

2000, little change occurred in each service’s O&M costs. However, 

considerable cost growth occurred between fiscal years 2000 and 2005. 

Among the services, the Army had the largest percentage of growth in 

O&M costs between fiscal years 2000 and 2005. During this period, the 

Army’s O&M costs increased by about 137 percent, while the Navy and 

Marine Corps’ and the Air Force’s O&M costs increased by about 30 

percent and 29 percent, respectively.

Page 10 GAO-07-631 Defense Budget
Figure 4: Percent Change in the Services’ O&M Costs 

Percentage

Source: GAO analysis of DOD data.

Air Force

Navy and Marine Corps

Army

1995 to 2000 2000 to 2005 

Fiscal years

2

-2 -1

137

29 30

-10

0

10

20

30

40

130

140

Increased Military 

Operations Were the 

Primary Reason for O&M 

Cost Growth 

According to DOD and service officials, the primary cause for increased 

O&M costs since fiscal year 2001 is the increase in military operations 

associated with GWOT and other contingencies, including hurricane relief. 

However, the officials also stated that other factors have contributed to 

the growth in O&M costs, such as the aging of military infrastructure and 

equipment; increased costs for installation security, antiterrorism force 

protection, communications, information technology, transportation, and 

utilities; and certain changes in acquisition approaches. 

The fight against terrorism has resulted in operations and deployments 

around the globe that are in addition to the usual peacetime operations. 

According to DOD, the related costs have included not only the personnel 

costs associated with mobilizing National Guard and reserve forces but 

also the costs of supporting these forces and the increased pace of 

operations. O&M-funded costs include a wide range of activities and 

services supporting operations including costs related to 

Page 11 GAO-07-631 Defense Budget
(1) predeployment and forward-deployed training of units and personnel;

(2) personnel support costs including travel, subsistence, reserve 

component personnel activation and deactivation costs, and unit-level

morale, welfare, and recreation; (3) establishment, maintenance, and

operation of housing and dining facilities and camps in the theaters of 

operation; (4) petroleum, oils and lubricants, spare parts, consumable end 

items, and other items necessary to support the deployment of air, ground, 

and naval units; (5) establishment, maintenance, and operation of facilities 

including funds for roads, water, supply, fire protection, hazardous waste 

disposal, force protection bunkers and barricades; (6) command, control,

communications, computers and intelligence within the contingency areas 

of operations; (7) organization-level maintenance including repairs to 

equipment and vehicles; (8) intermediate- and depot-level maintenance of

weapons and weapon system platforms requiring service after the wear 

and tear of combat operations; and (9) contracts for services for logistics 

and infrastructure support to deployed forces. 

The additional military costs associated with GWOT and other 

contingencies have been primarily funded through supplemental 

appropriations. Figure 5 shows the annual amount of supplemental O&M 

funds appropriated each year from fiscal year 2000 through fiscal year 

2005. During this period, supplemental O&M appropriations totaled about 

$210 billion and, according to the services, additional amounts were 

transferred or reprogrammed from other accounts to the O&M accounts of 

the military services. 

Page 12 GAO-07-631 Defense Budget
Figure 5: Supplemental O&M Appropriations for Fiscal Years 2000 through 2005 

Dollars in billions

Fiscal year

Source: GAO analysis of congressional data.

0

10

20

30

40

50

60

2000 2001 2002 2003 2004 2005 

4.3

52.4

14.6

53.2

44.0

41.7

Note: GAO analyzed the annual supplemental O&M appropriations for DOD. 

Although costs associated with the GWOT and other contingencies have 

been the primary reason for increased O&M costs between fiscal years 

2000 and 2005, other factors also contributed to the O&M cost growth in 

the military services. To illustrate, if the services’ annual O&M total 

obligation authority is adjusted by removing annual supplemental O&M 

appropriations and net transfers and reprogrammings into the O&M 

account, the result shows that O&M costs still grew during this time 

period, as illustrated in figure 6. Specifically, between fiscal years 2000 and 

2005, O&M costs after the adjustment grew by about 44 percent in the 

Army, 17 percent in the Navy and Marine Corps, and 2 percent in the Air 

Force. 

Page 13 GAO-07-631 Defense Budget
Figure 6: Services’ O&M Costs with and without Supplemental Funding, Transfers,

and Reprogrammings

Fiscal year

Dollars in billions

Source: GAO analysis of congressional and DOD data.

0

25

50

75

100

125

150

O&M total obligation authority without supplemental funds, transfers, and reprogrammings

O&M total obligation authority

2000 2001 2002 2003 2004 2005

Note: GAO analyzed annual supplemental O&M appropriations and DOD data on the military services

excluding the services’ reserve components. 

According to service officials, baseline O&M costs have increased between 

fiscal years 2000 and 2005 because of many factors, such as aging of 

military infrastructure and equipment, and increased costs for installation 

security, antiterrorism force protection, communications, information 

technology, transportation, and utilities. Navy officials particularly cited

the implementation of DOD’s utility privatization program as a factor 

contributing to increased O&M costs. In a September 2006 report, we 

noted that DOD’s utility costs could potentially increase by another $954 

million to pay costs associated with remaining utility systems that might 

be privatized.8

 Increased O&M costs are also attributable to certain 

changes in DOD’s acquisition approaches. For example, the Air Force 

historically bought space launch vehicles, such as the Delta and Titan 

 8

GAO, Defense Infrastructure: Actions Taken to Improve the Management of Utility

Privatization, but Some Concerns Remain, GAO-06-914 (Washington, D.C.: Sept. 5, 2006).

Page 14 GAO-07-631 Defense Budget
rockets, as products paid for with procurement appropriations. Now, 

under the Evolved Expendable Launch Vehicle program, the Air Force 

uses O&M appropriations to purchase launch services using contractorowned launch vehicles. The projected cost of this program is $28 billion. 

Further, as we noted in our September 2006 report, the Army and the Air 

Force turned to service contracts for simulator training primarily because 

efforts to modernize existing simulator hardware and software had lost 

out in the competition for procurement funds.9

 As a result, the simulators 

were becoming increasingly obsolete. Buying training as a service meant 

that O&M funds could be used instead of procurement funds. 

DOD’s Reliance on 

Contractors for Support 

Services Has Increased 

since Fiscal Year 2000 for 

Several Reasons 

To meet military requirements during a period of increased operations 

without an increase in active duty and civilian personnel, DOD has relied 

not only on reserve personnel activations but also on increased use of 

contractor support in areas such as management and administrative 

services, information technology services, medical services, and weapon 

systems and base operations support. Between fiscal years 2000 and 2005,

DOD’s service contract costs in O&M-related areas increased over $40 

billion, or 73 percent. Table 1 highlights the growth in several service 

contract categories. 

 9

GAO, Contract Management: Service Contract Approach to Aircraft Simulator Training 

Has Room for Improvement, GAO-06-830 (Washington, D.C.: Sept. 22, 2006). 

Page 15 GAO-07-631 Defense Budget
Table 1: Changes in Service Contract Costs in Selected Categories 

Fiscal year 2007 dollars in billions 

Contract costs

Change from fiscal year 

2000 to 2005 

Service category Fiscal year 2000 Fiscal year 2005 Amount Percentage

Professional, administrative, and management support $14.6 $30.1 $15.5 107

Maintenance and repair of equipment 7.7 12.3 4.6 60

Data processing and telecommunications 6.3 11.0 4.7 74

Medical 2.8 8.4 5.6 199

Maintenance and repair of real property 6.6 8.0 1.5 22

Utilities and housekeeping 3.9 7.0 3.1 79

Transportation and travel 3.4 6.6 3.3 97

Conservation and natural resources 1.7 2.3 0.7 39

Operation of government-owned facilities 2.3 2.1 (0.2) -9

Technical representative services 1.4 1.7 0.3 23

Special studies and analyses 1.2 1.5 0.2 19

Modification of equipment 1.1 1.4 0.3 29

Educational and training services 1.1 1.4 0.3 23

Othera 1.3 2.0 0.7 58

Total $55.4 $95.9 $40.6 73

Source: GAO analysis of DOD data. 

Notes: GAO analyzed DOD’s DD350 database of all contracting actions exceeding $25,000. Some 

numbers in the table may not calculate correctly due to rounding. 

a

“Other” includes contracts for quality control, testing, and inspection; equipment lease, rental, and 

installation; social services; photographic, mapping, and printing services; and salvage services. 

DOD officials noted several factors that have contributed to DOD’s 

increased use of contractor support. First, the GWOT and other 

contingencies have significantly increased O&M requirements and DOD 

has met these requirements without an increase in active duty and civilian 

personnel. To do this, DOD relied not only on reserve personnel 

activations, but also on increased use of contractor support. 

Second, Office of Management and Budget Circular A-76 notes that the 

long-standing policy of the federal government has been to rely on the 

private sector for needed commercial services and that commercial 

activities should be subject to the forces of competition to ensure that the 

Page 16 GAO-07-631 Defense Budget
American people receive maximum value for their tax dollars.10 The 

circular notes that a public/private competition—which can involve a 

lengthy and costly process—is not required for contractor performance of 

a new requirement or private sector performance of a segregable 

expansion of an existing commercial activity. On the other hand, the 

circular states that before government personnel may perform a new 

requirement or an expansion of an existing commercial activity a 

public/private competition is required to determine whether government 

personnel should perform the work. 

Third, DOD initiatives that have required that consideration be given to 

outsourcing certain work performed by uniformed and DOD civilian 

personnel have resulted in outsourcing decisions. For example, between 

fiscal years 1995 and 2005, DOD’s competitive sourcing, or A-76 

public/private competition, program resulted in 570 decisions to contract 

out work that had been performed by over 39,000 uniformed and DOD 

civilian personnel. Also, in 1997, DOD decided that privatization of military 

installation utility systems was the preferred method for improving utility 

systems and services because privatization would allow installations to 

benefit from private sector financing and efficiencies. As of March 2006, 

DOD had awarded contracts to privatize 117 systems and had an 

additional 904 systems in various phases of the privatization evaluation 

and solicitation process. 

Fourth, service officials noted that in some instances certain personnel 

issues tend to favor the use of contractor support. For example, service 

officials stated that because of limitations on headquarters personnel 

authorizations, the use of contractor support is often the only readily 

available option to accomplish new or expanded commercial work 

requirements at service headquarters. Service officials also noted that it is

generally easier to terminate or not renew a contract than to lay off 

government employees in the event of reduced work requirements. For 

this reason, use of contractor support is often favored when there is 

uncertainty over the length of time that support services will be needed, 

which is the case for some work supporting GWOT and other 

contingencies. 

 10Office of Management and Budget, Circular No. A-76 (Revised), Subject: Performance of 

Commercial Activities (Washington, D.C.: May 29, 2003). 

Page 17 GAO-07-631 Defense Budget
Sufficient data are not available to determine whether increased services 

contracting has caused DOD’s costs to be higher than they would have 

been had the contracted activities been performed by uniformed or DOD 

civilian personnel. Although overall quantitative information was not 

available, our analysis of the military services’ reported information from 

its competitive sourcing program, commonly referred to as the A-76 

public/private competition process, and case studies of O&M-related work 

contracted out at three installations showed that outsourcing decisions 

generally resulted in reducing the government’s costs for the work. 

However, compared to all O&M-related contracts, the number of A-76 

public/private competition contracts is small, the results from this 

program may not be representative of the results from all services 

contracts for new or expanded O&M work, and certain limitations exist 

with the use of the A-76 data. Further, a recent DOD study found that the 

Army’s use of contract security guards at domestic installations cost more 

than the use of guards employed by the Army.11

Data Are Insufficient 

to Determine Whether 

Increased Services 

Contracting Has

Exacerbated O&M 

Cost Growth 

Information Needed to 

Assess the Effect of 

Increased Services 

Contracting Is Unavailable 

To determine whether increased services contracting has exacerbated the

growth of O&M costs, information is needed that allows for a comparison 

of the contract costs with the costs of performing the same work in-house 

with uniformed or DOD civilian personnel. However, in most cases DOD 

does not know how much contracted services work would cost if the work 

were performed by government employees. DOD officials noted that 

existing policy generally does not require a public/private competition for 

private sector performance of a new or expanded commercial requirement 

and, as a result, in-house cost estimates have not been prepared for most 

of the work awarded to contractors as a result of increased O&M 

requirements from GWOT and other contingencies. In the absence of such

quantitative data, information is not available to determine whether the 

government’s costs are higher than they would have been had the 

contracted services work been performed by uniformed or DOD civilian 

personnel. 

 11Deputy Under Secretary of Defense (Installations and Environment), Report to Congress: 

Contractor Performance of Security Guard Functions (Washington, D.C.: January 2007).

Page 18 GAO-07-631 Defense Budget
While overall information was not available to determine whether 

increased services contracting has exacerbated O&M cost growth, DOD 

does maintain data on its competitive sourcing program, otherwise known 

as the A-76 public/private competition process, which allows a comparison 

of in-house and contract costs for some O&M related work. Specifically, 

DOD’s A-76 program data include in-house and contract cost information 

on contracts for work formerly performed by uniformed or DOD civilian 

personnel that were awarded to the private sector as a result of a 

public/private cost competition or, under certain conditions prior to May 

2003, direct conversion to contractor performance. As shown in table 2, of

the 1,112 total A-76 public/private competition decisions that were made 

between fiscal years 1995 and 2005, the military services decided to 

outsource the work in 570, or 51 percent, of the cases. These decisions 

resulted in contracting out the work formerly performed by over 39,000

uniformed and DOD civilian personnel. In the remaining cases, based on 

the public/private cost comparison the military services decided to 

continue performing the work in-house. 

A-76 Public/Private 

Competition Data Indicate 

Outsourcing Decisions 

Were Cost-effective but 

Data Limitations Exist 

Table 2: A-76 Public/Private Competition Decisions for Fiscal Years 1995 through 

2005 

A-76 decisions

Positions covered by A-76 

decisions

Military 

service Total

To 

outsource

Percent 

outsourced Total

To 

outsource

Percent 

outsourced

Army 222 98 44 31,481 13,395 43

Navy 405 99 24 28,746 6,440 22

Marine 

Corps 

35 15 43 4,072 1,214 30

Air Force 450 358 80 27,892 18,116 65

Total 1,112 570 51 92,191 39,165 42

Source: GAO analysis of DOD data. 

At the time of our review, the Army, Navy, Marine Corps, and Air Force 

had reported detailed contract cost data on 538 of the 570 A-76 decisions 

to outsource work. Our analysis of these data showed that the

public/private competition decisions generally resulted in reducing the

government’s costs for the work.12 Specifically, according to data reported

 12Our analysis relied on the data reported by the services. We did not review the actual 

contracts. 

Page 19 GAO-07-631 Defense Budget
during the first contract performance period, the Army estimated savings 

of about $33 million from 96 contracts, the Navy and Marine Corps 

estimated savings of about $74 million from 88 contracts, and the Air 

Force estimated savings of about $115 million from 354 contracts.13

Figures 7, 8, and 9 show each service’s reported A-76 outsourcing 

information for contracts resulting from both public/private competitions 

and direct conversion from government to contractor performance 

between fiscal years 1995 and 2005. 

Figure 7: First Performance Period Results from Army A-76 Public/Private 

Competition Decisions to Outsource Work between Fiscal Years 1995 and 2005 

0

50

100

150

200

250

300

350

400

Dollars in millions

40 Army contracts resulting from

public/private competitions

Source: GAO analysis of DOD data.

380

351

29

0

10

20

30

40

50

Dollars in millions

56 Army contracts resulting from

direct conversion decisions

23

20

4

Estimated

Es

Reported total

timated total

savings

contract costs

in-house costs

Estimated

Es

Reported total

timated total

savings

contract costs

in-house costs

Note: Numbers in the figure may not total correctly due to rounding.

 13All amounts in this report related to A-76 contracts are in current year dollars—not fiscal 

year 2007 dollars. 

Page 20 GAO-07-631 Defense Budget
Figure 8: First Performance Period Results from Navy and Marine Corps A-76 

Public/Private Competition Decisions to Outsource Work between Fiscal Years 1995 

and 2005 

0

50

100

150

200

250

300

Dollars in millions

82 Air Force contracts resulting from

public/private competitions

Source: GAO analysis of DOD data.

285

228

56

0

50

100

150

200

250

300

350

400

450

500

Dollars in millions

272 Air Force contracts resulting from

direct conversion decisions

421

363

58

Estimated

Es

Reported total

timated total

savings

contract costs

in-house costs

Estimated

Es

Reported total

timated total

savings

contract costs

in-house costs

Page 21 GAO-07-631 Defense Budget
Figure 9: First Performance Period Results from Air Force A-76 Public/Private 

Competition Decisions to Outsource Work between Fiscal Years 1995 and 2005 

0

50

100

150

200

Dollars in millions

35 Navy and Marine contracts resulting

from public/private competitions

Source: GAO analysis of DOD data.

163

100

63

0

50

100

150

200

Dollars in millions

53 Navy and Marine contracts resulting

from direct conversion decisions

181

170

11

Estimated

Es

Reported total

timated total

savings

contract costs

in-house costs

Estimated

Es

Reported total

timated total

savings

contract costs

in-house costs

Note: Numbers in the figure may not total correctly due to rounding.

Although the services’ A-76 data show that decisions to outsource work 

were cost-effective, several limitations are associated with the use of this 

information. First, DOD officials noted that when work performed by 

uniformed personnel is outsourced, the personnel generally are assigned 

to other duties. Thus, while the cost to perform the outsourced work may 

be less than when it was performed in-house, the overall cost to the 

government may actually increase because the uniformed personnel 

continue to be paid to perform different work and a contractor is now paid 

to do the work formerly performed by the uniformed personnel. Also, 

outsourcing of work formerly performed by uniformed personnel may also

increase O&M costs because military personnel appropriations are used to

compensate uniformed personnel and O&M appropriations are used to pay 

contractors for services work. 

Page 22 GAO-07-631 Defense Budget
Second, compared to all O&M-related contracts, the number of A-76 

public/private competition contracts is small and the results from this 

program may not be representative of the results from all services 

contracts for new or expanded O&M work. For example, for the 538 A-76

outsourcing decisions for fiscal years 1995 through 2005 with reported 

cost data, the total contract value for the first performance period was 

about $1.2 billion. Yet, in fiscal year 2005 alone, the value of DOD’s O&Mrelated services contracts exceeded $95 billion. 

Third, the available A-76 public/private competition information compares 

the contract costs with the cost estimates for work using government 

employees during the first contract performance period. Our review of 

contract costs in subsequent performance periods showed that contractor 

costs frequently grew and in many cases exceeded the government 

employee cost estimate in subsequent periods. However, according to 

DOD cost information, the cost growth was usually attributed to 

requirements being added to the contract and contract wage increases, 

which the government employee cost estimate did not reflect. As a result, 

information is normally not available to determine whether the 

outsourcing continued to be cost-effective for those contracts that 

subsequently cost more than the estimate using government employees. 

Fourth, the reliability of the services’ reported A-76 public/private 

competition contract costs and savings appears questionable. The DOD 

Inspector General reported in November 2005 that DOD had not 

effectively implemented a system to track and assess costs of performance 

under the A-76 program.14 The report stated that because system users did 

not always maintain supporting documentation for key data elements and 

entered inaccurate and unsupported costs, and the military services used 

different methodologies to calculate baseline costs, DOD’s A-76 database 

included inaccurate and unsupported costs, and as a result, reported costs 

and estimated savings may be either overstated or understated. DOD 

officials noted that, while the estimated savings may be either overstated 

or understated, there were still savings and that DOD was in the process of 

addressing the report’s recommendations for improving the tracking 

system. 

During our visits to Fort Hood, Naval Air Station Pensacola, and Langley 

Air Force Base, we reviewed the accuracy of reported cost information on 

 14See DOD Office of Inspector General, D-2006-028. 

Page 23 GAO-07-631 Defense Budget
contracts awarded as a result of A-76 public/private competitions. 

According to information provided by Fort Hood officials, we found that 

actual contract costs were greater than the costs reported in the DOD A-76 

database for one contract. However, the difference was less than 1 

percent. At Naval Air Station Pensacola, there were no differences in the 

costs reported in the A-76 database and the actual costs for eight contracts 

awarded as a result of A-76 competitions. At Langley Air Force Base, we 

found some differences in the reported and actual costs for four contracts 

awarded as a result of A-76 competitions. For the four contracts over 4 

years, the actual contract costs, according to installation officials, were 

about $250,000, or 5 percent, more than reported in the database. 

However, even with the increased actual costs, the contracts still showed 

considerable savings over the estimated costs using government 

employees. 

Case Studies Generally 

Show That Decisions to 

Contract Out Were Costeffective 

During our visits to Fort Hood, Naval Air Station Pensacola, and Langley 

Air Force Base, we reviewed examples of O&M-related work that was 

contracted out, or slated to be contracted out, either as a result of an A-76

public/private competition or because the uniformed personnel who 

formerly performed the work were needed to support other missions. 

According to installation officials, the outsourcing of work formerly 

performed in-house had not resulted in any unexpected funding or other 

consequences. Officials at each installation stated that their outsourcing 

efforts had resulted in reduced costs for performing the work and that 

they were satisfied with contractor performance. The following examples 

illustrate the outsourcing results from specific cases of work formerly 

performed in-house at the three installations we visited and in general

show that the outsourcing efforts appeared to be cost-effective. 

Fort Hood 

• In June 2000, as a result of an A-76 public/private competition, Fort Hood 

contracted the operation and maintenance of the installation’s firing range. 

During the A-76 competition, the cost estimate to continue performing the 

work in-house was $37.1 million over the 4-year and 7-month total 

performance period. The estimate was based on using 118 civilian and 11 

military personnel to do the work. The work was awarded to a contractor

who bid $30.8 million to perform the work. Fort Hood officials stated that 

between the time of the contract solicitation and the time the contractor 

took over range operations, changes occurred in unit training events and

range operating standards which caused the work requirement to increase 

far above the level included in the solicitation’s statement of work. As a 

Page 24 GAO-07-631 Defense Budget
result, the officials stated that the contract was modified to provide for the

increased workload and actual contract costs totaled $38.2 million through 

the end of the total performance period in December 2004. Although the 

contract costs exceeded the in-house estimate by $1.1 million, or 3 

percent, Fort Hood officials stated that they were confident that the 

outsourcing was cost-effective because the in-house cost estimate would 

have exceeded the actual contract costs if the in-house estimate had 

included the cost of the workload subsequently added to the contract. The 

officials also stated that they were satisfied with the contractor’s 

performance. 

• In January 2003, Fort Hood contracted the installation’s ammunition 

supply work because the uniformed personnel who formerly performed 

the work at Fort Hood were needed to help support the GWOT. According 

to installation officials, the work, which included the receipt, storage, and

issue of training ammunition, had historically been performed by 

approximately 180 uniformed personnel, who were also responsible for 

completing collateral military duties. The officials stated that the work 

was converted to contractor performance by modifying an existing Fort 

Hood support services contract to add the ammunition supply work for 

about $1.8 million annually. According to the officials, the contractor used 

between 45 and 56 people to do the work, and performance metrics, such 

as inventory accuracy, improved after the contractor took over the work. 

Although an analysis was not performed to compare the contract cost with 

the cost to perform the work with uniformed personnel, Fort Hood 

officials stated that they believe that the outsourcing was cost-effective 

because the contractor was performing the work with far fewer people 

compared to the number of uniformed personnel who formerly did the 

work. The officials stated that a new contract for the work was awarded in

June 2006 at an annual cost of about $2.3 million. The officials attributed 

the increase in contract costs to new requirements that were added to the 

scope of the work. 

Naval Air Station Pensacola 

• In January 2001, as a result of an A-76 public/private competition, Naval 

Air Station Pensacola contracted the installation’s receipt, storage, and 

distribution of petroleum, oil, and lubrication products. The work had 

previously been performed by 14 civilian personnel at an estimated annual 

cost of about $700,000. During the A-76 competition, the cost estimate to 

continue performing the work using government employees was $355,000

annually based on reducing the number of employees needed to do the 

work to seven. Naval Air Station Pensacola officials stated that the work 

was awarded to a contractor who bid $250,000 annually to do the work. 

Page 25 GAO-07-631 Defense Budget
This amount was about $450,000 less than the original cost of the work 

and about $105,000 less than the estimate to continue performing the work 

in-house. Primarily because of added work requirements, reported data 

showed that the actual contract costs increased to $315,000 by the fifth 

contract performance period. Nevertheless, Naval Air Station Pensacola 

officials noted that this outsourcing effort continued to cost less than the 

estimated cost to perform the work in-house. The officials also stated that 

they were satisfied with the contractor’s performance. 

• In March 2002, as a result of another A-76 public/private competition, 

Naval Air Station Pensacola contracted the management of household 

goods shipments for military personnel arriving and departing the 

installation. The work had previously been performed by 21 civilian 

personnel at an estimated cost of about $6.1 million over a 5-year period. 

During the A-76 competition, the cost estimate to continue performing the 

work in-house was $3.8 million over the 5-year total contract performance 

period, based on streamlining the work and reducing the number of 

employees needed to do the work. Naval Air Station Pensacola officials 

stated that the work was awarded to a contractor who bid $2.8 million to 

perform the work over the total performance period. This amount was 

about $1.1 million less than the in-house estimate. Through the first 3 years 

and 3 months of the contract, reported data showed that the actual 

contract costs were about 13 percent higher than the contractor’s bid 

amount but were still less than the estimated cost to perform the work inhouse. Naval Air Station Pensacola officials stated that contract costs 

were higher because of wage rate increases. The officials also stated that

they were satisfied with the contractor’s performance. 

Langley Air Force Base 

• In June 2000, as a result of an A-76 public/private competition, Langley Air 

Force Base contracted transient aircraft services work. During the A-76

competition, the cost estimate to continue performing the work in-house 

was $1.1 million annually based on using 14 military and 7 civilian 

personnel to do the work. According to Langley Air Force Base officials, 

the work was awarded to a contractor who bid $365,000 to perform the 

work, and the actual contract cost to perform the work during the first 

performance period was about $374,000. This amount was about $726,000, 

or about 66 percent, less than the estimated cost to do the work in-house. 

Although reported data showed that contract costs increased by 8 percent 

by the third contract performance period primarily because of wage rate 

adjustments, the contract still cost less than the estimated in-house cost to 

perform the work. Langley Air Force Base officials stated that they were 

Page 26 GAO-07-631 Defense Budget
satisfied with the contractor’s performance and that the contract was 

recompeted in 2003 and awarded at approximately the same cost. 

• In October 2001, as a result of another A-76 public/private competition, 

Langley Air Force Base contracted certain records management services.

During the A-76 competition, the cost estimate to continue performing the 

work in-house was $643,000 annually based on using 13 uniformed 

personnel to do the work. According to Langley Air Force Base officials, 

the work was awarded to a contractor who bid about $337,000 to perform 

the work during the first annual performance period. This amount was 

$306,000, or about 48 percent, less than the estimated cost to perform the 

work in-house. According to the available data and Langley Air Force Base 

officials, the actual contract cost during the first performance period was 

the same as the bid amount. Although reported data showed that contract 

costs increased to about $394,000 by the fifth contract performance period

primarily because of wage rate adjustments, the officials noted that the

cost was still less than the in-house estimate for the work. The officials 

also stated that they were satisfied with the contractor’s performance. 

A recent DOD report provides another comparison of costs for work 

performed by contractors and government personnel.15 In this case, DOD 

found that contract security guards at domestic installations cost more 

than use of guards employed by the government. However, as with the 

reported results from A-76 contracts, because the data used in DOD’s 

report is from a relatively small number of contracts, the results may not 

be representative of the results of all O&M related services contracts. 

The John Warner National Defense Authorization Act for Fiscal Year 2007 

required the Secretary of Defense to submit a report including an 

explanation of the Army’s progress in responding to our April 2006 report 

that assessed the Army’s acquisition of security guards and an assessment 

of the cost-effectiveness and performance of contract security guards.16

Our report noted that in the aftermath of the September 11, 2001, attacks, 

DOD sent numerous active-duty, U.S.-based personnel to Afghanistan, 

DOD Report Noted That 

Contract Security Guards 

Cost More than 

Government-Employed 

Guards 

 15See Deputy Under Secretary of Defense (Installations and Environment), Report to

Congress: Contractor Performance of Security Guard Functions (January 2007). 

16John Warner National Defense Authorization Act for Fiscal Year 2007, Pub. L. No. 109-364,

§ 333 (2006). 

Page 27 GAO-07-631 Defense Budget
Iraq, and other destinations to support the GWOT.17 These deployments 

depleted the pool of military security guards at a time when DOD was 

faced with increased security requirements at its U.S. installations. To ease 

this imbalance, the Congress authorized DOD to waive a prohibition 

against the use of contract security guards at domestic military 

installations. The Army, the first service to use the authority, had awarded 

contracts worth nearly $733 million for contract guards at 57 installations 

as of December 2005. 

Our report also noted that the Army had relied heavily on sole-source 

contracts to acquire contract security guards, despite the Army’s 

recognition early on that it was paying considerably more for its solesource contracts than for those awarded competitively. Our report made 

recommendations to the Secretary of Defense to improve management 

and oversight of the contract security guard program. 

In early 2007, DOD issued its report, which stated that the Army concurred 

with our recommendations and was in the process of resoliciting security 

guard contracts to increase the use of competition. In regard to comparing 

the costs of government-employed and contract security guards, DOD 

reported that the contract security guards were more expensive than use 

of government guards. However, the amount of the cost difference varied

widely depending on whether the contract was awarded competitively. In

cases where the contracts were awarded competitively, the contracts cost 

about 5 percent more than use of government guards. However, in cases 

where the contracts were not awarded competitively; the contracts cost 

about 42 percent more than government guards. DOD’s report also noted 

its view that the security guard contracts provided greater flexibility in this

instance to adjust the workforce level up or down when the threat level 

changes and a performance test showed no difference in the effectiveness 

between government and contract security guards. 

 17GAO, Contract Security Guards: Army’s Guard Program Requires Greater Oversight 

and Reassessment of Acquisition Approach, GAO-06-284 (Washington, D.C.: Apr. 3, 2006).

Page 28 GAO-07-631 Defense Budget
DOD officials cited several benefits associated with the increased use of 

contractors for support services in certain circumstances. On the other 

hand, concerns over increased contracting have also been cited by the 

Congress, the military services, and us. 

DOD officials noted that when expanded military missions, deployments, 

and other contingencies increase operational requirements, additional 

personnel are needed to perform the extra work. For mission support 

work, additional personnel might be obtained from several alternatives, 

such as increasing the size of the active military force, mobilizing reserve 

forces, hiring government employees, or contracting for services with the 

private sector. In certain circumstances, the officials stated that increased 

use of contractor support to help meet expanded mission support work 

has certain benefits. For example, the officials noted that the use of 

contractors can provide a force multiplier effect when contractor 

personnel perform military support missions to allow more uniformed 

personnel to be available for combat missions. Moreover, contractors can 

provide support capabilities that are in short supply in the active and 

reserve components, thus reducing the frequency and duration of 

deployments for certain uniformed personnel. The officials also stated that 

obtaining contractor support in some instances can be faster than hiring 

government workers and, when there is uncertainty over the length of 

time that support services will be needed, the use of contractor support 

instead of government employees can be advantageous because it is 

generally easier to terminate or not renew a contract than to lay off 

government employees when the operations return to normal. Further, the 

officials stated that they believed that contracts for new and expanded

requirements can be cost-effective when the contracts are subjected to the 

forces of competition in the private sector. 

Recently cited concerns associated with increased use of contractor 

support have included (1) the need for DOD to consider performing more 

work using government employees, (2) controlling support services 

contract costs, (3) reduced operational flexibility resulting from some 

outsourcing contracts, (4) the difficulty in ensuring accurate contract 

statements of work and sufficient contract oversight, and (5) questions on 

the adequacy of DOD’s services acquisition process. 

Different Perspectives 

Exist on the Benefits 

and Concerns 

Associated with 

Increased Contracting 

for Support Services 

Benefits from Increased 

Use of Contractor Support 

Concerns from Increased 

Use of Contractor Support 

Page 29 GAO-07-631 Defense Budget
The National Defense Authorization Act for Fiscal Year 2006 required DOD 

to prescribe guidelines and procedures for ensuring that consideration is 

given to performing more work using government employees.18 Section 343 

of the Act requires the Secretary of Defense to prescribe guidelines and 

procedures for ensuring that consideration is given to using government 

employees for work that is currently performed or would otherwise be 

performed by contractors. The guidance is to provide for special 

consideration to be given to contracts that (1) have been previously 

performed by federal government employees at any time on or after 

October 1, 1980; (2) are associated with the performance of inherently 

governmental functions; (3) were not awarded on a competitive basis; or 

(4) have been determined to be poorly performed due to excessive costs 

or inferior quality. In February 2007, DOD officials stated that they had 

been working on developing the required guidelines and that they planned 

to issue the new guidance in the near future. The officials also stated that 

the use of government employees instead of contractors to meet O&Mrelated requirements in some circumstances might result in savings. 

Each of the military services has expressed concerns over increasing 

contract costs for support services. Citing the need to control costs, the 

Secretaries of the Army and the Air Force have issued policy

memorandums calling for review and reduction in services contracts. For 

example, the Secretary of the Army stated in a January 2007 memorandum 

that he expected to see significant reductions in the number of Army 

contracted services personnel during the remainder of fiscal year 2007. 

Also, in a March 2006 memorandum, the Secretary of the Air Force set 

targets for realizing estimated savings in Air Force contract support 

services costs. Navy officials stated that although they have not issued any 

new policy statements on contracted services, the issue is a concern. The 

officials stated that the Navy proactively reduced its planned contractor

support budgets in both fiscal year 2007 and 2008. 

During our installation visits, local officials noted some concerns with 

outsourcing of support services. For example, Fort Hood officials stated 

that outsourcing of work formerly performed in-house can result in 

reduced flexibility in being able to quickly respond to changing 

requirements. The officials noted that in some instances when a new or 

different work requirement develops, uniformed and DOD civilian 

personnel can be reassigned to perform the tasks on a temporary basis or 

The Congress Recently 

Required DOD to Consider 

Performing More Work Inhouse 

Military Services Have Taken 

Steps to Control Support 

Services Contract Costs 

Installation Officials Noted 

Reduced Flexibility in Some 

Instances and Other Concerns 

with Outsourcing 

 18National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163, § 343 (2006). 

Page 30 GAO-07-631 Defense Budget
as a collateral duty. However, before contractors perform new or different 

work requirements, contract changes normally have to be negotiated, 

which can result in delays before the new work is started. Installation 

officials also noted concern over the difficulty in preparing accurate 

contract statements of work in order to avoid contract changes. Naval Air 

Station Pensacola officials stated that in some cases numerous contract 

changes occurred when the original statement of work did not anticipate

or accurately define certain work situations. Further, installation officials

cited concerns over ensuring adequate contract oversight. Officials at 

Naval Air Station Pensacola noted that ensuring adequate oversight 

becomes increasingly difficult as the number of contracts increases. 

In November 2006, we reported that DOD’s approach to managing service 

acquisitions has tended to be reactive and has not fully addressed the key

factors for success at either the strategic or transactional level.19 As a 

result, the growth in service contracting over the past 10 years was, in 

large part, not a managed outcome. Further, DOD’s approach did not 

always take the necessary steps to ensure customer needs were translated

into well-defined contract requirements or that postcontract award 

activities resulted in expected outcomes. As a result, DOD was potentially 

exposed to a variety of risks, including purchasing services that did not 

fully meet customer needs or that should have been provided in a different

manner or with better results. Also, in January 2007 testimony before the 

Subcommittee on Readiness and Management Support, Senate Committee 

on Armed Services, we noted that long-standing problems with contract 

management continue to adversely affect service acquisition outcomes 

even as DOD has become more reliant on contractors to provide services 

for DOD’s operations.20 For example, the lack of sound business 

practices—poorly defined requirements, inadequate competition, and 

inadequate monitoring of contractor performance—exposes DOD to 

unnecessary risk and wastes resources. We have found cases in which the 

absence of well-defined requirements and clearly understood objectives 

complicates efforts to hold DOD and contractors accountable for poor 

service acquisition outcomes. Likewise, obtaining reasonable prices 

depends on the benefits of a competitive environment, but we have 

reported on cases in which DOD sacrificed competition for the sake of 

expediency. Monitoring contractor performance to ensure DOD receives 

GAO Has Noted Concerns with 

Services Acquisition 

 19See GAO-07-20. 

20GAO, Defense Acquisitions: DOD Needs to Exert Management and Oversight to Better 

Control Acquisition of Services, GAO-07-359T (Washington, D.C.: Jan. 17, 2007). 

Page 31 GAO-07-631 Defense Budget
and pays for required services is another control we have found lacking. In

the testimony, we noted DOD has taken some steps to improve its 

management of services acquisition, and it is developing an integrated 

assessment of how best to acquire services. 

DOD’s O&M costs and reliance on contractors to perform O&M-related 

work have increased substantially since fiscal year 2001. However, 

sufficient data are not available to determine whether increased services 

contracting has caused DOD’s costs to be higher than they would have 

been had the contracted activities been performed by uniformed or DOD 

civilian personnel. While we believe that there may be some merit in DOD 

developing more information on the cost-effectiveness of its O&M services 

contracts that fall outside of the A-76 public/private competition process, 

at this time we are not recommending that DOD do this for several 

reasons. First, performing the analyses to determine the estimated inhouse costs to perform work awarded to contractors can be expensive and 

time consuming. Second, according to DOD officials, contracting with the 

private sector may be the only alternative to meet certain requirements in 

the short term, such as when uniformed personnel must be diverted from

performing peacetime work to supporting operational missions. Third, as 

long as DOD uses competition in its contract solicitations for new and 

expanded requirements and provides adequate contract oversight, cost 

efficiencies could be achieved through normal market forces. 

DOD made no comments on a draft of this report except for technical 

comments, which we incorporated where appropriate. 

We are sending copies of this report to the Secretaries of Defense, the 

Army, the Navy, and the Air Force; the Commandant of the Marine Corps; 

and the Director, Office of Management and Budget. We will make copies

available to others upon request. In addition, the report will be available at 

no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staff have any questions about this report, please contact me 

at (202) 512-4523 or by e-mail at leporeb@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

Concluding 

Observations 

Agency Comments 

Page 32 GAO-07-631 Defense Budget
last page of this report. The GAO staff members who made key 

contributions to this report are listed in appendix II. 

Brian J. Lepore, Director

Defense Capabilities and Management 

Page 33 GAO-07-631 Defense Budget
List of Committees 

The Honorable Carl Levin 

Chairman 

The Honorable John McCain 

Ranking Member 

Committee on Armed Services 

United States Senate 

The Honorable Daniel K. Inouye 

Chairman 

The Honorable Ted Stevens 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

United States Senate 

The Honorable Ike Skelton 

Chairman 

The Honorable Duncan L. Hunter 

Ranking Member 

Committee on Armed Services 

House of Representatives 

The Honorable John P. Murtha 

Chairman 

The Honorable C.W. Bill Young 

Ranking Member 

Subcommittee on Defense 

Committee on Appropriations 

House of Representatives 

Page 34 GAO-07-631 Defense Budget
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To identify the trends in operations and maintenance (O&M) costs and 

services contracts and the reasons for the trends, we reviewed and 

analyzed the Department of Defense’s (DOD) O&M appropriations, budget 

documentation, and services contract costs and identified the related 

trends for fiscal years 1995 through 2005. We used costs as reflected by

total obligation authority, which includes regular O&M appropriations, any 

supplemental O&M appropriations, and any funding from other 

appropriation accounts transferred or reprogrammed into the O&M 

account during budget execution. To consider inflation, we adjusted cost 

data to constant fiscal year 2007 dollars using DOD’s adjustment factors. 

We discussed with DOD and service headquarters officials the reasons for 

the trends in O&M costs and how outsourcing of O&M activities formerly 

performed in-house has affected the overall O&M budget. We shared the 

results of our analyses with DOD and service officials and incorporated 

their comments as appropriate. 

To discuss whether increased services contracting has exacerbated the 

growth of O&M costs, we determined the availability of information 

related to services contracts including whether in-house cost estimates 

were available for all contracts for new or expanded work awarded as a 

result of the global war on terrorism (GWOT) and other contingencies. We 

also reviewed and analyzed information from DOD’s competitive sourcing,

or A-76, program. Further, we visited three installations—Fort Hood, 

Texas; Naval Air Station Pensacola, Florida; and Langley Air Force Base, 

Virginia—to develop case study examples of O&M-related work that was 

contracted out either as a result of A-76 public/private competitions or 

because the uniformed personnel who formerly performed the work were 

needed to support other missions. Fort Hood and Langley Air Force Base 

were selected based on discussions with our requesters, and Naval Air 

Station Pensacola was selected based on recommendations from Navy 

officials who stated that the installation had a cross section of contracts 

for O&M work that was formally performed in-house. At each installation, 

we reviewed O&M budget information and discussed with local officials 

any adverse consequences associated with contracting out O&M-related 

work. For the case studies highlighting examples of work that was 

outsourced to private contractors, we identified cost estimates for the 

work if performed by government employees, the reasons that the work 

was contracted out, the actual contract costs, and the reasons for any 

contract cost growth. We relied on cost data provided by the installation 

officials and did not review any actual contracts. However, we did review 

the accuracy of reported information on selected contracts awarded as a 

result of A-76 public/private competitions. 

Page 35 GAO-07-631 Defense Budget
Appendix I: Scope and Methodology 

To provide perspectives on the benefits and concerns associated with 

increased contracting for support services, we discussed this issue with 

DOD officials. We also examined DOD’s response to recent legislation 

requiring DOD to give consideration to performing more work using 

government employees. We also discussed with DOD and service 

headquarters officials the effect of increased contracting support for 

support services and reviewed steps recently taken by the military services

to control service contract costs. We also discussed with installation 

officials concerns associated with outsourcing O&M-related work that was 

formally performed in-house. Additionally, we summarized recent GAO 

reports that identified concerns with DOD’s acquisition of services. 

We conducted our review from August 2006 through March 2007 in 

accordance with generally accepted government auditing standards. 

Page 36 GAO-07-631 Defense Budget
Appendix II: 

A

GAO Contact and Staff 

cknowledgments 

Page 37 GAO-07-631

Appendix II: GAO Contact and Staff 

Acknowledgments 

Brian J. Lepore, (202) 512-4523 or leporeb@gao.gov

In addition to the contact named above, Mark A. Little, Assistant Director; 

Alissa Czyz; Kevin Keith; Harry Knobler; Gary Phillips; and Sharon Reid 

made key contributions to this report. 

GAO Contact 

Acknowledgments 

(350912) Defense Budget
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