DEFENSE 

ACQUISITIONS

Further Actions 

Needed to Improve 

Accountability for 

DOD’s Inventory of 

Contracted Services

Report to Congressional Committees

April 2012

GAO-12-357

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-357, a report to 

congressional committees

April 2012

DEFENSE ACQUISITIONS

Further Actions Needed to Improve Accountability 

for DOD's Inventory of Contracted Services

Why GAO Did This Study

DOD relies on contractors to perform 

many functions, which can offer 

benefits for DOD. GAO’s work has 

shown that reliance on contractors to 

support core missions, however, can 

place DOD at risk of contractors 

performing inherently governmental 

functions.

In 2008, Congress required DOD to 

compile and review an annual 

inventory of contractors working under 

contracts for services. The 2010

defense authorization act directed 

GAO to report for 3 years on these 

inventories. In January 2011, GAO 

reported on limitations to DOD’s 

inventory approach. For this report, 

GAO assessed (1) DOD’s progress in 

addressing these limitations and 

(2) the extent to which the military 

departments addressed instances of 

contractors performing functions 

identified as inherently governmental 

during reviews of their fiscal year 2009 

inventories. GAO reviewed DOD 

guidance, interviewed acquisition and 

manpower officials, and assessed 12 

instances from a nongeneralizable 

sample in which the Air Force and 

Army determined that contractors had

performed inherently governmental 

functions.

What GAO Recommends

GAO recommends that the military 

departments and components develop 

guidance that provides for clear lines of 

authority, responsibility, and 

accountability for conducting an 

inventory review and that the Army and 

Air Force resolve known instances of 

contractors performing inherently 

governmental functions. DOD largely 

agreed with GAO’s recommendations. 

What GAO Found

The Department of Defense (DOD) made a number of changes to improve the 

utility of the fiscal year 2010 inventory, such as centrally preparing contract data 

to provide greater consistency among DOD components and increasing the level 

of detail on the services provided. DOD, however, continued to rely primarily on 

the Federal Procurement Data System-Next Generation (FPDS-NG) for the 

inventory for most defense components other than the Army. As such, DOD 

acknowledged a number of factors that limited the utility, accuracy, and 

completeness of the inventory data. For example, FPDS-NG does not identify 

more than one type of service purchased for each contract action, provide the 

number of contractor full-time equivalent personnel, or identify the requiring 

activity. As before, the Army used its Contractor Manpower Reporting Application 

to compile its fiscal year 2010 inventory. This system collects data reported by 

contractors on services performed at the contract line item level, including 

information on labor hours and the function and mission performed. DOD officials 

noted that the Army’s current process complies with legislative requirements. In 

January 2011, GAO recommended that DOD develop a plan with time frames 

and the necessary resources to facilitate its efforts to collect contractor 

manpower data and address other limitations in its approach to meeting 

inventory requirements. DOD concurred with these recommendations. In 

November 2011, DOD submitted to Congress a plan to collect contractor 

manpower data. DOD officials noted that developing a common data system to 

collect and house these data would be challenging given the different 

requirements from the military departments and components. Consequently, 

DOD does not expect to fully collect contractor manpower data until fiscal year 

2016. DOD’s plan, however, does not establish milestones or specify how it will 

meet the legislative requirement to identify the requiring activity and the function 

and missions performed by the contractor. 

Military departments’ required reviews of their fiscal year 2009 inventories of 

contracted services were incomplete. Navy headquarters officials had no 

assurance that their commands conducted the required reviews, and GAO found 

no evidence at the commands it contacted that the required reviews were 

conducted. Army and Air Force inventory reviews identified 1,935 and 91 

instances, respectively, in which contractors were performing inherently 

governmental functions, though this variation may reflect differences in the 

departments’ approaches to conducting the reviews. In 8 of the 12 Army and Air 

Force cases GAO reviewed, contractors continued to perform functions the 

military departments identified as inherently governmental. The absence of 

guidance that provided for clear lines of responsibility for conducting, 

documenting, and addressing the results of the reviews contributed to these 

outcomes. Further, Army officials cited difficulty in hiring DOD civilians caused by

DOD’s decision to freeze civilian full-time equivalents at fiscal year 2010 levels. 

DOD issued guidance in December 2011 that will require the military 

departments and components to certify that they have conducted the required 

reviews. The guidance, however, does not clearly establish lines of accountability 

and responsibility within the military departments and defense components for 

conducting the inventory reviews and addressing instances where contractors 

are identified as performing inherently governmental functions. 

View GAO-12-357. For more information, 

contact John P. Hutton at (202) 512-4841 or 

huttonj@gao.gov or Cary B. Russell at (404)

679-1808 or russellc@gao.gov. 
Page i GAO-12-357 DOD Inventory of Contracted Services

Letter 1 

Background 5

DOD Has Made Limited Progress in Addressing Limitations to Its 

Inventory Approach 9

Reviews of the Fiscal Year 2009 Inventories Were Incomplete and 

Did Not Fully Address Issues with Contractors Performing 

Inherently Governmental Functions 17

Conclusions 26

Recommendations for Executive Action 27

Agency Comments and Our Evaluation 28

Appendix I Scope and Methodology 32

Appendix II Comments from the Department of Defense 36

Appendix III GAO Contacts and Staff Acknowledgments 39

Tables

Table 1: Fiscal Year 2009 Spending on Services and Number of 

Instances and Types of Functions Where Contractors Were 

Identified by Military Departments to Be Performing 

Inherently Governmental Functions 18

Table 2: Status of Inherently Governmental Functions Reviewed 22

Figure

Figure 1: Relationship among the Inventory of Contracted Services, 

In-sourcing, and Budget Documentation Requirements 9

Contents
Page ii GAO-12-357 DOD Inventory of Contracted Services

Abbreviations

AT&L Office of the Under Secretary of Defense for Acquisition, 

 Technology, and Logistics

CMRA Contractor Manpower Reporting Application

DOD Department of Defense

FPDS-NG Federal Procurement Data System-Next Generation

FTE full-time equivalent

P&R Office of the Under Secretary of Defense for Personnel 

 and Readiness

This is a work of the U.S. government and is not subject to copyright protection in the 

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Page 1 GAO-12-357 DOD Inventory of Contracted Services

United States Government Accountability Office

Washington, DC 20548

April 6, 2012

Congressional Committees

The Department of Defense (DOD), the federal government’s largest 

purchaser of contractor-provided services, reported $204 billion in 

obligations for service contracts in fiscal year 2010. DOD relies on 

contractors to perform functions as varied as professional and 

management support, information technology support, and weapon 

system and intelligence support. While there are benefits to using 

contractors to perform services for the government, our work has shown 

that reliance on contractors to support core missions can place the 

government at risk of becoming overly reliant on contractors to perform 

closely associated with inherently governmental functions or creating 

circumstances in which contractors perform functions deemed inherently 

governmental.1 Over the past decade, our work has identified the need 

for DOD to obtain better data on its contracted services to enable it to 

make more strategic workforce decisions and ensure that it maintains 

appropriate control of government operations.2

In recent years, Congress has enacted legislation to improve the 

department’s ability to manage its acquisitions of services; to make more 

strategic decisions about the right workforce mix of military, civilian, and 

contractor personnel; and to align resource needs better through the 

DOD has put a number of 

efforts in place to gain better insights into its acquisition of services, but 

its efforts have had mixed success to date.

 

1

Inherently governmental functions, as a matter of policy, are so intimately related to the 

public interest as to require performance by government employees and include functions 

that require discretion in applying government authority or value judgments in making 

decisions for the government. Federal Acquisition Regulation § 7.503(c) provides 

examples of such functions. In addition, closely associated with inherently governmental 

functions are those that while not inherently governmental, may approach the category 

because of the nature of the function, the manner in which the contractor performs the 

contract, or the manner in which the government administers performance under a 

contract. Federal Acquisition Regulation § 7.503(d) provides examples of such functions. 

2

See, for example, GAO, Defense Management: DOD Needs to Reexamine Its Extensive 

Reliance on Contractors and Continue to Improve Management and Oversight, 

GAO-08-572T (Washington, D.C.: Mar. 11, 2008), and Defense Acquisitions: Tailored 

Approach Needed to Improve Service Acquisition Outcomes, GAO-07-20 (Washington, 

D.C.: Nov. 9, 2006).

 
 

Page 2 GAO-12-357 DOD Inventory of Contracted Services

budget process to achieve that mix. For example, section 2330a of title 10 

of the U.S. Code requires DOD to annually compile and review an 

inventory of activities performed pursuant to contracts to help provide 

better insights into the number of contractor full-time equivalents (FTE) 

providing services to the department and the functions they are 

performing. In addition, the inventories are to be used to identify, among 

other things, whether contractors were performing inherently 

governmental functions and to help inform workforce mix decisions. To 

date, DOD has submitted annual inventories to Congress for fiscal years 

2007, 2008, 2009, and 2010. The fiscal year 2010 inventory was 

submitted on September 8, 2011.

Section 803(c) of the National Defense Authorization Act for Fiscal Year 

2010 directs GAO to report for 3 years on the inventory of activities 

performed pursuant to contracts for services that are to be submitted by 

the Secretary of Defense, in 2010, 2011, and 2012, respectively.3 Most 

recently, in January 2011 we assessed the approaches used to compile 

the fiscal year 2009 inventories and recommended that DOD develop a 

plan of action to facilitate the department’s stated intent of collecting 

contractor manpower data and to address other limitations in its approach 

to meeting the statutory inventory requirements.4

 

3

Pub. L. No. 111-84 (2009).

For example, in the 

absence of a single department-wide data system that could provide the 

data necessary to respond to the legislative reporting requirements, most 

DOD components, other than the Army, relied on data from the Federal 

Procurement Data System-Next Generation (FPDS-NG). DOD 

acknowledged that using FPDS-NG as the main data source for the 

inventories has a number of limitations. These limitations include that 

FPDS-NG does not provide the number of contractor FTEs performing 

each service, identify the requiring activity, or allow for the identification of 

all services being procured. In contrast, the Army used its existing 

process, which incorporated contractor-reported data, including direct 

labor hours, from its Contractor Manpower Reporting Application (CMRA). 

Further, we reported that the military departments differed both in their 

approaches to reviewing the activities performed by contractors and the 

extent to which they used the inventories to inform workforce decisions. 

4

GAO, Defense Acquisitions: Further Action Needed to Better Implement Requirements 

for Conducting Inventory of Service Contract Activities, GAO-11-192 (Washington, D.C.: 

Jan. 14, 2011).
 

Page 3 GAO-12-357 DOD Inventory of Contracted Services

For example, the Army implemented a centralized approach to identify 

and assess the functions being performed by contractors and used such 

assessments to inform workforce decisions. In contrast, the Air Force and 

Navy used decentralized approaches that relied on major commands to 

review their contracted activities, but made relatively limited use of the 

inventories to inform their workforce decisions.

To satisfy the mandate for 2011, we assessed (1) the progress DOD has 

made in addressing limitations when compiling the fiscal year 2010 

inventory of contracted services and in developing a strategy to obtain 

contractor manpower data and (2) the extent to which the military 

departments addressed issues with contractors performing inherently 

governmental functions identified during reviews of their fiscal year 2009 

inventories.

To assess the progress DOD has made in addressing limitations when 

compiling the fiscal year 2010 inventory and in developing a strategy to 

obtain contractor manpower data, we reviewed relevant guidance related 

to the inventory compilation processes used for fiscal year 2010 and 

interviewed officials from the Office of the Under Secretary of Defense for 

Acquisition, Technology, and Logistics (AT&L), Office of Defense 

Procurement and Acquisition Policy; the Office of the Under Secretary of 

Defense for Personnel and Readiness (P&R); and the departments of the 

Army, Navy, and Air Force. We also reviewed plans submitted by the 

military departments and defense components to obtain contractor 

manpower data directly from contractors.

To assess the extent to which the military departments addressed 

instances in which contractors were performing inherently governmental 

functions, we used data from the fiscal year 2009 inventory reviews, 

which was the most current review available at the time we began our 

work. To do so, we reviewed a total of 12 instances in which contractors 

were identified as performing inherently governmental functions. We 

selected two Army commands and one Air Force component based in 

part on the number of such instances they had identified. For the Army, 

we randomly selected 2 instances at the Training and Doctrine Command 

and 1 at the Acquisition Support Center. In addition, we reviewed 6 

instances where contractors were performing the duties of Department of 

the Army systems coordinators. The Army’s 2010 acquisition review 

chartered by the Secretary of the Army determined these positions to be 
 

Page 4 GAO-12-357 DOD Inventory of Contracted Services

inherently governmental.5

At the time we initiated our work, Navy headquarters officials did not have 

the results of their fiscal year 2009 inventory review process available and 

subsequently acknowledged that they were uncertain whether their 

commands conducted the required reviews. Consequently, we 

considered DOD’s fiscal year 2010 in-sourcing data that were reported to 

Congress in September 2011. From the Navy’s in-sourcing data, we 

selected Fleet Forces Command and Space and Naval Warfare Systems 

Command for further review based on the number of positions they 

reported as in-sourced based on contractor performance of an inherently 

governmental function. We did not review individual Navy contracts 

because Space and Naval Warfare Systems Command officials told us 

that it was not possible to track the positions to specific contracts. Also, 

we found that the commands subsequently reported that the functions 

were not inherently governmental and were in-sourced for other reasons, 

such as to provide Navy personnel career progression opportunities. A 

detailed description of our scope and methodology is included in 

appendix I.

The Air Force provided data to us in September 

2011 that summarized the results of its inventory review process, 

including functions being performed by contractors that it identified as 

inherently governmental. From these data, we determined that the Air 

National Guard had the largest number of inherently governmental 

functions being performed by contractors, and we randomly selected 3

instances for review. We reviewed the relevant contract files and 

interviewed program and contracting officials responsible for the 

performance of these functions to determine what steps the military 

departments took once the review process identified the functions as 

inherently governmental. We did not independently assess whether the 

functions the military departments identified were in fact inherently 

governmental. While these cases illustrate the extent to which DOD took 

actions to resolve instances in which the military departments identified 

that contractors had performed inherently governmental functions, the 

results of our analysis are not generalizable to the more than 2,000 

instances where contractors were performing inherently governmental 

functions, as identified by the military departments.

 

5

Army Strong: Equipped, Trained and Ready: Final Report of the 2010 Army Acquisition 

Review, John M. McHugh, Secretary of the Army (January 2011).
 

Page 5 GAO-12-357 DOD Inventory of Contracted Services

We conducted this performance audit between July 2011 and April 2012 

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.

In part to improve the availability of information on and management of 

DOD’s acquisition of services, Congress enacted section 2330a of title 10 

of the U.S. Code, which required the Secretary of Defense to establish a 

data collection system to provide management information on each 

purchase of services by a military department or defense agency.6 The 

information to be collected includes, among other things, the total dollar 

amount of the purchase and the extent of competition provided in making 

the purchase. In 2008, Congress amended section 2330a to add a 

requirement for the Secretary of Defense to submit an annual inventory of 

the activities performed pursuant to contracts for services for or on behalf 

of DOD during the preceding fiscal year.7

• the function and missions performed by the contractor;

The inventory is to include a 

number of specific data elements for each identified activity, including

• the contracting organization, the component of DOD administering the 

contract, and the organization whose requirements are being met 

through contractor performance of the function;

• the funding source for the contract by appropriation and operating 

agency;

• the fiscal year the activity first appeared on an inventory;

• the number of full-time contractor employees (or its equivalent) paid 

for performance of the activity;

• a determination of whether the contract pursuant to which the activity 

is performed is a personal services contract; and

• a summary of the information required by section 2330a(a) of title 10 

of the U.S. Code.

 

6

The National Defense Authorization Act for Fiscal Year 2002, Pub. L. No. 107-107, 

§ 801(c) (2001).

7

The National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-81, § 807.

Background 
 

Page 6 GAO-12-357 DOD Inventory of Contracted Services

As implemented by DOD, components are to compile annual inventories 

of activities performed on their behalf by contractors and submit them to 

AT&L, which is to formally submit a consolidated DOD inventory to 

Congress no later than July 31. Once compiled, the inventory is to be 

made public and within 90 days of the date on which the inventory is 

submitted to Congress, the secretary of the military department or head of 

the defense agency responsible for activities in the inventory is to review 

the contracts and activities for which they are responsible and ensure that 

any personal services contracts in the inventory were properly entered 

into and are being performed appropriately; that the activities in the 

inventory do not include inherently governmental functions; and to the 

maximum extent practicable, that activities on the list do not include any 

functions closely associated with inherently governmental functions.8

In January 2011, Congress amended section 2330a(c) of title 10 of the 

U.S. Code to specify that the Under Secretaries of Defense for Personnel 

and Readiness; Acquisition, Technology and Logistics; and the Office of 

the Comptroller are responsible for issuing guidance for compiling the 

inventory.9

Further, in December 2011, section 936 of the National Defense 

Authorization Act for Fiscal Year 2012 amended section 2330a of title 10 

of the U.S. Code to clarify the types of contracted services to be 

inventoried, including contracts for goods to the extent services are a 

significant component of the contract. In addition, it addressed the 

manner in which contractor FTEs are captured for inventory purposes.

This section also directed the secretary of the military department or head 

of the defense agency responsible for activities in the inventory to 

develop a plan, including an enforcement mechanism and approval 

process, to

Section 2330a(c) was also amended to state that DOD is to 

use direct labor hours and associated cost data reported by contractors 

as the basis for the number of contractor FTEs identified in the inventory, 

though it provided that DOD may use estimates where such data are not 

available and cannot reasonably be made available in a timely manner.

 

8

10 U.S.C. § 2330a(e).

9

The Ike Skelton National Defense Authorization Act for Fiscal Year 2011, Pub. L. No. 

111-383, § 321.
 

Page 7 GAO-12-357 DOD Inventory of Contracted Services

• provide for the use of the inventory by the military department or 

defense agency to aid in the development of its annual personnel 

authorization requests to Congress and in carrying out personnel 

policies;

• ensure that the inventory is used to inform strategic workforce 

planning;

• facilitate the use of the inventory for budgetary purposes; and

• provide for appropriate consideration of the conversion of activities to 

performance by government employees.

Section 931 of the National Defense Authorization Act for Fiscal Year 

2012 also mandated that DOD use the inventories when making 

determinations regarding the appropriate workforce mix necessary to 

perform its mission.10

In addition to the laws and guidance that govern the compilation of the 

inventory and the inventory review processes, Congress also added 

section 2463 to title 10 of the U.S. Code, which requires P&R to develop 

guidelines and procedures to ensure that consideration is given to using 

DOD civilian employees to perform functions that are currently performed 

by a contractor—a process generally referred to as in-sourcing—and new 

functions. In particular, these guidelines and procedures are to provide 

special consideration for, among other things, in-sourcing functions 

closely associated with inherently governmental functions that contractors 

are currently performing, or having DOD civilian employees perform new 

requirements that may be closely associated with inherently 

governmental functions. Congress required the Secretary of Defense to 

make use of the inventories created under section 2330a(c) of title10 of 

the U.S. Code for the purpose of identifying functions that should be 

considered for performance by DOD civilian employees under this 

provision. DOD issued initial in-sourcing guidance in April 2008 and 

additional guidance in May 2009 to assist DOD components in 

implementing this legislative requirement.11

 

10Pub. L. No. 112-81 (2011).

11The National Defense Authorization Act for Fiscal Year 2008, Pub. L. No. 110-181 

§ 324. We recently reported on DOD’s fiscal year 2010 in-sourcing efforts. See GAO,

Defense Workforce: DOD Needs to Better Oversee In-sourcing Data and Align In-sourcing 

Efforts with Strategic Workforce Plans, GAO-12-319 (Washington, D.C.: Feb. 9, 2012). 
 

Page 8 GAO-12-357 DOD Inventory of Contracted Services

Further, the National Defense Authorization Act for Fiscal Year 2010 

provided for a new section 115b in title 10 of the U.S. Code that requires 

DOD to annually submit to the defense committees a strategic workforce 

plan to shape and improve the civilian workforce. Among other 

requirements, the plan is to include an assessment of the appropriate mix 

of military, civilian, and contractor personnel capabilities. P&R is 

responsible for developing and implementing the strategic plan in 

consultation with AT&L. The act also added section 235 to title 10 of the 

U.S. Code, which requires the Secretary of Defense to include 

information in DOD’s annual budget justification materials regarding the 

procurement of contracted services. Specifically, the legislation requires 

for each budget account to identify clearly and separately (1) the amount 

requested for the procurement of contract services for each DOD 

component, installation, or activity and (2) the number of contractor FTEs 

projected and justified for each DOD component, installation, or activity 

based on the inventory and associated reviews.12

Collectively, these statutory requirements mandate the use of the 

inventory and the associated review process to help identify functions for 

possible conversion from contractor performance to DOD civilian 

performance, support the development of DOD’s annual strategic 

workforce plan, and specify the number of contractor FTEs included in its 

annual budget justification materials. Figure 1 illustrates the relationship 

among the related statutory requirements.

DOD’s fiscal year 2013 

budget guidance to DOD components requires the budget estimates to be 

informed by the fiscal year 2010 inventory for contracted services.

 

12The National Defense Authorization Act for Fiscal Year 2010, Pub. L. No. 111-84 

§ 1108(a)(1) and 803 (a) (2009). We did not assess DOD’s implementation of this 

requirement as part of this review. 
 

Page 9 GAO-12-357 DOD Inventory of Contracted Services

Figure 1: Relationship among the Inventory of Contracted Services, In-sourcing, and Budget Documentation Requirements

DOD made a number of changes to improve the consistency of the fiscal 

year 2010 inventory, but it continued to rely primarily on data collected in 

FPDS-NG for the inventory for all defense components other than the 

Army and the TRICARE Management Activity. As such, DOD 

acknowledged that the factors that limited the utility, accuracy, and 

completeness of using FPDS-NG remained. In November 2011, DOD 

submitted to Congress a plan that included instructions to the military 

departments and DOD components to document contractor FTEs and 

begin the collection of contractor manpower data. DOD officials noted that 

developing a common data system to collect and house contractor 

manpower data would be challenging given the different requirements of 

the military departments and components. Consequently, DOD does not 

expect to be able to fully collect contractor-reported direct labor 

information until fiscal year 2016. Further, DOD has not established 

milestones or time frames for the development and implementation of the 

data system nor has it specified how it will obtain the remaining required 

DOD Has Made 

Limited Progress in 

Addressing 

Limitations to Its 

Inventory Approach
 

Page 10 GAO-12-357 DOD Inventory of Contracted Services

data, such as identifying the requiring activity and all functions and 

missions performed by the contractor, to meet the legislative inventory 

requirements.

DOD’s approach to compiling its fiscal year 2010 inventory was similar to 

what DOD used for its fiscal year 2009 inventory. AT&L officials noted, 

however, that they had implemented several changes to improve the 

fiscal year 2010 inventory’s utility. For example, AT&L did the following:

• Centrally prepared and provided each component with a list that 

reflected the specific categories of services that were to be included in 

the inventory to provide greater consistency among DOD 

components.13 In contrast, DOD components compiled their own 

contract lists for the fiscal year 2009 inventories.

• Increased the detail available on the services provided by using 

product and service codes at the four-digit level rather than at the 

broader, one-digit level used in the fiscal year 2009 inventory.14 For 

example, in the fiscal year 2009 inventory, contracts for dentistry 

services were reported under the broader category of medical 

services, which had an average cost of about $107,000 per FTE.15 In 

fiscal year 2010, dentistry services were reported separately from the 

medical services category with an average cost of $89,000 per FTE.

• Updated labor rates to account for changes in service costs. These 

rates are based on costs, by product and service code, derived using 

fiscal year 2010 information from the Army’s CMRA.

 

13All categories of services identified in FPDS-NG were included in the inventory, except 

services related to research and development (except program management), lease of 

facilities and equipment, and construction.

14Product and service codes describe the products, services, and research and 

development purchased by the federal government. The codes indicate what was bought 

for each contract action in FPDS-NG. However, users of FPDS-NG are directed to enter

only one product and service code for each contract action—for example, task order—into 

FPDS-NG and, for those instances where more than one service was provided, they are 

to enter the product and service codes that represent most of the value of the contract 

action.

15A contractor FTE is defined as a standard measure of labor that equates to 1 year of 

full-time work (labor hours as defined by the Office of Management and Budget Circular A11 each year) to support a mission requirement. 

Some Refinements Were 

Made to the Fiscal Year 

2010 Inventory, but 

Previously Identified 

Limitations with Using 

FPDS-NG Remain
 

Page 11 GAO-12-357 DOD Inventory of Contracted Services

In addition, DOD components were allowed to update or revise the 

contract lists provided by AT&L as appropriate. For example, Air Force 

officials stated that for the fiscal year 2010 inventory they used their 

financial system to cross-walk the contractual, financial, and requiring 

activity information with the information that was provided by AT&L. The 

updated information, according to Air Force officials, allowed them to 

include all Air Force-funded service contracts awarded by non-DOD 

agencies, provided greater fidelity in the inventory and enabled the Air 

Force to use the inventory to inform the development of budget 

justification materials.

Further, AT&L in cooperation with DOD components aligned the product 

and service code functions to missions by organizing their spending into 

six portfolios developed by the Office of Defense Procurement and 

Acquisition Policy. AT&L officials stated that this alignment was intended 

to provide better organization and visibility into services being acquired 

and what missions they support. AT&L also sought to identify the 

“requiring activity” down to the major command level by using the “funding 

office” as a surrogate measure.16

In compiling DOD’s 2010 inventory, however, DOD officials continued to 

rely primarily on data collected in FPDS-NG for all defense components 

other than the Army and the TRICARE Management Activity. As such, 

DOD officials acknowledged that the factors that limited the utility, 

accuracy, and completeness of using FPDS-NG remained. These 

limitations include not being able to identify and record more than one

type of service purchased for each contracting action entered into the 

system, not being able to capture any services performed under contracts 

that are predominantly for supplies, not capturing service contracts 

awarded on behalf of DOD by non-DOD agencies, not being able to 

AT&L officials, however, acknowledged 

that the requiring activity does not always correspond to the funding 

office. Collectively, according to AT&L officials, the additional level of 

detail will provide more accurate costs associated with the services being 

acquired and could potentially aid in better planning and budgeting for 

service acquisitions.

 

16The requiring activity is the organization charged with fulfilling a mission for or on behalf 

of DOD, and is responsible for delivering the service to satisfy the mission, even if the 

effort is contracted to the private sector. 
 

Page 12 GAO-12-357 DOD Inventory of Contracted Services

identify the requiring activity specifically, and not being able to determine 

the number of contractor FTEs used to perform each service.17

As with the fiscal year 2009 inventory, AT&L authorized the Army to 

continue to use its CMRA data system.18

Overall, DOD reported that in fiscal year 2010, 23 components submitted 

inventories and estimated that about 623,000 contractor FTEs provided 

services to DOD under contracts with obligations totaling about 

CMRA is intended to capture 

data directly reported by contractors on each service performed at the 

contract line item level, including information on the direct labor dollars, 

direct labor hours, total invoiced dollars, the functions and mission 

performed, and the Army unit on whose behalf contractors are performing 

the services. In instances where contractors are performing different 

services under the same order, or are performing services at multiple 

locations, they can enter additional records in CMRA to capture 

information associated with each type of service or each location. Under 

its approach, unlike the Air Force and the Navy, the Army included all 

categories of research and development services in its inventory and 

identified the services provided under contracts for goods. To report the 

number of contractor FTEs, the Army indicated that it divided the number 

of direct labor hours reported by a contractor in CMRA for each service 

performed by 2,088, the number of labor hours in a federal employee 

work year. For other data elements in its inventory, such as the funding 

source and contracting organization, the Army relied on the Army 

Contract Business Intelligence System and updates from resource 

managers, contracting officer’s representatives, and other officials.

 

17For example, in January 2011, we reported that AT&L’s guidance instructed DOD 

components to record in the inventory the category of service with the predominant 

amount of dollars, although more than one category of service may be purchased under a 

contract action. Further, we reported that DOD and military department officials expressed 

concerns that the average direct labor rates and average ratios in AT&L’s approach to 

estimate contractor FTEs did not reflect the services for which they contract, which may 

cause significant variations, either over- or underreporting, for specific categories of 

services and particular contracts. See GAO-11-192. 

18The TRICARE Management Activity also used an alternate approach, which collected

manpower data directly from contractors, though its calculation of contractor FTEs was 

estimated using a census. TRICARE Management Activity officials directed each 

contractor associated with the fiscal year 2010 inventories to formulate a total number of 

direct labor FTEs, both salaried and hourly. The TRICARE Management Activity’s count 

reflects direct labor for the prime contract, excluding subcontract labor and clinical support 

agreement employees.
 

Page 13 GAO-12-357 DOD Inventory of Contracted Services

$121 billion. In comparison, for fiscal year 2009, DOD reported that 22 

components submitted inventories and estimated that about 767,000 

contractor FTEs provided services to DOD under contracts with 

obligations totaling about $155 billion. DOD officials cautioned against 

comparing the number of contractor FTEs for fiscal year 2009 and fiscal 

year 2010 given the differences in the estimating formula, the changes in 

reporting for the research and development category, and other factors. 

Over the past year, DOD initiated efforts to collect manpower data directly 

from contractors. These efforts were, in part, in response to 

Congressional direction in section 8108 of the Fiscal Year 2011 Defense 

Appropriations Act, which made $2,000,000 available to both the Air 

Force and the Navy for leveraging the Army’s CMRA system to document 

contractor FTEs and meet all the requirements of section 2330a(e) and 

section 235 of title 10 of the U.S. Code.19

In August 2011, the Navy and the Air Force submitted their plans to 

leverage the Army’s CMRA data system. In their plans, the Navy and the 

Air Force indicated that they would begin developing requirements for a 

contractor manpower data collection system, but noted that 

implementation would not begin until the end of fiscal year 2012 or later. 

Navy and Air Force officials said they wanted to ensure that the data 

collection system they implemented had the necessary capability to 

inform other DOD workforce initiatives, such as in-sourcing, and to meet 

the information technology requirements set by their military departments. 

Subsequently, in September 2011, DOD components started submitting 

their plans for reporting contractor FTEs. Some DOD components noted 

that they would begin modifying existing and future contracts to require 

the collection of manpower data directly from contractors starting as early 

as October 2011 and that it would take about a year to modify all their 

existing contracts. Components also indicated that after the contracts 

It further required the military 

departments and DOD components to submit their plans for reporting 

contractor FTEs no later than June 15, 2011. DOD did not meet this 

deadline, but it submitted an interim response to Congress in July 2011 

detailing a time frame for DOD components to complete and submit their 

individual plans.

 

19Department of Defense and Full-Year Continuing Appropriations Act, 2011, Pub. L. No. 

112-10, § 8108.

DOD Efforts to Collect 

Contractor Manpower

Data
 

Page 14 GAO-12-357 DOD Inventory of Contracted Services

were modified, they would begin collecting the data by conducting manual 

data calls, implementing the Army’s CMRA system, or using other internal 

processes. The Navy did not include a time frame for modifying contracts, 

while the Air Force estimated that it would take approximately 5 years to 

modify all its contracts. As of February 2012, 43 of the 44 DOD 

components, including the Army, Navy, and Air Force, had submitted their 

plans to Congress.

Subsequent to submitting these individual plans, DOD continued to revise 

its approach, as both P&R and AT&L officials expressed concerns about 

aspects of the timing and approach reflected in the components’ plans. 

For example, P&R officials noted that the Navy’s August 2011 plan to 

leverage the Army’s system to collect manpower data directly from 

contractors “lacks clear and decisive actions and milestones to meet the 

requirement.” Further, AT&L officials noted that requiring contractors to 

provide contractor manpower data will require approval from the Office of 

Management and Budget, as provided for under the Paperwork 

Reduction Act.20

In November 2011, DOD issued a department-wide plan intended to meet 

the legislative inventory requirements, including those for collecting 

contractor manpower data and documenting contractor FTEs. DOD plans 

to establish a common data system to collect and house contractor 

manpower data for the entire department and develop a comprehensive 

instruction on the development, review, and use of the contracted 

services inventories. To do so, the Office of the Deputy Chief 

Management Officer, P&R, and other stakeholders formed a working 

group to help develop and implement the data system and ensure that it 

leverages existing solutions, such as the Army’s CMRA system. DOD’s 

November 2011 plan noted that the Army currently has reporting 

processes and an infrastructure in place to comply with section 2330a of 

title 10 of the U.S. Code. The plan, however, indicates that DOD will not 

have a common data system in place throughout the department until 

fiscal year 2016. P&R officials indicated that although discussions among 

the working group have begun, obtaining concurrence from military 

departments and components on the capability of a common data system 

may delay implementation.

 

2044 U.S.C. §§ 3501-3521. The Paperwork Reduction Act requires that agencies obtain 

Office of Management and Budget approval before requesting most types of information 

from the public. 
 

Page 15 GAO-12-357 DOD Inventory of Contracted Services

As part of these efforts, DOD submitted an emergency processing 

request to the Office of Management and Budget on the Paperwork 

Reduction Act on December 16, 2011. DOD officials subsequently were 

informed that this request would likely not be approved. Consistent with 

the requirements of the Paperwork Reduction Act, DOD posted a notice 

in the Federal Register on February 7, 2012, seeking public comment on 

its plans to begin collecting direct labor information and other data on 

DOD contracts. DOD indicated that after it reviews the comments 

received by the March 23 deadline, a number of other actions will need to 

be taken before DOD can begin collecting such data. DOD officials further 

indicated that they will need to assess the impact these events will have 

on the actions and timeframes identified in their November 2011 plan.

The Army, which previously received approval from the Office of 

Management and Budget to collect certain contract data from contractors 

using its CMRA system, received a 3-year extension of this approval on 

December 15, 2011.

P&R and AT&L issued guidance on the submission and review of the 

fiscal year 2011 inventory on December 29, 2011. This guidance 

indicates that for fiscal year 2011, the Office of Defense Procurement and 

Acquisition Policy will provide a data set—at the four-digit product and 

service code level derived from FPDS-NG—to each DOD component with 

acquisition authority. Further, the guidance provides a different formula 

for DOD components to use for estimating the number of contractor FTEs 

paid for the performance of an activity based on the amount of direct 

labor hours provided by a contractor under each product and service 

code. Since the Navy, the Air Force, and most DOD components do not 

collect direct labor hours directly from contractors, the guidance indicates 

that DOD components may use the best available data or a variety of 

methodologies, singularly or in combination, to estimate direct labor 

hours. These methodologies include

• collecting direct labor hour information from contractors,

• collecting direct labor hours as reported by the contracting officer’s 

representative for the service during fiscal year 2011,

• referencing the independent government cost estimate or contractor 

technical proposals to extrapolate hours for services provided in fiscal 

year 2011,

• reporting information collected from contract invoices, or

• calculating the number of contractor FTEs by using information 

extrapolated from the manpower data collected by the Army from its 

contractors.
 

Page 16 GAO-12-357 DOD Inventory of Contracted Services

Under this plan, the Army will continue to use its CMRA system and other 

established tools and processes for preparing and submitting its 

inventory.

DOD officials noted that DOD intends to develop a comprehensive DOD 

instruction for the development, review, and use of the service contract 

inventories. This instruction, which DOD officials indicate will be issued to 

inform the fiscal year 2013 inventory, is expected to shift primary 

responsibility for the inventories from the acquisition community to the 

manpower/personnel community at each DOD component. DOD officials 

also indicated that the instruction will require that in compiling the 

inventory of contracted services, all DOD activities are expected to report 

all services provided in support of or to benefit a DOD component, 

regardless of the source of the funding or acquisition agent. Additionally, 

all DOD activities will include in new contracts, or task and delivery 

orders, the requirement to collect manpower information directly from 

contractors.

In our January 2011 report, we recommended that DOD develop a plan of 

action, including anticipated time frames and necessary resources, to 

facilitate the department’s intent of collecting manpower data and to 

address other limitations in its current approach to meeting inventory 

requirements.21 DOD concurred with our recommendations. DOD’s 

November 2011 plan and December 2011 guidance represent steps in 

the right direction to meet the legislative requirements and implement our 

recommendation, but neither document contains milestones or time 

frames for the development and implementation of a common software 

and hardware data system to collect and house contractor manpower 

data. Further, while these efforts address the collection of contractor 

manpower data, they do not specify how DOD will obtain the remaining 

required data, such as identifying the requiring activity and all functions 

and missions performed by the contractor, to meet the legislative 

inventory requirements.

 

21GAO-11-192. 
 

Page 17 GAO-12-357 DOD Inventory of Contracted Services

Military departments’ required reviews of their fiscal year 2009 inventories 

were incomplete. Navy headquarters officials had no assurance that their 

commands conducted the required reviews, and we found no evidence at 

the Navy commands we contacted that the required reviews were 

conducted. Army and Air Force reviews of their contracted services 

identified 2,026 instances in which contractors were performing inherently 

governmental functions. We found that contractors continued to perform 

functions that were identified as inherently governmental in 8 of the 12 

Army and Air Force cases we reviewed. In some of these cases, the 

Army took steps in response to the inventory review process, such as 

transferring responsibility to military personnel. In contrast, we also found 

that some contractors continued to perform inherently governmental 

functions. For example, Army officials cited difficulty in hiring DOD 

civilians caused by DOD’s decision to freeze civilian FTE levels at the 

fiscal year 2010 level as hindering their ability to resolve instances 

identified during the inventory review process. Moreover, contracting and 

program officials were unaware that the inventory review process had 

identified functions under their contracts as inherently governmental. The 

absence of guidance that provided for clear lines of responsibility and 

accountability for conducting, documenting, and addressing the results of 

the reviews contributed to these outcomes.

The military departments’ reviews of the fiscal year 2009 inventories were 

incomplete as the Navy did not conduct a review. The Army and Air Force 

identified 1,935 and 91 instances, respectively, in which contractors were 

performing inherently governmental functions. The variation in the 

number of cases reported by the Army and the Air Force may reflect

differences in their approaches to conducting the inventory reviews. Table 

1 summarizes the number of inherently governmental functions identified 

by the military departments through their fiscal year 2009 inventory 

reviews.

Reviews of the Fiscal 

Year 2009 Inventories 

Were Incomplete and 

Did Not Fully Address 

Issues with 

Contractors 

Performing Inherently 

Governmental 

Functions 

Military Departments’ 

Reviews of the Fiscal Year 

2009 Inventories Were 

Incomplete 
 

Page 18 GAO-12-357 DOD Inventory of Contracted Services

Table 1: Fiscal Year 2009 Spending on Services and Number of Instances and Types of Functions Where Contractors Were 

Identified by Military Departments to Be Performing Inherently Governmental Functions 

Dollars in billions

Military 

department

Fiscal year 2009

spending on services

Number of

instances of contractors

performing inherently

governmental functions 

Examples of inherently governmental 

functions being performed by contractors

Army $43.0a 1,935 • Engineering and technical services

• Program management

• Professional, administrative, and 

management support services

Air Force $33.1 91b

Navy $39.9 Did not conduct an inventory 

review

N/A

Sources: DOD June 2010 summary report to Congress on the fiscal year 2009 service contract inventory and GAO analysis of Army, 

Air Force, and Navy data.

a

Army data reflect invoiced dollar amounts reported in CMRA rather than obligations reported in 

FPDS-NG.

b

The Air Force’s fiscal year 2009 inventory review included service contracts with obligations through 

the end of August 2010.

The Navy issued guidance in September 2010 requiring its commands to 

conduct a fiscal year 2009 inventory review. The commands were to 

provide a letter within 45 days that certified that they had completed a 

review, identified the number of contracts with inherently governmental 

functions, and provided a corrective action plan. We found no evidence at 

the commands we contacted that the required reviews were conducted. 

For example, Fleet Forces Command officials were not aware of a 

required inventory review and did not recall guidance being issued. 

Similarly, officials from the Navy’s Space and Naval Warfare Systems 

Command stated that they did not recall receiving guidance from Navy 

headquarters to conduct a review of the fiscal year 2009 inventory. Navy 

headquarters officials did not follow up to ensure that the required reviews 
 

Page 19 GAO-12-357 DOD Inventory of Contracted Services

were completed and acknowledged that they could not verify whether 

Navy commands completed the fiscal year 2009 inventory review.22

The Army used a centralized approach that included a headquarters-level 

review of all functions performed by contractors. The Army, for its 

headquarters-level review, established the Panel for Documentation of 

Contractors, which consists of officials from the Office of the Assistant 

Secretary of the Army for Manpower and Reserve Affairs along with 

headquarters officials from the acquisition and manpower planning 

communities. Army guidance directs the commands to provide data to the 

panel, including descriptions of the functions being performed by 

contractors, the organizational unit for which each function is performed, 

and an assessment of whether those functions are inherently 

governmental. The panel reviews information provided by the commands 

and makes an independent determination to assess whether the functions 

are inherently governmental. According to panel officials, function 

descriptions do not always provide insight into the day-to-day activities of 

contractors, sometimes making it difficult to accurately distinguish 

inherently governmental functions from those that are closely associated 

with inherently governmental functions. In instances where there was a 

difference of opinion on the appropriate assessment of a function, 

however, panel and command officials reported that they engaged in 

further discussion in order to reach agreement.

Additionally, the Army’s final 2010 acquisition review chartered by the 

Secretary of the Army identified the Army’s systems coordinator function 

as inherently governmental.23

 

22DOD’s September 2011 in-sourcing report to Congress noted that the two Navy 

commands in our review had in-sourced almost 500 positions to address concerns that 

contractors were performing inherently governmental functions. In February 2012, we 

reported that some of the commands, including those we reviewed, made errors in 

reporting in-sourcing data. For example, 348 of 354 new in-sourcing authorizations by the 

Navy’s Fleet Forces Command were categorized as inherently governmental when they 

should have been categorized as exempt from private sector performance for continuity of 

infrastructure operations. See 

The systems coordinator responsibilities 

include representing program managers at the Pentagon, acting as a 

liaison with Congress, preparing principal staff officers for systems 

reviews, writing background papers for military staff, and representing 

GAO-12-319. Command officials told us that regardless of 

the appropriate categorization of the in-sourcing decisions, they did not use the 

inventories to inform their decisions.

23Army Strong: Equipped, Trained, and Ready.
 

Page 20 GAO-12-357 DOD Inventory of Contracted Services

system program managers on integrated product teams. We found that 

the panel reviewed 19 of the 26 instances identified by the Army during 

the 2009 inventory review where contractors were performing the 

systems coordinator function. An Army manpower official stated that the 

panel process did not identify the remaining 7 instances.

In contrast, we found that the Air Force used a decentralized inventory 

review approach, which delegated primary responsibility for the review of 

its inventory to its major commands and components. In January 2010, 

the Secretary of the Air Force issued guidance instructing its major 

commands and components to conduct an initial review of its fiscal years 

2008 and 2009 inventories of contracted services. According to an Air 

Force inventory official, a headquarters review of the initial information 

submitted by the commands found that approximately 40 percent of the

fiscal year 2009 contracts included for review did not contain adequate 

responses to the required review elements. Because of challenges 

experienced during the initial review, the Secretary of the Air Force issued 

additional guidance in October 2010 requiring major commands to 

complete the review of fiscal year 2009 service contracts that may have 

been missed. To do so, the Air Force headquarters-level acquisition office 

provided each major command and component with a spreadsheet to 

review that contained its portion of the department’s service contracts 

from the beginning of fiscal year 2009 through August 2010. This 

guidance instructed the organizations to determine, among other things, 

whether the activity performed under the contract was an inherently 

governmental function. In addition to the inventory review, however, this 

effort was to help implement the Secretary of Defense’s direction to 

reduce service support contractors, and inform budget justification 

initiatives as they pertained to contractor employees.

As a result of this process, the Air Force identified 91 instances of 

contractors performing inherently governmental functions, the majority of 

those instances for work performed for the Air National Guard and the Air 

Force Space Command. Financial management and contracting officials 

responsible for conducting the reviews at the Air National Guard and Air 

Force Space Command, however, cited concerns with the accuracy and 

completeness of the inventory review data. For example, at the Air 

National Guard, the inventory review efforts were conducted by 

individuals within the financial management office. During the course of 

the inventory reviews, however, at least one staff member responsible for 

the inventory review had left the organization. When we spoke to an Air 

National Guard official in December 2011, she noted that when she 

received the spreadsheet from Air Force headquarters, 37 functions on 
 

Page 21 GAO-12-357 DOD Inventory of Contracted Services

the list were already identified as inherently governmental. Air Force 

officials, however, provided us with documentation to indicate that other 

individuals within the Air National Guard had made the determinations in 

earlier reviews of the inventory data, but these determinations were not 

communicated to the official. Further, officials at both commands stated 

that the time Air Force headquarters allowed for the review was not 

sufficient to review each contract and make an informed determination. 

By reviewing their inventories of contracted services, the Departments of 

the Army and Air Force identified instances in which contractors were 

performing inherently governmental functions, but the departments did 

not ensure that corrective actions were fully implemented. Several options 

are available to DOD when contractors are in fact performing such 

functions, including modifying the statement of work to ensure that the 

work performed is not inherently governmental, assigning responsibility 

for that work to government personnel, or divesting or discontinuing the 

work. In 8 of the 12 cases we reviewed at the Army and the Air Force, 

however, contractors continued to perform functions that the military 

departments had identified as inherently governmental during the fiscal 

year 2009 inventory reviews (see table 2).

Army and Air Force Did 

Not Ensure That Functions 

They Identified as 

Inherently Governmental 

Were Resolved
 

Page 22 GAO-12-357 DOD Inventory of Contracted Services

Table 2: Status of Inherently Governmental Functions Reviewed

Military department/command Contract number/task order Function description

Inherently

governmental functions still

performed by contractors

at the time of our review?

Yes No

Army

Acquisition Support Center W15P7T-06-D-E402/0007 Systems coordinator √

Acquisition Support Center W15P7T-06-D-E402/0060 Systems coordinator √

Acquisition Support Center W15P7T-06-D-E406/0014 Systems coordinator a √

Acquisition Support Center W15P7T-06-D-E406/0014 Systems coordinator a √

Acquisition Support Center W15QKN-06-C-0234 Engineering support √

Acquisition Support Center W31P4Q-05-A-0024/0036 Systems coordinator √

Acquisition Support Center W91260-09-D-0003/1035 Systems coordinator √

Training and Doctrine Command W911S0-09-P-0090 Information technology 

project manager √

Training and Doctrine Command W912SU-04-P-0067 Warehouse supervisor √

Air Force

Air National Guard W912JB-09-D-4000/4005 Administrative support √

Air National Guard W9133L-06-C-0009 Financial services √

Air National Guard W9133L-06-C-0011 Financial services √

Source: GAO analysis of Army and Air Force data.

a

This task order contained two systems coordinator functions.

In 4 cases, contractors are no longer performing the functions that had 

been identified as inherently governmental. In 3 of these cases, according 

to officials, the Army took steps in response to the inventory review 

process, including ensuring that the work was performed by government 

personnel. In the fourth case, contracting and program officials were not 

aware that this function had been identified as inherently governmental 

during the review process, but noted that the function had already been 

in-sourced by the time they became aware of the determination.

• In 2 instances where contractors were performing the Department of 

the Army systems coordinator function under task orders, program 

officials reported that the Army transferred responsibilities for these 

functions to military personnel. In one of these cases, a contracting 

official noted that he had initially limited the period of performance on 

the task order to a 1-year base period with 6-month options because 

of concern at the time of award that this function was, at the very 

least, closely associated with inherently governmental functions and 
 

Page 23 GAO-12-357 DOD Inventory of Contracted Services

because he was aware that the Army wanted to convert this function 

to a civilian position. A military officer replaced the contractor on 

October 31, 2011, when the first 6-month option expired.

• In another case involving a $2.1 million warehouse support contract at 

Army’s Training and Doctrine Command, a command official clarified 

that the function performed by the contractor was not inherently 

governmental. She further explained that she believes the 

performance of this service was identified as such by the Panel for 

Documentation of Contractors because the function description 

included the term “warehouse supervisor”. The command official 

responsible for tracking resolutions determined that the function in 

question involved a contractor supervising his own employees not 

other government employees. She reported that it took 2 years 

working with panel officials to reach agreement and revise the panel’s 

determination.

• The remaining case involved a contractor providing analytical support 

for planning, programming, and budgeting matters under a $470,000 

contract at the Air Force’s Air National Guard. In this case, we 

interviewed a program official and a contracting official in November 

2011 and December 2011, respectively, to determine if they were 

aware that the inventory review process had identified functions under 

this contract as inherently governmental. They stated that they were 

not aware of this determination, but noted that the contract had 

expired in September 2010. The program official further noted that Air 

National Guard had in-sourced all functions previously performed 

under this contract.

In 8 of the cases we reviewed, however, contractors were still performing 

inherently governmental functions, as identified during the inventory 

review process, at the time of our review, for a variety of reasons. For 

example: 

• In 4 instances where it had been determined that contractors had 

been performing the Department of the Army systems coordinator 

function, contractor employees continued to perform these duties. 

According to an Acquisition Support Center official, in June 2011 the 

command requested authorization to replace the contractor 

employees with military personnel. He noted, however, that the 

command had not received authorization at the time of our review. He 

explained, the alternative is to in-source the function and fill the 

positions with civilian personnel. A function, however, may now only 

be in-sourced if the Secretary of the Army personally approves it. In 
 

Page 24 GAO-12-357 DOD Inventory of Contracted Services

February 2011, the Secretary of the Army suspended all approved insourcing actions that had not yet been completed and instituted a new 

in-sourcing request and approval process. The command official 

reported that preparing the in-sourcing package, which includes a 

concept plan, a workload and funding profile analysis, a business 

case, and a contractor inventory review, is a lengthy process, but 

acknowledged that the command had not submitted this package as 

of January 2012.

• In 2 other cases—1 at the Army’s Acquisition Support Center and 1 at 

the Air Force’s Air National Guard—contracting and program officials 

were unaware that the inventory review process had identified 

functions under their contracts as inherently governmental. One case 

involved a $1.1 million contract at Acquisition Support Center for 

engineering support in which the contractor employee provided 

technical expertise and coordination with program office staff, other 

military departments, Congress, and private companies, among other 

duties. The other case involved a $409,000 Air National Guard 

contract for financial analytical support. In both cases, program 

officials stated that even though the original contracts had expired, 

contractors continued to perform the same functions under 

subsequent contracts.

• In another case at the Air National Guard, the inventory review 

process identified a function under a $120,000 task order to provide 

advice and advocacy on Air National Guard positions and programs to 

the Air Staff and other Air Force major commands as inherently 

governmental. In this case, the Director of the Contracting Division, 

with responsibility for this task order, stated that she first became 

aware that the function was identified as inherently governmental in 

October 2010 but disagreed with the determination. She was not 

aware of any process in the Air Force or Air National Guard to resolve 

the disagreement. When the task order expired in May 2011, she 

renewed the function under a separate task order.

• In the remaining case, involving a $6.1 million information technology 

support contract at Army Training and Doctrine Command’s Defense 

Language Institute, a “project manager” function had been identified 

as inherently governmental. A command official noted that the 

contractor employee was no longer performing the function because 

the contract had expired in March 2010. When we reviewed contract 

documents, however, we found that the contract had been extended 

to March 2011. Further, the Defense Language Institute had entered 

into a memorandum of agreement with the Naval Postgraduate 
 

Page 25 GAO-12-357 DOD Inventory of Contracted Services

School to provide the same technology support services. According to 

a program official, a contractor employee is still performing the same 

function under a Navy contract.

In addition to our case studies, Army Manpower and Reserve Affairs 

officials acknowledged that they are aware of at least 1 instance, included 

in the Panel for Documentation of Contractors review process, in which 

contractors continue to perform functions that the Army identified as 

inherently governmental. In this case, 47 contractors, including 2 

investigators, make up the entirety of a police force at U.S. Army 

Kwajalein Atoll in the Marshall Islands. These contractors perform all 

duties expected from a police force, including patrolling, issuing citations, 

making arrests, and investigating misdemeanors. According to Manpower 

and Reserve Affairs officials, command officials disagreed with the 

determination, but on February 22, 2010, the Army Deputy General 

Counsel for Operations and Personnel issued a legal opinion that 

concluded that certain functions performed by the contractors were 

inherently governmental and could not be performed by a contractor. 

According to Manpower and Reserve Affairs officials, contractors 

continue to perform these inherently governmental functions. They also 

noted that DOD’s decision to freeze civilian FTEs at fiscal year 2010 

levels is an impediment to resolving the performance of these inherently 

governmental functions by contractors.

To address compliance issues with the inventory review and provide 

additional guidance on the process, the Acting Under Secretaries of 

Defense for Acquisition, Technology, and Logistics and Personnel and 

Readiness, jointly issued guidance for the fiscal year 2011 inventory 

review on December 29, 2011. The guidance specifies that military 

departments and defense components must review at a minimum 50 

percent of all contracts, task orders, delivery orders, or interagency 

acquisition agreements listed in the military departments’ and defense 

components’ inventories for a given fiscal year. While conducting the 

reviews of contracts, the guidance states that the military departments 

and defense components should also review how the contracts are 

performed and administered, as well as the organizational environment in 

which they are being performed. After a review is complete, the military 

departments and defense components will now be required to certify that 

they have completed a review and submit a letter to P&R with the 

following information:

• an explanation of the methodology used to conduct the review and 

criteria for selection of contracts to review;
 

Page 26 GAO-12-357 DOD Inventory of Contracted Services

• the results of the review, including identifying any inherently 

governmental functions, closely associated with inherently 

governmental functions, or unauthorized personal services contracts;

• a plan for divesting or realigning functions for contracts that were 

identified as inherently governmental; and

• an explanation of the steps taken to ensure appropriate government 

control and oversight for functions that were identified as closely 

associated with inherently governmental.

The guidance, however, does not clearly establish lines of accountability 

and responsibility within the military departments and defense 

components for conducting the inventory reviews and addressing 

instances where contractors are identified as performing inherently 

governmental functions.

Congress has mandated that DOD use the inventory of contracted 

services and the associated review process to help DOD ensure that 

contractors are performing work that is appropriate, to support 

development of DOD’s annual strategic workforce plan, and to specify the 

number of contractor FTEs included in DOD’s annual budget justification 

materials. As such, it is essential that the inventories contain 

comprehensive, accurate, and actionable data for each service 

performed.

DOD, with the exception of the Army, has much further to go in 

addressing the requirements for compiling and reviewing the inventories 

of contracted services. DOD made incremental improvements to its 

process to address some of the previously identified limitations when it 

compiled its fiscal year 2010 inventory, but it has not resolved the 

fundamental issue of how to collect the required data to meet the 

legislative inventory requirements, including manpower data directly from 

contractors. DOD took a significant step in November 2011 to identify 

objectives for collecting contractor manpower data from contractors, but 

DOD indicates that implementation will not be complete until 2016. Given 

the potential value and importance of compiling a complete and accurate 

inventory, it would benefit DOD to move more expeditiously. DOD’s plan, 

however, does not specify time frames or milestones to measure its 

progress toward developing an enterprisewide data system to collect 

contractor manpower data, even though it acknowledged that reaching 

agreement on that approach would be challenging. We therefore reiterate 

our prior recommendation that DOD’s plans include milestones and time 

frames to gauge progress in meeting the inventory requirements.

Conclusions 
 

Page 27 GAO-12-357 DOD Inventory of Contracted Services

The Army and Air Force conducted inventory reviews, but the wide 

variation in the number of instances of contractors performing inherently 

governmental functions raises the question as to how much of the 

variation is due to the different approaches used to conduct the reviews. 

Further, the Navy was unable to provide assurance that it actually 

conducted the statutorily required review of its fiscal year 2009 inventory. 

This underscores the need for greater accountability and management 

attention. The absence of guidance, at all levels, providing clear lines of 

responsibility for conducting, documenting, and addressing issues 

identified during the fiscal year 2009 inventory review process contributed 

to instances in which contractors continued to perform functions identified 

as being inherently governmental in 8 of the 12 Army and Air Force cases 

we reviewed. Army officials also cited challenges with DOD’s decision to 

freeze civilian FTEs at fiscal year 2010 levels and the in-sourcing process 

as complicating their efforts to resolve issues identified during their 

inventory reviews, including those instances at Kwajalein Atoll. Such 

challenges, however, do not justify the continued use of contractors to 

perform inherently governmental functions, in several cases more than a 

year after the issue was initially identified. DOD’s December 2011 

guidance will require the military departments and defense components to 

certify that they have conducted the required reviews, but the guidance 

does not clearly establish lines of accountability and responsibility within 

the military departments and defense components for doing so. DOD’s 

experience in conducting the fiscal year 2009 review demonstrates the 

importance of guidance that provides for clear lines of authority, 

responsibility, and accountability if DOD is to use the inventories to help 

identify and mitigate the risks posed by using contractors to perform 

certain functions.

To address these issues we are making the following three 

recommendations:

To improve the execution and utility of the inventory review process, we 

recommend that the Secretary of Defense ensure that the military 

departments and defense components issue guidance to their commands 

that provides clear lines of authority, responsibility, and accountability for 

conducting an inventory review and resolving instances where functions 

being performed by contractors are identified as inherently governmental 

functions.

To ensure that the six instances we reviewed in which the Army identified 

that contractors were still performing functions it deemed inherently 

Recommendations for 

Executive Action
 

Page 28 GAO-12-357 DOD Inventory of Contracted Services

governmental, as well as those at Kwajalein Atoll, have been properly 

resolved, we recommend that the Secretary of the Army review these 

functions, determine the status of actions to resolve the issues, and, as 

appropriate, take necessary corrective actions.

To ensure that the two instances we reviewed where contractors were still 

performing functions the Air Force had previously identified as inherently 

governmental are properly resolved, we recommend that the Secretary of 

the Air Force review these functions, determine the status of actions to 

resolve the issues, and, as appropriate, take necessary corrective 

actions.

DOD provided us with written comments on a draft of this report, stating 

that it largely agreed with our recommendations and is committed to 

continue to improve its accounting for contracts for services. More 

specifically, DOD agreed with two recommendations and partially 

concurred with one recommendation. DOD’s written response is reprinted 

in appendix II. DOD also provided technical comments, which were 

incorporated as appropriate. 

DOD concurred with our recommendations to address instances we 

reviewed in which the Army and Air Force identified that contractors were 

still performing functions deemed inherently governmental. DOD noted 

that it will work with the Army and Air Force to ensure corrective actions, 

as appropriate and necessary, are taken.

DOD partially concurred with our recommendation that the Secretary of 

Defense ensure that the military departments and defense components 

issue guidance to their commands that provides for clear lines of 

authority, responsibility, and accountability for conducting an inventory 

review, and for resolving instances where functions being performed by 

contractors are identified as inherently governmental. DOD agreed it was 

imperative for the components to do so, but noted that its December 2011

guidance, while not prescribing individual management practices, 

requires component heads to certify completion of and results from the 

reviews. Further, DOD noted that as defense components vary in size 

and mission, the need for individual components to have organizationspecific guidance should not be mandated but rather determined by each 

component head. 

Our recommendation does not intend that DOD prescribe individual 

component management practices or mandate organization-specific 

Agency Comments 

and Our Evaluation
 

Page 29 GAO-12-357 DOD Inventory of Contracted Services

guidance. We agree that each component should institute guidance that 

fits its mission and needs and that the precise nature of each 

component’s guidance may vary in scope and detail. Our work found, 

however, that the absence of guidance at the military department-level 

that provides for clear lines of authority, responsibility and accountability

contributed to the shortcomings and challenges encountered during the 

military departments’ review of their fiscal year 2009 inventories. Given 

these results, we continue to believe that it would be prudent for DOD to 

obtain sufficient assurance that the military departments’ and 

components’ guidance covers the areas—including those enumerated 

above—that provide the foundation for conducting a meaningful review. 

DOD’s December 2011 guidance, while a step in the right direction, does 

not provide such assurances. 

DOD also noted in its comments that the Office of Management and 

Budget had indicated via e-mail that it would disapprove DOD’s request 

for an emergency waiver to the Paperwork Reduction Act. Consequently, 

consistent with the requirements of the Paperwork Reduction Act, DOD 

posted a notice in the Federal Register in February 2012 seeking public 

comment on its plans to begin collecting direct labor information and other 

data on DOD contracts. DOD indicated that after it reviews the comments 

received by the March 23 deadline, a number of other actions will need to 

be taken before DOD can begin collecting such data. As a result, DOD 

officials told us they will need to assess the impact these events will have 

on the actions DOD identified in its November 2011 plan and, as such, 

will not be able to develop additional milestones until this is done. We 

modified the text in the report to reflect this updated information. 

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

Secretary of the Air Force, Secretary of the Army, and interested 

congressional committees. In addition, the report is available at no charge 

on the GAO website at http://www.gao.gov. 
 

Page 30 GAO-12-357 DOD Inventory of Contracted Services

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

us at (202) 512-4841 or huttonj@gao.gov or (404) 679-1808 or 

russellc@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made contributions to this report are listed in appendix III.

John P. Hutton

Director, Acquisition and Sourcing Management

Cary B. Russell

Acting Director, Defense Capabilities and Management
 

Page 31 GAO-12-357 DOD Inventory of Contracted Services

List of Committees

The Honorable Carl Levin

Chairman

The Honorable John McCain

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Howard P. McKeon

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives
Appendix I: Scope and Methodology

Page 32 GAO-12-357 DOD Inventory of Contracted Services

Section 803(c) of the National Defense Authorization Act for Fiscal Year 

2010 directs GAO to report for 3 years on the inventory of activities 

performed pursuant to contracts for services that are to be submitted by 

the Secretary of Defense, in 2010, 2011, and 2012, respectively.1

To assess the progress DOD has made in addressing limitations in its 

previous approach when compiling the service contract inventories, we 

reviewed relevant guidance related to the inventory compilation 

processes and interviewed cognizant officials from the Office of the Under 

Secretary of Defense for Acquisition, Technology, and Logistics (AT&L), 

Office of Defense Procurement and Acquisition Policy; the Office of the 

Under Secretary of Defense for Personnel and Readiness; and the 

departments of the Army, Navy, and Air Force. We assessed changes 

made at the department level between the approaches for fiscal year 

2009 and fiscal year 2010, but we did not assess the extent to which the 

change in approach affected the estimated number of contractor FTEs 

reported in the inventories. For the fiscal year 2010 inventory, AT&L 

continued to rely on data from the Federal Procurement Data SystemNext Generation (FPDS-NG) for most defense components other than the 

Army and the TRICARE Management Activity. As with the fiscal year 

2009 inventory, the Army continued to use its Contractor Manpower 

Reporting Application (CMRA) that reports manpower data collected 

directly from its contractors. We reviewed Army guidance, interviewed 

officials responsible for the inventory compilation, and reviewed our prior 

work to describe the Army’s inventory compilation process. We did not 

independently assess the accuracy or reliability of the underlying data 

supporting the Army’s, Navy’s, or Air Force’s fiscal year 2010 inventory. 

To 

satisfy the mandate for 2011, we assessed (1) the progress the 

Department of Defense (DOD) has made in addressing limitations in its 

approach when compiling the fiscal year 2010 inventories on contracted 

services and in developing a strategy to obtain manpower data and 

(2) the extent to which the military departments addressed issues with 

contractors performing inherently governmental functions identified during 

reviews of their fiscal year 2009 inventories. As the military departments 

accounted for 83 percent of the reported obligations on service contracts 

and 92 percent of the reported number of contractor full-time equivalents 

(FTE) in the fiscal year 2009 inventories, we focused our efforts on the 

Army, Navy, and Air Force.

 

1

Pub. L. No. 111-84, § 803 (c) (2009). 

Appendix I: Scope and Methodology
Appendix I: Scope and Methodology

Page 33 GAO-12-357 DOD Inventory of Contracted Services

Our January 2011 report, however, identified limitations associated with 

using FPDS-NG data as the basis for the inventory.2

To assess DOD’s progress in developing a strategy to obtain manpower 

data, we reviewed DOD’s efforts to respond to congressional direction 

reflected in section 8108 of the 2011 Defense Appropriations Act, which 

required the Navy and the Air Force to submit plans to leverage the 

Army’s CMRA system and the military departments and components to 

submit plans to Congress for reporting contractor FTEs no later than 

June 15, 2011. We reviewed and assessed the 43 plans submitted by the 

military departments and defense components as of February 2012 as 

well as DOD’s November 2011 plan, which included instructions to the 

military departments and DOD components to document contractor FTEs 

and begin the collection of manpower data. We interviewed officials from 

AT&L’s Office of Defense Procurement and Acquisition Policy, and the 

Office of the Under Secretary of Defense for Personnel and Readiness to 

obtain their views on the department’s plans to collect contractor 

manpower data.

As such, we 

reviewed our prior work to identify these limitations and discussed with

AT&L officials what steps, if any, they had taken to address these 

limitations.

To assess the extent to which the military departments addressed 

instances in which contractors were performing inherently governmental 

functions, we used data from the fiscal year 2009 inventory reviews, 

which was the most current review available at the time we began our 

work. To do so, we reviewed a total of 12 instances in which contractors 

were identified as performing inherently governmental functions. We 

selected two Army commands and one Air Force component based in 

part on the number of such instances they had identified. For the Army, 

we randomly selected 3 instances from the Army’s inventory review data 

at the Training and Doctrine Command and 3 instances at the Acquisition 

Support Center. These data included determinations made by the Army’s 

Panel for the Documentation of Contractors, which identified the functions 

as being inherently governmental, closely associated with inherently 

governmental, or unauthorized personal services, as well as the 

commands’ determination of how each function was resolved. For the 6 

 

2

GAO, Defense Acquisitions: Further Action Needed to Better Implement Requirements 

for Conducting Inventory of Service Contract Activities, GAO-11-192 (Washington, D.C.: 

Jan. 14, 2011).
Appendix I: Scope and Methodology

Page 34 GAO-12-357 DOD Inventory of Contracted Services

Army cases we randomly selected, we reviewed the inventory review data 

and interviewed officials responsible for the fiscal year 2009 inventory 

review process. We subsequently eliminated 3 of the instances we 

randomly selected because they were identified as closely associated 

with inherently governmental functions or unauthorized personal services. 

In addition, we reviewed 6 instances where contractors were performing 

the duties of Department of the Army systems coordinators. Army’s 2010 

acquisition review chartered by the Secretary of the Army determined that 

these positions were inherently governmental.3

The Air Force provided data to us in September 2011 that summarized 

the results of its fiscal year 2009 inventory review process, including 

functions being performed by contractors that it identified as inherently 

governmental. Pursuant to the Secretary of the Air Force’s October 2010 

guidance, the inventory review was to include all contracts from the 

beginning of fiscal year 2009 through August 2010. From these data, we 

determined that the Air National Guard had the largest number of 

instances in which the review process identified contractors as performing 

inherently governmental functions, and randomly selected 3 instances the 

Air Force had identified as including inherently governmental functions at 

the Air National Guard. We also interviewed officials from the Air National 

Guard and the Air Force Space Command about their inventory review 

process. In November 2011, Air Force officials provided us a revised data 

set that excluded contracts awarded from October 2009 through August 

2010, including the contracts at the Air National Guard. Since these 

contracts were reviewed as part of the Air Force’s fiscal year 2009 

inventory review process as directed by the Secretary of the Air Force 

and included functions identified as inherently governmental, we included 

them in our review.

For each of these cases, 

we reviewed the contract files and interviewed program and contracting 

officials responsible for these contracts to determine the extent to which 

DOD took action to resolve instances of contractors performing inherently 

governmental functions.

At the time we initiated our work, Navy headquarters officials did not have 

the results of their fiscal year 2009 inventory review process available and 

subsequently acknowledged that they were uncertain whether their 

commands conducted the required reviews. Consequently, we 

 

3

Army Strong: Equipped, Trained and Ready: Final Report of the 2010 Army Acquisition 

Review, John M. McHugh, Secretary of the Army (January 2011).
Appendix I: Scope and Methodology

Page 35 GAO-12-357 DOD Inventory of Contracted Services

considered DOD’s fiscal year 2010 in-sourcing data that were reported to 

Congress in September 2011. From the Navy’s in-sourcing data, we 

selected Fleet Forces Command and Space and Naval Warfare Systems 

Command for further review based on the number of positions they 

reported as in-sourced based on contractor performance of an inherently 

governmental function. We also contacted Naval Sea Systems 

Command, the largest of five Navy systems commands, to discuss 

whether the command had conducted an inventory review but were 

informed that the command had not done so. We did not review individual 

Navy contracts because Space and Naval Warfare Systems command 

officials stated that it was not possible to track the positions to specific 

contracts. Also, we found that the commands subsequently reported that 

the functions were not inherently governmental and were in-sourced for 

other reasons, such as to provide Navy personnel career progression 

opportunities.

For the 12 cases we included in our review, we compared the information 

that the Army and Air Force provided regarding the contracts they 

reviewed with information in the contract files and found the data 

sufficiently reliable for the purposes of our work. We did not, however, 

independently assess whether the functions the military departments 

identified were in fact inherently governmental. Further, the results of our 

analysis are not generalizable to all instances where contractors were 

performing inherently governmental functions identified by the military 

departments.

We conducted this performance audit between July 2011 and April 2012 

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.
Appendix II: Comments from the Department 

of Defense

Page 36 GAO-12-357 DOD Inventory of Contracted Services

Appendix II: Comments from the Department 

of Defense
Appendix II: Comments from the Department 

of Defense

Page 37 GAO-12-357 DOD Inventory of Contracted Services
Appendix II: Comments from the Department 

of Defense

Page 38 GAO-12-357 DOD Inventory of Contracted Services
Appendix III: GAO Contacts and Staff 

Acknowledgments

Page 39 GAO-12-357 DOD Inventory of Contracted Services

John P. Hutton, (202) 512-4841 or huttonj@gao.gov

Cary B. Russell, (404) 679-1808 or russellc@gao.gov

In addition to the contacts named above, Timothy DiNapoli, Acting 

Director; MacKenzie Cooper; Julia Kennon; John Krump; Angie NicholsFriedman; and Guisseli Reyes-Turnell made key contributions to this 

report.

Appendix III: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts

Staff 

Acknowledgments 

(121008)
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