Federal Contracting: Improvements Needed in How Some Agencies Report Personal Services Contracts
Published: 2017-07-27T00:00:00

Fast Facts:
Contractors hired under personal services contracts operate like government employees. The federal government reported spending about $1.5 billion on personal services contracts for FYs 2011-2015. The Air Force, Army, Navy, and USAID together were responsible for most of this reported spending.
We found that USAID spent over $123 million on these contracts in FY 2015. However, we could not confirm how much DOD spent on them because the Air Force and Army did not record these contracts accurately in federal databases.
We recommended that the Air Force and Army take steps to ensure that personal services contracts are recorded accurately.

Highlights:
section_title: Why GAO Did This Study
paragraphs: A personal services contract is one that makes contractor personnel appear to be government employees. These contracts must be authorized by federal law. According to FPDS-NG, the government reported obligating about $1.5 billion on personal services contracts in fiscal years 2011 through 2015.
GAO was asked to examine the federal government's use of personal services contracts. This report discusses (1) the extent to which selected federal agencies award personal services contracts, and (2) how those agencies use them.
GAO identified the four agencies spending the most on personal services contracts—the Air Force, Army, Navy, and USAID—as reported in FPDS-NG. These agencies account for about 60 percent of total spending on these contracts. GAO also reviewed the service contract inventories these agencies prepared for fiscal year 2014, the latest year available at the time of this review. GAO reviewed the files for a nongeneralizable sample of 60 personal (15 at each agency) and 40 nonpersonal services contracts (10 at each agency) and interviewed agency officials. GAO did not review the administration of the contracts.
section_title: What GAO Found
paragraphs: The United States Agency for International Development (USAID) spent more than $123 million on personal services contracts in fiscal year 2015, according to the Federal Procurement Data System-Next Generation (FPDS-NG). But GAO cannot confirm the extent that personal services contacts are awarded by the Department of Defense (DOD) because GAO identified significant reporting errors at two DOD agencies—the Air Force and the Army. Specifically, 4 of the 15 Air Force contracts and 13 of the 15 Army contracts GAO reviewed were incorrectly recorded in FPDS-NG as personal services contracts. Defense officials agreed with this assessment. Further, the fiscal year 2014 inventories of contracted services at Air Force, Army, and Navy contained personal services contracts not captured in FPDS-NG, as shown in the figure below. Apart from the inaccuracies of the reported data, GAO observed and agency officials agreed that additional undercounting could exist since some contracts for nonpersonal services could become personal services contracts, depending on whether the contract involves direct supervision by government employees. In the absence of accurate data, proper management of personal services and other contracts becomes more difficult.
Military departments and USAID use personal services contracts differently. DOD personal services contracts GAO reviewed were mostly for health care services. As permitted under its regulations, USAID uses personal services contracts for a broader range of functions such as program management, security analysis, and logistics, some of which are considered tasks that only government employees should perform—inherently governmental activities. Federal regulations that prohibit contractors from performing such activities do not apply to authorized personal services contracts. DOD's practice is not to use personal services contracts for inherently governmental tasks. DOD and USAID have multiple authorities for awarding personal services contracts, but none of the files GAO reviewed at USAID cited the correct authority for personal services contracts performed in the United States. USAID has taken steps to address this issue but has not yet determined whether these steps will be effective.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Secretary of Defense direct the Air Force and Army to take steps to ensure the accurate recording of personal services contracts in FPDS-NG; and that USAID ensure the correct authority is cited for personal services contracts performed in the United States. DOD and USAID concurred with our recommendations.

section_title: Letter
paragraphs: Personal services contracts are characterized by relatively continuous  supervision and control of the contractor by a government official, which  creates an employer-employee relationship between the government and  the contractor. Generally, the government is expected to hire its  employees using the procedures required by civil service laws. However,  there are circumstances where the government requires services—and  needs to exercise relatively continuous supervision of the person  performing the service—and does not obtain these services by using a  government employee hired in accordance with the civil service laws.  Agencies may not award personal services contracts unless a statute  specifically authorizes acquisition of the services by contract, and a  number of such statutes exist. You requested that we examine the use of  personal services contracts. This report addresses (1) the extent to which  selected agencies award personal services contracts, and (2) how those  agencies use personal services contracts.
To address the extent to which selected agencies award personal  services contracts, we obtained data from the Federal Procurement Data  System-Next Generation (FPDS-NG), using the product service code  identifying personal services contracts—for contracts awarded in fiscal  years 2011 through 2015. Fiscal year 2015 was the latest year with  certified FPDS-NG data at the time we started our review. Using FPDS- NG data, we identified the four agencies—the Air Force, Army, and Navy  within the Department of Defense (DOD), and the United States Agency  for International Development (USAID)—with the highest obligations for  personal services contracts. These agencies account for nearly 60 percent of the spending on such contracts in fiscal year 2014. Although  we identified inaccuracies in some of the data in FPDS-NG, as discussed  later in this report, we discussed the data and its limitations with agency  officials and determined that the data from FPDS-NG were sufficiently  reliable for purposes of selecting the agencies with the highest obligations  on personal services contracts. We reviewed a nongeneralizable random  sample of 60 contracts coded as personal services contracts in FPDS- NG, 15 contracts from each agency. We also examined the fiscal year  2014 annual inventories of contracted services for the selected agencies.  These inventories are congressionally required compilations of services  contracts intended to provide insight into the kinds of services purchased  and the number of contractor personnel involved. Fiscal year 2014 was  the latest year with certified inventory data at the time of our review. We  also obtained policy documents and supplemental regulations from the  agencies detailing agency responsibilities with respect to personal  services contracts and interviewed agency officials.
To determine how DOD and USAID use personal services contracts, we  reviewed contract files to determine the authority cited for awarding the  contracts and analyzed the statements of work, which define the kinds of  services required under the contracts. To further explore the differences  in how these agencies use personal services contracts and other types of  service contracts, we also reviewed a different nongeneralizable random  sample of 40 contracts that were coded as engineering and technical  services, or other professional services contracts awarded by the Air  Force, Army, Navy, and USAID in fiscal year 2014 (10 contracts from  each agency). We selected these categories of services because they are  similar to the types of services performed by personal services  contractors and constituted a majority of the services contracts awarded  by DOD and USAID. We did not review contractor performance or  contract administration for this report. We compared the data reported in  FPDS-NG, such as the contract number and award value, to information  in the selected contract files and determined that the FPDS-NG data were  sufficiently reliable for the purposes of selecting our sample. For  additional details about our scope and methodology, see appendix I.
We conducted this performance audit from February 2016 to July 2017 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.
subsections: section_title: Background
paragraphs: Personal services contracts are a type of contract in which the  government exercises relatively continuous supervision and control over  the individuals performing the work. FPDS-NG reports that the federal  government obligated approximately $1.5 billion on personal services  contracts from fiscal years 2011 through 2015. General guidance on  personal services contracts is laid out in the Federal Acquisition  Regulation (FAR). In addition, there are federal statutes giving specific  authority to agencies to award personal services contracts. Agencies  such as DOD and USAID also have developed supplemental regulations  for approving, overseeing, and administering such contracts. Agencies  may award personal services contracts for a variety of services under  specific statutory authority. Some examples of services performed by  personal services contractors include medical services and management  support for agency operations such as disaster relief. Lastly, the Office of  Federal Procurement Policy (OFPP) within the Office of Management and  Budget has issued guidance on defining and managing the performance  of inherently governmental and critical functions.
subsections: section_title: Contracts Data Reported in FPDS-NG
paragraphs: FPDS-NG is a comprehensive, web-based tool for agencies to report  contract transactions. It is a searchable database of contract information  that provides a capability to examine data across government agencies  and provides managers a mechanism for determining where contract  dollars are being spent. The contracting officer who awards a contract  has responsibility for the accuracy of the individual contract action  information entered in FPDS-NG. Agencies are responsible for  developing a process and monitoring results to ensure timely and  accurate reporting of contractual transactions in FPDS-NG and are  required to submit certifications about the accuracy of contract reporting  to the General Services Administration (GSA). According to GSA, these  certifications collectively demonstrate that the data in FPDS-NG currently  have an overall accuracy rate of 95 percent. We previously have reported  on some of the shortcomings of the FPDS-NG system and its  predecessors. Nevertheless, we routinely use data from FPDS-NG, but  only after determining, through various means, that the data we use are  sufficiently reliable for our specific reporting purposes.
section_title: Federal Acquisition Regulation Guidance on Personal Services Contracts
paragraphs: Part 37 of the FAR prescribes policy and procedures specific to the  acquisition and management of services by contract. Sections 37.103 and  37.104 specifically discuss contracting officer responsibilities and provide  descriptive elements for assessing whether a proposed contract is a  personal services contract. According to the FAR, the employer/employee  relationship can occur either as a result of the contract’s terms or in the  manner of administration of the contract. The FAR notes that each  contract arrangement should be judged in the light of its own facts and  circumstances, with the primary question being whether the contractor’s  personnel are subject to the relatively continuous supervision and control  of government personnel.
The FAR enumerates the characteristics of personal services contracts:
Performance on a government site,
Principal tools and equipment furnished by the government,
Services applied directly to the agency mission,
Comparable services are performed in similar agencies using civil
The need for the type of service can reasonably be expected to last  more than 1 year, and
The nature of the service or the way that it is performed reasonably  requires government direction or supervision of the contractor’s  employees to adequately protect the government’s interest, retain  control of the function, or retain full responsibility for the function.
Agencies also may have supplemental regulations to the FAR. Before  awarding some personal services contracts, Department of Defense  Federal Acquisition Regulation Supplement (DFARS) requires, for  example, a determination that asserts, among other things, that a  nonpersonal service contract—a contract not directly supervised by  government employees—is not practicable and cites the relevant  statutory authorities. The USAID Acquisition Regulation provides  references to statutory authority and describes the kinds of tasks U. S.  citizens may be assigned as personal services contractors, including  some duties that might otherwise be assigned to direct-hire employees.
section_title: Annual Inventory of Contracted Services
paragraphs: Since 2008 for DOD and 2009 for civilian agencies, Congress has  required agencies to prepare an annual inventory of contracted services,  covering the preceding fiscal year. The inventories are to include a  number of data elements for each entry, including a description of the  services, the total dollar amount obligated, the number of contractor  personnel expressed as full-time equivalents for direct labor, and whether  the contract is a personal services contract. Agencies also are required to  review their inventories to, among other things: ensure that each contract that is a personal services contract has  been entered into, and is being performed, according to laws and  regulations; ensure that the agency is not using contractor personnel to perform  inherently governmental functions; and  identify activities that should be considered for conversion to  performance by federal employees.
These inventories are intended, in part, to help provide better insight into  the number of contractor full-time equivalents providing services and the  functions they are performing, and determine whether any of these  functions warrant conversion to performance by government employees.  We have previously reported on challenges with developing and using the  inventory of contracted services and have made recommendations for  DOD to revise inventory guidance to improve the review of contract  functions, approve a plan of action with milestones and time frames to  establish a common data system to collect contractor manpower data,  and designate a senior management official at the military departments to  develop plans to use inventory data to inform management decisions.  DOD concurred with GAO’s recommendations.
section_title: Office of Federal Procurement Policy Letter
paragraphs: In 2011, OFPP issued guidance, OFPP Policy Letter 11-01, on the  performance of inherently governmental and critical functions. The  guidance was intended to assist agencies in ensuring that only federal  employees perform work that is inherently governmental. The guidance  contained examples of the types of work that would be considered  inherently governmental. Some examples include determination of budget  policy, hiring decisions for federal employees, the direction and control of  intelligence or counterintelligence operations, and administering  contracts, among others. The FAR states that contracts shall not be used  to perform inherently governmental functions, but the regulation provides  that this prohibition does not apply to personal services contracts issued  under statutory authority.
section_title: The Extent to Which DOD Awards Personal Services Contracts Is Unknown
paragraphs: We cannot confirm the extent that personal services contracts are  awarded at DOD because we found discrepancies at two DOD agencies  whose contracts we examined. Specifically, although FPDS-NG reports  that DOD spent about $118 million on personal services contracts in fiscal  year 2015, we found that personal services contract obligations from the  Air Force and Army were overstated in the FPDS-NG data because they  included obligations that were not for personal services contracts. In  addition, we identified personal services contracts in the inventory of  contracted services data for the Air Force, Army, and Navy that were not  recorded as such in FPDS-NG. We did not identify similar issues at  USAID, which reported spending more than $123 million on personal  services contracts in fiscal year 2015. For both DOD and USAID,  however, we observed that the extent to which personal services  contracts are used may be undercounted since some contracts for  nonpersonal services share many of the characteristics of personal  services contracts and could, in fact, be administered as personal  services contracts.
subsections: section_title: DOD Has Substantial Reporting Errors in FPDS- NG for Personal Services Contracts
paragraphs: We found that the extent to which personal services contracts are used  by DOD may be over stated in FPDS-NG based on our review of selected  files and interviews with contracting officials. Specifically, documentation  in contract files for some Air Force and Army contracts did not support the  classification as a personal services contract as reported in FPDS-NG.  Contracting officers are tasked with ensuring the accuracy of the data  captured in FPDS-NG, but, in total, 17 of 45 DOD contracts—more than  one third—we reviewed were incorrectly coded. The results of our  examination of the selected contracts for each agency follow:  We found that 4 of the 15 contracts reviewed were incorrectly  reported as personal services contracts in FPDS-NG. We confirmed  this with Air Force officials. Documentation in the contract file for the 4  contracts indicated that the product service code was not correct. For  example, one incorrectly coded Air Force contract was for the Air  Force Tricare liaison to coordinate referrals and ensure that medical  paperwork was provided to external providers for continuity of care,  which, according to the contract’s performance work statement, did  not involve the direct supervision or control by government staff—a  defining feature of personal services contracts. The correctly coded  contracts were all for medical personnel, such as dental assistants,  nurses, and pharmacy technicians at various Air Force installations.
We found that 13 of the 15 contracts we selected were incorrectly  coded in FPDS-NG as personal services contracts. Of the 13  incorrectly coded contract actions we reviewed, 2 were task orders for  billeting services. An Army official stated that the product service code  cited in the base contract was incorrect at the time of the initial award  and was then applied to subsequent task orders. Eleven other  contracts did not constitute personal services contracts based on our  review of the statement of work. For example, in one incorrectly coded  Army contract, the contractor was required to present six separate  seminars, but was not subject to the relatively continuous supervision  and control of government staff, a defining characteristic of personal  services contracts. Army officials confirmed that the original product  service codes recorded in FPDS-NG were incorrect for these 13  contracts. The two contracts correctly coded were for engineering  services in Iraq.
We found that 15 of 15 Navy contracts in our sample reported as  personal services contracts in FPDS-NG were all correctly coded and  the designation was supported in the contract file. All of the contracts  we reviewed were for health care-related services at U.S. Naval  Hospital, Guam, including pharmacy technicians and a registered  nurse.
We found that 15 of 15 contracts selected for review based on the  product service code reported in FPDS-NG had documentation in the  contract file to support the personal services contract designation.
Agency officials stated that the distinction between personal services  contracts and nonpersonal services contracts is sometimes difficult to  determine, and that making a decision that a particular contract is a  personal service contract is subjective and depends on the interpretation  of tasks and supervision. According to section 37.103 of the FAR, the  contracting officer is responsible for ensuring that a proposed contract for  services is proper. For personal services contracts, the contracting officer  must document the file with a statement of the facts and rationale  supporting a conclusion that the contract is specifically authorized by  statute. Further, according to Standards for Internal Control in the Federal  Government, management is responsible for the design and execution of  appropriate types of control activities that ensure the proper execution of  transactions. This includes appropriate documentation of transactions to  ensure that reliable information is available for making decisions and the  proper supervision of contractors.
subsections: section_title: Reporting Differences Found in DOD’s Fiscal Year 2014 Inventory of Contracted Services
paragraphs: The second source we used for information about DOD’s personal  services contracts, DOD’s annual inventories of contracted services,  differed from FPDS-NG in the reporting of personal services contracts  information. Figure 1 depicts the extent to which DOD personal services  contracts appeared in both the inventory of contracted services and in  FPDS-NG.
The FPDS-NG data for the Air Force, Army, and Navy differed  substantially from the inventory, as depicted above in figure 1. For each  of the military departments, the inventory of contracted services contained  references to personal services contracts not recorded as such in FPDS- NG. For both the Air Force and the Army, there was little commonality  between the personal services contracts identified in FPDS-NG and the  inventories. Although all of the Navy’s personal services contracts that  were identified in FPDS-NG were included in the Navy’s inventory of  contracted services, the Navy’s inventory included 14 additional personal  services contracts not identified in FPDS-NG.
The discrepancies between FPDS-NG and the inventory of contracted  services could be explained by a variety of circumstances. We have  reported and agency officials agreed that the inventories are developed in  different ways. For example, in the case of the Navy, officials stated that  they develop the inventory using information from both FPDS-NG and the  Enterprise-wide Contractor Manpower Reporting Application, a system  used by contractors to self-report information. Officials stated that  identifying whether a contract was for personal services was one of the  data fields to be completed by the contractor, but contractors may not be  knowledgeable about the characteristics of personal services contracts.  We did not find discrepancies between the personal services contracts in  FPDS-NG and the USAID’s inventory. USAID uses data from FPDS-NG  to develop its annual inventory of contracted services.
According to Standards for Internal Control in the Federal Government, it  is the responsibility of management to ensure that reliable information is  available for making decisions and the proper supervision of  contractors. An accurate account of the use of personal services  contracts assists agencies to properly understand manpower  requirements, evaluate risks, and determine if adjustments are needed.  The inconsistency in the reported data from the two sources hinders the  ability of agency managers to understand the extent that they are using  personal services contracts and how they are used.
section_title: Personal and Nonpersonal Services Contracts Can Be Difficult to Distinguish from Each Other
paragraphs: Apart from the inaccuracies and differences in data reported in FPDS and  the inventories of contracted services, it is also possible that personal  services contracts could be undercounted because nonpersonal services  contracts could be administered in a manner that results in their actually  being personal services contracts and potentially unauthorized personal services contracts. In our sample of 40 contracts coded as engineering  and technical services, or other professional services contracts-— nonpersonal services—we did not assess the contract administration and,  therefore, did not identify examples of where a contract was a personal  services contract due to being administered in a way that resulted in  direct supervision of a contractor by government personnel. However, we  note that relatively small changes in the tasks or supervision could result  in some of the nonpersonal services contracts we reviewed being  administered as personal services contracts. For example, many of the  contracts involved the contractor performing critical tasks, with  performance occurring in a government workspace. While the statement  of work required the contractor (not the government) to provide  supervision, given the critical nature of the tasks performed and co- location of contractors and government personnel, there is an opportunity  for government officials to exercise continuous supervision and control  over the contractor so that the contract would become a personal  services contract. Contracting officials for these contracts emphasized  that these contracts were not personal services contracts since they did  not entail the relatively constant supervision of the contractor staff by  government officials. The officials acknowledged, however, that just a  slight change in the administration of these contracts could convert them  into personal services contracts. Officials also stated that, in some cases,  performance of selected tasks by contractor staff could be an area where  it would be challenging to say whether a particular activity constituted  personal services or not.
In our review of the 40 nonpersonal services contracts awarded by the Air  Force, Army, Navy, and USAID in fiscal year 2014, we found that a  number of contracts had several characteristics common to personal  services contracts based on documentation in the contract file and the  FAR’s descriptive elements. To illustrate, the following four contracts,  one from each agency, demonstrate the similarities to personal services  contracts. For each contract below either the contract or discussions with  contracting officials specified that the Contracting Officer’s Representative  (COR) served as the liaison between the government and the contractor,  but other aspects of the contract meet many of the characteristics of  personal services contracts as presented in the sidebar.
An Air Force contract for engineering cost support services includes  specific tasks such as preparing program office estimates, cost benefit  analyses, and sufficiency reviews of prime contractor estimates, and  evaluating costs. The contractor acts as a liaison between the  program office and auditors from agencies such as Air Force Audit  Agency, DOD’s Office of the Inspector General, and the Government  Accountability Office. Other duties entail preparing a monthly  acquisition report, program management review, budget management  reviews, and spring and fall program reviews.   Principal tools and equipment furnished    The nature of the service or the way that  it is performed reasonably requires,  either directly or indirectly, Government  direction or supervision of the contract  employees to adequately protect the  government’s interest, retain control of  the function, or retain full personal  responsibility for the function that is  supported in a duly authorized federal  officer or employee.
An Army contract for support to Army Comprehensive Soldier and  Family Fitness Training Centers specifies various tasks. One task  identified an operations manager serving as the co-chair /member of  the Walter Reed Army Institute of Research and as a member of the  Army Fit Content Review Board. A second task identified includes the  operation manager facilitating external research projects from the  initial planning to implementation. A third task is for managing multiple  facets of curriculum development and review. A fourth task is for a  public affairs specialist to be responsible for planning, developing and  executing strategic public affairs programs.
A Navy contract to provide engineering and technical services for  control systems and information systems required life-cycle support to  software systems and major acquisition programs and support of  Navy policies for acquisition of software intensive systems, including  preparing test plans and participation in an executive steering group.
A USAID contract to provide surge services for administrative  functions such as the development of policy in the areas of event  management, meeting and retreat facilitation, curriculum  development, project design, and program and evaluation to support  USAID’s mission.
section_title: USAID Cited Incorrect Authority for Personal Services Contracts, and USAID and DOD Use the Contracts for Different Purposes
paragraphs: USAID and DOD have multiple authorities available for awarding personal  services contracts. However, contract files at USAID did not cite the  correct authority for the 15 contracts we reviewed. Additionally, USAID  and DOD personal services contracts are used to support differing  missions and entail different kinds of tasks.
subsections: section_title: USAID Files Did Not Document Correct Authority
paragraphs: USAID has permanent authority to award personal services contracts  under the Foreign Assistance Act of 1961 as amended. USAID also  received authority in its fiscal year 2014 appropriation for some personal  services contracts. For the 15 domestic USAID personal services  contracts we reviewed, the authority cited in the contract file was a  provision of the Foreign Assistance Act of 1961 that only authorizes  personal services contracts abroad—outside of the United States—and  an executive order. USAID officials acknowledged that the authority cited  in the contracts was not the relevant authority. However, they stated that  other authority pertaining to disaster relief in the Foreign Assistance Act  of 1961 authorized the use of the domestic personal services contracts  we reviewed. We did not find evidence of the correct authority  documented in the file as required under the FAR. USAID  acknowledged these documentation errors during the course of our  review, and shared steps it had taken to revise its personal services  contracts documentation. For example, USAID had revised its cover  sheet for personal services contracts listing the possible authorities with a  check box to indicate the authority relevant to that contract. However,  USAID had not yet developed a process to determine whether the  availability of the cover sheet will ensure that contracting officials cite the  specific and correct authority.
DOD’s statutory authorities for the use of personal services contracts  include personal services for health care among others. DOD contracts  cited statutory authority or the DFARS which, in turn, had a reference to  the relevant statutory authority. Table 1 shows the authority cited for the  DOD personal services contracts we reviewed.
section_title: USAID and DOD Use Personal Services Contracts for Different Purposes
paragraphs: USAID’s personal services contracts that we reviewed cover a broad  range of activities including program management, security analysis, and  logistics, among others. In contrast, the majority of DOD’s personal  services contracts that we reviewed are more narrowly focused on  medical personnel. Another difference between USAID and DOD is the  use of personal services contracts to conduct inherently governmental  tasks. USAID’s supplemental regulation stipulates that personal services  contractors can perform any duty a government employee might perform  with few exceptions. According to DOD officials, it is not DOD’s practice  to assign personal services contractors to perform inherently  governmental tasks.
As explained in USAID’s supplemental regulation, USAID’s personal  services contractors who are U.S. citizens may be delegated or assigned  any authority, duty, or responsibility that direct hire employees might  have, with some exceptions, such as acting as a contracting officer.  Inherently governmental tasks are those that would ordinarily only be  performed by government employees such as making decisions about the  priorities for budget requests, direction of intelligence operations, or  awarding contracts, and examples of such tasks are laid out in the FAR  and OFPP Policy Letter 11-01. The FAR’s general prohibition on the use  of contractors to perform inherently governmental tasks does not apply to  personal services contracts issued under statutory authority. USAID  officials confirmed the tasks in some contracts we reviewed include  inherently governmental tasks, as illustrated in two examples below.
Security Analyst: This contractor is responsible for a variety of tasks  including analyzing large volumes of security data and reports to  make decisions or recommendations shaping agency programs. In  addition, the contractor develops strategies for major areas of  uncertainty in domestic and international political, social, or economic  policies, trends, or situations that have potentially significant  repercussions to the agency. The contractor develops the  organization’s position on controversial or disputed issues. These  tasks are considered inherently governmental, according to the FAR  and OFPP Policy Letter 11-01.
Senior Program Manager: This contractor is responsible for a variety  of tasks including performing complex country analysis and program  design to develop existing and future programs and strategies in high  priority countries. In addition, the contractor manages or participates  in the selection of grantees, contractors, and other personal services  contractors. These tasks are considered inherently governmental,  according to the FAR and OFPP Policy Letter 11-01.
The majority of DOD’s personal services contracts we reviewed were  awarded to obtain medical services from practitioners such as doctors,  nurses, and pharmacists. For example, for the Navy, all 15 personal  services contracts were for medical services. This was also the case for  11 contracts from the Air Force. The Army’s personal services contracts  in our sample were for engineering services abroad.
section_title: Conclusions
paragraphs: Agencies need accurate information about their personal services  contracts in order to ensure that government supervision of the work is  appropriate. Without such information agencies do not have information  useful for managing their programs. The Air Force and Army had  significant errors in reporting the use of personal contracts and USAID  consistently cited the incorrect authority for awarding the personal  services contracts we reviewed. Therefore, there is room for improving  procedures to help ensure accurate information is recorded. USAID has  taken initial steps to revise its documentation but has not yet developed a  process to determine whether the steps taken will result in increased  accuracy. Personal services contracts are important to understand and  track because the contractors are directly supervised by government  personnel much as government employees would be. Because of their  organic relationship to the work of government, it is incumbent on  government agencies to have credible, accurate information about the  number of these contracts and the authorities under which they are  awarded. The absence of such reliable and credible information hinders  the ability of government managers to determine if there are sufficient  government personnel to carry out inherently governmental work and to  properly oversee the work of contractors to ensure that the government  remains responsible for the execution of approved government functions  and for managing the agency’s work.
section_title: Recommendations for Executive Action
paragraphs: To ensure accurate reporting of personal services contracts, we make the  following two recommendations.
The Secretary of Defense direct the Secretaries of the Air Force and  the Army take steps to ensure the accurate recording of personal  services contracts in the Federal Procurement Data System-Next  Generation.
The Administrator, United States Agency for International  Development implement periodic reviews of selected personal  services contracts to ensure the effectiveness of steps taken to assist  contracting officers to cite the correct statutory authority for personal  services contracts.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD and USAID for their review and  comment. In written comments reprinted in appendixes II and III, both  DOD and USAID concurred with our recommendations and described the  actions they plan to take. DOD stated that the Director, Defense  Procurement and Acquisition Policy, will issue a memo to the Army and  Air Force Senior Procurement Executives directing them to take  appropriate steps to ensure the accurate recording of personal services  contracts. USAID stated that the Agency had revised and distributed a  coversheet to a standard form which they believed would result in greater  accuracy in citing the authorization for domestic personal services  contracts. Consistent with our recommendation, USAID has revised its  checklist used for reviewing and validating key acquisition functions.  The  agency will use the checklist in its annual procurement systems reviews  to verify that contracting officials cite the correct authority.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Administrator, United States  Agency for International Development, the Undersecretary of Defense for  Acquisition, Technology, and Logistics, the Undersecretary of Defense,  Personnel and Readiness and other interested parties. In addition the  report is available at no charge on the GAO website at  http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or at woodsw@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the extent to which selected agencies award  personal services contracts; and (2) how those agencies use personal  services contracts.
To identify the extent to which the government reports awarding personal  service contracts, we analyzed data from the Federal Procurement Data  System—Next Generation (FPDS-NG). We selected contracts, excluding  modifications, identified as personal services contracts based on the  product service code of R 497—a product service code reserved for  personal services contracts—for contracts awarded in fiscal years 2011  through 2015. Fiscal year 2015 was the latest year with certified FPDS- NG data at the time we started our review. We identified 11 agencies or  departments that reported obligations for personal services contracts. We  analyzed the data and identified the Department of Defense (DOD) and  the United States Agency for International Development (USAID) as the  two agencies that reported the highest obligations for personal services  contracts in fiscal years 2011 through 2015. Although we identified  inaccuracies in some of the data in FPDS-NG, as discussed in this report,  we discussed the data and its limitations with agency officials and  determined that the data from FPDS-NG were sufficiently reliable for  purposes of selecting the agencies with the highest obligations on  personal services contracts and obtaining a sample of contracts.
We also identified the four agencies—the Air Force, Army, and Navy  within the Department of Defense (DOD), and the United States Agency  for International Development (USAID)—with the highest obligations for  personal services contracts using FPDS-NG data. These agencies  account for nearly 60 percent of the spending on such contracts in fiscal  year 2014. We reviewed a nongeneralizable random sample of 60  contracts coded as personal services contracts in FPDS-NG, 15 contracts  from each agency (Air Force, Army, Navy, and USAID). The 60 contract  random nongeneralizable sample was drawn from all contracts in fiscal  year 2014 that reported obligations for personal services contracts equal  to or greater than $10,000. We reviewed the files to determine the  specific statutory authority cited for awarding the personal services  contract, the tasks performed by the contractor, supervision provided, and  the duration of the contract including options. We also obtained policy  documents and supplemental regulations from the agencies detailing  agency responsibilities with respect to personal services contracts and  interviewed agency officials. We compared the data reported in FPDS- NG, such as the contract number and award value, to information in the  selected contract files and determined that the FPDS-NG data were  sufficiently reliable for the purposes of selecting our sample.
We determined that a number of contracts identified by the Army and the  Air Force as personal services contracts were miscoded as personal  services contracts based on documentation in the contract file and  discussions with agency officials. To obtain additional information on the  extent to which agencies use personal services contracts, we also  examined the data on personal services contracts from the publically  available inventories of contracted services for the Air Force, Army, Navy  and USAID for fiscal year 2014. Fiscal year 2014 was the latest year with  certified inventory data, at the time of our review. These inventories are  congressionally required compilations of services contracts intended to  provide insight into the kinds of services purchased and the number of  contractor personnel involved. We discussed the preparation of the  inventories with agency officials and reviewed our prior reports on  inventories. However, examination of the inventory of contracted services  data for the Air Force, Army and Navy did not resolve discrepancies we  found between DOD’s FPDS-NG data and the inventory of contracted  services data.
Based on our review of the FPDS-NG data, reviews of the selected  service contract inventory data, selected contract files, and interviews  with DOD and USAID officials, we determined that the FPDS-NG data are  not sufficiently reliable for comparing obligations from year to year for  personal services contracts or for determining the extent to which DOD  awarded personal services contracts. We present data on obligations for  illustrative purposes only.
To determine how DOD and USAID use personal services contracts, we  reviewed contract files to determine the authority cited for awarding the  contracts and analyzed the statements of work, which define the kinds of  services required under the contracts. To further explore the differences  in how these agencies use personal services contracts and other types of  service contracts, we also reviewed a different nongeneralizable random  sample of 40 contracts that were coded as engineering and technical  services, or other professional services contracts awarded by the Air  Force, Army, Navy, and USAID in fiscal year 2014 (10 contracts from  each agency). We selected these categories of services because they are  similar to the types of services performed by personal services  contractors and constituted a majority of the services contracts awarded  by DOD and USAID. We did not review contractor performance or  contract administration for this report. We compared the data reported in  FPDS-NG, such as the contract number and award value, to information  in the selected contract files and determined that the FPDS-NG data were  sufficiently reliable for the purposes of selecting our sample. The sample  of contracts both personal and nonpersonal included in our review is not  generalizable to a larger universe, but is designed to provide illustrative  examples of characteristics and use of personal service contracts at the  selected agencies and components, and for comparison of characteristics  of personal and nonpersonal services contract awards.
We reviewed the Federal Acquisition Regulation (FAR), obtained  supplemental regulations and policy documents from the Office of Federal  Procurement Policy (OFPP) within the Office of Management and Budget,  and from the agencies we reviewed that detailed agency responsibilities  with respect to personal services contracts. We interviewed agency  personnel concerning their responsibilities for awarding personal services  contracts, for preparing the data entered in FPDS-NG, for preparing the  annual inventory of contracted services, and reviewing the contracts  subsequent to inventory preparation.
To gain further insight into FPDS-NG, agency-specific service contract  inventories, and contract files, we interviewed officials from the Air Force,  Army, Navy, USAID, and the Office of the Secretary of Defense (OSD),  including OSD General Counsel and OSD’s Total Force Manpower and  Resources Directorate. We also interviewed officials from the Office of  Management and Budget’s OFPP regarding the government-wide use of  personal services contracts.
We conducted this performance audit from February 2016 to July 2017 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.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: Comments from the United States Agency for International Development
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, Penny Berrier, Assistant Director;  John Beauchamp; Stephanie Gustafson; Kristine Hassinger; Julia  Kennon; Carol Mebane; Jean McSween; Kate Pfeiffer; Roxanna Sun; and  Abby Volk made significant contributions to this review.