DEFENSE 

WORKFORCE

DOD Needs to Better 

Oversee In-sourcing 

Data and Align Insourcing Efforts with 

Strategic Workforce

Plans

Report to Congressional Committees

February 2012

GAO-12-319

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-12-319, a report to 

congressional committees

February 2012

DEFENSE WORKFORCE

DOD Needs to Better Oversee In-sourcing Data and 

Align In-sourcing Efforts with Strategic Workforce 

Plans 

Why GAO Did This Study

The Department of Defense (DOD) 

relies on contractors for varied 

functions, and obligated about 

$200 billion in fiscal year 2010 for 

contracted services. In-sourcing—

moving contracted work to 

performance by DOD employees—has 

been one tool through which DOD 

managed its workforce. The National 

Defense Authorization Act for Fiscal 

Year 2011 required DOD to report on 

its fiscal year 2010 in-sourcing 

decisions and required GAO to assess 

DOD’s report. The act required DOD to 

report, for each decision, the agency or

service involved, the basis and 

rationale for the decision, and the 

number of contractor employees insourced. GAO assessed the report 

against these requirements and 

examined how DOD prepared the 

report and assured itself of the data’s 

reliability, and the extent the insourcing actions were aligned with 

DOD’s strategic workforce plans. GAO 

reviewed the in-sourcing report, 

examined in-sourcing guidance, 

reviewed DOD’s recent strategic 

workforce plans, and interviewed 

appropriate department officials.

What GAO Recommends

GAO recommends that, for future insourcing actions, DOD (1) issue 

guidance to components on verifying 

in-sourcing data, and (2) better align 

in-sourcing data with strategic 

workforce plans and establish metrics 

to measure progress against insourcing goals. DOD partially 

concurred with the recommendations, 

but noted that the challenges identified 

in GAO’s report are not unique to insourcing. GAO agrees, but believes 

actions are necessary to improve 

oversight of DOD’s in-sourcing.

What GAO Found

DOD reported on two of three issues required by law: the component involved 

with each of its fiscal year 2010 in-sourcing actions and the rationale for each 

action. However, DOD did not report the number of contractor employees whose 

functions were in-sourced, because, DOD officials said, the department does not 

have these data. Specifically, the department noted, in its report to Congress, 

that it contracts for services and does not hire individual contractor employees. 

Instead, DOD reported the number of new civilian authorizations created due to 

in-sourcing. Congress has separately required DOD to report the number of 

contractor employees performing services for DOD, expressed as full-time 

equivalents, as part of its inventory of activities performed under contracts for 

services. In its in-sourcing report, DOD said that efforts to comply with this 

additional requirement may in the future help inform the number of contractor fulltime equivalents in-sourced. 

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

(OUSD (P&R)) requested information from DOD components on fiscal year 2010 

in-sourcing actions to produce its report, and the military departments and OUSD 

(P&R) took varying, and in some instances limited, approaches to ensuring the 

data’s reliability. Additionally, some of the commands GAO contacted 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. 

Federal internal control standards state that data verification helps provide 

management with reasonable assurance of achieving agency objectives, 

including compliance with laws. Without accurate data, decision-makers in DOD 

and Congress may not have reliable information to help manage and oversee 

DOD in-sourcing.

While the mandate did not require the in-sourcing report to align with DOD’s 

strategic workforce plans, it was unclear to what extent the in-sourcing actions 

aligned with DOD’s plan due to differences in the types of data used in the insourcing report and the most recent workforce plan, and the absence of metrics 

to measure the in-sourcing goal established in the plan. DOD took some steps 

toward aligning these efforts, such as establishing a goal for in-sourcing in its 

most recent strategic workforce plan, which was issued in March 2010. 

Additionally, OUSD (P&R) officials said that the in-sourcing actions furthered 

DOD’s strategic workforce objectives, but acknowledged they had not 

established metrics to measure against the in-sourcing goal—which was to, 

among other things, optimize the department’s workforce mix to maintain 

readiness and operational capability and ensure inherently governmental 

positions were performed by government employees. Additionally, the strategic 

workforce plans coded jobs by occupational series, such as budget analyst, while 

the in-sourcing report used function codes indicating broad areas of work, such 

as logistics. DOD officials told GAO there is no crosswalk between the two. GAO 

has previously reported that strategic workforce planning includes aligning 

human capital programs with programmatic goals. Without metrics and due to the 

differences in the data used, DOD and Congress may have limited insight on the 

extent to which in-sourcing actions met strategic workforce goals.

View GAO-12-319. For more information, 

contact Brenda S. Farrell at (202) 512-3604 or 

farrellb@gao.gov or Belva M. Martin at (202) 

512-4841 or martinb@gao.gov.
Page i GAO-12-319 DOD In-sourcing Report

Letter 1 

Background 4

DOD’s September 2011 In-sourcing Report Addressed Two of the 

Three Mandated Requirements 10

DOD and Military Department Approaches to Verifying Reported 

Data Varied 16

Alignment between In-sourcing Actions and Strategic Workforce 

Plans Is Unclear 19

Conclusions 21

Recommendations for Executive Action 22

Agency Comments and Our Evaluation 22

Appendix I Scope and Methodology 26

Appendix II DOD Cost Estimating Guidance and Cost Estimate Data Collection 29

Appendix III Comments from the Department of Defense 31

Appendix IV GAO Contacts and Staff Acknowledgments 34

Figures

Figure 1: Timeline of Selected In-sourcing Events 9

Figure 2: Distribution of Total DOD In-sourcing Actions for Fiscal 

Year 2010 11

Figure 3: Reasons DOD Cited for Its Fiscal Year 2010 In-sourcing 

Decisions 12

Figure 4: Reasons Cited by the Military Services as Reported to 

Congress 13

Contents
Page ii GAO-12-319 DOD In-sourcing Report

Abbreviations

DOD Department of Defense

FY fiscal year

NDAA National Defense Authorization Act

OSD Office of the Secretary of Defense

OUSD Office of the Under Secretary of Defense

P&R Personnel and Readiness

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Page 1 GAO-12-319 DOD In-sourcing Report

United States Government Accountability Office

Washington, DC 20548

February 9, 2012

Congressional Committees

The Department of Defense (DOD) relies on contractors to perform 

functions as varied as professional and management support, information 

technology support, and weapon system and intelligence support, and in 

fiscal year 2010, DOD obligated about $200 billion for contracted 

services. Contracting for services can offer benefits and flexibility to DOD, 

but our prior work has also shown that reliance on contractors to support 

core missions can place the government at risk of transferring 

governmental responsibilities to contractors.1 Further, we have previously 

reported that having the right number of civilian personnel with the right 

skills is critical to achieving DOD’s mission.2 In-sourcing—moving work 

performed by contractors to performance by DOD employees3

 

1 See, for example, GAO, High-Risk Series: An Update, 

—is one 

tool through which DOD can manage its total force (which includes DOD 

civilians, active and reserve military personnel, and contractors) and help 

ensure it has the necessary capabilities in its DOD civilian workforce to 

perform key functions and reduce the risk of over-reliance on its 

contractor workforce. Managing the total force through strategic workforce 

planning helps organizations such as DOD determine if they have the 

appropriate total workforce balance with the necessary skills and 

competencies to achieve their strategic goals.

GAO-11-278 (Washington, D.C.: 

February 2011); 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: DOD’s Increased Reliance 

on Service Contractors Exacerbates Long-standing Challenges, GAO-08-621T

(Washington, D.C.: Jan. 23, 2008).

2 See, for example, GAO, DOD Civilian Personnel: Competency Gap Analyses and Other 

Actions Needed to Enhance DOD’s Strategic Workforce Plans, GAO-11-827T

(Washington, D.C.: July 14, 2011) and Human Capital: Opportunities Exist to Build on 

Recent Progress to Strengthen DOD’s Civilian Human Capital Strategic Plan, 

GAO-09-235 (Washington, D.C.: Feb. 10, 2009).

3 DOD defines in-sourcing as the conversion of any currently contracted service or 

function to DOD civilian or military performance (Deputy Secretary of Defense, In-sourcing 

Contracted Services—Implementation Guidance, May 28, 2009). However, for the 

purposes of this report we refer only to conversion to civilian, rather than military, 

performance.

 
 

Page 2 GAO-12-319 DOD In-sourcing Report

In April 2009, the Secretary of Defense announced his intent to reduce 

the department’s reliance on contractors through in-sourcing, stating that 

the department’s goal was to hire as many as 13,000 new civil servants in 

fiscal year 2010 to replace contractors and up to 30,000 new civil 

servants in place of contractors over a 5-year period.

The National Defense Authorization Act for Fiscal Year 2011 (FY11 

NDAA) required DOD to report to the congressional defense committees 

not later than March 31, 2011, on its fiscal year 2010 in-sourcing 

decisions.4

The act also required that we assess DOD’s report within 120 days of the 

report’s issuance.

Specifically, the act required the department to report, for 

each in-sourcing decision, (1) the agency or service of the department 

involved in the decision, (2) the basis and rationale for the decision, and 

(3) the number of contractor employees whose functions were converted 

to performance by DOD civilian employees. DOD submitted its report to 

the congressional armed services committees on September 7, 2011, and 

DOD officials told us the department submitted the report to the 

congressional appropriations committees on either September 7 or 8, 

2011.

5

To evaluate the extent to which DOD reported on its fiscal year 2010 insourcing decisions, we reviewed DOD’s report and compared it with the 

reporting requirements specified in the legislation. We also met with 

officials in the Office of the Under Secretary of Defense for Personnel and 

Readiness (OUSD (P&R)) responsible for preparing the report, and 

representatives from each of the three military departments as well as 

select major commands to understand the report’s underlying data. We 

focused our work for this and the remainder of our objectives on the 

This report addresses the extent to which DOD 

reported on its fiscal year 2010 in-sourcing decisions as required by the 

act. On the basis of congressional interest, we also address how DOD 

prepared its report on fiscal year 2010 in-sourcing decisions and the 

extent to which it assured itself of the data’s reliability, and the extent to 

which DOD’s fiscal year 2010 in-sourcing decisions were aligned with the 

department’s recent strategic workforce plans.

 

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

111-383, §323(c) (1) (2011).

5 Pub. L. No. 111-383 § 323(c) (2) (2011).
 

Page 3 GAO-12-319 DOD In-sourcing Report

military departments because together they constituted the majority of insourcing actions in fiscal year 2010. For the purposes of this review, we 

selected a non-probability sample of commands from each military 

service, which included at a minimum the largest two commands in each 

service by volume of in-sourcing actions in fiscal year 2010. The sample 

of commands is not generalizable to all military department major 

commands.

To determine the process DOD used to prepare the report and the extent 

to which the Office of the Secretary of Defense (OSD) and the military 

departments assured themselves of the reliability of the data, we 

reviewed our prior work on standards for internal control in the federal 

government.6

To determine the extent to which DOD’s fiscal year 2010 in-sourcing 

decisions were aligned with the department’s recent strategic workforce 

plans, we reviewed DOD guidance on in-sourcing implementation and our 

prior work on strategic workforce planning, as well as Office of Personnel 

Management standards for assessing human capital planning. In addition, 

we compared information reflecting DOD’s fiscal year 2010 in-sourcing 

decisions with its fiscal year 2009 update to its 2006-2010 strategic 

We also reviewed DOD-issued guidance on the in-sourcing 

process, and met with officials in OUSD (P&R) responsible for preparing 

the report, as well as representatives of each of the three military 

departments responsible for compiling data for the report. We analyzed 

the data contained in the report to identify patterns in the in-sourcing 

actions of the military departments, and met with representatives of each 

military department and the selected major commands to identify the 

reasons for those patterns. We used these data to portray the distribution 

of in-sourcing actions across the military departments and other DOD 

agencies, as well as the distribution of in-sourcing rationales in the 

military services and within certain major commands. Although we found 

issues with some of the command-level data, such as some erroneously 

reported in-sourcing rationales, and are making a recommendation to this 

effect, we found the data to be sufficiently reliable for the purposes of 

providing broad percentages about in-sourcing actions.

 

6 GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999).
 

Page 4 GAO-12-319 DOD In-sourcing Report

workforce plans.7

We conducted this performance audit from May 2011 to February 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. We discuss our scope and 

methodology in more detail in appendix I.

We also interviewed officials in OUSD (P&R) 

responsible for preparing both the in-sourcing report and the strategic 

workforce plans, as well as officials in the Office of the Under Secretary of 

Defense for Acquisition, Technology, and Logistics’ Office of Human 

Capital Initiatives, to determine what steps were taken to align in-sourcing 

efforts with strategic workforce plans. 

Beginning with the National Defense Authorization Act for Fiscal Year 

2006,8 Congress required the Secretary of Defense to issue guidelines 

requiring DOD to consider using federal employees to perform work that 

was currently being performed or would otherwise be performed under

DOD contracts. Under the guidelines, special consideration was given to 

contracts that had been performed by federal government employees on 

or after October 1, 1980, were associated with the performance of 

inherently governmental functions,9 had not been awarded on a 

competitive basis, or were determined to be poorly performed due to 

excessive costs or inferior quality.10

 

7 DOD, Strategic Civilian Human Capital Plan (SCHCP) 2006-2010, Fiscal Year 2009 

status report (Mar. 31, 2010), and DOD Strategic Human Capital Plan Update, The 

Defense Acquisition Workforce (April 2010). OUSD (P&R) officials told us these were the 

strategic workforce plans in place at the time of the fiscal year 2010 in-sourcing actions.

8 The National Defense Authorization Act for Fiscal Year 2006, Pub. L. No. 109-163, § 

343 (2006).

9 Inherently governmental functions include functions that require discretion in applying 

government authority or value judgments in making decisions for the government. The 

Federal Acquisition Regulation (FAR) provides examples of such functions, including the 

determination of agency policy, such as determining the content and application of 

regulations, or the determination of federal program priorities for budget requests. 

FAR § 7.503(c).

10 Pub. L. No. 109-163, § 343 (a) (2) (2006).

Background 
 

Page 5 GAO-12-319 DOD In-sourcing Report

The National Defense Authorization Act for Fiscal Year 2008 codified at 

section 2463 of title 10 of the United States Code (U.S. Code) revised the 

guidelines and procedures for use of civilian employees to perform DOD 

functions.11 This section directed the Under Secretary of Defense for 

Personnel and Readiness (P&R) to devise and implement guidelines and 

procedures to ensure that consideration was given to using, on a regular 

basis, DOD civilian employees to perform new functions. In addition, the 

guidelines and procedures were to ensure that functions that were 

performed by contractors and could be performed by DOD civilian 

employees were given the same consideration. Congress also directed 

that the guidelines and procedures may not include any specific limitation 

or restriction on the number of functions or activities that may be 

converted to performance by DOD civilian employees. The act further 

provided that DOD may not conduct a public-private competition prior to 

in-sourcing such functions. The act also added a new section describing 

the functions that were to receive special consideration from DOD when 

considering the use of DOD civilian employees. Additionally, the act 

required special consideration be given to a new requirement that is 

similar to a function previously performed by DOD civilian employees or is 

a function closely associated with the performance of an inherently 

governmental function.12

The National Defense Authorization Act for Fiscal Year 2008 also 

amended section 2330a of title 10 of the U.S. Code. The act required 

DOD to compile and submit to Congress an annual inventory of the 

activities performed during the preceding fiscal year pursuant to contracts 

for services for or on behalf of DOD.13

 

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

324 (2008).

Among other things, the entry for 

an activity on the inventory had to include, for the fiscal year covered by 

such entry, the functions and missions performed by the contractor and 

the number of contractor employees (or its equivalent), paid for the 

12 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 such a contract. The FAR provides 

examples of such functions, including services that involve or relate to the development of 

regulations, or services that involve or relate to budget preparation, including workload 

modeling, fact-finding, and should-cost analyses. FAR § 7.503(d).

13 Pub. L. No. 110-181, § 807 (2008).
 

Page 6 GAO-12-319 DOD In-sourcing Report

performance of the activity. The National Defense Authorization Act for 

Fiscal Year 2011 again amended section 2330a of title 10 of the U.S. 

Code. Among other things the act now requires DOD to report the 

number of contractor employees, expressed as full-time equivalents for 

direct labor, using direct labor hours and associated cost data collected 

from contractors (except that estimates may be used where such data is 

not available and cannot reasonably be made available in a timely 

manner for the purpose of the inventory).14

Section 2330a (e) of title 10 of the U.S. Code requires each Secretary of 

a military department or head of a defense agency to review this annual 

inventory for several purposes, one of which is to identify activities that 

should be considered for conversion to performance by DOD civilian 

employees pursuant to section 2463 of title 10 of the U.S. Code. In turn 

section 2463 requires the Secretary of Defense to make use of the 2330a 

inventory for the purpose of identifying functions that should be 

considered for performance by DOD civilian employees.15

Under DOD’s policy for determining the appropriate mix of military and 

DOD civilians and contractor support, risk mitigation shall take 

precedence over cost savings when necessary to maintain appropriate 

control of government operations and missions.16 This policy provides 

manpower mix criteria for assessing which functions warrant performance 

by military or civilian personnel due to their associated risks, and which 

functions will therefore be considered exempt from performance by 

contractor support.17

 

14 Pub. L. No. 111-383, § 321 (2011).

DOD issued in-sourcing guidance in April 2008 and 

again in May 2009 to assist components in implementing these legislative 

15 Pub. L. No. 110-181, § 324 (2008).

16 DOD Instruction 1100.22, Policy and Procedures for Determining Workforce Mix 

(Apr. 12, 2010).

17 Under DOD Instruction 1100.22, certain functions will meet DOD’s criteria to be 

considered exempt from performance by the private sector, e.g., activities necessary to 

provide for the readiness and workforce management needs of DOD, maintain core 

capabilities and readiness, or mitigate operational risk. Some, but not all, functions 

identified as closely associated with inherently governmental functions will meet the 

criteria necessary to be deemed exempt functions by DOD.
 

Page 7 GAO-12-319 DOD In-sourcing Report

requirements.18

• The function is inherently governmental; that is, the function is so 

closely related to the public interest as to require performance by 

government employees.

According to the May 2009 guidance, DOD components 

should first confirm that a particular mission requirement is still valid and 

enduring; that is, that DOD will have a continued need for the service 

being performed. If the requirement is still valid, the component should 

consider in-sourcing the function. If the component determined that the 

function under review was inherently governmental or exempt from 

private sector performance no cost analysis was required. Possible 

rationales to in-source include the following, according to the May 2009 

in-sourcing guidance:

• The function is exempt from private sector performance to support the 

readiness or workforce management needs of DOD. According to 

DOD’s policy for determining the appropriate mix of military, DOD 

civilians, and contractor support, a function could be exempt from 

private sector performance for a variety of reasons, including 

functions exempt for career progression reasons, continuity of 

infrastructure operations, and mitigation of operational risk.

• The contract is for unauthorized personal services. Special 

authorization is required for DOD to engage in personal services 

contracts, which create a direct employer/employee relationship 

between the government and the contractor’s personnel.

• There are problems with contract administration due to a lack of 

sufficiently trained and experienced officials available to manage and 

oversee the contract.

Other than in-sourcing, OUSD (P&R) officials told us that DOD may be 

able to address the above circumstances by, among other approaches, 

restructuring the contract or changing the way the contract is overseen. 

DOD’s guidance does not require components to prepare cost estimates 

when they cite one of the above reasons as the basis for their in-sourcing 

decision.

 

18 Deputy Security of Defense, Implementation of Section 324 of the National Defense 

Authorization Act for Fiscal Year 2008—Guidelines and Procedures on In-sourcing New 

and Contracted-Out Functions (Apr. 4, 2008) and In-sourcing Contracted Services—

Implementation Guidance (May 28, 2009).
 

Page 8 GAO-12-319 DOD In-sourcing Report

In situations in which none of the factors cited above are applicable, 

DOD’s guidance instructs components to provide “special consideration” 

as discussed above, and if DOD civilians could perform the work, conduct 

a cost analysis to determine whether DOD civilians were the lowest-cost 

provider. According to a December 2009 in-sourcing plan submitted to 

Congress,19 DOD based this requirement on section 129a of title 10 of the 

U.S. Code, which requires DOD to determine the least costly personnel 

consistent with military requirements and other needs of the 

department.20

DOD stated in its fiscal year 2010 budget submission to Congress that it 

expected to save $900 million in fiscal year 2010 from in-sourcing. To 

support the in-sourcing initiative, in April 2009 the Office of the Under 

Secretary of Defense (Comptroller) issued a budget decision which 

decreased funding for support service contracts and increased funding for 

new civilian authorizations across DOD components.

Thus, DOD components may also in-source for cost 

reasons when the work could otherwise be performed by a private 

contractor.

21

In August 2010, the Secretary of Defense stated that he was not satisfied 

with the department’s progress in reducing over-reliance on contractors. 

Representatives of OUSD (P&R) and the Office of the Under Secretary of 

Defense (Comptroller) told us that although DOD avoided $900 million in 

costs for contracted support services in fiscal year 2010 due to the budget 

decision to reduce funds associated with in-sourcing, total spending 

across all categories of service contracts increased in fiscal year 2010 by 

about $4.1 billion. To accelerate the process and achieve additional 

In December 

2009, DOD issued a report to Congress on its planned fiscal year 2010 

in-sourcing efforts, stating that after component reviews, the department 

planned to create as many as 17,000 new civilian authorizations as a 

result of in-sourcing in fiscal year 2010.

 

19 DOD, Report to the Congressional Defense Committees on the Department of 

Defense’s FY 2010 In-sourcing Initiative and Plans (December 2009).

20 10 U.S.C. § 129a.

21 This budget action, called Resource Management Decision 802, assumed a 40 percent 

savings from the in-sourcing actions, so that roughly 60 percent of the original funding for 

contracted services went toward new civilian authorizations, while the remainder was 

retained by the Comptroller as savings available for other purposes. Thus, DOD 

components were required to either find savings under in-sourcing or reduce the functions 

they performed, or both.
 

Page 9 GAO-12-319 DOD In-sourcing Report

savings, the Secretary directed a 3-year reduction in funding for service 

support contracts categorized by DOD as contracted support services. He 

also directed a 3-year freeze on the level of DOD civilian authorizations at 

OSD, the defense agencies, and the Combatant Commands, and stated 

that with regard to in-sourcing, no more DOD civilian authorizations would 

be created after the then-current fiscal year to replace contractors. He 

also noted that some exceptions could be made for critical areas such as 

the acquisition workforce. Further, the statutory requirement to regularly 

consider in-sourcing contracted services remains in effect, and DOD 

officials told us that, accordingly, in-sourcing continues in the department, 

though on a more limited basis. See figure 1 for a timeline of key events 

related to DOD in-sourcing.

Figure 1: Timeline of Selected In-sourcing Events

Additionally, section 115b of title 10 of the U.S. Code requires DOD to 

annually submit to the defense committees a strategic workforce plan to 

shape and improve its civilian workforce. Among other requirements, the 

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

civilian, and contractor personnel capabilities. OUSD (P&R) is responsible 

for developing and implementing the strategic plan in consultation with 

the Office of the Under Secretary of Defense for Acquisition, Technology, 

and Logistics.22 Since 2001, we have listed federal human capital 

management, of which strategic workforce planning is a key part, as a 

governmentwide high-risk area.23

 

22 10 U.S.C. § 115b (a) (2).

Similarly, we have identified challenges 

23 GAO-11-278. 
 

Page 10 GAO-12-319 DOD In-sourcing Report

with having a sufficient number of adequately trained acquisition and 

contract oversight personnel as a factor in continuing to identify DOD 

contract management as a DOD-specific high-risk area.

DOD’s September 2011 in-sourcing report addressed the legislative 

requirements to report the service or agency involved with each of its 

fiscal year 2010 in-sourcing actions and the rationale for each action, but 

did not report the number of contractor employees whose functions were 

in-sourced, as specified in the act. DOD stated that it could not report the 

number of contractor employees because it contracts for services, rather 

than hiring contractor employees directly. An OUSD (P&R) official noted 

that one of the data elements Congress has required DOD to include in 

its annual inventories of contracted services is the number of contractor 

employees, expressed as full-time equivalents, that performed each 

activity,24 and DOD is in the process of implementing a revised approach 

to collect these data directly from contractors.

DOD’s report identified nearly 17,000 newly created civilian 

authorizations25 as a result of in-sourcing actions in fiscal year 2010, and 

for each of these new authorizations, the department identified the DOD 

component involved with the decision.26 For example, DOD reported that 

42 percent of the new authorizations were established in the Army; 

28 percent in the Air Force; 16 percent in the Department of the Navy 

(including the Marine Corps);27

 

24 10 U.S.C. § 2330a (c) (2) (E).

and 14 percent in other DOD agencies. 

The report also in many cases identified the major command, 

25 DOD’s in-sourcing report gives slightly different figures for the total number of insourcing authorizations. In a chart showing the distribution of in-sourcing across different 

DOD components, it gives the total as 16,782. In the data contained in the report listing 

each component’s in-sourcing actions, the total adds to 16,775.

26 As of October 31, 2011, DOD reported that it employed about 790,000 federal civilians. 

In its annual inventory of contracted services, required under 10 U.S.C. 2330a, DOD 

reported to Congress that the level of contractor manpower performing services on DOD’s 

behalf during fiscal year 2010 was equivalent to 623,000 full-time employees. We note 

that our prior work has found limitations in DOD’s reporting associated with this inventory. 

GAO-11-192. 

27 Throughout this report, we refer to the Department of the Navy when including the 

Marine Corps, and to the Navy when the Marine Corps is excluded.

DOD’s September 

2011 In-sourcing 

Report Addressed 

Two of the Three 

Mandated 

Requirements 

Service or Agency 

Information 
 

Page 11 GAO-12-319 DOD In-sourcing Report

suborganization, or directorate of each DOD component that made the insourcing decision. For example, the Air Force identified whether Air 

Combat Command, U.S. Air Forces Europe, or another agency within the 

Air Force made the decision. See figure 2 for the overall distribution of 

DOD’s fiscal year 2010 in-sourcing actions across its components.

Figure 2: Distribution of Total DOD In-sourcing Actions for Fiscal Year 2010 

a Department of the Navy, including Marine Corps.

The report also provided information on the rationale for each in-sourcing 

action across DOD. According to DOD, half of the actions were based on 

a determination that the function would be more cost effective if 

performed by DOD civilian employees. While section 323 of the FY11 

NDAA did not require DOD to report cost data on in-sourcing, DOD 

issued guidance in January 2010 on cost estimating methodology for 

cost-based in-sourcing decisions and the military departments collected 

and reported some cost estimate data to OUSD (P&R). See appendix II 

for information on DOD’s guidance on estimating in-sourcing costs and 

collection of cost estimate data.

Additionally, DOD indicated in its September 2011 in-sourcing report to 

Congress that about 41 percent of the new authorizations would perform 

functions DOD determined to be exempt from private sector performance, 

such as those necessary for career progression reasons, continuity of 

infrastructure operations, or risk mitigation (which included oversight and 

Rationale for In-sourcing
 

Page 12 GAO-12-319 DOD In-sourcing Report

control of functions that are closely associated with inherently 

governmental functions). Lastly, DOD reported that about 9 percent of the 

new authorizations were created to perform work that was determined to 

be inherently governmental (see fig. 3).

Figure 3: Reasons DOD Cited for Its Fiscal Year 2010 In-sourcing Decisions

Our analysis of the data contained in the DOD in-sourcing report showed 

that the military services differed in the rationales they cited as the basis 

for their in-sourcing actions. For example, 86 percent of the Army’s new 

authorizations (5,969 of 6,953) resulting from in-sourcing were deemed 

exempt from private sector performance in order to reduce the risks 

associated with contractors performing particular functions that were 

closely associated with inherently governmental functions. In contrast, 95 

percent of the Air Force’s new in-sourcing authorizations (4,495 of 4,732) 

were cost-based and 100 percent of the new Marine Corps authorizations 

(all 1,042) were cost-based. While the Navy reported that the basis for its 

fiscal year 2010 in-sourcing actions varied (26 percent or 441 cost-based, 

31 percent or 529 inherently governmental, and 43 percent or 716 exempt 

from private sector performance, out of a total of 1,686), each of the 

Navy’s largest major commands by volume of in-sourcing actions tended 

to vary as well, with each command citing primarily one basis for its in-
 

Page 13 GAO-12-319 DOD In-sourcing Report

sourcing actions which differed among commands. For example, Naval 

Sea Systems Command reported that its in-sourcing actions largely 

involved functions considered exempt from private sector performance for 

career progression reasons, while Pacific Fleet Command in-sourced 223 

out of 224 positions for cost reasons. See figure 4 for the distribution of 

the reasons cited for in-sourcing for each military service.

Figure 4: Reasons Cited by the Military Services as Reported to Congress

Note: Numbers may not add due to rounding.

a Navy data are as reported to Congress and include errors in certain Navy command data, which we

discuss in this report.

OUSD (P&R) and military service officials told us these differences reflect 

the specific missions and functions of commands and differences in the 

emphases of military services in the in-sourcing process. For example, 

Army officials told us that the Army chose to in-source a large number of 

functions which were closely associated with inherently governmental 

functions to reduce risk associated with having contractors perform that 

work. By contrast, Air Force officials told us that they gave “special 

consideration” to in-sourcing functions closely associated with inherently 

governmental, however, because the Air Force had sufficient in-house 

capability in place to oversee the contracted work and could continue 

contracting for those functions, the Air Force performed costs estimates 

and in-sourced these functions for cost reasons. Under DOD’s 

implementation of section 2463 of title 10 of the U.S. Code, even though 
 

Page 14 GAO-12-319 DOD In-sourcing Report

a function is identified as closely associated with inherently governmental, 

unless that function meets DOD’s exempt criteria, the function may only 

be in-sourced if a cost savings will result.28

Furthermore, our work found that differences in the reasons cited for the 

in-sourcing actions were, in part, due to actions by the military services 

and major commands to focus their efforts on different objectives when 

identifying contracts for possible in-sourcing. For example, Air Force and 

Marine Corps command officials we met with indicated that their objective 

was to realize cost savings from in-sourcing in order to live within the 

budget reductions associated with the DOD Comptroller’s April 2009 

budget decision, which cut funds from contracted services and placed a 

portion of those funds in civilian authorizations accounts. By contrast, 

officials of Naval Sea Systems Command told us they pursued an insourcing process based on an analysis the command had performed of 

weaknesses in its internal capabilities and over-reliance on contactors, 

and this resulted in categorizing the command’s in-sourcing actions as 

exempt from private sector performance for career progression reasons. 

Similarly, at one Army command, officials we met with in-sourced mainly 

due to a statutory requirement that security guards on military bases be 

government civilians.

DOD’s in-sourcing report further noted that in-sourcing has been an 

effective tool for the department to rebalance its workforce, realign 

inherently governmental and other critical work to government 

performance, and in many cases, generate resource efficiencies for 

higher priority goals.

DOD’s in-sourcing report did not provide the number of contractor 

employees whose functions were in-sourced as required, stating that the 

department did not report this information because the department does 

not directly employ or hire individual contractor employees. DOD further 

stated that the department contracts for services to be performed, so the 

number of employees used to perform these services is not a decision of 

the department but is at the discretion of the contractor. The report also 

 

28 Deputy Secretary of Defense, In-Sourcing Contracted Services-Implementation 

Guidance (May 28, 2009).

DOD Did Not Provide the 

Number of Contractor 

Employees Whose 

Functions Were In-sourced
 

Page 15 GAO-12-319 DOD In-sourcing Report

stated that the department’s in-sourcing actions are focused on services 

and not individual contractor positions or employees.

OUSD (P&R) officials told us that DOD focuses on contracting for 

services rather than the number of contractor employees providing these 

services. OUSD (P&R) officials further noted that the department does 

not currently have complete information on the number of full-time 

equivalents of contractor employees providing services to the department. 

We recognize that the manner in which the service will be performed 

under the contract is often a decision of the contractor. However, the level 

of contractor personnel required to perform each activity is a key 

component of total workforce management. As previously noted, section 

2330a of title 10 of the U.S. Code requires DOD to submit to Congress an 

annual inventory of all activities performed pursuant to contracts for 

services and data associated with each activity to include the number of 

contractor employees, expressed as full-time equivalents, based on the 

number of direct labor hours and associated cost data collected from 

contractors, paid for performance of the contracted services.29 Our prior 

work has found that DOD faces limitations in obtaining or estimating this 

information.30 For example, we found that the federal government’s 

primary data system for tracking information on contracting actions does 

not provide all the data elements required for the inventory of contracted 

services. Though DOD has submitted four annual inventories to 

Congress, as noted in our prior work, with the exception of the Army’s 

inventory data, the information in the DOD inventories is largely derived 

from databases that do not collect the information required by section 

2330a of title 10 of the U.S. Code. In its September 2011 in-sourcing 

report to Congress, DOD noted that ongoing efforts to collect the 

information required by section 2330a may in the future help inform the 

number of contractor full-time equivalents in-sourced. In November 2011 

DOD submitted to Congress a plan to collect personnel data directly from 

contractors. According to this plan, DOD will institute a phased-in 

approach to do so by fiscal year 2016.

 

29 Title 10, U.S.C. Section 2330a (c) (E) (2010).

30 GAO-11-192. 
 

Page 16 GAO-12-319 DOD In-sourcing Report

To produce the report on fiscal year 2010 in-sourcing actions, OUSD 

(P&R) requested that DOD components provide certain information about 

their fiscal year 2010 in-sourcing actions, and DOD and the military 

departments took varying, and in some instances limited, approaches to 

ensuring the reliability of the reported data. For example, the Air Force 

required major commands to certify the accuracy of the data they 

reported to Air Force headquarters, while the Navy also delegated 

responsibility for ensuring data reliability to its major commands but did 

not establish a policy requiring data certifications. GAO’s Standards for 

Internal Control in the Federal Government states that internal controls, 

which include verifications and edit checks, help provide management 

with reasonable assurance that agencies have achieved their objectives, 

including compliance with applicable laws and regulations and the 

reliability of financial and other internal and external reports.31

To obtain data for the report, OUSD (P&R) sent a reporting template to 

DOD components which requested the following information:

• the name of the component,

• major command/suborganization/directorate,

• location,

• in-sourcing rationale,

• estimated annual savings,

• DOD function code,32

• occupational series,33

• whether the position was filled,

• whether it was part of the defense acquisition workforce, and

• whether the action had a small business impact.

OUSD (P&R) included a subset of this information in the September 2011 

in-sourcing report to Congress, including the component, major 

command/suborganization/directorate, location, rationale, and function 

code.

 

31 GAO/AIMD-00-21.3.1.

32 DOD function codes describe work performed in the defense infrastructure and 

operating forces in direct support of military and civil works missions.

33 Occupational series codes describe positions with similar specialized line of work and 

qualification requirements.

DOD and Military 

Department 

Approaches to 

Verifying Reported 

Data Varied

Process of Collecting 

Report Data
 

Page 17 GAO-12-319 DOD In-sourcing Report

To provide the data, both the Air Force and the Department of the Navy 

obtained data from their respective major commands, while the Army 

compiled its in-sourcing data at the headquarters level using several data 

sources originally populated by major commands. The major commands 

we met with in the Air Force and the Department of the Navy—like the 

Army headquarters—used various information systems and other sources 

in compiling their in-sourcing data, since no one data source could 

provide all the information required. These data sources included 

personnel databases such as the Defense Civilian Personnel Data 

System as well as service-specific personnel systems, and the results of 

reviews of contracts and inventories of contracted services, among other 

sources.

The Air Force required major commands to certify the accuracy of the 

data they reported to Air Force headquarters on each in-sourcing action. 

More specifically, the guidance required reviews and certifications by key 

personnel—including reviews by personnel, contracting, finance, and 

manpower officials.34

The Department of the Navy also delegated responsibility for ensuring 

data reliability to its major commands, though it did not establish a 

certification requirement or issue other guidance to help ensure the 

reliability of the in-sourcing data it collected and reported to OUSD (P&R) 

for the in-sourcing report to Congress. Army headquarters officials told us 

that they had established a general level of accuracy in the in-sourcing 

data by cross-checking three databases in order to produce the data 

reported to OUSD (P&R), and by sending the personnel data to major 

commands to cross-check with reviews of contracted services. However, 

Army headquarters officials told us only a limited number of commands 

responded to this data request in time to include their checks in the 

submission to OUSD (P&R). Army officials told us the department did not 

The guidance included a worksheet which required 

certifications of all the data contained in the business case analyses 

which were required for each in-sourcing action. Air Force officials told us 

that the data contained in the business case analyses were used by 

major commands to generate the reports on in-sourcing actions submitted 

by the major commands to Air Force headquarters.

 

34 Air Force, Air Force Checklist: In-Sourcing Procedures Guide (Using 

DTM_COMPARE35 to Perform Costing in Accordance with DTM 09-007) (Mar. 17, 2010).

Data Validation
 

Page 18 GAO-12-319 DOD In-sourcing Report

establish a formal mechanism or issue guidance to ensure the reliability 

of the in-sourcing data it reported to OUSD (P&R), but Army headquarters 

officials told us that although the in-sourcing data they reported was not of 

auditable accuracy, it generally reflected commands’ in-sourcing actions.

At the OSD level, OUSD (P&R) officials told us that due to time and 

resource constraints, they did not verify or validate the in-sourcing data 

they collected beyond checking for obvious errors such as omissions, and 

performing cross-checks with data from the department’s inventory of 

inherently governmental and commercial activities. Where disconnects 

were identified, an OUSD (P&R) official told us they went back to the 

DOD components for correction of inconsistencies. However, the official 

told us that there is no mechanism at the OSD level to verify the accuracy 

of components’ data, and that this limitation on data verification exists for 

all activities in the department, not just in-sourcing. OUSD (P&R) officials 

told us that DOD intentionally pursued a decentralized in-sourcing 

process to reduce bureaucratic procedures that would have limited 

commands’ abilities to make timely in-sourcing decisions.

Our work identified either an inaccuracy in the information reported to 

OUSD (P&R) for the in-sourcing report or concerns about the accuracy of 

the data included in the report to Congress at four of the nine major 

commands we met with, as the following examples illustrate:

• The Navy’s Fleet Forces Command acknowledged that while they 

reported establishing 348 authorizations (out of a total of 354 fiscal 

year 2010 in-sourcing authorizations) to perform information 

technology functions that were inherently governmental, these 

authorizations should have been categorized as exempt from private 

sector performance for continuity of infrastructure operations.35

• Army Medical Command officials told us they did not believe that the 

data submitted by the Army for DOD’s in-sourcing report accurately 

Similarly, Space and Naval Warfare Systems Command officials told 

us that 130 of their reported 131 total fiscal year 2010 in-sourcing 

authorizations that were identified as inherently governmental were 

actually in-sourced for career progression reasons. 

 

35 These actions were associated with the Navy’s efforts to upgrade the Navy/Marine 

Corps Intranet. For additional information on these efforts, see GAO, Information 

Technology: Better Informed Decision Making Needed on Navy’s Next Generation 

Enterprise Network Acquisition, GAO-11-150 (Washington, D.C.: Mar. 11, 2011).
 

Page 19 GAO-12-319 DOD In-sourcing Report

indicated the correct number of new authorizations as a result of insourcing by Army Medical Command in fiscal year 2010. Command 

officials told us that because command staff did not have a consistent 

understanding of when a new authorization fit the definition of insourcing, in some cases new authorizations were coded as insourcing when they should not have been, and in other cases new insourcing authorizations were not coded as such. The officials said that 

as a result, the data Army headquarters drew on to compile the insourcing data contained both under- and over-reporting of in-sourcing 

actions. Nevertheless, they said they believed the data, though not 

precisely accurate, reflected the scale of in-sourcing activity at the 

command in fiscal year 2010.

The need for accurate data is not unique to in-sourcing decisions. GAO’s 

Standards for Internal Control in the Federal Government states that 

internal controls, which include verifications and edit checks, help provide 

management with reasonable assurance that agencies have achieved 

their objectives, including compliance with applicable laws and 

regulations and the reliability of financial and other internal and external 

reports.36 Without access to accurate data, decision makers in DOD and 

Congress may not have reliable information to help manage and oversee 

DOD’s in-sourcing actions.

While section 323 of the FY11 NDAA did not require the in-sourcing 

report to address whether DOD’s fiscal year 2010 in-sourcing actions 

aligned with the department’s strategic workforce plans, DOD officials told 

us that the department had taken some initial steps to align these efforts. 

Further, DOD officials indicated that DOD’s fiscal year 2010 in-sourcing 

efforts were generally consistent with the department’s strategic 

workforce objectives. DOD’s in-sourcing implementation guidance 

required components to identify contracted services for possible insourcing as part of a total force approach to strategic human capital 

planning, and we and the Office of Personnel Management have

identified aligning an organization’s human capital program with its 

current and emerging mission and programmatic goals as a critical need 

 

36 GAO/AIMD-00-21.3.1.

Alignment between 

In-sourcing Actions 

and Strategic 

Workforce Plans Is 

Unclear 
 

Page 20 GAO-12-319 DOD In-sourcing Report

of strategic workforce planning.37

With respect to the steps DOD took to align in-sourcing with its strategic 

workforce plans, the department identified a goal for the in-sourcing 

initiative in its March 2010 civilian strategic workforce plan. The plan 

stated that the goal was to optimize the department’s workforce mix to 

maintain readiness and operational capability, ensure inherently 

governmental positions were performed by government employees, and 

construct the workforce in an effective, cost efficient manner. In addition, 

OUSD (P&R) officials noted that they had convened an in-sourcing 

“community of interest” in 2009 to prepare DOD’s functional communities 

for the fiscal year 2010 in-sourcing efforts, and briefed DOD component 

functional community managers on the in-sourcing process. OUSD (P&R) 

officials responsible for strategic workforce planning and the report on 

fiscal year 2010 in-sourcing actions told us, however, that they had not 

established metrics to measure progress toward the stated goal of the insourcing effort, and acknowledged that it would be difficult to measure 

such progress from the available data.

However, differences in the types of 

data used in the in-sourcing report and workforce plans hinder an 

accurate assessment of the degree to which DOD’s use of in-sourcing 

achieved the department’s strategic workforce objectives.

Further, DOD officials indicated that because DOD uses different 

identifiers for workforce planning efforts than it does to track in-sourcing 

actions, DOD does not have the ability to correlate the underlying data. 

For example, DOD’s most recent strategic workforce plans used 

occupational series codes—representing occupations such as budget 

analyst (0560) or civil engineer (0810)—while the in-sourcing report used 

function codes, which describe a broad area of work such as logistics or 

intelligence.38

 

37 GAO, Human Capital: Key Principles for Effective Strategic Workforce Planning, 

DOD officials told us there is no crosswalk between 

occupational series and function codes, and one occupational series can 

be found in many different function codes—for example, a budget analyst 

could work in logistics or professional military education, among other 

GAO-04-39 (Washington, D.C.: Dec. 11, 2003) and Workforce Planning: Interior, EPA, 

and the Forest Service Should Strengthen Linkages to Their Strategic Plans and Improve 

Evaluation, GAO-10-413 (Washington, D.C.: Mar. 31, 2010).

38 DOD, Strategic Civilian Human Capital Plan (SCHCP) 2006-2010, Fiscal Year 2009 

status report (Mar. 31, 2010), and DOD Strategic Human Capital Plan Update, The 

Defense Acquisition Workforce (April 2010).
 

Page 21 GAO-12-319 DOD In-sourcing Report

functions. Though they were not published in the report to Congress, the 

data military departments reported to OUSD (P&R) included occupational 

series, but those data are limited in the extent to which they can be used 

to measure progress against the strategic workforce plans. For example, 

the non-acquisition workforce plans did not contain specific workforce 

targets for in-sourcing. Similarly, the acquisition workforce plan did not 

contain workforce targets by occupational series, but instead outlined 

targets for increasing acquisition career fields, which consist of many, 

overlapping occupational series. For example, four different career 

fields—including the “test and evaluation” and “production, quality & 

manufacturing” career fields—contain the general engineer (0801) 

occupation. Thus, the data components provided to OUSD (P&R) for the 

in-sourcing report also could not be used to compare with the in-sourcing 

targets contained in the acquisition community workforce plan.

DOD officials stated that they believe the department’s fiscal year 2010 

in-sourcing actions were consistent with the broad goals outlined in their 

2010 workforce plans, and had the effect of freeing up funds for higherpriority areas because of cost efficiencies, and of reducing risks 

associated with contractors performing inherently governmental or closely 

associated with inherently governmental functions. However, without 

greater alignment between the in-sourcing data and strategic workforce 

plans, decision makers in DOD and Congress have limited information

about the extent to which in-sourcing actions furthered the department’s 

strategic workforce goals.

In-sourcing is one tool DOD can use to balance its workforce mix among 

DOD civilians, military personnel, and contractors to help ensure it has 

the right balance of in-house capabilities to perform its mission and 

reduce the risk of over-reliance on its contractor workforce. DOD stated in 

its September 2011 report to Congress that its fiscal year 2010 insourcing decisions helped the department achieve these objectives. DOD 

reported on its fiscal year 2010 in-sourcing actions as Congress required, 

listing the creation of nearly 17,000 new civilian authorizations as a result 

of in-sourcing by DOD components. The report also listed the DOD 

component taking the in-sourcing action and the basis and rationale for 

each action. However, DOD and the military departments took only 

limited steps to ensure that the report data, such as the number of new insourcing authorizations in each command and the stated rationale for the 

actions, were reliable. In some instances, we found the data submitted by 

the major commands to be inaccurate due to insufficient mechanisms for 

validating the reliability of the data. Without greater assurance of data 

Conclusions 
 

Page 22 GAO-12-319 DOD In-sourcing Report

reliability, the report itself, as well as any data DOD may continue to 

collect on its ongoing in-sourcing actions in the future, may have limited 

utility as a tool to facilitate oversight by decision makers in both DOD and 

Congress. Likewise, the data collected on in-sourcing could not be used 

to measure progress toward the department’s overall goal for its insourcing initiative according to its strategic workforce plans. The lack of 

alignment between strategic-level workforce plans and the fiscal year 

2010 in-sourcing data and the lack of metrics to measure progress 

against strategic workforce objectives limits decision makers’ insight into 

the extent to which in-sourcing in fiscal year 2010 strengthened the DOD 

workforce in key areas.

To address these issues, we recommend that the Secretary of Defense 

take the following two actions:

To enhance insights into and facilitate oversight of the department’s insourcing efforts, we recommend that the Secretary of Defense direct the 

Under Secretary of Defense for Personnel and Readiness to issue 

guidance to DOD components requiring that the components establish a 

process to help ensure the accuracy of any data collected on future insourcing decisions.

To improve DOD’s strategic workforce planning, we recommend that the 

Secretary of Defense direct the Under Secretary of Defense for Personnel 

and Readiness to better align the data collected on in-sourcing with the 

department’s strategic workforce plans and establish metrics with which 

to measure progress in meeting any in-sourcing goals.

In commenting on a draft of this report, DOD partially concurred with our 

two recommendations. DOD’s comments are reprinted in appendix III. 

In written comments, DOD stated that there was nothing technically 

incorrect with our statements and findings. DOD noted that in-sourcing is 

one of many tools managers can use to shape the department’s 

workforce, and has enabled managers throughout the department to 

enhance internal capabilities, regain control and oversight of missioncritical functions, mitigate risks associated with over-reliance on 

contracted services, and generate efficiencies through resource 

realignment. DOD also stated, however, that the department was 

concerned that the challenges and problems identified in our report were 

not solely unique or attributable to in-sourcing, and that a lack of 

Recommendations for 

Executive Action

Agency Comments 

and Our Evaluation
 

Page 23 GAO-12-319 DOD In-sourcing Report

clarification on this point might unfairly cast unwarranted criticism on the 

use of in-sourcing as a tool available to government managers. We 

agree, and have noted in our report that the need for reliable data is not 

unique to in-sourcing decisions. However, while the challenges identified 

in our report regarding data reliability and alignment of reported data with 

strategic workforce plans may not be unique to in-sourcing, they can pose 

problems for evaluating the effects of in-sourcing as a tool for workforce 

management.

DOD partially concurred with our first recommendation, to require 

components to establish a process to ensure the accuracy of in-sourcing 

data collected going forward. DOD stated that the challenges to data 

accuracy identified in our report are not unique to manpower 

requirements and billets established as a result of in-sourcing contracted 

services, adding that because the challenges are not unique to insourcing, they should not call into question the fundamental value and 

efficacy of in-sourcing. Our report does not call the value of in-sourcing 

into question. However, we believe that despite challenges to the 

accuracy of DOD data in other areas, reliable data on in-sourcing are 

necessary for oversight by decision makers in DOD and Congress. The 

department also noted that because time-sensitive in-sourcing decisions 

must often be made at the command or installation level, any certification 

and validation process should occur at that level. We agree and, as we 

stated in our recommendation, believe that the department should require 

that components establish a process to help ensure the accuracy of insourcing data, which does not preclude certification and validation by 

commands or installations. 

DOD also partially concurred with our second recommendation, to better 

align the data collected on in-sourcing with the department’s strategic 

workforce plans and establish metrics with which to measure progress in 

meeting any in-sourcing goals. The department stated that it has worked 

to align in-sourcing and strategic workforce planning efforts and that insourcing is one of many tools available to help close competency gaps 

and meet strategic workforce planning goals. However, the department 

further stated that in-sourcing should not be limited to areas identified in 

strategic workforce plans. We do not suggest in our report that insourcing should be limited to areas identified in strategic workforce plans, 

but believe that the effect that in-sourcing has in helping to achieve 

strategic workforce goals should be identified and reported as part of the 

oversight of the department’s strategic workforce management. DOD

further stated that objectively measuring in-sourcing outcomes with 

traditional workload or personnel metrics is challenging because of 
 

Page 24 GAO-12-319 DOD In-sourcing Report

unique, location-specific conditions related to missions, functions, and 

operating environments. In that regard, as we state in our report, DOD 

officials acknowledged that they had not established metrics to measure 

progress against the in-sourcing goal in the department’s most recent 

strategic workforce plan and that it would be difficult to use the available 

data to assess such progress. However, as our prior work has noted, a 

key principle of strategic workforce planning is monitoring and evaluating 

progress toward human capital goals.39

We are sending copies of this report to appropriate congressional 

committees, the Secretary of Defense, and other interested parties. In 

addition, the report will be available at no charge on the GAO website at 

http://www.gao.gov.

We note that without any metrics 

and measurements indicating the extent to which in-sourcing helped the 

department make progress toward strategic workforce goals, decision 

makers in DOD and Congress will be unable to assess the effect of the 

department’s in-sourcing actions in comparison with other actions it may 

take to manage the size and composition of the total workforce.

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

contact us at (202) 512-3604 or farrellb@gao.gov, or (202) 512-4841 or 

martinb@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 are listed in appendix IV.

Brenda S. Farrell

Director, Defense Capabilities and Management

Belva M. Martin

Director, Acquisition and Sourcing Management

 

39 GAO-04-39. 
 

Page 25 GAO-12-319 DOD In-sourcing Report

List of Committees

The Honorable Carl Levin

Chairman

The Honorable John McCain

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Daniel Inouye

Chairman

The Honorable Thad Cochran

Ranking Member

Subcommittee on Defense

Committee on Appropriations

United States Senate

The Honorable Howard “Buck” McKeon

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives

The Honorable C.W. Bill Young

Chairman

The Honorable Norman D. Dicks

Ranking Member

Subcommittee on Defense

Committee on Appropriations

House of Representatives
Appendix I: Scope and Methodology

Page 26 GAO-12-319 DOD In-sourcing Report

To evaluate the extent to which the Department of Defense (DOD) 

reported on the items required by section 323 of the National Defense 

Authorization Act (NDAA) for Fiscal Year 2011, we reviewed DOD’s 

report on its fiscal year 2010 in-sourcing actions and compared it with the 

items specifically required by the legislation. Specifically, we ascertained 

the extent to which DOD reported on: (1) the agency or service of the 

department involved in the decision, (2) the basis and rationale for the 

decision, and (3) the number of contractor employees whose functions 

were converted to performance by DOD civilians. To better understand 

the data DOD reported, we reviewed DOD guidance on the in-sourcing 

decision-making process as well as statutes and regulations relating to insourcing, and met with officials of the Office of the Under Secretary of 

Defense for Personnel and Readiness (OUSD (P&R)) responsible for 

preparing the report, as well as officials in the departments of the Army, 

Navy, and Air Force responsible for submitting data for the report to 

OUSD (P&R). We focused our work on the military departments because 

together they constituted the majority of in-sourcing actions in fiscal year 

2010. We analyzed the data contained in the report to identify patterns in 

the in-sourcing actions of the military departments, and met with 

representatives of each military department and the selected major 

commands to identify the reasons for those patterns. We used these data 

to portray the distribution of in-sourcing actions across the military 

departments and other DOD agencies, as well as the distribution of insourcing rationales in the military services and within certain major 

commands. For the purposes of this review, we selected a non-probability 

sample of commands from each military service, which included at a 

minimum the largest two commands in each service by volume of insourcing actions in fiscal year 2010. The sample of commands is not 

generalizable to all military department major commands.

To determine the process DOD used to prepare the report and the extent 

to which the department assured itself of the reliability of the data, we 

reviewed our prior work on standards for internal control in the federal 

government.1

 

1 GAO, Standards for Internal Control in the Federal Government, 

We also reviewed DOD guidance on the in-sourcing 

decision process. We analyzed the data contained in DOD’s report to 

identify patterns in the in-sourcing actions of the military departments, and 

met with officials of OUSD (P&R) in charge of preparing the report, as 

GAO/AIMD-00-21.3.1

(Washington, D.C.: November 1999).

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

Page 27 GAO-12-319 DOD In-sourcing Report

well as officials in the three military departments responsible for 

submitting in-sourcing data to OUSD (P&R), to identify the reasons for 

those patterns. As previously noted, we focused our work on the military 

departments because together they constituted the majority of in-sourcing 

actions in fiscal year 2010. We obtained and reviewed the in-sourcing 

data submitted by the military departments, and compared these data to 

the data in the report submitted to Congress. We also met with select 

major commands to determine their processes for assuring the reliability 

of the data they generated on in-sourcing actions, as well as certain other 

major commands with significant in-sourcing actions. We did not 

independently verify the data submitted for use in the report. We used 

these data to portray the distribution of in-sourcing actions across the 

military departments and other DOD agencies, as well as the distribution 

of in-sourcing rationales in the military services and within certain major 

commands. Although we found problems with some of the commandlevel data and are making a recommendation to this effect, we found the 

data to be sufficiently reliable for the purposes of providing broad 

percentages about in-sourcing actions.

To determine the extent to which DOD’s fiscal year 2010 in-sourcing 

actions were aligned with the department’s recent strategic workforce 

plans, we reviewed our and the Office of Personnel Management’s prior 

work on strategic workforce planning. We compared the data in the report 

on fiscal year 2010 in-sourcing actions and in-sourcing data submitted by 

the three military departments with the department’s most recent strategic 

workforce plans (specifically, the 2009 update to the 2006-2010 strategic 

workforce plans). We also interviewed officials in OUSD (P&R) 

responsible for preparing both the in-sourcing report and the strategic 

workforce plans, and officials in the Office of the Under Secretary of 

Defense for Acquisition, Technology, and Logistics’ Office of Human 

Capital Initiatives responsible for the acquisition community’s strategic 

workforce plans. 

DOD organizations we contacted during audit work included the following:

In the Office of the Secretary of Defense:

• Office of the Under Secretary of Defense (Personnel & Readiness)

• Office of the Under Secretary of Defense (Comptroller)

• Office of the Under Secretary of Defense (Acquisition, Technology, 

and Logistics) 
Appendix I: Scope and Methodology

Page 28 GAO-12-319 DOD In-sourcing Report

In the Department of the Air Force:

• Office of the Assistant Secretary of the Air Force (Manpower & 

Reserve Affairs)

• Headquarters Air Force

• Air Force Materiel Command

In the Department of the Army:

• Office of the Assistant Secretary of the Army (Manpower & Reserve 

Affairs)

• Army Installation Management Command

• Army Medical Command

In the Department of the Navy:

• Office of the Assistant Secretary of the Navy (Manpower & Reserve 

Affairs)

• Office of the Chief of Naval Operations

• Headquarters Marine Corps

• Navy Fleet Forces Command

• Naval Sea Systems Command

• Space and Naval Warfare Systems Command

• Marine Corps Systems Command

We conducted this performance audit from May 2011 to February 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. 
Appendix II: DOD Cost Estimating Guidance 

and Cost Estimate Data Collection

Page 29 GAO-12-319 DOD In-sourcing Report

While section 323 of the FY11 NDAA did not require DOD to report cost 

data on in-sourcing and DOD’s September 2011 report to Congress did 

not include any cost-related information, DOD issued guidance to 

components on the methodology to use when making cost-based insourcing decisions,1 and the military departments collected and reported 

estimated cost information on their respective in-sourcing actions to 

varying degrees.

DOD’s May 2009 in-sourcing guidance requires DOD components, in the 

case of work which is not determined to be inherently governmental or 

exempt from private sector performance and which can be performed by 

DOD civilians, to conduct a cost analysis to determine whether DOD 

civilian employees or the private sector would be the most cost-effective 

provider. In January 2010, DOD issued guidance on the methodology 

components should use to estimate the costs of in-sourcing actions when 

making cost-based in-sourcing decisions. Officials in the military 

departments told us that although the guidance was officially released in 

January 2010, the costing rules were available previously and so were 

used throughout fiscal year 2010.

We found that the military departments took different approaches to 

collecting and reporting cost-related data associated with their fiscal year 

2010 in-sourcing decisions. Specifically, the Air Force collected and 

reported cost estimate data for each in-sourcing action—including costbased, inherently governmental, and exempt functions—to OUSD (P&R). 

The Department of the Navy collected and reported cost estimate data to 

OUSD (P&R) for most cost-based in-sourcing actions and some actions 

that were not cost-based. Specifically, the Navy reported cost estimate 

data on some, but not all, in-sourcing actions for functions that were 

deemed inherently governmental or exempt from private sector 

 

1 DOD, Directive-Type Memorandum (DTM) 09-007, “Estimating and Comparing the Full 

Costs of Civilian and Military Manpower and Contract Support” (Jan. 29, 2010, updated 

Oct. 21, 2010).

Appendix II: DOD Cost Estimating Guidance 

and Cost Estimate Data Collection

Guidance on In-sourcing 

Cost Estimates

Collecting and Reporting 

Cost Data
Appendix II: DOD Cost Estimating Guidance 

and Cost Estimate Data Collection

Page 30 GAO-12-319 DOD In-sourcing Report

performance. The Army did not report any estimated cost data for insourcing decisions to OUSD (P&R).2

 

2 As noted previously, the Air Force’s new in-sourcing authorizations were 95 percent cost 

based, while the Department of the Navy’s were 54 percent cost based (including the 

Marine Corps, which in-sourced 100 percent for cost reasons), and the Army’s were 13 

percent cost based.
Appendix III: Comments from the Department 

of Defense

Page 31 GAO-12-319 DOD In-sourcing Report

Appendix III: Comments from the 

Department of Defense
Appendix III: Comments from the Department 

of Defense

Page 32 GAO-12-319 DOD In-sourcing Report
Appendix III: Comments from the Department 

of Defense

Page 33 GAO-12-319 DOD In-sourcing Report
Appendix IV: GAO Contacts and Staff 

Acknowledgments

Page 34 GAO-12-319 DOD In-sourcing Report

Brenda S. Farrell, (202) 512-3604 or farrellb@gao.gov. 

Belva M. Martin, (202) 512-4841 or martinb@gao.gov. 

In addition to the contacts named above, key contributors to this report 

were Marion Gatling, Assistant Director; Randy DeLeon; Tim DiNapoli, 

Simon Hirschfeld; John Krump; Ramzi Nemo; Terry Richardson; and Erik 

Wilkins-McKee.

Appendix IV: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts

Staff 

Acknowledgments 

(351611)
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