GAO 

United States Government Accountability Office

Report to Congressional Committees

DEFENSE 

CONTRACTING 

Recent Law Has 

Impacted Contractor 

Use of Offshore 

Subsidiaries to Avoid 

Certain Payroll Taxes 

January 2010 

GAO-10-327 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

January 2010

DEFENSE CONTRACTING

Recent Law Has Impacted Contractor Use of Offshore 

Subsidiaries to Avoid Certain Payroll Taxes

Highlights of GAO-10-327, a report to 

congressional committees 

Many federal contractors establish 

offshore subsidiaries to take 

advantage of labor and market 

conditions. GAO has found that 

they also use offshore subsidiaries 

to reduce their U.S. tax burdens. In 

2008, Congress passed the Heroes 

Earnings Assistance and Relief Tax 

(HEART) Act which resulted in 

contractor offshore subsidiaries 

paying certain payroll taxes for 

U.S. personnel working abroad. 

Fiscal year 2009’s National Defense 

Authorization Act required GAO to 

report on the rationales, 

implications, and costs and 

benefits of defense contractors’ use 

of offshore subsidiaries. We (1) 

assessed trends and purposes for 

contractors’ offshore subsidiaries; 

(2) identified how contractors use 

subsidiaries to support defense 

contracts; (3) assessed DOD’s 

oversight of contractors’ use of 

offshore subsidiaries. 

To conduct our work, we reviewed 

data for the 29 U.S. publicly traded 

contractors with at least $1 billion 

in DOD spending in fiscal year 

2008, reviewed several illustrative 

contracts selected based on 

categories of DOD services most 

often performed overseas, 

reviewed audit documents, and 

interviewed DOD officials about 

oversight. 

What GAO Recommends

Congress should consider whether 

further legislative action is needed 

to address contractor avoidance of 

unemployment taxes for U.S. 

workers. 

Many of the top 29 U.S. publicly traded defense contractors—those with $1 

billion or more in DOD contracts in fiscal year 2008—have created offshore 

subsidiaries to facilitate global operations. Between fiscal years 2003 and 

2008, they increased their use of these subsidiaries by 26 percent, maintaining 

at least 1,194 in 2008. We interviewed 13 of the 29 contractors based on a 

range of the amount of government work, locations of subsidiaries, and 

industry types; they reported that 97 percent of the subsidiaries generally 

supported global commercial and foreign government clients, while the 

remaining 3 percent supported DOD contracts performed overseas. These 

subsidiaries also helped the 29 contractors reduce taxes, with about one-third 

decreasing their effective U.S. corporate tax rates in 2008 in part through the 

use of foreign affiliates, lower foreign tax rates, and indefinite reinvestment of 

foreign income outside of the United States. 

For five of the DOD contracts we reviewed, companies principally used 

offshore subsidiaries to hire U.S. workers providing services overseas on U.S. 

government contracts in order to avoid Social Security, Medicare—known as 

Federal Insurance Contributions Act (FICA)—and other payroll taxes. This 

practice allowed contractors to offer lower bids when competing for certain 

services and thereby reduce costs for DOD. Our analysis of two contracts 

showed that the use of offshore subsidiaries saved DOD at least $110 million 

annually prior to the HEART Act, through payroll tax avoidance. While this 

practice provided contract cost savings for DOD, it resulted in these 

companies avoiding payroll taxes that would have contributed to the Social 

Security and Medicare Trust Funds. The 2008 HEART Act resulted in offshore 

subsidiaries of U.S. companies paying FICA taxes for U.S. workers performing 

services overseas on U.S. government contracts. As a result, in fiscal year 

2009, four of the case study contractors using offshore subsidiaries to support 

DOD work requested reimbursement from DOD of at least $140 million for 

new FICA payments. Federal and state unemployment payroll taxes, however, 

were not covered by the HEART Act, and several contractors that used 

offshore subsidiaries have continued to avoid these taxes. In one state, we 

reviewed documentation for about 140 former employees of several 

contractors who were denied unemployment benefits in 2009. State 

workforce officials indicated these benefits were denied because the 

employees worked for a foreign subsidiary and not an American employer. 

DOD officials were aware of the roles offshore subsidiaries played in the DOD 

contracts we reviewed and stated that oversight mechanisms, such as the 

Defense Contract Audit Agency’s reviews of incurred costs and oversight 

documents, inform them of the activities of offshore subsidiaries. In contracts 

we reviewed, evidence of offshore subsidiaries was present in contractor 

labor rates, cost accounting disclosures, and contractor price proposals. 

Contracting officials stated that the use of offshore subsidiaries did not 

negatively impact contract schedule or performance. View GAO-10-327 or key components.

For more information, contact John Needham 

at (202) 512-4841 or needhamjk1@gao.gov. 
Page i GAO-10-327 

Contents 

Letter 1

Background 3 

Top Defense Contractors Increased Offshore Subsidiary Use to 

Support Global Commercial Activities and Benefit from 

Reduced Liabilities 5 

Offshore Subsidiaries Supporting DOD Service Contracts Overseas 

Were Principally Used to Avoid Payroll Taxes 7 

Contractors’ Use of Offshore Subsidiaries Did Not Impede DOD’s 

Contract Oversight 14 

Conclusion 16 

Matter for Congressional Consideration 16 

Agency Comments and Our Evaluation 16 

Appendix I Scope and Methodology 19 

Related GAO Products 23 

 

Tables 

Table 1: Comparison of Top 25 Defense Contractors’ Subsidiaries 

in 2003 and 2008 5 

Table 2: Contractor and Subsidiary Information for Six Case Study 

Defense Contracts 9 

Table 3: Notional Comparison of Selected Payroll Taxes Paid by 

Employer for an Employee Earning $100,000 in Wages 14 

Table 4: DOD Contractors Interviewed and Their Fiscal Year 2008 

DOD Contract Obligations 21 

Figure 

Figure 1: Example of Contractor Process for Hiring U.S. Personnel 

through Offshore Subsidiaries for DOD Work Overseas 

Prior to the HEART Act 11 

 Defense Contracting
Abbreviations 

CAS Cost Accounting Standards 

DCAA Defense Contract Audit Agency 

DCMA Defense Contract Management Agency 

DOD Department of Defense 

FAR Federal Acquisition Regulations 

FICA Federal Insurance Contributions Act 

FPDS-NG Federal Procurement Data System--Next Generation 

HEART Act Heroes Earnings Assistance and Relief Tax Act 

SEC Securities and Exchange Commission 

Page ii GAO-10-327 Defense Contracting
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Page iii GAO-10-327 Defense Contracting
Page 1 GAO-10-327 

 

United States Government Accountability Office

Washington, DC 20548 

 

January 26, 2010 

Congressional Committees 

Many federal contractors operate globally through offshore subsidiaries to 

take advantage of favorable labor and market conditions. GAO and others 

have found that contractors also use offshore subsidiaries to reduce U.S. 

taxes and maintain subsidiaries in tax haven and financial privacy 

jurisdictions.1

 Congress included a provision in the Heroes Earnings 

Assistance and Relief Tax (HEART) Act of 2008 that addressed concerns 

about contractor use of offshore subsidiaries to minimize U.S. taxes. This 

provision resulted in foreign subsidiaries of U.S. companies working on 

U.S. government contracts being required to pay certain payroll taxes.2

The Department of Defense (DOD) relies heavily on federal contractors to 

support its missions and in fiscal year 2008 spent approximately $396 

billion on contracts for products and services. DOD uses thousands of 

contractor employees to assist in operations around the world to support 

U.S. forces deployed abroad with services ranging from security details to 

transportation and facility management. 

The Duncan Hunter National Defense Authorization Act for Fiscal Year 

2009 directed GAO to report on the rationale, implications, and costs and 

benefits for both the contractor and DOD in using offshore subsidiaries, 

with respect to several issues, including: tax liability; legal liability; 

compliance with cost accounting standards; efficiency in contract 

performance; and contract management and contract oversight.3

 To fulfill 

our mandate we briefed your staffs on the results of our review. This 

follow-on report (1) assesses trends and purposes for defense contractors’ 

offshore subsidiaries; (2) identifies how selected defense contractors used 

offshore subsidiaries to support ongoing defense contracts; and (3) 

assesses DOD oversight and management of defense contractors using 

offshore subsidiaries. 

1

See GAO, International Taxation: Tax Haven Companies Were More Likely to Have a 

Tax Cost Advantage in Federal Contracting, GAO-04-856, (Washington D.C.: June 30, 

2004). 

2

Pub. L. No. 110-245, § 302. See 26 U.S.C. § 3121(z) and 42 U.S.C. § 410(e). 

3

Pub. L. No. 110-417, § 844 (2008). 

 Defense Contracting
 

To conduct our work, we identified 29 U.S. publicly traded defense 

contractors with $1 billion or more in DOD spending in fiscal year 2008, 

and reviewed information from Securities and Exchange Commission 

(SEC) filings to determine which of these contractors had offshore 

subsidiaries.4

 From these 29 top defense contractors, we selected 13 to 

interview based on a range of the amount of government work in fiscal 

year 2008, location of identified subsidiaries, and industry type. In 

addition, we interviewed three other defense contractors as part of the 

case studies we conducted for a total of 16 contractors interviewed. We 

also interviewed knowledgeable attorneys, academics, and tax 

professionals to obtain their views about the rationale and implications of 

using offshore subsidiaries. 

To identify examples of how contractors use subsidiaries and DOD 

contractor management and oversight, we identified the categories of 

DOD services most often performed overseas and selected six illustrative 

contracts as case studies based on several factors including the amount of 

contract dollars obligated, contracting command, and services using large 

numbers of U.S. personnel. For each of these contracts, we reviewed data 

on contractor performance and interviewed DOD oversight staff, 

contracting commands, and company officials responsible for these 

defense contracts. To determine whether contractors using offshore 

subsidiaries selected for case studies were subject to payroll taxes, 

including Social Security, Medicare, and federal and state unemployment 

taxes for U.S. employees, we reviewed contract file documents for the 

contractors and interviewed Defense Contract Audit Agency (DCAA) 

officials. As an illustrative example, we also selected one state, Texas, in 

which four of the six selected contractors had a corporate presence, and 

reviewed 2009 unemployment benefit claims data. We interviewed state 

workforce officials to determine the impact on the ability of U.S. 

personnel working overseas for offshore subsidiaries to claim 

unemployment benefits. We identified and assessed relevant laws, 

regulations, GAO reports, and DOD policies applicable to contractor 

offshore subsidiaries. 

We conducted our review from February 2009 to January 2010 in 

accordance with generally accepted government auditing standards. These 

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

 

4

Throughout this report we use the terms “offshore subsidiaries” and “foreign subsidiaries” 

synonymously. 

Page 2 GAO-10-327 Defense Contracting
 

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. See appendix I for more details on our 

scope and methodology. 

Our prior work has found that U.S. multinational corporations engage in 

offshore operations to reduce labor and administrative costs.5

 For 

example, many U.S. companies have found cost efficiencies by 

outsourcing manufacturing jobs based in the U.S. to countries with skilled 

labor available at lower cost. U.S. and foreign tax regimes also influence 

decisions of U.S. multinational corporations regarding how much to invest 

and how many workers to employ in particular activities and in particular 

locations. Tax rules also influence where corporations report earning 

income for tax purposes. 

Background 

We have reported on the conditions under which a federal contractor in a 

low-tax jurisdiction—one that has no or nominal taxes and no requirement 

for a substantive local presence—may have a tax cost advantage when 

competing for federal contracts.6

 The extent of the advantage depends on 

the relative tax liabilities of the contractor and its competitors. We also 

previously reported that 63 of the 100 largest publicly traded federal 

contractors in terms of fiscal year 2007 federal contract obligations 

reported having subsidiaries in jurisdictions identified as tax haven or 

financial privacy jurisdictions.7

 

Defense contractors may contain a number of separate legal entities. A 

parent corporation may directly own, either wholly or partially, multiple 

subsidiary corporations. In turn, these subsidiaries may own other 

corporate subsidiaries, and any of these corporations may own stakes in 

partnerships. A domestic parent corporation—one that is organized under 

 

5

GAO, International Trade: Current Government Data Provide Limited Insight into 

Offshoring of Services, GAO-04-932 (Washington DC: September 22, 2004). 

6

GAO-04-856. 

7

Financial privacy jurisdictions are jurisdictions that have strict bank secrecy laws that 

persons can use to shield their wealth from taxation in their home countries. See GAO, 

International Taxation: Large U.S. Corporations and Federal Contractors with 

Subsidiaries in Jurisdictions Listed as Tax Havens or Financial Privacy Jurisdictions, 

GAO-09-157 (Washington, D.C.: December 18, 2008). 

Page 3 GAO-10-327 Defense Contracting
 

U.S. laws—may head a group of affiliated businesses that includes both 

domestic and foreign subsidiaries and partnerships. 

Companies also consider payroll taxes in managing offshore operations. 

Employers withhold these taxes from employee’s wages for Social 

Security and Medicare and match the employee’s contribution for these 

taxes.8

 Workers make contributions to Social Security through payroll 

taxes that the Treasury credits to the Social Security Trust Fund. About 96 

percent of the nation’s workforce is in social security-covered employment 

and pays tax on its annual earnings. When workers pay social security 

taxes, they earn coverage credits, and 40 credits—equal to at least 10 years 

of work—entitle them to social security benefits when they reach 

retirement age. Different requirements govern the number of coverage 

credits necessary to receive disability and survivors benefits for workers 

who become disabled or die with relatively short work careers. Most 

employers also pay both a federal and a state unemployment tax, which 

provide unemployment compensation to workers who have lost their jobs. 

Employees in most states do not contribute to unemployment taxes.9

DOD uses thousands of defense contractors to provide services ranging 

from security details and interpreters to transportation and facility 

management in support of U.S. forces in contingency operations around 

the world. To oversee these contracts, the Defense Contract Management 

Agency (DCMA) is responsible for monitoring contractors’ performance 

and management systems to ensure that cost, product performance, and 

delivery schedules are in compliance with contract terms and conditions. 

DCAA, under the authority of the DOD Comptroller, plays a critical role in 

contractor oversight by providing auditing, accounting, and financial 

advisory services for DOD and other federal agency contracts. We have 

reported extensively on DOD contractor management and oversight 

challenges in contingency operations and the need for DOD to have better 

contract and contractor personnel information.10 In part for these reasons, 

 

8

GAO, Tax Compliance: Businesses Owe Billions in Federal Payroll Taxes, GAO-08-1034T

(Washington DC: July 29, 2008). 

9

New Jersey, Pennsylvania, and Alaska withhold unemployment insurance taxes directly 

from both employees and employers. 

10GAO, Military Operations: High-Level DOD Action Needed to Address Long-standing 

Problems with Management and Oversight of Contractors Supporting Deployed Forces, 

GAO-07-145 (Washington, D.C.: Dec. 18, 2006). 

Page 4 GAO-10-327 Defense Contracting
 

DOD contract management issues, including sufficient oversight, have 

been a long-standing GAO high-risk area. 

From 2003 through 2008, defense contractors increasingly used offshore 

subsidiaries. Our analysis of SEC filings found that in 2008, 29 of the top 

defense contractors—accounting for 41 percent of DOD contracting 

dollars in fiscal year 2008—had at least 1,194 offshore subsidiaries.11 Of 

the total offshore subsidiaries, about 200 were located in tax haven

financial privacy jurisdictions such as Singapore, Hong Kong, Ireland, or 

Luxembourg. Publicly traded defense contractors

 or 

12 increased their 

combined use of foreign subsidiaries by 26 percent from 2003 through 

2008. Of these new subsidiaries, most were located in the United Kingdom 

and Canada, while the largest rate of growth was in the British Virgin 

Islands and Aruba. See table 1 for more information on the top 25 defense 

contractor subsidiaries. 

Top Defense 

Contractors Increased 

Offshore Subsidiary 

Use to Support Global 

Commercial Activities 

and Benefit from 

Reduced Liabilities 

Table 1: Comparison of Top 25 Defense Contractors’ Subsidiaries in 2003 and 2008 

Defense subsidiariesa 2003 2008 Percentage change

Offshore 928 1,169 26%

Domestic 1,533 1,472 -4%

Source: SEC 10-K filings. 

a

Four of the 29 top publicly traded defense contractors in 2008 were not publicly traded companies in 2003 and, therefore, were not included in our analysis. 

According to 13 of the top defense contractors we interviewed, 718 of the 

738 offshore subsidiaries—or 97 percent—that they reported to the SEC in 

fiscal year 2008 were generally used to support global commercial clients, 

and foreign government contracts rather than DOD contracts. In some 

cases, contractors established offshore subsidiaries for market presence 

and proximity to customers as they thought it was important to establish a 

presence where they do business overseas to be more responsive to 

customer needs. For example, one defense contractor established 

subsidiaries in Singapore to assist with equipment manufacturing and 

 

11SEC requires companies to provide information on significant subsidiaries as part of their 

annual filings. As a result, foreign subsidiaries that do not meet the SEC reporting 

threshold may not be listed, and the total number of subsidiaries reported may be 

understated. 

12Four of the 29 top publicly traded defense contractors in 2008 were not publicly traded 

companies in 2003 and, therefore, were not included in our analysis. 

Page 5 GAO-10-327 Defense Contracting
 

repairs of commercial aircraft operating throughout Asia because it is 

more cost-efficient than sending the aircraft back to the United States for 

repairs. Ten of the 13 defense contractors told us they establish or acquire 

offshore subsidiaries to take advantage of foreign government markets. In 

one case, a defense contractor explained that it created a subsidiary in the 

Netherlands to hire local nationals in order to win a contract with the 

Dutch government. Contractors also noted that, in certain circumstances, 

they are required to create offshore subsidiaries to comply with foreign 

government requirements. For example, one company told us it 

established a subsidiary in Bahrain to comply with Bahrainian law for 

doing business in that country. In another instance, one contractor said 

that it registered as a local company in Iraq to conduct business in 

compliance with Iraqi law. 

Aside from taking advantage of foreign government markets for 

commercial work, a key benefit of using offshore subsidiaries cited by 

contractors and other experts we spoke with was the ability to reduce 

overall taxes. Several defense companies explained that the use of 

offshore subsidiaries in foreign jurisdictions helps them lower their U.S. 

taxes.13 For example, one defense contractor’s offshore subsidiary 

structure decreased its effective U.S. tax rate by approximately 1 percent, 

equaling millions of dollars in tax savings. Our review of 2008 SEC filings 

for the 29 publicly traded defense companies found that approximately 

one-third reported decreasing their 2008 effective U.S. tax rates through 

the use of foreign affiliates, lower foreign tax rates, and indefinite 

reinvestment of foreign income outside of the United States. 

Defense contractors also told us that creating subsidiaries, whether based 

in the United States or offshore, protects U.S. parent companies from 

certain legal liabilities, although company representatives said this was not 

a primary reason for establishing offshore subsidiaries. For example, 

defense companies and experts noted that subsidiary structures limit U.S. 

parents from liabilities related to changes in foreign law and practices. 

Defense contractors said an offshore subsidiary can be used to focus 

liability in one place, thus shielding the rest of the company from potential 

lawsuits because only the assets of the subsidiary would be susceptible. 

 

13Tax avoidance, the act of using legally available tax planning opportunities in order to 

minimize one’s tax liability, is permissible. Tax avoidance should be distinguished from tax 

evasion, which is the willful attempt to defeat or circumvent the tax law in order to illegally 

reduce one’s tax liability. 

Page 6 GAO-10-327 Defense Contracting
 

While almost all of the 738 offshore subsidiaries were used to support 

commercial and foreign clients, 20—about 3 percent—were used to 

support DOD contracts in fiscal year 2008. However, we do not know the 

percentage of DOD contract dollars supporting activities of offshore 

subsidiaries because contract data do not capture the use of offshore 

subsidiaries specifically. Most of the 13 defense contractors we 

interviewed directed work performed for DOD in a foreign country to a 

company subsidiary in that country. For example, one defense 

contractor’s German subsidiary was the prime contractor for a facility 

operations support services contract in Germany. Another contractor used 

an Australian subsidiary to support a Navy research and development 

contract performed in Australia. In contrast, we also identified some 

defense contractors that used subsidiaries registered outside the place of 

contract performance to support DOD service contracts abroad. These 

offshore subsidiaries had no staff or business activity where registered. 

The primary use of the offshore subsidiaries registered outside the 

contract place of performance—many of those reviewed in our six case 

studies—was to hire U.S. workers to perform services overseas and 

thereby avoid Federal Insurance Contributions Act (FICA) taxes for those 

employees.14 According to contractor officials, the practice used in the 

cases we reviewed allowed the contractor to bid lower labor costs when 

competing for labor-intensive DOD service contracts performed abroad. 

Using offshore subsidiaries also permitted contractors to avoid other 

payroll taxes, such as federal and state unemployment insurance. Before 

the HEART Act took effect in August 2008, FICA tax payments were not 

required for U.S. personnel working overseas on U.S. government 

contracts for foreign subsidiaries of U.S. companies.15 Although this 

practice resulted in contract cost savings for DOD, it meant that taxes 

Offshore Subsidiaries 

Supporting DOD 

Service Contracts 

Overseas Were 

Principally Used to 

Avoid Payroll Taxes 

 

14Federal Insurance Contributions Act (FICA) tax is a payroll tax on both employers and 

employees to fund the Social Security and Medicare Trust Funds. Employers are required 

to withhold 7.65 percent of employees’ covered salaries for FICA taxes, which include 

Social Security and hospital insurance (Medicare) taxes. U.S. employees pay FICA taxes as 

well. Consequently, after the HEART Act, the U.S. personnel of these foreign subsidiaries 

working on U.S. government contracts were also required to pay FICA taxes. 

15The HEART Act amended the U.S Code to define a foreign subsidiary of a U.S. company 

working on a U.S. government contract as a domestic company for certain purposes, thus 

resulting in the foreign subsidiary being required to pay certain payroll taxes for its U.S. 

workers performing services abroad on the government contract as well as requiring those 

U.S. workers to pay their share of the payroll taxes. The HEART Act did not address the 

payment of state or federal unemployment taxes for U.S. personnel working outside the 

United States for foreign companies. 

Page 7 GAO-10-327 Defense Contracting
 

were not paid into the Social Security and Medicare Trust Funds as they 

would have been had the services been provided by U.S. personnel 

employed by a domestic entity. Additionally, because these payments were 

not made, employees did not receive coverage credits—earned when 

workers pay social security taxes—for this work. 

DOD and defense contractor officials explained that the use of offshore 

subsidiaries to hire U.S. workers to perform services overseas was a 

practice used for labor-intensive service contracts, often for work 

performed in countries such as Iraq, Afghanistan, and Kuwait, because of 

the potential for FICA cost savings. Four of the six contractors commonly 

used offshore subsidiaries when hiring U.S. personnel to work on U.S. 

government contracts beyond the contracts we reviewed.16 Defense 

contractor officials explained that the need for security clearances for U.S. 

personnel working on certain DOD contracts, as well export control 

provisions, limit the types of defense work that can be conducted through 

offshore subsidiaries. Typically, when contract functions required 

personnel with security clearances, these personnel were hired through 

the contractor’s U.S. subsidiary, while personnel who did not require a 

security clearance were hired though an offshore subsidiary. For one 

contract task order we reviewed, more than 80 percent of the contractor’s 

staff were employed by its offshore subsidiary. See table 2 for information 

on the six contracts selected for review. 

 

16One of the six case study contractors, Fluor Intercontinental, did not use an offshore 

subsidiary to support the DOD contract we selected for review. According to DOD and 

company officials, they also did not use offshore subsidiaries to support other DOD 

contracts. 

Page 8 GAO-10-327 Defense Contracting
 

Table 2: Contractor and Subsidiary Information for Six Case Study Defense Contracts 

Contractor 

Services 

provided 

FY2008 

Contract 

obligationa 

(millions) 

Offshore 

subsidiary

supports 

contract 

Offshore 

subsidiary

supports 

other DOD 

contracts 

Offshore 

subsidiary 

awarded 

contract 

(prime 

contractor) 

Location 

(for 

contract 

reviewed) 

Contract 

place of 

performance 

Contract 

type 

Kellogg Brown 

and Root Services 

Incorporated 

Logistics support $4,901 9 9 Cayman 

Islands 

Various 

countries, 

including Iraq 

Primarily 

cost-plus 

Combat Support 

Associates 

Logistics support $487 9 Cayman 

Islands 

Kuwait Cost-plus/ 

award fee 

Fluor 

Intercontinental 

Incorporated 

Architect – 

engineer 

services 

$196 Did not use 

an offshore 

subsidiary 

Iraq Cost-plus/ 

award fee 

AECOM 

Government 

Services, 

Incorporated 

Maintenance and 

repair of vehicles 

$143 9 9 Cayman 

Islands 

Iraq 

Afghanistan 

Cost-plus/ 

fixed fee 

DynCorp 

International LLC 

Construction of 

miscellaneous 

buildings 

$40 9 9 United Arab 

Emirates 

Afghanistan Fixedprice 

ITT Federal 

Services GMBH 

Facilities 

operations and 

management 

$35 9 9 b9 Germany Germany Cost-plus/ 

award fee 

Source: GAO analysis. 

a

The contract dollars obligated value only includes the contract actions for the specified service, per 

FPDS-NG. This value may not reflect the contract’s full obligation amount in cases where the contract 

has actions under multiple FPDS-NG service categories. 

b

ITT Federal Services, the parent company of ITT Federal Services GMBH, uses another offshore 

subsidiary to support DOD contracts. 

Three of the six DOD contractors used subsidiaries registered, but that did 

not have any staff or business activity, in the Cayman Islands. Services 

were provided in locations near the contract place of performance. For 

example, one company used two Cayman Islands subsidiaries to hire and 

pay employees for logistics support contracts performed in locations 

around the world, including the Middle East. However, the subsidiaries’ 

payroll processing work is conducted in Dubai. According to DOD, these 

subsidiaries are registered in the Cayman Islands to avoid payroll taxes. 

One company official explained that the Cayman Islands are a popular 

choice for establishing offshore subsidiaries because of the ease with 

which they can be registered due to local laws. Furthermore, employees of 

Cayman Islands corporations do not pay taxes in that country. Figure 1 

provides an example of how defense contractor subsidiaries were used to 

Page 9 GAO-10-327 Defense Contracting
 

hire and pay U.S. personnel for DOD work performed overseas prior to the 

HEART Act. 

For five of the six cases we reviewed, DOD reduced contract costs as a 

result of the use of offshore subsidiaries to provide payroll functions. Most 

of the contracts were cost-reimbursement type contracts, which authorize 

agencies to reimburse contractors for allowable costs to the extent 

prescribed in the contract. Taxes are a type of allowable cost prescribed in 

the Federal Acquisition Regulation. Consequently, if defense contractors 

were required to pay taxes such as FICA or state and federal 

unemployment insurance, DOD would usually reimburse these costs. Our 

analysis of the two largest service contracts with a combined total of more 

than $6 billion in fiscal year 2008 obligations indicates that DOD saved at 

least $110 million per year by not having to provide reimbursement for 

FICA taxes. 

Page 10 GAO-10-327 Defense Contracting
 

Figure 1: Example of Contractor Process for Hiring U.S. Personnel through Offshore Subsidiaries for DOD Work Overseas 

Prior to the HEART Act 

Source: GAO analysis.

Iraq

Employee is hired

through a U.S.-based

subsidiary

Contractor and

employees

DO NOT pay FICA taxes

No

Contractor and 

employees pay FICA 

taxes

FICA cost savings

provided to DOD

DOD awards the contract to a

U.S.-based defense contractor. 

The contractor needs U.S. employees

for various positions supporting

the contract

Does the 

position require 

a security 

clearance?

Yes

DOD

Statement of

Work requires

logistics support

services for 

forces in Iraq

Employee

is hired through an 

offshore subsidiary

HEART Act Resulted in 

Contractors Paying FICA 

Taxes and Impacted Use of 

Offshore Subsidiaries 

After the HEART Act took effect, defense contractors that were not paying 

FICA taxes on U.S. personnel working on DOD contracts outside of the 

United States began to submit requests for equitable adjustments to 

recover their newly increased tax costs. For the four cost-reimbursement 

contracts we reviewed that used an offshore subsidiary, the increased 

costs were negotiated with DOD officials and were being processed as 

contract modifications at the time of our review. DOD and company 

officials stated that total contract costs have increased by approximately 8 

to 10 percent in some cases due to both FICA tax payments and increased 

contract award fees.17 As a result, in fiscal year 2009, four of the five 

 

17Potential contract award fees are based on estimated total contract costs. 

Page 11 GAO-10-327 Defense Contracting
 

contractors using offshore subsidiaries to support DOD work requested 

reimbursement of at least $140 million from DOD for new FICA payments 

on the contracts we reviewed as well as some others. 

Several contractors stated that they initially used offshore subsidiaries to 

hire U.S. workers to perform services overseas in order to offer 

competitive prices when bidding for DOD contracts, and as this practice 

grew, it became a competitive necessity. DOD officials said they did not 

think that using an offshore subsidiary to avoid FICA taxes provided a 

competitive advantage to companies since each competitor was free to 

adopt the offshore structure if it chose. With the enactment of the HEART 

Act, some defense companies have reconsidered the use of offshore 

subsidiaries to hire U.S. workers. One contractor said it established a 

subsidiary in 1993 to support a DOD logistics contract because, at that 

time, company tax advisors proposed using offshore subsidiaries to 

achieve cost savings that could be passed on to DOD. This contractor is 

considering whether to continue using this subsidiary now that the cost 

advantage from FICA tax savings has been removed. Another contractor 

said that it had transferred U.S. personnel from its Cayman Islands 

subsidiary to a U.S.-based subsidiary and is evaluating whether to close 

the subsidiary. A third contractor said that the HEART Act removed the 

cost advantage when hiring U.S. citizens and residents to perform work 

overseas, but it still uses the subsidiary to manage foreign workers. 

Contractors noted that the requirement of the HEART Act that companies 

hiring U.S. personnel overseas pay FICA taxes may have unintended 

consequences, such as hiring fewer of these employees. Additionally, they 

noted that foreign-based contractors now have a cost advantage in 

competing for overseas DOD contracts because they are not required to 

pay FICA taxes for their U.S. workers. Several company and DOD officials 

also stated that a foreign subsidiary could continue to avoid FICA taxes if 

the parent company changes its ownership stake in the foreign subsidiary 

to 50 percent or less, which is below the ownership threshold defined in 

the law.18 In fact, one defense contractor adopted this practice and sold 50 

percent of its wholly owned subsidiary the day before the HEART Act took 

effect in order for its foreign subsidiary to avoid paying FICA taxes for 

 

18The HEART Act applies to foreign companies (and their U.S. workers performing on U.S. 

government contracts) that are part of a “controlled group of entities” whose common 

parent is a U.S. corporation. For this purpose, the HEART Act revised the definition of a 

“controlled group of entities” to lower the ownership threshold of a parent-subsidiary from 

“at least 80 percent” to “more than 50 percent.” See 26 U.S.C. § 1563(a)(1). 

Page 12 GAO-10-327 Defense Contracting
 

U.S. workers performing DOD work abroad. According to DCAA, another 

defense contractor proposed subcontracting U.S. workers who do not 

require security clearances through a new offshore company to bypass the 

HEART Act requirements. 

Defense Contractors’ 

Offshore Subsidiaries 

Continue to Avoid 

Unemployment Taxes for 

Their U.S. Workers 

While five of the six contractors in our case studies said that reducing 

FICA tax payments was the primary reason for using offshore subsidiaries, 

this practice also allowed the contractors to reduce costs by avoiding state 

and federal unemployment insurance taxes for U.S. personnel working 

overseas. For U.S. citizens performing certain work outside the United 

States, federal law requires only American employers to pay 

unemployment taxes; foreign subsidiaries are not defined as American 

employers under the law. The HEART Act did not address unemployment 

payroll taxes for U.S. personnel working overseas, and while these taxes 

are much lower than FICA taxes, contractors have been able to continue 

to avoid them. Our analysis of data from one contractor showed a savings 

of almost $6 million in 2009 by not paying state and federal unemployment 

insurance taxes for U.S. workers on its federal government contract that 

were hired through its offshore subsidiary. Table 3 provides a notional 

example of differences in payroll taxes paid for U.S. workers of a domestic 

subsidiary versus an offshore subsidiary. 

Page 13 GAO-10-327 Defense Contracting
 

Table 3: Notional Comparison of Selected Payroll Taxes Paid by Employer for an Employee Earning $100,000 in Wages

Employer a

Offshore subsidiary, 

before the HEART Act

Offshore subsidiary, 

after the HEART Act U.S. subsidiary 

Employee wages $100,000 $100,000 $100,000

FICA taxes 

Social Security Old Age, Survivors, and Disability 

Insurance (OASDI) (6.2%) 

$0 $6,200 $6,200

Medicare Hospital Insurance (1.45%) $0 $1,450 $1,450

Unemployment taxes

Federal Unemployment Tax 

(0.8% on first $7,000 in wages)b

$0 $0 $56

State Unemployment Tax 

(1% on first $9,000 in wages)c

$0 $0 $90

Total employer payroll taxes $0 $7,650 $7,796

Source: GAO Analysis 

a

While both employers and employees pay equal shares of FICA taxes, contributions to federal and 

state unemployment taxes are usually paid by employers but not by employees. 

b The federal unemployment tax rate is 6.2% on the first $7,000 of annual wages, but this is typically 

reduced to 0.8% through an offset credit for employers who pay the state unemployment tax, 

resulting in a maximum tax of $56.00 per employee, per year (0.008 X $7,000 = $56.00). 

c

Percentage based on average rate paid by Texas employers in 2009. State unemployment tax rates 

vary by state and by employer, so that employer rates are based on their experience with the 

unemployment benefits system. The state tax wage bases also vary, from $7,000 in several states to 

more than $30,000 in others. 

In addition to offshore subsidiaries not owing unemployment taxes, their 

U.S. workers may not be eligible for unemployment benefits stemming 

from this employment. In one state where four of the six case study 

contractors have a corporate presence, we reviewed documentation for 

about 140 former employees of several contractors who were denied 

unemployment benefits in 2009. State workforce officials indicated that 

these benefits were denied because the employees worked for a foreign 

subsidiary and not an American employer. 

In the contracts we reviewed, DOD oversight officials were aware of the 

roles that offshore subsidiaries played in supporting the contracts. DOD 

officials said that oversight mechanisms, such as DCAA’s annual reviews 

of incurred costs, provide knowledge of the activities of offshore 

subsidiaries in cost-reimbursement contracts. For the contracts for which 

DCMA had oversight responsibilities, officials said that they reviewed 

DCAA audits and approved company disclosure statements, which 

included information about the contractors’ use of subsidiaries. 

Contractors’ Use of 

Offshore Subsidiaries 

Did Not Impede 

DOD’s Contract 

Oversight 

Page 14 GAO-10-327 Defense Contracting
 

Contracting officials said that the use of offshore subsidiaries did not 

negatively affect contract schedule or performance. 

In the five contracts we reviewed that used offshore subsidiaries, DCAA 

conducted audits or examined documents related to the specific activities 

of the subsidiary. For example, for two of the contractors, DCAA 

conducted on-site audits of the payroll processing activities supported by 

the offshore subsidiaries. In one case, the contractors’ offshore 

subsidiaries are registered in the Cayman Islands, but its payroll 

processing services are performed in Dubai and were audited on location 

by DCAA. One DCAA office that monitors several contractors using 

offshore subsidiaries has developed guidance to facilitate reviewing the 

activities of payroll processing functions. 

Contract file and oversight documents we reviewed, such as contractor 

price proposals and cost accounting disclosure statements, disclosed the 

use of offshore subsidiaries. For example, two of the contract files 

included contractor labor rates, which specified the payroll company 

(either onshore or offshore) assigned for each position. The rates also 

indicate that the fringe benefits paid to employees of the two offshore 

subsidiaries were less than benefits for U.S.-based employees. In another 

case, one company’s price negotiation memo identified costs related to 

two offshore subsidiaries, but it did not indicate that they were foreign 

companies or where they were registered. 

Although information on the offshore subsidiaries was disclosed in the 

contract files, the clarity of information concerning the offshore 

subsidiaries’ role in the contracts we reviewed varied. For example, for 

one of the contracts, a DCMA official said that information identifying the 

contractor’s offshore subsidiary was available, but it took several months 

of working with the contractor to confirm the subsidiary’s purpose in 

avoiding FICA taxes. In other contracts we examined, the role of the 

offshore subsidiary was more readily apparent. For example, one contract 

file included documents in which the defense contractor described the 

offshore subsidiary as a means of saving DOD the cost of reimbursing 

FICA taxes. The contract file indicated that contracting staff reviewed the 

company’s information with Army counsel before consenting to the 

subcontracting arrangement. 

DCAA also has responsibility for reviewing contractor compliance with 

federal cost accounting standards (CAS). For the six contracts in our 

review, DCAA officials indicated that the contractors complied with CAS. 

Contracts and subcontracts executed and performed entirely outside of 

Page 15 GAO-10-327 Defense Contracting
 

the United States, its territories, and possessions are exempt from CAS 

requirements.19 Although performed overseas, according to DCAA and 

contracting officials, most of the contracts we examined were not CAS 

exempt because some costs were incurred within the United States, and in 

each case the contractors followed CAS. In general, defense companies 

said that even when their contracts are CAS exempt, they comply with 

CAS because the accounting system is already in place. 

While defense contractors have increased their offshore subsidiaries used 

for commercial purposes, the practice of using offshore subsidiaries to 

avoid certain payroll taxes on U.S. government contracts has been 

addressed by the HEART Act. As a result, contractors have begun to pay 

FICA taxes for U.S. workers hired through offshore subsidiaries to support 

DOD contracts, thus contributing to the Social Security and Medicare 

Trust Funds. This requirement will likely lead to a change in corporate 

decisions to create offshore subsidiaries for this purpose. DOD also 

continues to monitor these contractor practices. Notwithstanding these 

changes, the HEART Act did not address unemployment taxes for U.S. 

workers of offshore subsidiaries, and some contractors continue to avoid 

these taxes. While unemployment insurance taxes are much lower than 

those for FICA, this continues to allow for a potential tax advantage for 

contractors hiring U.S. workers through offshore subsidiaries for U.S. 

government contracts performed overseas. 

Congress should consider whether further legislative actions are needed to 

require payment of unemployment taxes for U.S. workers hired by 

offshore subsidiaries to perform services overseas. 

We provided a draft of this report to the Departments of Defense and 

Labor, the Internal Revenue Service, and the Securities and Exchange 

Commission. Each agency generally agreed with our report and did not 

provide additional comments. We also obtained third party views from 

defense contractors selected as part of our case studies; they generally 

agreed with our findings and provided technical comments, which were 

Conclusion 

Matter for 

Congressional 

Consideration 

Agency Comments 

and Our Evaluation 

 

1948 C.F.R. § 9903.201-1(b)(14). 

Page 16 GAO-10-327 Defense Contracting
 

incorporated as appropriate. Texas Workforce Commission officials 

reviewed a portion of the draft report related to unemployment benefits 

and agreed with our findings. 

We are sending copies of this report to other interested congressional 

committees and the Secretary of Defense. In addition, this report will be 

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

Should you or your staff have any questions on the matters covered in this 

report, please contact John Needham at (202) 512-4841 or 

needhamjk1@gao.gov. Contact points for our Offices of Congressional 

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

Key contributors to this report were Amelia Shachoy, Assistant Director; 

W. William Russell; Jennifer Dougherty; Emily Gruenwald; Ami Ballenger; 

John K. Needham 

Noah Bleicher; Ken Patton; and Susan Neill. 

Director 

Acquisition and Sourcing Management 

Page 17 GAO-10-327 Defense Contracting
 

List of Committees 

evin 

Chairman 

in 

cKeon 

The Honorable Carl L

The Honorable John McCa

Ranking Member 

Committee on Armed Services

United States Senate 

The Honorable Ike Skelton 

Chairman 

The Honorable Howard P. M

Ranking Member 

Committee on Armed Services 

House of Representatives 

Page 18 GAO-10-327 Defense Contracting
Appendix I: Scope and Methodology Appendix I: Scope and Methodology 

To understand the trends and purposes of defense contractors’ offshore 

subsidiaries, we identified 45 contractors with $1 billion or more in 2008 

Department of Defense (DOD) spending, based on data from the Federal 

Procurement Data System-Next Generation (FPDS-NG).1

 Of the 45 

contractors, we found 29 were publicly traded U.S. companies and we 

corroborated this information with officials at the Securities and 

Exchange Commission (SEC). We reviewed prior GAO reports, performed 

literature searches, and conducted legal research regarding DOD 

contractors’ use of offshore subsidiaries. 

To identify the 29 companies’ subsidiaries, we reviewed the 2008 Form 10-

K2

 reports filed with the SEC, which require companies to disclose their 

significant subsidiaries. SEC defines a subsidiary as significant if (1) the 

parent corporation’s and its other subsidiaries’ investments in and 

advances to the subsidiary exceed 10 percent of the consolidated total 

assets of the parent corporation and its subsidiaries, (2) the parent 

corporation’s and its other subsidiaries’ proportionate share of total assets 

(after intercompany eliminations) of the subsidiary exceed 10 percent of 

the consolidated total assets of the parent corporation and its subsidiaries, 

or (3) the parent corporation and its other subsidiaries’ equity in the 

income from continuing operations exceeds 10 percent of the consolidated 

income from continuing operations of the parent corporation and its 

subsidiaries. The total number of subsidiaries reported to the SEC is most 

likely understated. We also analyzed offshore subsidiary data from 2003 

and 2008 for 25 of the 29 contractors to determine differences in the 

numbers and locations of offshore subsidiaries over a 5-year period. We 

excluded 4 of the 29 contractors that were not publicly traded in 2003 from 

our analysis. 

To further understand the reasons companies use offshore subsidiaries, 

we conducted interviews with tax specialists, senior international 

procurement attorneys, as well as tax and legal professors. We performed 

literature searches to find examples of legal cases involving the 

contractors we selected for case studies and their subsidiaries from 1980 

to present. We specifically looked for cases involving liability issues 

between a parent company and an offshore subsidiary. 

 

1

Selection of defense contractors was based on the obligation amounts as of February 2009. 

2

Form 10-K is used for the annual reports or transition reports that corporations file with 

the SEC according to the Securities Exchange Act of 1934. 15 U.S.C. §§ 78m, 78o(d); 17 

C.F.R. § 249.310. 

Page 19 GAO-10-327 Defense Contracting
Appendix I: Scope and Methodology 

To learn more about how defense contractors use offshore subsidiaries, 

we conducted interviews with 13 of the 29 DOD contractors. We selected 

these contractors based on a range of the amount of government work in 

fiscal year 2008, location of identified subsidiaries, and industry type. In 

addition, we interviewed 3 other defense contractors for the case studies 

we conducted, for a total of 16 contractors interviewed. 

We identified the top service categories procured by DOD outside of the 

United States based on fiscal year 2008 FPDS-NG data. The services 

selected were logistics support, construction of miscellaneous buildings, 

facilities operations, repair and maintenance of vehicles, and architect and 

engineer services. From this data, we selected six contracts for services 

overseas to provide illustrative examples of services performed outside 

the United States based on several factors, including the amount of 

contract dollars obligated, type of service provided, contracting command, 

and the contract place of performance, as well as services using large 

numbers of U.S. personnel. We compared the FPDS-NG data to DOD 

Synchronized Pre-deployment and Operational Tracker (SPOT) data to 

identify contracts that employed U.S. workers abroad. We also identified 

contracts in which the prime contractor was an offshore subsidiary of a 

U.S. defense company. For each contract selected, we interviewed 

contractor officials, DOD contracting command staff, as well as DOD 

officials responsible for oversight of the contracts. Of the six contracts 

that met these selection criteria, three of the associated contractors were 

among the 13 interviewed from the top 29 defense contractors. Table 4 

lists the 16 DOD contractors interviewed. 

Page 20 GAO-10-327 Defense Contracting
Appendix I: Scope and Methodology 

Table 4: DOD Contractors Interviewed and Their Fiscal Year 2008 DOD Contract Obligations 

Dollars in billions 

DOD contractors 

Fiscal Year 2008

DOD contract obligations 

Fiscal Year 2008

DOD service contract

obligations

 Lockheed Martin Corporation $28.9 $12.6

 The Boeing Company 22.2 9.4

 General Dynamics Corporation 15.2 5.1

 L-3 Communications Holdings, Inc. 6.8 4.7

 KBR, Inc. 6.0 6.0

 ITT Corporation 4.6 2.0

 General Electric Company 3.5 1.0

 Computer Sciences Corporation 2.9 2.9

 Health Net, Inc. 2.4 2.4

 Harris Corporation 1.8 0.3

 Honeywell International, Inc. 1.7 0.7

 DynCorp International, Inc. 1.4 1.4

 Rockwell Collins, Inc. 1.2 0.3

 Fluor Corporation 0.7 0.4

 Combat Support Associates 0.5 0.5

 AECOM Technology Corporation 0.5 0.5

Total $100.3 $50.1

Source: USASpending and FPDS-NG, August 2009. 

To assess the FPDS-NG data reliability for the contracts selected, we 

corroborated the FPDS-NG data with DOD officials and the contract files. 

We confirmed that contract information reported in FPDS-NG, including 

the contract identification number, contract type, service provided, 

contracted vendors, the contract place of performance, and the fiscal year 

2008 dollars obligated were sufficiently reliable for our purposes. 

To review DOD oversight and management of defense contractor’s use of 

offshore subsidiaries, for each of the six contracts selected, we reviewed 

selected contract file documentation, including contracts and task orders, 

price negotiation memorandums, requests for consent to subcontract, and 

contractors’ proposed pricing data. In addition, we reviewed relevant 

Defense Contract Audit Agency (DCAA) audit reports and documentation. 

We also reviewed available guidance from contracting commands and 

estimates related to implementing the Heroes Earnings Assistance and 

Relief Tax (HEART) Act of 2008 and interviewed cognizant DOD officials, 

Page 21 GAO-10-327 Defense Contracting
Appendix I: Scope and Methodology 

including contracting officers, DCAA and Defense Contract Management 

Agency (DCMA) where delegated, as well as the contractors. We reviewed 

the Federal Acquisition Regulation (FAR) and the Defense FAR 

Supplement to identify any requirements regarding DOD contractors’ use 

of offshore subsidiaries as well as Cost Accounting Standards (CAS) and 

reviewed DOD’s public comments on the CAS Board’s review of the CAS 

exemption for contracts performed entirely overseas. 

To determine whether contractors using offshore subsidiaries selected for 

case studies owed payroll taxes, we reviewed contract file documents for 

the contractors and interviewed DCAA officials. With regard to state and 

federal unemployment taxes, we analyzed contractor proposed labor rate 

information in 2009 to determine the amount of state and federal 

unemployment tax that was avoided on DOD contracts through the use of 

offshore subsidiaries. We also selected one state, Texas, in which four of 

the six selected contractors had a corporate presence as an illustrative 

example. We reviewed data and interviewed the state’s workforce officials 

to determine whether employees of those companies were denied 

unemployment benefits in 2009 because the employees were hired through 

a company’s offshore subsidiary. We assessed the reliability of the state 

unemployment data and determined it was sufficiently reliable for our 

purposes. In addition, we reviewed guidance and interviewed Department 

of Labor officials about federal and state unemployment insurance 

eligibility requirements. 

We conducted this performance audit from February 2009 through January 

2010 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 

Page 22 GAO-10-327 Defense Contracting
Related GAO Products Related GAO Products 

International Taxation: Large U.S. Corporations and Federal 

Contractors with Subsidiaries in Jurisdictions Listed as Tax Havens or 

Financial Privacy Jurisdictions. GAO-09-157. Washington, D.C.: 

December 18, 2008. 

U.S. Multinational Corporations: Effective Tax Rates are Correlated 

with Where Income Is Reported. GAO-08-950. Washington D.C.: August 12, 

2008. 

DCAA Audits: Allegations That Certain Audits at Three Locations Did 

Not Meet Professional Standards Were Substantiated. GAO-08-857. 

Washington D.C.: July 22, 2008. 

Cayman Islands: Business and Tax Advantages Attract U.S. Persons and 

Enforcement Challenges Exist. GAO-08-778. Washington D.C.: July 24, 

2008. 

Defense Acquisitions: DOD’s Increased Reliance on Service Contractors 

Exacerbates Long-standing Challenges. GAO-08-621T. Washington, D.C.: 

January 23, 2008. 

Offshoring: U.S. Semiconductor and Software Industries Increasingly 

Produce in China and India. GAO-06-423. Washington D.C.: September 7, 

2006. 

Company Formations: Minimal Ownership Information Is Collected 

and Available. GAO-06-376. Washington, D.C.: April 7, 2006. 

International Trade: Current Government Data Provide Limited Insight 

into Offshoring of Services. GAO-04-932. Washington D.C.: September 22, 

2004. 

(120873) Page 23 GAO-10-327 Defense Contracting
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