United States Government Accountability Office

GAO Report to Congressional Requesters

PENSION BENEFIT 

GUARANTY 

CORPORATION 

Some Steps Have 

Been Taken to 

Improve Contracting, 

but a More Strategic 

Approach Is Needed 

August 2008 

 

GAO-08-871 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

August 2008

PENSION BENEFIT GUARANTY 

CORPORATION 

Some Steps Have Been Taken to Improve 

Contracting, but a More Strategic Approach Is

Needed 

Highlights of GAO-08-871, a report to 

congressional requesters 

The Pension Benefit Guaranty

Corporation (PBGC) insures the 

pensions of more than 44 million 

workers in over 30,000 employersponsored defined benefit pension 

plans. In response to growing 

workloads, PBGC has come to rely 

heavily on contractors to conduct 

its work. GAO was asked to report 

on (1) the role that contracting

plays in PBGC’s efforts to 

accomplish its mission, (2) the

steps PBGC has taken to improve 

its acquisition infrastructure and 

develop a strategic approach to

guide its contracting activities, and

(3) the steps PBGC has taken to

improve its contract oversight 

processes to ensure accountability.

To address these issues, we 

interviewed PBGC officials and

selected contractors, reviewed data

on PBGC’s contracting activities; 

identified changes PBGC is making

to contracting procedures; and

identified strategies PBGC uses to

monitor contracts. 

What GAO Recommends

GAO recommends that PBGC 

revise its strategic plan to reflect 

the importance of contracting and 

to project its vision of future 

contractor use; and include the 

Procurement Department in

agency-wide strategic planning. In 

response, PBGC agreed with most

of our recommendations, but 

disagreed with incorporating more

detail in its strategic planning 

documents, as it believes its 

recently issued strategic plan is 

sufficiently comprehensive. 

However, PBGC’s plan mentions

contracting only briefly and does 

not reflect the important role

contracting plays in achieving its 

mission. 

Contracting plays a central role in helping PBGC achieve its mission and 

address unpredictable workloads. Since the mid-1980s, PBGC has had 

contracts covering a wide range of services, including the administration of 

terminated plans, payment of benefits, customer communication, legal 

assistance, document management, and information technology. PBGC’s 

workforce currently consists of about 800 federal employees and utilizes the 

services of about 1,500 contract employees. From fiscal year 2000 through 

2007, PBGC’s contract spending increased steadily along with its overall

budget and workload, and its use of contract employees has outpaced its

hiring of federal employees. As its workloads have grown due to a significant 

number of large pension plan terminations, PBGC has relied on contractors to 

supplement its workforce, acknowledging that it has difficulty anticipating its 

workloads due to unpredictable economic conditions. 

PBGC is taking steps to improve its acquisition infrastructure, but the 

Procurement Department is not yet part of PBGC’s strategic decisionmaking process. In 2007, PBGC began to take steps to realign its 

Procurement Department, update contracting policies and processes, upgrade

the skills of Procurement Department staff, and better track contracting data.

PBGC’s efforts begin to provide an improved foundation for the contracting 

function; however, these efforts are early steps and more remains to be done. 

PBGC has not fully integrated its contracting function at the corporate level; 

the Procurement Department is not included in corporate-level strategic 

planning and does not have a presence on PBGC’s relevant strategic teams. 

PBGC has made improvements to contractor oversight and has begun to 

implement performance-based contracting that offers the potential for better 

contract outcomes, but also creates new challenges for contract oversight and 

monitoring efforts. PBGC has implemented new contract monitoring 

activities, improved oversight activities for some of its major contracts, and 

developed comprehensive procedures to direct contracting activities. For its 

field benefit administration office contracts, PBGC developed performance 

measures and scorecards, providing feedback about contractor performance 

in terms of timeliness and accuracy of benefit payments. Despite these 

improvements, most of PBGC’s current contracts still lack performance 

incentives and methods to hold contractors accountable. PBGC recently 

began awarding more performance-based contracts, as a means to achieve

better outcomes. Although performance-based contracting is recognized as a 

viable way toward getting better results from contractors, GAO and others 

have identified common challenges agencies face when implementing this 

approach—from deciding which contracts are appropriate for a performancebased approach to deciding which outcomes to measure and emphasize. 

PBGC procurement officials recognize the benefits and challenges of 

performance-based contracting, and that they must provide additional 

oversight of contracts and a different approach to contract monitoring that 

focuses on outcomes rather than processes.

To view the full product, including the scope 

and methodology, click on GAO-08-871. 

For more information, contact Barbara 

Bovbjerg at 202-512-7215 or 

bovbjergb@gao.gov. 
Contents 

Letter 1

Results in Brief 3

Background 6

PBGC Relies on Contractors to Address Unpredictable Workloads 12 

PBGC Is Taking Steps to Improve Its Acquisition Infrastructure but 

Has Not Yet Developed a Strategic Approach to Contracting 18 

PBGC Has Made Improvements to Contractor Oversight, but 

Implementation of Performance-Based Contracting May Present 

Challenges 24

Conclusions 29

Recommendations for Executive Action 29 

Agency Comments and Our Evaluation 31 

Appendix I Scope and Methodology 33 

Appendix II Comments from the Pension Benefit Guaranty 

Corporation 35 

Appendix III GAO Contact and Staff Acknowledgments 38 

Related GAO Products 39 

Figures 

Figure 1: Overview of Plan Processing at PBGC 7 

Figure 2: Cumulative Number of Pension Plans Administered by 

PBGC, Fiscal Years 2000–2007 8 

Figure 3: Cumulative Number of Participants in Pension Plans 

Administered by PBGC, Fiscal Years 2000–2007 9 

Figure 4: Total PBGC Contract Spending and Budget, Fiscal Years 

2000–2007 13

Figure 5: Number of Federal Employees and Contractor Employees 

at PBGC, Fiscal Years 2000–2007 14 

Figure 6: PBGC Organization Chart with the Number of Contract 

Employees and PBGC Federal Employees 16 

Page i GAO-08-871 Pension Benefit Guaranty Corporation
Figure 7: Number of PBGC Pending Benefit Determinations, Fiscal 

Years 2000–2007 17 

Abbreviations 

BAPD Benefits Administration and Payment Department 

COTR contracting officers’ technical representative 

ERISA Employee Retirement Income Security Act of 1974

FTE full-time equivalent 

MCU Management Coordination Unit 

NAPA National Academy of Public Administration 

OIG Office of the Inspector General 

OFPP Office of Federal Procurement Policy 

OMB Office of Management and Budget 

PBGC Pension Benefit Guaranty Corporation 

PPA Pension Protection Act of 2006 

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Page ii GAO-08-871 Pension Benefit Guaranty Corporation
United States Government Accountability Office

Washington, DC 20548 

August 18, 2008 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable Max Baucus 

Chairman 

The Honorable Charles E. Grassley 

Ranking Member 

Committee on Finance 

United States Senate 

The Honorable Edward M. Kennedy 

Chairman 

The Honorable Michael B. Enzi 

Ranking Member 

Committee on Health, Education, Labor and Pensions 

United States Senate 

The Honorable Edward M. Kennedy 

Chairman 

The Honorable Michael B. Enzi 

Ranking Member 

Committee on Health, Education, Labor and Pensions 

United States Senate 

The Pension Benefit Guaranty Corporation (PBGC) insures pensions for 

more than 44 million workers in over 30,000 employer-sponsored defined 

benefit plans—private sector pension plans where an employer guarantees 

a benefit. PBGC’s primary responsibility is to collect premiums from the 

sponsors of the pension plans and provide timely and uninterrupted 

benefit payments when terminations or bankruptcies occur. In the event of 

a distressed plan termination, PBGC assumes control of plan assets, 

calculates benefit amounts, and pays recipients a guaranteed benefit. In

fiscal year 2007, roughly 611,000 beneficiaries received over $4.1 billion in

benefit payments. In response to growing workloads, PBGC has come to 

rely heavily on contractors to conduct its work. PBGC’s current workforce 

is made up of roughly two-thirds contractor employees and one-third 

federal employees. 

The Pension Benefit Guaranty Corporation (PBGC) insures pensions for 

more than 44 million workers in over 30,000 employer-sponsored defined 

benefit plans—private sector pension plans where an employer guarantees 

a benefit. PBGC’s primary responsibility is to collect premiums from the 

sponsors of the pension plans and provide timely and uninterrupted 

benefit payments when terminations or bankruptcies occur. In the event of 

a distressed plan termination, PBGC assumes control of plan assets, 

calculates benefit amounts, and pays recipients a guaranteed benefit. In

fiscal year 2007, roughly 611,000 beneficiaries received over $4.1 billion in

benefit payments. In response to growing workloads, PBGC has come to 

rely heavily on contractors to conduct its work. PBGC’s current workforce 

is made up of roughly two-thirds contractor employees and one-third 

federal employees. 

In July 2003, GAO designated PBGC’s single-employer pension insurance 

program—its largest insurance program—as “high risk,” including it on 

GAO’s list of major programs that need urgent attention and 

In July 2003, GAO designated PBGC’s single-employer pension insurance 

program—its largest insurance program—as “high risk,” including it on 

GAO’s list of major programs that need urgent attention and 

Page 1 GAO-08-871 Pension Benefit Guaranty Corporation
transformation; the program remains on the list today.1

 To strengthen 

pension plan funding, Congress passed the Pension Protection Act of 2006 

(PPA). However, PBGC still showed an accumulated deficit of $14 billion 

for its single-employer program as of September 2007. 

Because of PBGC’s reliance on contracts to carry out its mission, its 

acquisition infrastructure—the framework an agency must have in place to 

manage its contracting activities—will in part determine whether the 

agency succeeds in its mission. Previous GAO work identified challenges 

facing PBGC’s contracting activities, which included PBGC’s limited 

efforts to link contracting and staffing decisions to longer-term strategic 

planning, placing PBGC at risk for being unprepared for future workload 

changes.2

 GAO also identified weaknesses in PBGC’s contract oversight 

activities and in its contracting processes, resulting in limited competition 

and an over-reliance on contracts that carry more cost and quality 

assurance risks. These findings have been echoed in recent studies by 

PBGC’s Inspector General. To ensure that PBGC is well positioned to 

manage its workload, we were asked to review PBGC’s contracting 

function to follow-up on our earlier contracting work. Specifically, this 

report assesses (1) the role that contracting plays in PBGC’s efforts to 

accomplish its mission, (2) the steps PBGC has taken to improve its 

acquisition infrastructure and develop a strategic approach to guide its 

contracting activities, and (3) the steps PBGC has taken to improve its 

contract oversight processes to ensure accountability. 

To assess the role contracting plays in PBGC’s efforts to accomplish its 

mission, we collected and analyzed data on PBGC contracting activities, as 

well as on participants, plans, employees, and budget trends. To assess the 

 1

GAO, High-Risk Series: An Update, GAO-07-310 (Washington, D.C.: January 2007). In

1992, we placed PBGC on our list of federal programs at high risk because a large and

growing imbalance between its assets and liabilities threatened its long-term financial 

viability. GAO, High-Risk Series: Pension Benefit Guaranty Corporation, GAO/HR-93-5 

(Washington, D.C.: December 1992). To address PBGC’s financial problems, Congress

passed the Retirement Protection Act in 1994, which strengthened minimum funding

requirements for plans and increased premiums paid to PBGC by underfunded plans (Pub. 

L. No. 103-465, 108 Stat. 4809). In addition, PBGC improved administration of its insurance 

programs. Consequently, we removed PBGC from our high-risk list in 1995. GAO, HighRisk Series: An Overview, GAO/HR-95-1 (Washington, D.C.: February 1995). GAO again

added PBGC’s single employer insurance program to its high-risk series in July 2003. GAO,

Private Pensions: The Pension Benefit Guaranty Corporation and Long-Term Budgetary

Challenges, GAO-05-772T (Washington, D.C.: June 9, 2005).

2

GAO, Pension Benefit Guaranty Corporation: Contracting Management Needs 

Improvement, GAO/HEHS-00-130 (Washington, D.C.: Sept. 18, 2000). 

Page 2 GAO-08-871 Pension Benefit Guaranty Corporation
steps PBGC has taken to improve its acquisition infrastructure and 

develop a strategic approach to guide its contracting activities, we 

evaluated PBGC’s acquisition infrastructure in four key areas—

organizational alignment and leadership, policies and procedures, human 

capital, and information management. We identified changes PBGC is 

making to its contracting procedures and to specific contracts, and 

reviewed progress made on these initiatives. To assess the steps PBGC has 

taken to improve its contract oversight processes, we identified the 

strategies PBGC uses to monitor its contracts. We reviewed 

documentation and spoke to officials responsible for monitoring customer 

satisfaction and the accuracy of benefit payments, and actions taken in 

response to the results of these monitoring efforts. We also reviewed a 

small, random sample of contract oversight files. In addition, we 

interviewed PBGC senior executives, managers, and programming and 

contracting staff at headquarters, as well as selected contractors. We also 

interviewed officials from PBGC’s Office of Inspector General and 

reviewed relevant Inspector General reports. 

We conducted our work between May 2007 and August 2008 in accordance 

with generally accepted government auditing standards. Those standards 

require that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and conclusions 

based on our audit objectives. We believe the evidence obtained provides 

a reasonable basis for our findings and conclusions based on our audit 

objectives. Appendix I discusses our scope and methodology in further 

detail. 

Contracting plays a central role in helping PBGC achieve its mission and 

address unpredictable workloads. Since the mid-1980s, PBGC has had 

contracts covering a wide range of services, including the administration 

of terminated plans, payment of benefits, customer communication, legal 

assistance, document management, and information technology. PBGC’s 

workforce currently consists of about 800 federal employees and utilizes 

the services of about 1,500 contract employees. From fiscal year 2000 

through 2007, PBGC’s contract spending increased steadily along with its 

overall budget and workload, and its use of contract employees has 

outpaced its hiring of federal employees. As its workloads have grown due 

to a significant number of large pension plan terminations, PBGC has 

relied on contractors to supplement its workforce, acknowledging that it 

has difficulty anticipating workloads due to unpredictable economic 

conditions. 

Results in Brief 

Page 3 GAO-08-871 Pension Benefit Guaranty Corporation
PBGC is taking steps to improve its acquisition infrastructure, but its 

Procurement Department is not yet part of PBGC’s strategic decisionmaking process. In 2007, PBGC began to take steps to realign its 

Procurement Department, update contracting policies and processes, 

upgrade the skills of Procurement Department staff, and better track 

contracting data. In 2000, we recommended that PBGC develop a strategic 

approach to contracting by conducting a comprehensive review of PBGC’s

future human capital needs and using this review to better link contracting 

decisions to PBGC’s long-term strategic planning process. PBGC took 

some initial steps to implement our recommendation, and has recently 

renewed its efforts and drafted a strategic human capital plan which calls 

for hiring a human resource specialist to coordinate and complete the 

planning process initiated in 2001. PBGC’s efforts begin to provide an

improved foundation for the contracting function; however, these efforts 

are early steps and more remains to be done. PBGC has not fully 

integrated its contracting function at the corporate level. For example, the 

Procurement Department is not included in corporate-level strategic

planning and does not have a presence on PBGC’s relevant strategic 

teams—the Operations Integration Board, the Budget and Planning 

Integration Team, and the Capital Planning for Information Technology 

Team. 

PBGC has made improvements to contractor oversight since our last 

report and has begun to implement performance-based contracting, which 

offers the potential for better contract outcomes but also creates new 

challenges for contract oversight and monitoring efforts. In response to 

concerns about contract oversight raised by us and PBGC’s Inspector 

General, PBGC has implemented new contract monitoring activities, 

improved oversight activities for some of its major contracts, and 

developed comprehensive procedures to direct contracting activities. For 

its field benefit administration office contracts, PBGC developed 

performance measures and scorecards, providing feedback about 

contractor performance in terms of timeliness and accuracy of benefit 

payments. The Procurement Department also implemented refresher 

training requirements for contracting officers’ technical representatives 

Page 4 GAO-08-871 Pension Benefit Guaranty Corporation
(COTR),

3

 who are responsible for much of the direct contract oversight. 

Despite these improvements, most of PBGC’s current contracts still lack 

performance incentives and methods to hold contractors accountable.

PBGC recently began awarding more performance-based contracts, which 

can achieve better contract outcomes. Although performance-based 

contracting is recognized as a viable way to get better results from 

contractors, GAO and others have identified common challenges agencies

face when implementing this approach—from deciding which contracts 

are appropriate for a performance-based approach to deciding which 

outcomes to measure and emphasize. PBGC procurement officials 

recognize the benefits and challenges of performance-based contracting 

and that they must provide additional oversight of contracts and a 

different approach to contract monitoring that focuses on outcomes rather 

than processes. 

To improve performance in an environment of heavy contract use, we are 

making several recommendations to PBGC. These include revising its 

strategic planning documents to reflect the importance of contracting and 

PBGC’s use of contractors, projecting its vision of future contractor use, 

better linking staffing and contracting decisions at the corporate level, and 

including the Procurement Department in agency-wide strategic planning. 

We also are making several recommendations to PBGC that are intended 

to improve its contract management as it implements a performance-based 

approach to contracting.

In response to our draft report, PBGC’s Director stated PBGC’s 

commitment to managing its contracting activities to obtain the best value

for the 44 million beneficiaries of its insurance program. PBGC agreed 

with most of our recommendations and mentioned various ways it 

planned to address them. For example, PBGC stated that it understood 

that other government agencies have faced challenges in implementing 

performance-based contracting and plans to take steps to avoid common 

pitfalls. While PBGC agreed that contracting should be part of its strategic 

planning process, it disagreed with our recommendation to reflect the 

 3

A COTR is an individual assigned to a contract to evaluate contractor performance based 

on their technical background and experience. The COTR uses meetings, physical 

observations, and reports to ensure that work is performed in compliance with contract

requirements. The COTR makes many decisions or recommendations about the daily 

administration of the contract, and the contracting officer relies on the COTR’s judgment in 

the areas of inspection, payment approval, and providing recommendations on problems 

that arise. 

Page 5 GAO-08-871 Pension Benefit Guaranty Corporation
importance of contracting and incorporate its vision for future contractor

use in its strategic planning documents, as it believes its recently issued 

strategic plan is sufficiently comprehensive. However, PBGC’s strategic 

plan only briefly mentions performance-based contracting, flexible staffing

and metrics for specific contracts, and therefore we believe that it does 

not reflect the important role contracting is playing in achieving PBGC’s 

mission. In addition, PBGC disagreed with our recommendation that its 

Director of Procurement should sit on certain specific corporate 

committees. Because PBGC relies to such a great extent on contracting, 

we believe that it is essential that an individual well-versed in procurement 

operations be more integrated into PBGC’s planning for the future. PBGC’s 

comments are reproduced in appendix II. 

The Employee Retirement Income Security Act of 1974 (ERISA) created 

PBGC as a self-financing, nonprofit, wholly owned government 

corporation.4

 PBGC protects participants in private pension plans from 

losing guaranteed benefits due to the termination of underfunded plans. 

PBGC’s primary responsibilities are to collect premiums from the 

sponsors of defined benefit plans to insure against default and to assume 

administration of underfunded plans that terminate. In the event of a plan

default, PBGC assumes control of plan assets (including amounts due and 

payable from the plan sponsor); calculates benefit amounts due to plan

participants, commonly communicated in “benefit determination letters;” 

and pays recipients as benefits are due. 

Background 

Overview of PBGC 

Generally, pension plans under PBGC’s administration, in which final 

benefit determination letters have not yet been issued, are considered 

estimated plans. PBGC pays benefits in estimated amounts until final 

determinations are made, routinely taking several years to complete all 

benefit determinations for plans that terminate. When all letters are issued 

and participant appeal periods have expired, plans are then closed and 

moved to ongoing administration where they generally require limited 

maintenance to reflect participants’ marital changes, address changes, 

 4

Pub. L. No. 93-406, 88 Stat. 829. 

Page 6 GAO-08-871 Pension Benefit Guaranty Corporation
deaths, and other events.

5

 Figure 1 provides an overview of the steps 

involved in processing a terminated pension plan. 

Figure 1: Overview of Plan Processing at PBGC

• Monitor underfunded plans

• Work with plans that face distress terminations

• Develop and obtain agreement on plan trusteeshipa

• Notify retirees and request information

• Ensure that retirees receive benefit payments

• Determine and gather needed plan documents

• Identify best available source for participant data

• Define plan population; build and audit participant database

• Audit plan assets

• Determine employer liability

• Calculate individual benefits

• Determine PBGC’s overall benefit liability

• Determine if benefit being paid is correct

• Notify participants of the benefit amount

• Process participants’ appeals

• Process address changes

• Process death notices

• Calculate benefit at participant’s actual retirement

• Place participants in pay status at retirement

• Respond to participants’ requests regarding their benefits

Postvaluation

Administration

(Ongoing)

Notification

Benefit

Valuation

Initial

Trusteeship

(Termination)

Audit

Pretermination

Source: PBGC.

a

Trusteeship is the process by which PBGC assumes continuing responsibility for a pension plan that 

terminates. 

 5

Both PBGC employees and contractor employees are involved in performing aspects of 

ongoing administration for closed plans. 

Page 7 GAO-08-871 Pension Benefit Guaranty Corporation
Over the years, PBGC’s workloads have grown significantly. In fiscal year 

1975, the first year after the passage of ERISA, PBGC administered three 

pension plans with a total of 400 participants. By fiscal year 2007, PBGC 

administered almost 3,800 pension plans with over 1.3 million participants. 

Figures 2 and 3 show the number of pension plans and participants 

administered by PBGC since fiscal year 2000—the last time GAO issued a 

report on this subject. Between fiscal years 2002 and 2005, PBGC 

experienced a large number of claims that contributed to its workload 

growth. 

Figure 2: Cumulative Number of Pension Plans Administered by PBGC, Fiscal 

Years 2000–2007 

Fiscal year

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000 2001 2002 2003 2004 2005 2006 2007

Number of plans

Source: PBGC.

2,874 2,976

3,132

3,287

3,479 3,585 3,683 3,793

Page 8 GAO-08-871 Pension Benefit Guaranty Corporation
Figure 3: Cumulative Number of Participants in Pension Plans Administered by

PBGC, Fiscal Years 2000–2007 

Fiscal year

0

200

400

600

800

1,000

1,200

1,400

2000 2001 2002 2003 2004 2005 2006 2007

Number of participants (thousands)

Source: PBGC.

541

624

783

934

1,061

1,296 1,271 1,305

Previous Assessments of 

PBGC Contracting 

In September 2000, we identified a variety of challenges facing PBGC’s 

contracting activities.6

 Faced with a significant influx of large pension plan 

failures beginning in the mid-1980s, PBGC chose to contract for services 

rather than seek additional federal employees during a period of 

government downsizing. Over time, PBGC continued contracting for 

services to address backlogs, but was focused on obtaining necessary 

services quickly. As a result, we found that PBGC did not adequately link 

decisions to contract for services to longer-term strategic planning 

considerations. We recommended that PBGC develop a strategic approach

to contracting by conducting a comprehensive review of PBGC’s future 

human capital needs and using this review to better link contracting 

decisions to PBGC’s long-term strategic planning process. In response to 

our recommendation, PBGC commissioned a study by the National 

Academy of Public Administration (NAPA). NAPA provided a six-step 

model for PBGC to follow for its strategic human capital planning. Upon 

completion of this study, PBGC convened a workforce planning team that

initiated some of the steps NAPA suggested. 

 6

GAO/HEHS-00-130. 

Page 9 GAO-08-871 Pension Benefit Guaranty Corporation
Our work also identified weaknesses in PBGC’s contract planning and 

execution processes, which may have led to overuse of labor-hour 

contracts rather than fixed-price contracts and also to limited competition. 

PBGC’s contractor oversight activities also exhibited weaknesses, 

including a lack of data essential for monitoring performance, quality 

assurance review processes and policies, and procedural guidance. 

Finally, we identified a potential lack of independence on the part of the 

office that was responsible for auditing and reviewing PBGC contracting 

activities. Many of these findings have been echoed more recently by 

PBGC’s Inspector General. 

PBGC’s Inspector General issued a report on contracting trends in July 

2007.

7

 The Inspector General noted that the three major areas cited most 

often as needing improvements were questioned costs (unsupported and 

or unauthorized costs that contractors billed to PBGC); lack of 

documented contracting policies, procedures, and directives; and 

inadequate contractor oversight. The leading causes for questioned costs 

were that contractors: (1) did not maintain adequate documentation to 

justify the costs they billed PBGC and (2) subcontracted with employees 

who did not have the qualifications required under the contract. Inspector

General reports also noted that PBGC has no comprehensive contracting 

directives or policy guidance available to aid contracting officials and 

contractors to carry out their respective duties. The reports also identified

significant contracting problems and control vulnerabilities, often 

stemming from a lack of adequate monitoring of contractor performance. 

Appendix II includes a list of related GAO and PBGC Inspector General 

Reports. 

Acquisition Framework In response to federal agencies’ increasing reliance on contractors to 

perform their missions and the systemic weaknesses identified in key 

areas of contracting by GAO, inspectors general, and other accountability 

organizations, in 2005, we published a Framework for Assessing the 

Acquisition Function at Federal Agencies.

8

 The framework enables highlevel, qualitative assessments of the strengths and weaknesses of the 

contracting function. 

 7

PBGC-Office of the Inspector General (OIG), Trend Analysis Report: PBGC Procurement

Issues From 2000-2007, 2007-6/CA-0036 (Washington, D.C., July 26, 2007). 

8

GAO, Framework for Assessing the Acquisition Function at Federal Agencies, 

GAO-05-218G (Washington, D.C.: Sept. 2005).

Page 10 GAO-08-871 Pension Benefit Guaranty Corporation
The framework consists of four interrelated cornerstones that our work 

has shown are essential to an efficient, effective, and accountable 

contracting process. 

• Organizational alignment and leadership. Organizational alignment 

assures the appropriate placement of the contracting function in the 

agency, with stakeholders having clearly defined roles and responsibilities. 

Key elements and critical success factors include aligning contracting with 

the agency’s mission and needs and organizing the contracting function to

operate strategically. Committed leadership enables officials to make 

strategic decisions that achieve agency-wide contracting outcomes more

effectively and efficiently. In fact, the Services Acquisition Reform Act of 

2003 requires that certain civilian executive agencies designate a Chief 

Acquisition Officer that has management of acquisition as their primary 

duty.9

 An executive in this position would address acquisition workforce 

needs and strategies as part of strategic planning and performance results 

processes. 

• Policies and processes. Implementing strategic decisions to achieve 

desired agency-wide outcomes requires clear and transparent policies and 

processes that are implemented consistently. Policies establish 

expectations about the management of the contracting function. Processes 

are the means by which management functions will be performed and 

implemented. Effective policies and processes govern the planning, award, 

administration, and oversight of contracting efforts. 

• Human capital. Successfully acquiring goods and services, and executing

and monitoring contracts requires valuing and investing in the contracting 

workforce. Agencies must think strategically about attracting, developing, 

and retaining talent, and creating a results-oriented culture within the 

contracting workforce. 

• Knowledge and information management. Effective knowledge and 

information management provides credible, reliable, and timely data to 

make contracting decisions. Stakeholders in the contracting process—

Procurement Department and program staff who decide which goods or 

services to buy; project managers who receive the goods and services; 

managers who maintain supplier relationships; contract administrators 

who oversee compliance with the contract; and the finance department 

 9

41 U.S.C. § 414. 

Page 11 GAO-08-871 Pension Benefit Guaranty Corporation
that pays for the goods and services—need meaningful data to perform 

their respective roles and responsibilities. 

Contracting plays a central role in helping PBGC achieve its mission and 

address unpredictable workloads. PBGC’s contracts cover a wide range of 

services, including the administration of terminated plans, payment of 

benefits, customer communication, legal assistance, document

management, and information technology. Its contract spending has 

increased steadily along with overall budget and workload, and use of 

contracted staff has outpaced its hiring of federal employees. PBGC has 

relied on contractors to supplement its workforce since the mid-1980s as

its workloads have grown due to a significant number of pension plan 

terminations. PBGC acknowledges that it has difficulty anticipating its 

workloads due to unpredictable economic conditions and relies on 

contractors to expand or reduce its workforce as necessary.

To address the increase in the overall number of pension plans and 

participants, PBGC’s budget increased steadily over the last 8 years, from 

$165 million in fiscal year 2000 to $398 million in fiscal year 2007. 

Similarly, PBGC’s contract spending increased from $122 million in fiscal 

year 2000 to $297 million in fiscal year 2007, as shown in figure 4. 

Contracting represented 71 percent of PBGC’s appropriated budget during 

this period. Across the federal government, contract spending has more 

than doubled since fiscal year 2000, going from about $208.8 billion to $430 

billion. The Departments of Defense and Homeland Security account for 

the majority of the increase, while other agencies vary in their budget 

changes. In previous work on contract spending at various agencies, we 

found that overall, about a quarter of agencies’ discretionary spending was 

through contracts.10 Therefore, PBGC’s contract spending as a percentage 

of its discretionary budget is relatively high, although most federal 

agencies have increased their contract spending in recent years. 

PBGC Relies on 

Contractors to 

Address 

Unpredictable 

Workloads

PBGC’s Contract Spending 

Has Increased along with 

Overall Budget, and 

Growth in Contract 

Employees Has Outpaced 

PBGC Employees

 10GAO, Federal Procurement: Spending and Workforce Trends, GAO-03-443 (Washington,

D.C.: Apr. 30, 2003). 

Page 12 GAO-08-871 Pension Benefit Guaranty Corporation
Figure 4: Total PBGC Contract Spending and Budget, Fiscal Years 2000–2007 

The number of PBGC’s contract employees has grown significantly more 

than PBGC employees. As figure 5 shows, PBGC had 791 contract 

employees in fiscal year 2000. By fiscal year 2007, there were over 1,500 

contract employees. Conversely, PBGC’s federal employees increased 

modestly from 763 in fiscal year 2000 to 811 in fiscal year 2007. The largest 

increases in contractor employees correspond to the failure of several 

large plans, resulting in workload increases that occurred from fiscal year

2002 through fiscal year 2005. The number of contract employees peaked 

in fiscal year 2006 at 1,768, and has since fallen to 1,502 in fiscal year 2007,

as PBGC is completing the work associated with terminating these large 

plans. 

0

50

100

150

200

250

300

350

400

450

Total PBGC appropriation

Contract spending

2000 2001 2002 2003 2004 2005 2006 2007

Dollars in millions

Source: PBGC.

Fiscal year

122

153

194 202

249

276

386 398

165

134

191

227

271

294

351

297

Page 13 GAO-08-871 Pension Benefit Guaranty Corporation
Figure 5: Number of Federal Employees and Contractor Employees at PBGC, Fiscal 

Years 2000–2007 

Note: PBGC data show the number of federal employees as of September 30 of each fiscal year. 

Historical PBGC data on contractor employees show the number reported on different dates in each

fiscal year. 

PBGC contracts for a wide range of services including 

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Contractor employees

Federal employees

2000 2001 2002 2003 2004 2005 2006 2007

Number of employees

Source: PBGC.

Fiscal year

763 775 773 754 776 784

1,768

811

1,502

791

919

1,248

1,342 1,331

1,639

822

• operating its 10 field benefit administration offices throughout the 

country—field benefit administration office contract employees perform 

the majority of benefits estimation and plan administration processing; 

PBGC Contracts for a Wide 

Range of Services 

• managing PBGC’s $68 billion of assets; 

• paying benefits to participants; 

• developing, overseeing, and managing new systems and information 

technology projects in support of program operations; and 

• handling of customer inquiries through its customer call center. 

Page 14 GAO-08-871 Pension Benefit Guaranty Corporation
PBGC also has certain functions, such as audit and actuarial functions, 

where contract employees work side by side with federal employees and

supplement their efforts. PBGC also contracts for specialized services that 

may not be needed on a routine basis. For example, while PBGC has inhouse attorneys who handle the majority of PBGC’s litigation and 

negotiations, occasionally there are cases where it is necessary for PBGC 

to retain outside counsel. According to PBGC officials, hiring lawyers with 

special expertise on a full-time basis, rather than as needed, would be cost 

prohibitive. When PBGC needs outside legal services, it solicits proposals 

from these firms for the needed services. According to PBGC officials, this

arrangement makes it possible for PBGC to secure necessary legal 

services quickly and efficiently. 

To carry out its operations, PBGC has relied on contractors to address its 

unpredictable workload, which is driven largely by pension plan 

terminations. In 2001, PBGC convened a workforce planning team to 

analyze its future service demands. The team recognized that fluctuations

in the economy, or business cycle, could result in significant fluctuations 

in PBGC workloads. For example, PBGC typically sees an increase in 

terminations 1 to 2 years after a decline in the economy. The team noted 

that PBGC must remain flexible to rapidly expand or reduce its processing 

capacity to meet changing workloads, but cautioned that it was important 

to keep the highest level of expertise in-house. Figure 6 shows the number 

of contract employees and federal employees at PBGC, by office. 

PBGC Relies on 

Contractors to Address 

Unpredictable Workloads 

Page 15 GAO-08-871 Pension Benefit Guaranty Corporation
Figure 6: PBGC Organization Chart with the Number of Contract Employees and PBGC Federal Employees 

Source: PBGC.

Chief Operating 

Officer

933 contractors

273 FTEs

 18 contractors

151 FTEs

 65 contractors

108 FTEs

0 contractors

3 FTEs

24 contractors

21 FTEs

0 contractors

2 FTEs

14 contractors

38 FTEs

34 contractors

71 FTEs

24 contractors

55 FTEs

390 contractors

 84 FTEs

Chief Insurance 

Program Officer

Office of Equal 

Employment Opportunity

Chief Financial 

Officer

Chief Management 

Officer

Benefits

Administration and 

Payment 

Department

Actuarial Services

Division

Operations and 

Actuarial Systems

Division

Retirement Services

Division

Trusteeship 

Processing Division

Problem Resolution 

Office

Department of 

Insurance 

Supervision and 

Compliance

Office of Chief 

Counsel

Multi-employer 

Program Division

Standard 

Termination and 

Compliance Division

Contracts and Control 

Review Department

Financial Operations

Department

Budget Department

Facilities and Services

Department

Human Resources

Department

Procurement 

Department

Strategic Planning 

and Evaluation 

Department

General Counsel

Deputy Director, Office of 

Policy and External Affairs

Director

Board of Directors

Office of the Inspector 

General

Advisory Committee

Appeals Division

Disclosure Division

Legal Division

Communications and 

Public Affairs

Department

Legislative and 

Regulatory Department

Policy, Research and 

Analysis Department

Chief Information 

Officer

Office of Information 

Technology

Total contractor employees = 1,502

Total full-time equivalent (FTE) federal employees = 806

Note: PBGC data on the number of full-time equivalent (FTE) PBGC federal employees and contract 

employees are broken out by component as of June 2007. These numbers vary somewhat 

throughout the year and differ slightly from the number at the end of the fiscal year because of 

timeframes reported. 

Page 16 GAO-08-871 Pension Benefit Guaranty Corporation
Although PBGC is currently experiencing a decline in new terminated plan 

workloads, the case processing cycle takes an average of 3 years or more. 

In determining the need for contract employees, PBGC considers both the 

incoming workload and the workload currently in process. A PBGC 

official noted that in order to balance the current benefit determination 

workload and the anticipated decline in the incoming workload, PBGC is 

allowing field benefit administration office staff increases only when there 

is a clear demonstration of need. See figure 7 for recent trends in pending 

benefit determinations. 

Figure 7: Number of PBGC Pending Benefit Determinations, Fiscal Years 2000–2007

Fiscal year

0

100,000

200,000

300,000

400,000

500,000

600,000

2000 2001 2002 2003 2004 2005 2006 2007

Number of pending benefit determinations

Source: PBGC.

168,886 183,292

280,963

386,695 391,413

481,243

374,065 356,022

Note: Pending benefit determinations are shown as of the end of the fiscal year. 

According to a PBGC official, PBGC doesn’t foresee large plan

terminations and bankruptcies coming in 2008 or 2009, but there are a few 

plans it is monitoring that could have significant impact on PBGC. Thus, 

PBGC is in the delicate position of beginning to decrease contract 

resources while still remaining prepared for possible workload increases 

in a time of uncertain financial conditions. 

Page 17 GAO-08-871 Pension Benefit Guaranty Corporation
In 2007, PBGC began to realign its Procurement Department, update 

contracting policies and processes, upgrade the skills of Procurement 

Department staff, and better track contracting data. While these efforts 

provide an improved foundation for the contracting function, they are 

early steps and a strategic approach to contracting has not yet been 

developed. 

PBGC’s heavy reliance on contract support requires an adequate 

acquisition infrastructure to ensure an efficient, effective, and accountable 

contracting function. An agency’s acquisition function stands on four 

interrelated cornerstones—organizational alignment and leadership, 

policies and processes, human capital, and knowledge and information 

management.11 In 2007, PBGC hired a new procurement director who has 

taken steps to improve the acquisition infrastructure in the four

cornerstone areas; however, the acquisition function’s infrastructure is 

still inadequate in some areas. 

The appropriate placement of the acquisition function within an agency 

can facilitate efficient and effective management of acquisition activities. 

In our work on best practices, we learned that leading companies elevated

or expanded the role of the company’s acquisition organization—typically 

assigning it greater responsibility and authority for strategic planning, 

management, and oversight of the company’s services spending. These 

changes transformed the role of the purchasing unit from one focused on

mission support to one that was strategically important to the company’s

bottomline.12 Further, recent legislation recognized the importance of 

placing the acquisition function at an appropriate level and mandates that 

most executive departments appoint a chief acquisition officer.13

PBGC Is Taking Steps 

to Improve Its 

Acquisition 

Infrastructure but Has 

Not Yet Developed a 

Strategic Approach to 

Contracting 

PBGC Is Taking Steps to 

Improve Its Acquisition 

Infrastructure 

Organizational Alignment and 

Leadership 

 11GAO-05-218G. 

12GAO, Best Practices: Taking a Strategic Approach Could Improve DOD’s Acquisition of 

Services, GAO-02-230 (Washington, D.C.: Jan. 18, 2002). 

13Services Acquisition Reform Act of 2003, tit. XIV, Pub.L. No. 108-136, § 1421, 117 Stat. 

1663, 1666-67 (2003). PBGC is not required to appoint a chief acquisition officer. 

Page 18 GAO-08-871 Pension Benefit Guaranty Corporation
PBGC’s Procurement Department does not play a strategic role within the 

corporation and does not have an active role in the strategic decisionmaking process, becoming involved only once a requisition is submitted to 

the department. For example, the procurement director is not part of the 

following three teams that focus on initiatives that support the 

corporation’s strategic plan. 

• The Operations Integration Board, whose members include the entire

Executive Management Committee, provides a forum for the senior 

leadership to commission and review corporate-wide programs, projects, 

and internal policies. Significant projects that cross organizational lines 

and require multiorganizational resources are presented to the board for

approval. 

• The Budget and Planning Integration Team is responsible for 

approving corporate-wide resource allocations and aligning resources to 

PBGC’s strategic objectives. This team also makes recommendations on 

large funding requests that are subject to approval by the Operations 

Integration Board. 

• The Capital Planning for Information Technology Team reviews 

information technology investments to assure the alignment of

information technology capital investments with the corporate strategic 

plan and to monitor and control the execution of those investments. The 

team provides recommendations to the Operations Integration Board and

the Budget and Planning Integration Team as the recommendations affect

operations or budget. 

As a result, the Procurement Department has no input into the decision to

acquire goods or services through contracting; it is responsible for 

implementing the policy decisions made by the executive management 

team but has no voice in making these decisions. The Procurement 

Department’s involvement on such boards could improve strategic 

planning by enabling PBGC to identify and manage relationships among 

the parties involved in the acquisition process; analyze aggregate agency 

needs and devise strategic acquisition plans; and take into consideration 

the effects of external factors, such as the appropriations process, on the 

timing and execution of major contracts. Further, while PBGC has 

recently published its strategic plan and begun developing a strategic 

human capital plan, the agency has not actively involved the Procurement 

Department in the process. The Procurement Department’s lack of 

involvement in strategic decision making is an indicator that it may be 

Page 19 GAO-08-871 Pension Benefit Guaranty Corporation
unable to identify, analyze, prioritize, and coordinate agency-wide 

acquisition needs. 

Policies and processes govern the way an agency performs the acquisition 

function. The acquisition function does not end with the award of 

contracts, but continues through contract implementation and closeout. 

Acquisition policies and processes should clearly define the roles and 

responsibilities of all involved in the acquisition process and need to be

communicated clearly to all involved. In addition, implementing strategic 

acquisition decisions to achieve agency-wide outcomes requires clear, 

transparent, and consistent policies and processes that govern the 

planning, award, administration, and oversight of acquisitions.

PBGC updated its contracting policies and procedures in 2008. In the past 

year, with the support of executive management, the Procurement 

Department updated and issued two procurement directives that spell out

roles and responsibilities of all individuals involved in the acquisition 

process and outline procurement and obligation procedures. The 

Procurement Department issued policies requiring high-level approval for

certain types of transactions, such as issuing labor-hour-type contracts and 

making modifications to contracts. The Procurement Department has 

recently completed a comprehensive procurement manual that outlines 

standard operating procedures and provides examples to illustrate 

guidance. The General Counsel’s Office has provided guidance on when

the legal review of acquisitions is required, and works closely with the 

Procurement Department in performing legal reviews and providing legal 

advice. However, it is still too early to tell what the effect of the new 

policies will be. The success of any set of policies will depend on adequate 

communication across the agency; internal controls to ensure they are 

implemented; and clear, strong, guidance from leadership on the 

importance of adhering to the new policies. 

A strategic human capital management approach enables an agency to 

recruit, develop, and retain the right number of personnel with the right 

skills to accomplish its mission effectively. Senior managers should devote 

adequate resources to recruiting, hiring, developing, rewarding, and 

retaining talented personnel. This is true for all functions within an agency 

and is crucial for specialized functions, such as acquisition. Succession 

planning also is needed to ensure that the workforce is composed of the 

right number of personnel with the necessary skills and qualifications to 

perform the acquisition function into the future. 

Policies and Processes 

Human Capital 

Page 20 GAO-08-871 Pension Benefit Guaranty Corporation
PBGC has begun to focus on developing the knowledge and skills of its 

Procurement Department staff. Having the right people with the right 

skills is key to making a successful transformation toward an effective 

acquisition environment. Over the last decade, the emergence of several 

procurement trends, including a government-wide rise in services 

contracting, has created a need for an acquisition workforce with a much 

greater knowledge of market conditions, industry trends, and the technical 

details of the commodities and services they procure. The Procurement 

Department has developed new training and certification requirements 

and invested in upgrading the skills of the acquisition workforce, by 

providing training to help contract specialists obtain certification. 

According to PBGC, while only 2 of 12 staff in the contract specialist series 

were certified in contracting as of February 2007, by January 2008, 9 of the 

12 staff had been certified. The Procurement Department also is working 

to enhance training and certification requirements for COTRs working 

throughout PBGC. 

While PBGC’s contract spending has more than doubled since 2001, the 

number of staff in the Procurement Department has risen only by two FTE 

employees from 2001 to 2007. PBGC Procurement Department officials are 

concerned that their staff of nine certified contract specialists is not 

adequate to support the mission. In May 2007, the Procurement 

Department studied four comparable agencies to determine appropriate 

staffing levels for PBGC’s Procurement Department. This study compared 

PBGC’s contracting staff size, number of annual transactions, and value of

annual transactions to those of the other four agencies. Although PBGC 

had 88 percent more transactions on average and 40 percent more 

contract dollars on average than the other four agencies, it had less than 

half the average number of contracting office staff. This study only 

focused on the Procurement Department and did not attempt to determine 

appropriate staffing levels for other acquisition professionals not assigned

to the Procurement Department, such as program managers, financial

managers, and individuals involved in contract monitoring. We did not 

conduct an independent assessment of this study to validate the study’s 

results. 

To make strategic, mission-focused acquisition decisions, organizations 

need knowledge and information management processes and systems that 

produce credible, reliable, and timely data about the goods and services 

acquired and the methods used to acquire them. Such data can be used to

identify opportunities to reduce costs, improve service levels, measure 

compliance and performance, and manage service providers.

Information and Knowledge 

Management 

Page 21 GAO-08-871 Pension Benefit Guaranty Corporation
PBGC’s Procurement Department uses a variety of reports to oversee 

contract spending. Some reports come from the contract writing system 

while others are maintained manually. According to a PBGC official, the

reports track how goods and services are acquired but do not provide 

detailed data on goods and services, as well as suppliers, and spending 

patterns. As a result, PBGC may not have the strategic information needed 

to support effective acquisition management decisions. In addition, 

PBGC’s procurement software is not integrated into its financial system, 

which would allow contracting professionals to obtain real-time 

information on availability of funds, status of obligations and 

expenditures, and payments for the receipts of goods and services. PBGC’s 

Procurement Department recently invested in new procurement software 

to better track acquisition data. In addition to generating reports on 

workload and procurement lead times, the new software links to the 

Federal Procurement Data System to report on PBGC’s contract actions as 

required by the Office of Management and Budget (OMB). This system is 

able to produce some aggregate data, like dollars expended, but lacks 

detailed information on goods and services purchased. 

PBGC has not yet taken all the steps needed to develop a strategic 

approach to acquisition. In 2000, we recommended that PBGC do so by 

conducting a comprehensive review of PBGC’s future human capital needs 

and using this review to better link contracting decisions to PBGC’s longterm strategic planning process. However, PBGC’s strategic plans do not 

provide sufficient detail to determine what role acquisition plays in 

achieving its goals. In our work on best practices,

14 we learned that a 

strategic plan should incorporate an understanding of how acquisition will 

be used to help an agency achieve its mission and goals. This would enable

PBGC to better coordinate current acquisition initiatives or serve as a road

map for identifying or prioritizing future efforts. PBGC recently issued its 

strategic plan, but it is not comprehensive. Although the plan states that 

one of PBGC’s strategic priorities is to align resources to meet changing 

workload demands and mentions flexible staffing as an indicator of 

efficient operations, it does not specify how this will be accomplished or 

what role contract staff will play. PBGC recently has hired a human 

resources specialist to coordinate and complete the planning process 

initiated in 2002 and update its human capital succession plan. PBGC also 

has drafted a strategic human capital plan that acknowledges the need for 

PBGC Has Not Yet Taken 

Steps to Develop Strategic 

Approach to Acquisition 

 14GAO-02-230. 

Page 22 GAO-08-871 Pension Benefit Guaranty Corporation
contract support, but does not provide detailed plans for how the contract 

support will be obtained.

As stated earlier, NAPA provided a six-step model for PBGC to follow for 

its strategic human capital planning. In response, PBGC convened a 

workforce planning team that implemented some of NAPA’s suggested 

steps. Although the workforce planning team acknowledged the 

importance of contract staff for meeting PBGC’s unpredictable workloads, 

the team’s analysis of PBGC’s future workforce focused almost entirely on 

PBGC’s federal employees and not its contractor workforce. The team 

recognized PBGC’s need for improvement in the area of contracting, such

as better defining where to use contractors versus federal employees, 

structuring the work to ensure that federal staff retain core competencies, 

and developing stronger COTR and contract monitoring competencies. 

While the team’s 2002 report included an analysis of the current 

competencies of PBGC’s federal workforce and PBGC’s future needs, it 

did not similarly analyze the contractor workforce, which, at the time, 

made up almost half of PBGC’s total workforce and now makes up almost 

two-thirds. The report did not address how the contractor workforce 

should change to meet future needs or how contractors should be utilized. 

Although the report included a discussion of recruitment and hiring 

strategies, it did not include an analysis of strategies for adding to or 

subtracting from the contractor workforce in case of increased or 

decreased workloads. 

Further, PBGC does not use its strategic annual performance plans to 

document how the acquisition function supports the agency’s missions 

and goals. It is not clear how acquisition serves PBGC’s mission, because 

metrics are not linked to PBGC’s overall performance plan. While the 

procurement director has developed some metrics to measure the 

Procurement Department’s workload, PBGC’s strategic plan only has one 

broad metric related to measuring call center customer or participant 

satisfaction, but there is no specific metric that enumerates the level of 

customer service to be reached. Additionally, the strategic plan only has 

one broad metric related to performance-based contracting, but there are 

no specific metrics that relate to acquisition efficiency, effectiveness, and

results, such as measures to track the number of contracts awarded that 

include incentives for performance. Performance measurements can be

used to gain insight into the Procurement Department’s current 

performance level and performance over time and set realistic goals for 

improvements to the acquisition process. 

Page 23 GAO-08-871 Pension Benefit Guaranty Corporation
Finally, PBGC has taken some limited steps toward making more strategic 

contracting decisions in certain specific areas. These steps generally were

taken in reaction to concerns raised about existing contracts in an internal 

report and reports by us and the Office of the Inspector General. For 

example, the Inspector General and PBGC each studied the contracts for 

the field benefit administration offices and concluded that there were 

opportunities to increase efficiency and decrease costs. As a result, PBGC 

is recompeting the contracts in an effort to consolidate the number of field 

benefit administration offices. 

PBGC has made improvements to contractor oversight by implementing 

new contract monitoring activities, improving oversight activities for some 

of its major contracts, and developing comprehensive procedures to direct 

contracting activities. However, most of PBGC’s current contracts lack 

performance incentives and methods to hold contractors accountable.

PBGC recently began awarding more performance-based contracts, as a 

means to achieve better contract outcomes, but there are common 

challenges that arise—from deciding which contracts are appropriate for a 

performance-based approach to deciding which outcomes to measure and 

emphasize. PBGC procurement officials acknowledge the benefits and 

challenges of performance-based contracting, and must provide additional 

oversight of contracts and a different approach to contract monitoring that

focuses on outcomes rather than processes. 

PBGC has improved upon existing contract monitoring activities and 

implemented new activities to strengthen contract oversight. In our 2000 

report,15 we recommended that PBGC develop the capacity to centrally 

monitor field benefit administration office contractor performance 

including product quality and timeliness. In response, PBGC shifted the 

responsibility for contract oversight of Benefits Administration and 

Payment Department (BAPD) contracts to its Management Coordination 

Unit (MCU),16 to consolidate its monitoring of field benefit administration

PBGC Has Made 

Improvements to 

Contractor Oversight, 

but Implementation of 

Performance-Based 

Contracting May 

Present Challenges 

PBGC Has Made Some 

Improvements to 

Contractor Oversight 

 15GAO/HEHS-00-130. 

16BAPD is the office within PBGC with the highest number of contracts and contract 

spending. This division manages the termination process for defined benefit plans, provides

participant services for terminated plans, and provides actuarial support for PBGC, whose

contracts represent approximately 37 percent of contracting activities at PBGC. 

Page 24 GAO-08-871 Pension Benefit Guaranty Corporation
office performance. The MCU uses several different methods to monitor 

contracts. 

• The MCU reviews the 10 field benefit administration office contractors 

annually to assess the accuracy of benefit determination letters and the 

security procedures in place and trains analysts in contract oversight to 

conduct field benefit administration office reviews. Following each 

review, the office receives a report that highlights findings and requires a 

corrective action plan to address deficiencies. 

• The MCU conducts quarterly COTR visits to the field benefit

administration offices. During these visits, COTRs conduct interviews with 

key office staff and review the office’s workplans and records. The MCU 

developed the COTR site visit program and a corresponding standard 

protocol to be used in conducting site visits. PBGC officials told us that, 

due to COTR work activities, not all site visits are being conducted as 

anticipated; only one to two are being conducted per office each year. 

• The MCU conducts monthly compliance and data integrity reviews of field 

benefit administration case processing activities. Results of these reviews 

are compiled into a scorecard that is reported quarterly to the office and 

the COTR. The scorecard measures BAPD processing goals for timeliness 

and quality. Noncompliant items are communicated to the offices monthly 

for resolution. Field benefit administration office contractors receive

feedback on the timeliness and accuracy of benefit payments based on the

MCU’s monitoring efforts. 

To improve contract oversight, the Procurement Department also has 

implemented refresher training requirements for COTRs. PBGC provides 

guidance and training to COTRs regarding their duties and to ensure their 

compliance with Procurement Department policy, federal law, regulations 

and guidance, including the Federal Acquisition Regulation. PBGC is 

planning to comply with a November 2007, OMB Office of Federal 

Procurement Policy (OFPP) memorandum for training directed mainly at 

COTRs. The memorandum establishes a structured training program for 

COTRs and calls for standardization of competencies and training across 

civilian agencies. The mandate requires a minimum of 40 hours of training 

to be certified as a COTR. According to the requirements, new COTRs 

must be certified within 6 months of appointment and existing COTRs 

within a year. The Procurement Department will ensure that all COTRs 

have evidence of their certification, as required by the memorandum. 

Page 25 GAO-08-871 Pension Benefit Guaranty Corporation
PBGC recently improved its procedural guidance. In 2000, we found that 

PBGC lacked such guidance on contract oversight and a central location

for guidance and procurement policies on contract oversight. Our report 

noted that due to the absence of specific procedures, staff spent 

significant time seeking guidance on issues, may have received conflicting

directions, and contributed to inconsistent administration practices. 

Procurement Department officials recently completed a comprehensive 

procedural guidance manual for staff responsible for awarding contracts

and monitoring contractor performance. According to Procurement 

Department officials, the new manual should eliminate the ad-hoc 

directives, e-mail, and stand-alone memorandums previously used to 

address concerns. The Procurement Department’s new procedures manual 

provides uniform procedures for the internal operation of acquiring 

supplies and services within PBGC. The document represents a central 

repository for guidance and policies. The manual has been prepared in an

electronic format, and includes relevant Internet links wherever external

references are made, such as to OMB Circulars. 

Performance-based contracting offers the government the potential for 

achieving better contract outcomes by requiring that all aspects of an 

acquisition be structured around the purpose of the work as opposed to 

the manner in which the work is to be performed. Contracts should 

include descriptions of the outcomes the agency is looking for rather than 

descriptions of how services should be performed, measurable 

performance standards, quality assurance plans that describe how the 

contractor’s performance will be evaluated, and positive and negative 

incentives, when appropriate. However, our work has shown that the 

transition to and use of performance-based contracts has proven a 

challenge for government agencies deeply rooted in traditional methods of 

contracting.

PBGC agreed with our 2000 recommendation that it utilize contracts and 

payment arrangements consistent with best practices in performancebased contracting. In 2001, OFPP directed government agencies to award 

contracts using performance-based techniques for at least 20 percent of 

service contracting dollars greater than $25,000 by fiscal year 2002. In 

2003, OFPP recommended that executive agencies apply performancebased techniques to at least 40 percent of service contracting dollars 

greater than $25,000 by 2005. PBGC began altering its acquisition strategy 

to be in line with the government-wide move toward performance-based 

contracting in 2003. However, PBGC to date has awarded less than $150 

million in service contract dollars in fiscal year 2008 and remains short of 

PBGC’s Move toward

Performance-Based 

Contracting Can Add 

Accountability but May 

Present Challenges During 

Implementation 

Page 26 GAO-08-871 Pension Benefit Guaranty Corporation
OFPP’s performance-based contracting goals.17 According to PBGC 

officials, only six of its contracts currently are performance based, 

representing a yearly cost of approximately $30 million for 

communication, administrative, and critical function services. PBGC is in 

the process of awarding an additional $20 million in performance-based 

contracts for the administration of the field benefit administration offices. 

Prior to the solicitation, these offices were contracted using individual 

labor-hour contracts.18

According to PBGC officials, most of PBGC’s current contracts lack the

methods to hold contractors accountable for their performance. One 

PBGC official said existing contracts neither include the incentives needed

to encourage contractors to achieve desired results, nor do they include 

performance measures and targets. Instead, PBGC staff work directly with 

the contractor to communicate necessary targets. In the event that 

deliverables do not match contract descriptions or there is a problem with 

contractor performance, PBGC will work with the contractor to correct 

that problem. By not incorporating performance targets and other 

measures, PBGC depends on contractors who have limited incentive to 

provide optimal service. PBGC has the option not to renew a contract with 

a poorly performing contractor, but officials acknowledge the 

disadvantage it faces by not providing performance incentives to help hold 

contractors accountable. PBGC also has attempted to motivate 

contractors by considering assessments of the contractor’s customer 

service as a part of future contract renewal and is planning to incorporate 

customer service measures into its contracts through the use of the 

American Customer Service Index.19 However, the index is not completely

 17An OFPP official told us that PBGC may follow these guidelines, but it is not required to

do so. A PBGC official responded that the corporation is required to adhere to guidance

when it applies to small agencies. According to the PBGC official, in response to this 

guidance and OFPP goals, only about 13 percent of PBGC’s eligible contracts are 

performance based, although it anticipates additional performance-based awards during 

the remainder of the fiscal year. 

18Labor-hour contracts provide for payment of contractors at hourly rates for the number of 

hours worked. In general, labor-hour contracts require detailed reviews of the hours

charged by contract staff and close monitoring by the contracting entity to ensure that 

quality and timeliness requirements are met.

19The American Customer Service Index is used to measure customer satisfaction in the 

public and private sector. PBGC’s first year of participation was 2001, which is considered 

the benchmark year. In that first year, the index measured the satisfaction of plan 

participants. Since that time, PBGC has used the index to measure customer service 

performance of contractors that provide services to Web users and retirees on behalf of 

PBGC. 

Page 27 GAO-08-871 Pension Benefit Guaranty Corporation
effective as an incentive mechanism because it does not report results for 

individual contractors and instead reports on contracts collectively.

While it is important that PBGC incorporate strong performance 

incentives into its contracts, the transition to and use of performancebased contracts has proven a challenge for agencies deeply-rooted in 

traditional methods of contracting. In a 2002 report, we highlighted 

challenges faced by agencies during their transition to performance-based 

contracting.20 These challenges included the lack of understanding of 

performance-based contracting, lack of specific agency guidance, and 

inadequate oversight of contracts with performance-based methods. In 

addition, while PBGC has increased the amount of training provided to 

COTRs and others, the transition to performance-based contracting will 

require additional training, specific to the new contracting method. In 1998 

guidance,

21 OFPP called attention to the problems agencies face in 

converting from a traditional contract’s statement of work to a 

performance-based work statement. Agencies reported to OFPP that 

performance work statements required an increased initial investment of 

time and resources. However, according to the OFPP guidance, the 

savings expected by performance-based contracting will offset such costs 

and correct problems commonly associated with service contracts—cost 

overruns, schedule delays, and technical challenges. 

Our prior work, and the work of others, also explains that both agencies 

and contractors typically find it difficult to move away from traditional 

contracting methods to a method of linking payments to performance, 

based on specific requirements that describe results and measurable 

standards of performance. Our prior work concluded that additional 

government guidance on performance-based contracting was needed to

ensure its proper and effective use.22 PBGC officials recognize that PBGC 

may face challenges similar to those faced by other government agencies 

during implementation of performance-based contracting. 

 20GAO, Contract Management: Guidance Needed for Using Performance-Based Service 

Contracting, GAO-02-1049 (Washington, D.C.: Sept. 23, 2002). The agencies we reviewed 

included the Departments of Defense, Treasury, Energy, the National Aeronautics and 

Space Administration, and the General Services Administration. 

21A Guide to Best Practices for Performance Based Contracting, Office of Federal 

Procurement Policy, Office of Management and Budget, FINAL EDITION 1998. 

22GAO-02-1049. 

Page 28 GAO-08-871 Pension Benefit Guaranty Corporation
With three-quarters of its operational budget currently being spent on 

contracting, it is clear that acquisition plays a central role in achieving 

PBGC’s strategic goals. While PBGC has made efforts to improve its 

acquisition infrastructure, it has not developed a strategic approach to its

contracting process as envisioned in our 2000 report. In its role as a 

support function, rather than a business partner, PBGC’s Procurement 

Department is not involved in helping PBGC make strategic decisions 

about contracting early in the process or in developing long-term strategic 

approaches. PBGC developed its most recent strategic plan and strategic 

human capital plan, the latter still in draft, without a thorough examination 

of the role contracting plays at PBGC. By assessing the existing 

organizational alignment of the Procurement Department against a 

framework of best practices, PBGC may find that its Procurement 

Department is unable to effectively identify, analyze, prioritize, and 

coordinate agency-wide acquisition needs. Further, PBGC’s workload 

depends on future economic conditions that are difficult to predict. 

Without a strategic acquisition approach, PBGC risks being unprepared for 

future workload changes and cannot be assured that it has the optimal mix 

of contractor staff and federal employees. 

Since our last report, PBGC also has made meaningful improvements to its 

contract oversight. To continue contracting improvements, PBGC’s focus 

on performance-based contracting is growing—providing additional tools 

to hold contractors accountable for performance and to encourage the

achievement of desired outcomes. However, this contracting method 

requires a new approach to contract oversight and has demonstrated the 

need for comprehensive training and organizational culture changes. 

PBGC will likely face challenges similar to those we have seen faced by 

other agencies that have moved toward performance-based contracting. 

PBGC needs to be aware of the common pitfalls other agencies have faced 

and take steps now to avoid the same challenges.

To improve PBGC’s performance in an environment of heavy contractor 

use, we recommend that the Director of PBGC revise its strategic plan

and, in drafting the corporation’s human capital strategic plan, reflect the

importance of contracting and PBGC’s use of contractors, project its 

vision of future contractor use, and better link staffing and contracting 

decisions at the corporate level. In drafting the plan, the Director of PBGC 

should do the following:

Conclusions 

Recommendations for 

Executive Action 

• Include the Procurement Department in agency-wide strategic planning.

Page 29 GAO-08-871 Pension Benefit Guaranty Corporation
• Ensure that the Procurement Director sits on PBGC’s three strategic 

teams—the Operations Integration Board, the Budget and Planning 

Integration Team, and the Capital Planning for Information Technology 

Team. 

• Broaden the Procurement Department’s May 2007 staffing study to include 

as part of PBGC’s agency-wide acquisition workforce those positions 

outside of the Procurement Department that have a significant impact on

procurement outcomes (i.e., requirements staff, program managers, 

financial managers, and individuals involved in contract monitoring). The

study should determine appropriate staffing levels for these positions as 

the May 2007 study did for Procurement Department staff. 

• Include in PBGC’s human capital plan detailed plans for how contract 

support will be obtained.

• Assess PBGC’s contract information to determine if additional information 

is needed to support strategic acquisition management decisions. This 

could include more complete information on goods and services 

purchased, as well as suppliers and spending patterns. In addition, 

contract spending information should be integrated into PBGC’s financial 

system, to allow acquisition staff to obtain real-time information on the 

availability of funds, status of obligations and expenditures, and payments 

for the receipt of goods and services. 

• Develop metrics for PBGC’s annual performance plan that document how 

the acquisition function supports PBGC’s missions and goals. These could 

include metrics related to acquisition efficiency and customer satisfaction. 

To improve PBGC’s contract management as it implements a performancebased approach to contracting, we recommend that the Director of PBGC 

• provide comprehensive training on performance-based contracting for 

PBGC’s Procurement Department staff, managers, and acquisition-related 

workforce; 

• develop practices to help ensure accountability for the Procurement 

Department staff carrying out contract monitoring responsibilities; and 

• ensure that future contracts measure performance in terms of outcomes, 

provide incentives for the accomplishment of desired outcomes, and 

ensure payment of award fees only for excellent performance. 

Page 30 GAO-08-871 Pension Benefit Guaranty Corporation
We obtained written comments on a draft of this report from PBGC, which 

are reproduced in appendix II. In addition, we provided a copy of the draft 

report to the Department of Labor for its comments, but Labor did not 

provide comments. 

In response to our draft report, PBGC’s Director stated PBGC’s 

commitment to managing its contracting activities to obtain the best value

for the 44 million beneficiaries of its insurance program. PBGC agreed 

with most of our recommendations and mentioned various ways it 

planned to address them. For example, PBGC stated it understood that 

other government agencies have faced challenges in implementing 

performance-based contracting and plans to take steps to avoid common 

pitfalls. PBGC also stated that it will be conducting a comprehensive 

review of necessary staffing levels across the agency related to

procurement functions and future contracting needs, consistent with our 

recommendation. 

While PBGC agreed that contracting should be part of its strategic 

planning process, it disagreed with our recommendation to reflect the 

importance of contracting and incorporate its vision for future contractor

use into its strategic planning documents. In its comments, PBGC 

maintained that its recently issued strategic plan reflects the importance of 

contracting and its vision for future use. 

However, we continue to believe that PBGC’s recently issued strategic 

plan is not sufficiently comprehensive. PBGC’s strategic plan only briefly 

mentions performance-based contracting, flexible staffing and metrics for 

specific contracts, and therefore does not fully reflect the importance of 

contracting in achieving its mission. For example, among eight “strategic 

priorities,” contracting is not mentioned. While the plan does state that 

PBGC will implement performance-based contracting for vendors in an 

effort to provide good customer service to stakeholders, it does not 

provide measurable goals for converting certain contracts or any time 

frames for implementation. Where the plan mentions using the American 

Customer Service Index as an indicator, it does not provide any detail on 

how it will use the index, what its performance goals are, and how it will 

measure success. In addition, the plan lacks certain key attributes of 

successful performance measures, such as measurable targets with 

numerical goals, and it does not include the activities that its acquisition

function is expected to perform to support the intent of PBGC’s 

acquisition program. 

Agency Comments 

and Our Evaluation 

Page 31 GAO-08-871 Pension Benefit Guaranty Corporation
PBGC also disagreed with our recommendation that its Director of 

Procurement should sit on certain specific corporate committees. We 

believe that PBGC’s Procurement Director should be included on each of

the corporation’s three strategic teams. In its comments, PBGC stated that 

its Chief Management Officer represents contracting on these teams, and 

that there are greater gains to be realized by emphasizing executive-level 

awareness of procurement issues in decision making than by requiring the 

Procurement Director to sit on the three committees. While we appreciate

PBGC’s position that executives should be aware of procurement issues in 

their strategic decision making, because PBGC relies to such a great 

extent on contracting, it is critical that its Procurement Director be more 

involved in the corporation’s strategic planning efforts. In addition to the

Procurement Department, the Chief Management Officer currently 

oversees several additional functions, such as the Budget Department and 

the Human Resources Department, each vitally important to PBGC, and 

each with its own challenges. It is essential that an individual well-versed 

in procurement operations be more integrated into PBGC’s planning for 

the future. 

As agreed with your staff, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days after its 

issue date. At that time, we will send copies of this report to the Secretary 

of Labor and to the Director of PBGC and other interested parties. We will 

also make copies available to others upon request. In addition, the report

will be available at no charge on the GAO Web site at http://www.gao.gov.

If you or your staff have any questions concerning this report, please 

contact me at (202) 512-7215 or bovbjergb@gao.gov. Contact points for our 

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

last page of this report. GAO staff who made key contributions to this 

report are listed in appendix III. 

Barbara D. Bovbjerg 

Director, Education, Workforce, and

 Income Security Issues 

Page 32 GAO-08-871 Pension Benefit Guaranty Corporation
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To assess the role contracting plays in the Pension Benefit Guaranty 

Corporation’s (PBGC) efforts to accomplish its mission, we collected and

analyzed data on PBGC contracting activities, as well as on participants, 

plans, employees, and budget trends. We also collected data to identify 

trends regarding how PBGC has relied on contractors to conduct its work. 

To do this, we reviewed contracting data from fiscal years 2000 through 

2007. We determined that PBGC’s data were sufficiently reliable for the 

purposes of this report. 

To assess the steps PBGC has taken to improve its acquisition 

infrastructure and develop a strategic approach, we compared PBGC’s 

acquisition infrastructure to standards outlined in GAO’s acquisition 

framework.1

 Use of the framework enabled us to conduct a high-level,

qualitative assessments of the strengths and weaknesses of PBGC’s 

contracting function. Specifically, we evaluated PBGC’s acquisition 

infrastructure in four key areas—organizational alignment and leadership, 

policies and procedures, human capital, and information management. We

also reviewed prior GAO work on best practices in strategic approaches to

the contracting and compared PBGC’s current operations to best 

practices. 

To identify the strategies that PBGC uses to monitor contracts, we 

reviewed applicable laws, regulations, policies and guidance regarding 

contract management at PBGC. Specifically, we reviewed OFPP guidance

related to performance-based contracting to understand PBGC’s 

adherence with federal policy on the subject. We also conducted a 

contract file review of six contract files to assess file fitness and 

completeness along with monitoring and oversight improvements. To 

assess the steps PBGC has taken to improve its contract oversight 

processes to ensure accountability, we reviewed our findings from our 

2000 report and followed up on improvements PBGC has made since then

to its contract monitoring procedures. For each objective, we interviewed 

PBGC senior executives, managers, and programming and contracting 

staff at headquarters, as well as selected contractors. We also interviewed 

officials from PBGC’s Office of Inspector General and reviewed relevant 

Inspector General reports. 

 1

GAO, Framework for Assessing the Acquisition Function at Federal Agencies, 

GAO-05-218G (Washington, D.C.: Sept. 2005). PBGC-OIG, Trend Analysis Report: PBGC 

Procurement Issues From 2000-2007, 2007-6/CA-0036 (Washington, D.C., July 26, 2007). 

Page 33 GAO-08-871 Pension Benefit Guaranty Corporation
Appendix I: Scope and Methodology 

We conducted this performance audit from May 2007 to August 2008, in

accordance with generally accepted government auditing standards. Those 

standards require that we plan and perform the audit to obtain sufficient, 

appropriate evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the evidence 

obtained provides a reasonable basis for our findings and conclusions 

based on our audit objectives. 

Page 34 GAO-08-871 Pension Benefit Guaranty Corporation
Appendix II: Comments from the Pension Appendix II: Comments from the Pension Benefit Guaranty Corporation 

Benefit Guaranty Corporation 

Page 35 GAO-08-871 Pension Benefit Guaranty Corporation
Appendix II: Comments from the Pension

Benefit Guaranty Corporation 

Page 36 GAO-08-871 Pension Benefit Guaranty Corporation
Appendix II: Comments from the Pension

Benefit Guaranty Corporation 

Page 37 GAO-08-871 Pension Benefit Guaranty Corporation
Appendix III: GAO

A

 Contact and Staff 

cknowledgments 

Page 38 GAO-08-871 

Appendix III: GAO Contact and Staff 

Acknowledgments 

Barbara Bovbjerg (202) 512-7215 or bovbjergb@gao.gov

The following team members made key contributions to this report: Blake 

Ainsworth, Assistant Director; Lara Laufer and Monika Gomez, Analystsin-Charge; Jeffrey Bernstein; Susannah Compton; Jena Sinkfield; Najeema 

Washington; and Craig Winslow. 

GAO Contact 

Staff 

Acknowledgments 

Pension Benefit Guaranty Corporation
Related GAO Products Related GAO Products 

Pension Benefit Guaranty Corporation: Governance Structure Needs 

Improvements to Ensure Policy Direction and Oversight. GAO-07-808. 

Washington, D.C.: July 6, 2007. 

High-Risk Series: An Update. GAO-07-310. Washington, D.C.: January 

2007. 

Framework for Assessing the Acquisition Function at Federal Agencies. 

GAO-05-218G. Washington, D.C.: September 2005. 

Private Pensions: The Pension Benefit Guaranty Corporation and LongTerm Budgetary Challenge. GAO-05-772T. Washington, D.C.: June 9, 2005.

Contract Management: Opportunities to Improve Surveillance on 

Department of Defense Service Contracts. GAO-05-274. Washington, D.C.: 

March 17, 2005. 

Federal Procurement: Spending and Workforce Trends. GAO-03-443. 

Washington, D.C.: April 30, 2003. 

Contract Management: Guidance Needed for Using Performance-Based 

Service Contracting. GAO-02-1049. Washington, D.C.: September 23, 2002. 

Best Practices: Taking a Strategic Approach Could Improve DOD’s 

Acquisition of Services. GAO-02-230. Washington, D.C.: January 18, 2002. 

Pension Benefit Guaranty Corporation: Appearance of Improper 

Influence in Certain Contract Awards. T-OSI-00-17. Washington, D.C.: 

September 21, 2000. 

Pension Benefit Guaranty Corporation: Contract Management Needs 

Improvement. T-HEHS-00-199. Washington, D.C.: September 21, 2000. 

Pension Benefit Guaranty Corporation: Contracting Management Needs 

Improvement. GAO/HEHS-00-130. Washington, D.C.: September 18, 2000. 

High-Risk Series: An Overview. GAO/HR-95-1. Washington, D.C.: 

February 1, 1995. 

High-Risk Series: Pension Benefit Guaranty Corporation. GAO/HR-93-5. 

Washington, D.C.: December 1, 1992.

Related PBGC Inspector General Reports 

Page 39 GAO-08-871 Pension Benefit Guaranty Corporation
Related GAO Products 

Trend Analysis Report: PBGC Procurement Issues From 2000-2007, 

2007-6/CA-0036. Washington, D.C., July 26, 2007.

Evaluation of the Field Benefits Administration Concept, 2004-9/23178. 

Washington, D.C., April 30, 2004. 

(130666) Page 40 GAO-08-871 Pension Benefit Guaranty Corporation
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