Defense Acquisitions: Further Action Needed to Better Implement Requirements for Conducting Inventory of Service Contract Activities
Published: 2011-01-14T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Department of Defense (DOD) relies on contractors to perform myriad functions, which can offer benefits and flexibility for DOD. GAO's work has shown that reliance on contractors to support core missions, however, can place the government at risk of transferring government responsibilities to contractors. In April 2009, the Secretary of Defense announced his intent to reduce the department's reliance on contractors. In 2008, Congress required DOD to compile and review an annual inventory of the number of contractor employees working under service contracts and the functions and activities they performed. The fiscal year 2010 National Defense Authorization Act directed GAO to report annually on these inventories. GAO assessed (1) the approaches used to compile the fiscal year 2009 inventories and how the approaches have changed, and (2) how the inventories have been reviewed and used to inform workforce decisions. GAO reviewed guidance; compared the approaches used to develop the fiscal year 2008 and 2009 inventories; and interviewed acquisition and manpower officials from DOD, the military departments, and selected defense components.
section_title: What GAO Found
paragraphs: DOD implemented a more uniform approach to compile its fiscal year 2009 inventories to reduce inconsistencies that resulted from DOD components using different approaches in fiscal year 2008. To do so, in May 2010 the Under Secretary of Defense for Acquisition, Technology and Logistics (AT&L) issued guidance to the Navy, Air Force, and other components that specified the categories of services to be included in the inventories; instructed them to use the Federal Procurement Data System-Next Generation (FPDS-NG) as the basis for most of the inventory data requirements; and provided a formula to estimate the number of contractor full-time equivalent personnel working under those contracts. This guidance also authorized the Army to continue to use its existing process, which incorporates contractor-reported data, including direct labor hours, from its Contractor Manpower Reporting Application. The changes in DOD's approach, in particular how DOD reflected research and development services and the use of a new formula for estimating contractor personnel for the Air Force and Navy, as well as better reporting by the Army, affected the reported fiscal year 2009 inventory data. Collectively, these changes make comparing the fiscal year 2008 and 2009 inventory data problematic. DOD officials acknowledged several continuing limitations associated with the fiscal year 2009 inventories, including the inability of FPDS-NG to provide information for all of the required data elements, and concerns about AT&L's estimating approach. AT&L's May 2010 guidance indicated that it planned to move towards collecting manpower data from contractors and indicated AT&L would work with the Office of the Under Secretary of Defense for Personnel and Readiness and other organizations to issue preliminary guidance and a proposed plan of action by August 2010. However, DOD has not yet done so. The military departments differ both in their approaches to reviewing the activities performed by contractors and the extent to which they have used the inventories to inform workforce decisions. The Army has implemented a centralized approach to identify and assess the functions being performed by contractors and has used such assessments to inform workforce decisions, including those related to identifying functions being performed by contractors that could be converted to performance by DOD civilian personnel. In contrast, the Air Force and Navy have implemented decentralized approaches that rely on major commands to review their contracted activities and report the results back to their respective headquarters. The Air Force implemented its initial review but experienced challenges, including that it did not obtain adequate information, that will likely cause its approach to evolve in the future. The Navy issued guidance on completing reviews to its commands in September 2010, but the results of the reviews had not been reported as of November 2010. Additionally, Air Force and Navy officials said that to date they have made limited use of the inventories to date to help inform their workforce decisions.
section_title: What GAO Recommends
paragraphs: GAO recommends DOD develop and issue a plan of action to collect manpower data and, in the interim, improve its estimating approach. DOD concurred with the recommendations.

section_title: Letter
paragraphs: 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. DOD’s  obligations on services have increased in recent years, more than doubling  from fiscal years 2001 to 2009. Further, Congress has raised questions  about DOD’s management and use of contractors. While there are benefits  to using contractors to perform services for the government, our work has  shown that reliance on contractors to support core missions can place the  government at risk of transferring government responsibilities to  contractors. In 2008, we concluded that the increased reliance on  contractors required DOD to engage in a fundamental reexamination of  when and under what circumstances it should use contractors versus civil  servants or military personnel. In April 2009, the Secretary of Defense  announced his intent to reduce the department’s reliance on contractors  and increase funding for new civilian authorizations. More recently, in  August 2010 the Secretary of Defense announced plans to reduce funding  for service support contractors by 10 percent per year from fiscal years  2011 to 2013.
Over the past decade, our work has identified the need for DOD to obtain  better data on its contracted services to enable it to make more strategic  decisions. For example, in 2006, we reported that DOD’s approach to  managing services acquisition tended to be reactive and had not fully  addressed the key factors for success at either a strategic or transactional  level. The strategic level is where the enterprise sets a direction for what  it needs, captures knowledge to make informed management decisions,  ensures departmentwide goals and objectives are achieved, and assesses  the resources it has to achieve desired outcomes. The strategic level sets  the context for the transactional level, where the focus is on making sound  decisions on individual service acquisitions using valid and well-defined  requirements, appropriate business arrangements, and adequate  management of contractor performance.
DOD has put a number of efforts in place to gain better insights into its  acquisition of services, but its efforts have had mixed success to date. For  example, DOD has struggled to obtain accurate and reliable information  on contracts and the contracted workforce supporting contingency  operations in Iraq and Afghanistan. Further, while DOD has long-standing  guidance that requires DOD components to assess the mix of military,  civilian, and contractor personnel, we reported in March 2009 that DOD  lacks information on the contractor component of its total workforce.  More recently, in September 2010, we noted that DOD’s civilian strategic  human capital plan had only partially addressed the statutory requirement  to assess the appropriate mix of military, civilian and contractor personnel  capabilities.
Congress has passed legislation in recent years to improve the  department’s ability to manage its services acquisitions; to make more  strategic decisions about the right workforce mix of military, civilian, and  contractor personnel; and to better align resource needs through the  budget process to achieve that mix. For example, Section 807 of the  National Defense Authorization Act for Fiscal Year 2008 required DOD to  annually compile and review an inventory of activities performed pursuant  to contracts for services to help provide better insights into, among other  things, the number of contractors providing services to the department  and the functions they are performing.
To date, DOD has submitted annual inventories for fiscal years 2007, 2008,  and 2009. In January 2010, we reported that the military departments used  different approaches to compile their fiscal year 2008 inventories, relying  on a mixture of existing data systems, contractor-entered data, manual  compilation of some data elements, or estimates. Further, we identified  differences in the approaches taken by the military departments to identify  activities performed by service contractors, which categories of services  were included in each of their inventories, and how each military  department determined the number of contractor full-time equivalents  (FTE) performing these activities. We also found that the data included in  each of the fiscal year 2008 inventories were not complete and identified  other limitations associated with the military departments’ fiscal year 2008  inventories. As part of this review, we did not assess the extent to which  DOD components implemented processes to review the contracts and  activities included in the fiscal year 2008 inventories, nor did we make  recommendations at that time. In May 2010, the Office of the Under  Secretary of Defense for Acquisition, Technology and Logistics (AT&L)  issued new guidance on the approaches to be used by DOD components  for compiling the fiscal year 2009 inventories. DOD submitted its  consolidated fiscal year 2009 inventory to Congress on July 20, 2010.
Section 803(c) of the National Defense Authorization Act for Fiscal Year  2010 directed GAO to report annually on the inventories submitted in each  of 2010, 2011, and 2012. To satisfy the mandate, we assessed (1) the  approaches used to compile the fiscal year 2009 inventories and how the  approaches have changed, and (2) how the inventories have been  reviewed and used to inform workforce decisions. Because the military  departments represent the majority of the spending on services and  contractor FTEs reported in the fiscal year 2009 inventories, we focused  our review on the Army, Navy, and Air Force. To gain additional insights  into the inventory compilation and review processes at the command  level, we selected a nongeneralizable sample of four commands using (1)  data from the Federal Procurement Data System–Next Generation (FPDS- NG) on dollars obligated against contracts for professional,  administrative, and management support services, which may be more  likely to be closely associated with inherently governmental functions,  (2) military department data on planned in-sourcing activity in fiscal year  2010, and (3) recommendations from agency officials. Using these criteria,  we selected the Army’s Training and Doctrine Command (TRADOC) and  the Installation Management Command (IMCOM), the Air Force Materiel  Command (AFMC), and the Naval Air Systems Command.
To conduct our work, we reviewed relevant guidance related to the  inventory compilation and review processes and analyzed the fiscal year  2009 inventory data for the Army, Navy, and Air Force. We interviewed  officials from AT&L’s Office of Defense Procurement and Acquisition  Policy (DPAP); the Office of the Under Secretary of Defense for Personnel  and Readiness, Requirements and Program and Budget Coordination  Directorate; the departments of the Army, Navy, and Air Force; and other  defense agencies. From the commands we selected, we interviewed those  officials who were responsible for the inventory compilation and review  processes, as well as for identifying candidates for converting, or in- sourcing, functions currently performed by contractors to DOD civilian  personnel. Using guidance and information obtained from these officials,  we compared the approaches used to compile the fiscal year 2009  inventories with the approaches used to compile the fiscal year 2008  inventories. We did not independently assess the accuracy or reliability of  the underlying data supporting the Army, Navy, or Air Force fiscal year  2009 inventories. However, we found the data to be sufficiently reliable for  the purpose of assessing the change in approaches from fiscal years 2008  to 2009. A more detailed description of our scope and methodology is  included in appendix I.
We conducted this performance audit from May 2010 through November  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: As part of Congress’ efforts to improve the availability of information on  and management of services acquisitions, it enacted Section 801 of the  National Defense Authorization Act for Fiscal Year 2002, which required  the Secretary of Defense to establish a data-collection system to provide  management information with regard to each purchase of services by a  military department or defense agency. For example, the information to  be provided includes the services purchased, the total dollar amount of the  purchase, and the extent of competition provided in making the purchase,  among other things.
In 2008, Congress amended this provision in section 807 of the National  Defense Authorization Act for Fiscal Year 2008 to add a requirement for  the Secretary of Defense to submit an annual inventory of the activities  performed pursuant to contracts for services for or on behalf of DOD  during the preceding fiscal year. The inventory is to include a number of  specific data elements for each identified activity, including  the function and missions performed by the contractor;  the contracting organization, the component of DOD administering the  contract, and the organization whose requirements are being met  through contractor performance of the function;  the funding source for the contract by appropriation and operating  agency;  the fiscal year the activity first appeared on an inventory;  the number of full-time contractor employees (or its equivalent) paid  for performance of the activity;  a determination of whether the contract pursuant to which the activity  is performed is a personal services contract; and  a summary of the information required to be collected for the activity  under 10 U.S.C. § 2330a(a).
As indicated in AT&L’s May 2010 guidance, DOD components are to  compile an inventory of activities performed on their behalf by contractors  and submit it to AT&L, which formally submits a consolidated DOD  inventory to Congress. Once compiled, the inventory is to be made public  and, within 90 days of the date on which the inventory is submitted to  Congress, the Secretary of the military department or head of the defense  agency responsible for activities in the inventory is to review the contracts  and activities for which they are responsible and ensure that any personal  services contract included in the inventory was properly entered into and  is being performed appropriately; that the activities in the inventory do not  include inherently governmental functions; and to the maximum extent  practicable, activities on the list do not include any functions closely  associated with inherently governmental functions. In addition, the  Secretary of the military department or head of the defense agency is to  identify activities that should be considered for conversion to performance  by civilian employees pursuant to 10 U.S.C. § 2463 or to an acquisition  approach that would be more advantageous to the department.
Congress added Section 2463 to title 10 of the U.S. Code in the National  Defense Authorization Act for Fiscal Year 2008. This section required the  Under Secretary of Defense for Personnel and Readiness to develop  guidelines and procedures to ensure that consideration is given to using  DOD civilian employees to perform new functions and functions that are  currently performed by contractors and could be performed by DOD  civilian employees. In particular, these guidelines and procedures are to  provide special consideration for, among other instances, in-sourcing  functions closely associated with inherently governmental functions that  are currently being performed by contractors, or new requirements that  may be closely associated with inherently governmental functions.  Congress required the Secretary of Defense to make use of the inventories  created under 10 U.S.C. § 2330a(c) for the purpose of identifying functions  that should be considered for performance by DOD civilian employees  under this provision. DOD issued initial in-sourcing guidance in April 2008  and additional guidance in May 2009 to assist DOD components in  implementing this legislative requirement.
The National Defense Authorization Act for Fiscal Year 2010 provided for  a new section 115b in title 10 of the U.S. Code that requires DOD to  annually submit to the defense committees a strategic workforce plan to  shape and improve the civilian workforce. Among other requirements, the  plan is to include an assessment of the appropriate mix of military,  civilian, and contractor personnel capabilities. The Office of the Under  Secretary of Defense for Personnel and Readiness is responsible for  developing and implementing the strategic plan in consultation with  AT&L.
Finally, Section 803 of the National Defense Authorization Act for Fiscal  Year 2010 requires the Secretary of Defense to include information in  DOD’s annual budget justification materials related to the procurement of  contract services. Specifically, the legislation requires, for each budget  account, to clearly and separately identify (1) the amount requested for the  procurement of contract services for each DOD component, installation,  or activity, and (2) the number of contractor FTEs projected and justified  for each DOD component, installation, or activity based on the inventory  and associated reviews.
Collectively, these statutory requirements indicate that the inventory and  the associated review process are to serve as a basis for identifying  candidates for in-sourcing contracted services, supporting development of  DOD’s annual strategic workforce plan, and specifying the number of  contractor FTEs included in DOD’s annual budget justification materials.  Figure 1 below illustrates the relationship between the related statutory  requirements.
Amount requested for  contract services and  number of contractor FTEs projected and justified for each budget account,  by component, installation, or activity  DOD initially planned to use a phased approach to implement the  inventory requirement, relying first on submission in October 2008 of a  prototype inventory covering activities performed for the Army pursuant  to contracted services for fiscal year 2007, and gradually producing  inventories for the remaining military departments and defense agencies  over subsequent years. The Army served as the prototype as it had started  collecting information in 2005 to obtain better visibility of its contractor  workforce. To do so, the Army developed its Contractor Manpower  Reporting Application (CMRA), a system that is designed to collect  information on labor-hour expenditures by function, funding source, and  mission supported on contracted efforts.
In response to direction from Congress, DOD revised its implementation  schedule and in July and September 2009 submitted inventories covering  the fiscal year 2008 service contracting activities of the military  departments and 13 other defense agencies. For fiscal year 2009,  inventories were submitted by the military departments, as well as a larger  group of other defense agencies, 17 in total, as well as the U.S. Special  Operations Command and the U.S. Transportation Command. DOD  officials noted that the components submitting inventories are those  components with acquisition authority.
section_title: DOD’s Fiscal Year 2009 Inventories Reflect a More Uniform Approach, but Limitations Remain
paragraphs: AT&L implemented a more uniform approach for compiling the fiscal year  2009 inventories compared with fiscal year 2008, and the changes in the  approach affected both the reported spending on service contracts and the  number of contractor FTEs. For example, changes in the categories of  services included in the inventories influenced the Air Force’s reported  increase and the Navy’s reported decrease in spending on services in fiscal  year 2009. Similarly, the use of a new formula based on AT&L guidance for  estimating contractor FTEs reduced the number of contractor FTEs the  Navy and Air Force would have reported had they used the formulas each  used for their fiscal year 2008 inventories. AT&L’s guidance also  authorized the Army to continue using its existing process, which  incorporates data reported by contractors through the Army’s CMRA  system, as the basis for its inventory. Army officials attributed the  reported increases in spending and number of contractor FTEs in the  Army’s inventory to better reporting in the CMRA system in fiscal year  2009. DOD and military department officials identified continuing  limitations associated with the fiscal year 2009 inventories, including the  inability of FPDS-NG, which was to be used by DOD components other  than the Army, to provide information for all of the required data  elements. Similarly, Army officials we spoke with expressed some  concerns with the process used to ensure the accuracy of data reported in  CMRA. AT&L characterized its May 2010 guidance as an interim measure  for circumstances in which actual contractor manpower data have not  been collected. The department has stated that it plans to move towards  collecting such data from contractors as the basis for future inventories,  but it has not issued guidance or a plan of action for doing so.
subsections: section_title: DOD Implemented a More Uniform Approach to Compile Its Fiscal Year 2009 Inventories
paragraphs: In May 2010, AT&L issued guidance that provided more uniform direction  to be used by DOD components other than the Army to compile their fiscal  year 2009 inventories, while allowing the Army to continue using its  existing process that reports manpower data collected directly from its  contractors. AT&L noted that the move towards a more uniform approach  in fiscal year 2009 was meant to reduce inconsistencies that resulted from  DOD components using different approaches in fiscal year 2008 and was  an interim measure for circumstances in which actual contractor  manpower data have not been collected. AT&L’s guidance for fiscal year  2009 standardized the process for compiling the inventories for most DOD  components by defining  the categories of services to be included in the inventories,  the data sources to be used to populate the required data elements,  and  the method to estimate the number of contractor FTEs.
For example, the guidance indicated that all categories of services  identified in FPDS-NG were to be included in the fiscal year 2009  inventories, with the exception of those associated with the early stages of  research and development, lease and rental of facilities and equipment,  and construction. By contrast, for the fiscal year 2008 inventories, the Air  Force did not include any research and development services, while the  Navy had included all stages of research and development services.  Further, the guidance required that FPDS-NG be used as the source for the  majority of the inventory’s data elements, such as the service purchased,  the total dollar amount of the purchase, the organization whose  requirements are being met by contracted performance, and the function  and mission being performed by the contract. DPAP officials noted that as  DOD currently lacks a single data source that contains information for all  the data elements required in the inventories, DOD determined that FPDS- NG provided the most readily available data departmentwide, though it  acknowledged that there were limitations in using FPDS-NG to meet the  inventory requirements. In instances where FPDS-NG did not contain  information for the required inventory data element, such as for the  funding source for the contract, AT&L indicated that DOD components  were to use other existing data sources.
Additionally, the AT&L guidance provided a formula and identified  specific information needed for DOD components other than the Army to  estimate the number of contractor FTEs paid for the performance of an  activity. In contrast, DOD components used several different approaches  in fiscal year 2008. For example, the Air Force relied on three approaches  for fiscal year 2008, though it primarily relied on its own formula to  estimate the number of contractor FTEs. Similarly, the Navy relied solely  on a formula it had developed using a sample of Navy contracts to  estimate FTEs. The formula provided under the AT&L guidance for fiscal  year 2009 incorporated the amount obligated on the contract as reported  in FPDS-NG, the estimated portion of those obligations that were  associated with a contractor’s direct labor expense, and the estimated cost  of that labor. For these two latter factors, DPAP computed averages it  derived from the Army’s CMRA data for each type of service and provided  them to DOD components to use to estimate contractor FTEs. As noted in  the AT&L guidance, these averages were used because other DOD  components currently lack a data system to collect data from contractors  on the number of direct labor hours associated with the services they  perform. Figure 2 provides an illustration of how these averages were to  be used to estimate the number of contractor FTEs on a contract for  systems engineering services under which approximately half of the  $400,000 obligated under the contract was the direct labor provided by  contractor employees.
The AT&L guidance authorized the Army to continue to use its existing  process to compile its inventory, which differs from the approach used by  other DOD components, because it relies on contractor-reported data from  the CMRA data system. CMRA captures data directly reported by  contractors on services performed at the contract line item level, including  information on the direct labor dollars, direct labor hours, total invoiced  dollars, the functions and mission performed, and the Army unit on whose  behalf the services are being performed. In instances where contractors  are providing different services under the same order, or are providing  services at multiple locations, they can enter additional records in CMRA  to capture information associated with each type of service or location.
Under its approach, the Army included all categories of research and  development services in its inventory, rather than the portion included by  the Air Force and Navy, as well as identified the services provided under  contracts for goods. To report the number of contractor FTEs, the Army  indicated that it divided the number of direct labor hours reported by a  contractor in CMRA for each service provided by 2,088, the number of  labor hours in a federal employee work year. For other data elements in  its inventory, such as the funding source and contracting organization, the  Army also relied on the Army Contract Business Intelligence System and  updates from resource managers, contracting officer’s representatives  (COR), and other officials.
section_title: Changes in DOD’s Approach Affected Reported Inventory Data
paragraphs: DOD reported that the amount obligated on service contracts rose to  about $140 billion in fiscal year 2009, while the number of contractor FTEs  under those contracts increased to nearly 767,000 FTEs, as shown in table  1. However, the changes in DOD’s approach, in particular how DOD  reflected research and development services, and the use of a new formula  for estimating contractor FTEs, affected the reported changes in inventory  data from fiscal years 2008 to 2009. Further, while the Army approach did  not change from fiscal year 2008, Army officials stated that the increase in  the amount of fiscal year 2009 spending reported in the Army inventory  reflects better reporting in the CMRA system. Consequently, we and DOD  officials agree that caution should be exercised when making direct  comparisons between the fiscal year 2008 and 2009 inventory data.
The Air Force’s fiscal year 2009 inventory shows an increase of about  $12.1 billion, whereas the Navy’s inventory shows a decrease of about $1.2  billion. Several factors accounted for these changes. For example:    Based on the AT&L guidance, the Air Force included $6.7 billion in  research and development, $2.9 billion in maintenance of real property  contracts, and $0.1 billion in miscellaneous construction, education  and training, and transportation contracts in fiscal year 2009 that it had  previously excluded in fiscal year 2008. The remaining $2.4 billion  increase reflects additional obligations in fiscal year 2009 on services  that were included in both fiscal years.
Based on the AT&L guidance, the Navy excluded $5.3 billion of  services associated with early stages of research and development  activities in fiscal year 2009 that it had previously included. In addition,  the Navy included a net increase of about $0.3 billion in contract  actions under $100,000 and deobligations in fiscal year 2009 that had  previously been excluded. This overall $5 billion decrease, however,  was partially offset by a $3.8 billion increase in obligations in fiscal  year 2009 on services that were included in both fiscal years.
The Navy and Air Force reported an increase in the number of contractor  FTEs in their inventories from fiscal year 2008 to 2009, although our  analysis found that the Navy’s reported increase was in error. According to  a Navy official, the Navy used a different set of labor rates and ratios from  those specified under the AT&L approach to simplify the FTE calculations.  Had the Navy used AT&L’s proscribed approach, the Navy would have  reported 207,604 contractor FTEs for fiscal year 2009, a decrease of 14  percent from fiscal year 2008. More generally, our analysis indicates that  the use of the AT&L formula for fiscal year 2009 produced a lower number  of contractor FTEs for the Navy and Air Force than their respective fiscal  year 2008 formulas would have produced had the approach not changed,  as shown in figure 3.
The effect of the change in estimating contractor FTEs was even more  pronounced on specific categories of services. For example, applying  AT&L’s formula resulted in the Air Force reporting 7,902 contractor FTEs  associated with systems engineering services for fiscal year 2009. If the Air  Force’s fiscal year 2008 formula were applied, the inventory would have  shown 12,661 FTEs. At the same time, the Air Force spent more on  systems engineering services in fiscal year 2009 than it did in fiscal year  2008. For the Navy, even though it obligated more for program  management support services in fiscal year 2009, using the AT&L formula  would have resulted in 3,374 contractor FTEs whereas using the Navy’s  fiscal year 2008 formula would have produced 8,025 FTEs.
Although the Army’s approach for compiling its inventory did not change  from fiscal year 2008 to 2009, officials attributed the $8.9 billion increase in  the amount of spending reported and the 23 percent increase in the  number of contractor FTEs to better reporting through the CMRA system.  In particular, Army officials responsible for CMRA said that the fiscal year  2009 inventory contains more data for weapon systems support services  than was included in the fiscal year 2008 inventory. These officials also  noted that reporting improvements resulted from steps taken to identify  missing contractor manpower data and their efforts to follow up with  officials and contractors to ensure that required data were reported. For  example, subsequent to the deadline for reporting data in CMRA, officials  responsible for CMRA stated that they provide a report identifying  contracts that were missing data to Army contracting offices and CORs,  who are to ensure that contractors report required data.
section_title: Limitations Persist in Compilation of Inventories
paragraphs: DOD noted the approach taken to compile the fiscal year 2009 inventories,  while providing more consistency in certain areas, reflected continued  limitations. In the absence of a single departmentwide data system that  could provide data that directly responded to the legislative reporting  requirements, DPAP officials stated that they relied on the best  information currently available, including data from FPDS-NG. Similarly,  Army officials acknowledged that they are taking steps to continue to  improve the Army’s process for collecting data in CMRA. In  acknowledging limitations associated with the fiscal year 2009 inventories,  DOD plans to release future guidance to move towards the department’s  stated goal of collecting actual contractor manpower data.
AT&L’s use of FPDS-NG as the primary basis for the inventories presented  several limitations, including that it does not currently contain information  on the number of contractor FTEs. Further, the legislation required  information on all activities performed pursuant to contracts for services  during the fiscal year, but DOD noted that because contract actions are  recorded in FPDS-NG as being used either to purchase goods or services,  instances in which services were provided under a contract action coded  as one for goods were not captured in the Air Force, Navy, and defense  agencies’ inventories. In contrast, because the Army’s CMRA enables it to  identify services acquired under contracts for goods, we found that the  Army’s inventory included about $5.5 billion in services that were  purchased under contracts consistently coded as goods in FPDS-NG in  both fiscal year 2008 and 2009. In addition, components using the AT&L  approach were instructed to use the funding office as recorded in FPDS- NG as the basis for responding to the legislation’s requirement to identify  the requiring organization. However, the organization identified as the  funding office in FPDS-NG may not necessarily be the organization whose  requirements are being met through the contract. Similarly, AT&L’s  guidance instructed DOD components to record in the inventory the  category of service with the predominant amount of dollars, although  more than one category of service may be purchased under a contract  action. As a result, this approach may not provide visibility into all the  services purchased under a contract action. Further, DOD acknowledged  that it did not account for service contracts that were awarded on behalf  of DOD by non-DOD agencies, as was the case with its fiscal year 2008  inventories. According to FPDS-NG data, non-DOD agencies awarded  contracts totaling just under $1 billion on behalf of the Army, Navy, and  Air Force in fiscal year 2009.
Several officials from DOD and the military departments also expressed  concerns about the formula provided under the AT&L guidance for  calculating contractor FTEs. For example, Air Force and Navy officials  expressed concerns that the average direct labor rates and average ratios  of direct labor dollars to total invoiced dollars specified in the AT&L  approach may not reflect the services for which they contract, because the  AT&L averages were derived from data reported in the Army’s CMRA  system. They agreed, however, to implement the AT&L approach given the  absence of a departmentwide system containing information on the  number of contractor FTEs paid to perform activities under contracts for  services. Officials from the Army Force Management, Manpower and  Resources (FMMR) office, the Office of Cost Assessment and Program  Evaluation, and the Office of the Under Secretary of Defense for Personnel  and Readiness raised concerns about the use of average labor rates and  ratios to estimate contractor FTEs given the tendency of those averages to  obscure variation in the underlying data.
In this regard, our analysis showed that when applying the AT&L formula  to the Army’s reported fiscal year 2009 inventory data, the AT&L formula  approximated the aggregate number of contractor FTEs reported by the  Army, but resulted in significant variations for some specific categories of  services and particular contracts. At the aggregate level, the AT&L formula  estimated the number of contractor FTEs at about 3 percent below the  Army’s reported 262,282 FTEs. However, the Army reported 113,713  contractor FTEs performing professional, administrative, and management  support services whereas the AT&L formula estimated significantly fewer,  65,408 FTEs. Additionally, the Army reported 264 FTEs on an individual  $23.6 million task order for engineering technical services, whereas the  AT&L formula estimated 115 FTEs. These types of differences occurred  because the average labor rates and ratios calculated by DPAP for use in  the AT&L formula were heavily influenced by a small number of large  dollar value contracts included in the Army’s inventory.
At the same time, officials from the Army’s financial management and  manpower planning offices and the Army commands we spoke with  expressed some concerns with the process used to ensure the accuracy of  data reported in CMRA. According to CMRA guidance, CORs are to review  data entered by contractors in CMRA and edit incorrect data. Specifically,  Army officials responsible for CMRA stated that CORs are to help ensure  that contractors report data in CMRA, and are to validate entries such as  the requiring organization, the function performed by the contractor, the  funding source, and the total invoiced amount. They also noted, however,  that CORs are not responsible for validating the number of direct labor  hours reported by contractors, which is used to report contractor FTEs in  the Army’s inventory. This is in part because the CORs do not have direct  knowledge of or access to contractor information regarding the number of  direct labor hours for fixed-price or performance-based contracts.  Officials responsible for CMRA oversight and officials from the Office of  the Assistant Secretary of the Army for Acquisition, Logistics, and  Technology and IMCOM stated that they have efforts underway to better  clarify COR responsibilities with regard to CMRA data, including providing  additional training to CORs and implementing guidance that clearly  defines responsibility for ensuring the completeness and accuracy of the  Army’s inventory data.
AT&L characterized the purpose of its May 2010 guidance as providing an  interim measure for circumstances in which actual contractor manpower  data has not been collected. AT&L’s guidance stated that the department  recognizes the need and benefit of doing so, in part to help make well- informed in-sourcing decisions, and is committed to doing so. In addition,  the guidance stated that AT&L planned to work with the Office of the  Under Secretary of Defense for Personnel and Readiness and the Office of  Cost Assessment and Program Evaluation to issue preliminary guidance  and a proposed plan of action by August 2010. The guidance noted that  this process would require close collaboration between the component  acquisition and manpower organizations. At the time of our review, such  guidance indicating how the department will move towards achieving its  stated objectives, including anticipated time frames and the necessary  resources to do so, had not been issued. Senior officials from DPAP and  the Office of the Under Secretary for Personnel and Readiness indicated,  however, that the approach in the short term will likely remain the same  until the department implements a longer-term solution.
section_title: Military Departments Differ in How They Have Reviewed and Used the Inventories
paragraphs: The military departments differ in their approaches to the required reviews  of the activities performed by contractors and in the extent to which they  have used the inventories to inform workforce decisions, including in- sourcing. The Army has used a centralized, headquarters-level approach to  identify contractors performing functions that are inherently governmental  or closely associated with inherently governmental functions,  unauthorized personal services, and other functions on a command-by- command basis. Since January 2009, the Army has completed at least one  review for 24 of 26 commands and headquarters organizations and  identified approximately 2,357 contractor FTEs performing inherently  governmental functions, 45,934 contractor FTEs performing activities  closely associated with inherently governmental functions, and 1,877  contractor FTEs providing unauthorized personal services. Army officials  have indicated that these reviews contributed to decisions to insource  selected functions for performance by Army personnel. In contrast, the Air  Force and Navy have implemented decentralized approaches that rely on  their major commands to review the activities performed by contractors  listed in their inventories and report the results back to their respective  headquarters. The Air Force implemented its initial review in January  2010, but experienced challenges in doing so, including receiving  inadequate information for many of its contracts. These challenges will  likely cause its approach to evolve in the future. Air Force officials  reported that the inventory has provided limited utility for informing  decisions such as in-sourcing to date. The Navy issued guidance to its  commands in September 2010, but the results of the Navy’s initial review  had not yet been reported as of November 2010.
subsections: section_title: The Army Has Implemented a Centralized Approach to Review Contracts and Activities in Its Inventory
paragraphs: The Army has implemented a centralized approach that relies on two  processes—a review prior to contract award and a headquarters-level  review of all functions performed by contractors—to meet the  requirement to annually review the service contracts and activities in its  inventory. In combination, these processes are intended to inform  decisions on the use of contractors for services, including in-sourcing.  Army officials report that they have completed reviews of 24 of 26  command and headquarters organizations as of November 2010. Army  officials noted that the length of time to conduct reviews for each  command and the need to reconcile the various data sources used to  conduct the reviews have posed challenges that they are working to  address.
Both of these processes are relatively recent initiatives. On October 2,  2008, the Assistant Secretary of the Army for Acquisition, Logistics and  Technology issued guidance stating that starting in fiscal year 2009,  officials from requiring activities must receive written approval to initiate  a contract or exercise an option for services from the cognizant General  Officer or member of the Senior Executive Service. To obtain approval,  the requiring activity must complete a service contract approval form and  a series of worksheets that are designed to help identify whether the  function to be performed by the contractor to meet the contract  requirement is inherently governmental, closely associated with an  inherently governmental function, or a personal service, and whether the  function should be insourced. The General Officer or Senior Executive  must certify that special consideration was given to having federal  employees perform functions that are closely associated with an  inherently governmental function, sufficiently trained and experienced  officials are available to oversee the contract, and that the contract is or  will be reported in CMRA.
Additionally, in January 2009, the Army established the Panel for  Documentation of Contractors (PDC), which was tasked to review  functions being performed by contractors on an annual basis at each  command. The PDC consists of officials from the Office of the Assistant  Secretary of the Army for Manpower and Reserve Affairs, Force  Management, Manpower and Resources (FMMR), along with headquarters  officials from the acquisition and manpower planning communities. Army  guidance directed commands to provide data to the PDC on the functions  being performed by contractors and an assessment of whether those  functions were inherently governmental, closely associated with  inherently governmental functions, or unauthorized personal services. To  carry out this assessment, commands identify functions that are being  performed by contractors, the organizational unit for which the function is  being performed, the funding information associated with the contract  under which the function is being performed, and the number of  contractor FTEs performing the function. In addition, for each function,  command officials are to include a detailed description and categorize it  according to whether the function is appropriate for contracting,  constitutes an unauthorized personal service, is closely associated with an  inherently governmental function, or is an inherently governmental  function. The service contract approval form and associated worksheets  are to inform the commands’ categorization of contractor functions.
In turn, commands provide this information to the PDC officials, who  make a separate determination as to the appropriate categorization of the  function being performed by the contractor. FMMR and command officials  reported that they engage in further discussion in instances where there is  a difference of opinion on the appropriate categorization of a function in  order to reach agreement. Once the PDC has completed its review, FMMR  issues a memorandum to the commands summarizing the results of the  review, including the number of contractor FTEs categorized as  performing inherently governmental functions, closely associated with  inherently governmental functions, or providing unauthorized personal  services. The command is to use the results of the PDC review to inform  decisions regarding the need to insource certain functions, whether to  continue using contractors to perform the functions, or in some cases, to  determine the command no longer requires those functions. FMMR  officials noted that commands are responsible for integrating the results of  the PDC process into their manpower planning efforts.
Since the PDC reviews of contractor functions started in 2009, FMMR  officials indicated that they have completed reviews for 24 of 26 Army  commands and headquarters organizations as of November 2010. Through  its reviews, the Army reported that it identified approximately 2,357  contractor FTEs performing inherently governmental functions, 45,934  contractor FTEs performing activities closely associated with inherently  governmental functions, and 1,877 contractor FTEs providing  unauthorized personal services. For example, the PDC review completed  in August 2010 of 12,805 contractor FTEs performing functions for  TRADOC identified 9 contractor FTEs that were performing inherently  governmental functions and 53 contractor FTEs performing unauthorized  personal services. Similarly, in March 2010, the Army completed its review  of the over 36,000 contractor FTEs performing functions for IMCOM, and  identified 6 contractor FTEs that were performing inherently  governmental functions and 657 contractor FTEs providing unauthorized  personal services. Both TRADOC and IMCOM officials reported that in- sourcing decisions either have been informed by the PDC review, or will  be based on PDC reviews going forward. For example, TRADOC is in the  process of in-sourcing 5 contractor FTEs that had been performing  military analyst functions that were identified as candidates in the PDC  review. IMCOM officials noted, however, that other factors, such as  budgetary changes and other statutory requirements, also contributed to  in-sourcing decisions. For example, IMCOM officials said that most in- sourcing for fiscal year 2010 will result from a loss of statutory authority to  contract for certain security guard functions, and in fiscal year 2011 most  in-sourcing decisions will be the result of requirements to reduce service  contract costs.
Army FMMR and command officials have identified a number of  challenges in conducting the initial reviews, including the length of time to  conduct reviews for each command, and the need to reconcile data used  to conduct the reviews to data in the inventory. As of October 2010, the  Army had been working through the PDC reviews for about 18 months,  and in that time, the PDC has reviewed functions associated with over  100,000 contractor FTEs across most commands and headquarters  organizations. FMMR officials noted that the process has taken time to  implement because they engaged in discussions with command officials in  a number of instances to revise the initial information provided to the PDC  to ensure that the criteria for categorizing functions are applied  appropriately and consistently. TRADOC officials said that they went  through two rounds of PDC reviews of their contracted functions to  improve the accuracy of the service contract data the command submitted  to the PDC for its reviews. Army officials stated that for future PDC  reviews, it may be possible to focus efforts on functions that are new or  have changed from prior reviews as a way to more efficiently implement  the review process. The length of time it has taken to implement the PDC  reviews has also resulted in challenges related to incorporating the final  determinations that come out of the reviews into Army manpower  documents in a way that aligns with the annual budget and planning  processes, according to Army force management officials.
FMMR and command officials also reported difficulties reconciling service  contractor information used for the review process with the inventory  data provided through the Army’s CMRA system, including the numbers of  contractor FTEs reported as performing various activities. For example, to  help determine whether a contractor is performing an inherently  governmental function, the commands collect more detailed information  on the functions being performed by the contractor than is collected by  CMRA and reported in the Army’s inventory of services. FMMR and  command officials indicated that the inventory data is generally used to  check whether the data on the total number of contractor FTEs reported  to the PDC appears reasonable. For example, at IMCOM, the number of  contractor FTEs it reported to the PDC for review was 10,639 higher than  the number of contractor FTEs reported in CMRA. IMCOM officials stated  that this difference occurred because contractors were not fully reporting  the required data in CMRA and CORs were not verifying whether  contractors had reported the data. FMMR and IMCOM officials are  working together to reconcile this discrepancy. FMMR officials also stated  that they are working with Army commands to better align contractor  function data provided to the PDC with data in CMRA and noted that the  use of data from both CMRA and the PDC has been helpful in gaining  greater insight into the contracted component of the Army’s workforce.
section_title: Air Force and Navy Utilize Decentralized Inventory Review Approach
paragraphs: The Air Force and Navy each issued inventory review guidance that  delegates responsibility for determining the approach, as well as for  conducting the actual review, to their major commands. The Air Force  reported that its commands completed their initial effort at conducting the  reviews in March 2010, but the department is revising its review process to  address several issues encountered during this process, including a  substantial number of contracts in the inventory for which inadequate  information was provided. The Navy issued guidance to its commands in  September 2010 requiring them to conduct a review, but the results of the  commands’ reviews were not available as of November 2010.
subsections: section_title: Initial Air Force Review Affected by Inadequate Information and Other Issues
paragraphs: In January 2010, the Secretary of the Air Force issued guidance instructing  its major commands to conduct an initial review of its fiscal years 2008  and 2009 activities performed under service contracts. To do so, Air  Force headquarters inventory officials provided each major command  with a spreadsheet containing its portion of the department’s inventory  from which command officials were to review and determine, with a yes  or no answer, whether the activity performed under the contract was an  inherently governmental function, closely associated with an inherently  governmental function, a personal service, or whether the activity is being  considered for in-sourcing. The guidance included broad definitions, based  on existing DOD guidance and the Federal Acquisition Regulation (FAR),  for commands to use to make these assessments. According to an Air  Force inventory official, a headquarters review of the initial information  submitted by the commands in March 2010 in response to the January 2010  guidance found that approximately 40 percent of the contracts included  for review did not contain adequate responses to the required review  elements.
Air Force Materiel Command (AFMC) inventory officials explained that  they experienced a number of difficulties during the initial review process,  and command data show that AFMC did not provide the required  determinations for approximately 22 percent of its contract actions. An  AFMC official noted that in many cases it was difficult to determine the  requiring activity for a given contract action, which in turn made it difficult  to determine who was the most appropriate manager to provide the  required information. Additionally, even when AFMC officials were able to  identify the appropriate subordinate units and responsible managers, the  AFMC official expressed concern that the managers were not consistently  applying the criteria indicated in the January 2010 guidance to identify  contractors performing inherently governmental or services closely  associated with inherently governmental functions. For example, AFMC  identified 152 contract actions that potentially involved performance of an  inherently governmental function, but the official responsible for the  command’s review process was unsure of the extent to which these  determinations were correct.
As a result of the challenges experienced throughout the department  during its initial inventory review, the Secretary of the Air Force issued  additional guidance in October 2010 requiring major commands to  complete the review of activities under service contracts reflected in its  fiscal year 2009 inventory that may have been missed during the initial  review as well as some activities from fiscal year 2010. Additionally, Air  Force acquisition officials stated that the department is considering how  to further address the challenges encountered.
Notwithstanding these challenges, Air Force headquarters and AFMC  officials stated that they rely on other processes to mitigate the risk of  contractors performing inherently governmental functions. For example,  they stated that requirements are reviewed prior to contract award to  prevent contracting for inherently governmental functions in accordance  with existing Air Force guidance. Additionally, an AFMC official  explained that they rely on the CORs to monitor contractor performance  and ensure that the functions being performed do not evolve into  inherently governmental functions.
Air Force in-sourcing and AFMC officials noted that to-date the inventory  has provided limited utility during the in-sourcing decision-making  process. AFMC officials indicated that the inventory can provide  command officials with a list of contracts from which they may be able to  identify potential cost savings, but Air Force officials stated that additional  analysis including detailed cost comparisons and command stakeholder  input is required to make cost-based in-sourcing decisions. According to  the Air Force’s fiscal year 2010 in-sourcing plan, the majority of its  decisions to insource were to be based on analyses of whether the  performance of services by government employees would be more cost- effective, which is one of several criteria indicated in DOD’s guidance on  in-sourcing.
section_title: Initial Navy Review Not Yet Complete
paragraphs: The Navy issued guidance in September 2010 requiring Navy organizations  to review the fiscal year 2009 inventory and report the results within 45  days, but at the time of our review in November 2010, the department had  not yet completed this initial inventory review. The guidance requires the  head of the contracting activity to validate that its respective contracts for  services were reviewed to determine if the contracted functions include  inherently governmental or closely associated functions, or unauthorized  personal services, based, for example, on criteria in the FAR. Following  completion, each contracting activity must provide a letter to the Assistant  Secretary of the Navy for Research, Development, and Acquisition  certifying that it completed the review, identifying the number of contracts  that were found to be unacceptable based on the review criteria, and  including a plan of corrective action for those contract activities deemed  unacceptable.
Navy headquarters acquisition and command officials stated although the  department’s initial inventory review remains in progress, other processes  are used to review contractor functions and inform workforce  management–related decisions such as in-sourcing. For example, Navy  officials responsible for organizing the inventory compilation and review  processes explained that commands review contracts during the preaward  and option exercise phases in an effort to prevent the award of contracts  that include inherently governmental functions and unauthorized personal  services. Additionally, Naval Air Systems Command officials reported that  CORs are to monitor contracted employees during contract performance  to ensure that the scope or nature of the function does not evolve to  include inherently governmental functions. Finally, command officials  explained that they rely on existing command staffing processes, which  includes input from functional managers to determine the most  appropriate blend of military, civilian, and contractor personnel to meet  command workload and mission requirements, as well as identify  opportunities for in-sourcing.
section_title: Conclusions
paragraphs: DOD has acknowledged the need to rebalance its workforce, in part by  reducing its reliance on contractors. To do so, however, the department  needs good information on the roles and functions played by contractors,  which the department currently does not have. The required inventories  that DOD is developing are intended to provide an additional source for  such information to assist DOD in determining whether or not contracted  services should be performed by government employees, to mitigate the  risk of transferring government responsibilities to contactors. At this  point, DOD has been working to implement the inventory requirements  since the legislation was passed in 2008. With regard to reviewing the  functions and activities reflected in the inventories, the department’s  efforts are less mature. Given this early state of implementation, the  inventories and associated review processes are being used to varying  degrees by the military departments to help inform workforce decisions  such as in-sourcing. Overall, the Army has used the inventories to a greater  degree than the other military departments.
The department’s primary focus has been on identifying ways by which it  can compile the information required by the legislation, and in particular,  estimating the number of contractor personnel providing services. AT&L’s  latest approach for the fiscal year 2009 inventories was intended, in part,  to provide the Navy and Air Force with a more uniform approach than  previously used for estimating the number of contractors. To do so,  AT&L’s guidance provided a formula for them to use and specified that  FPDS-NG be used as the basis for the majority of the data elements in the  inventory. DOD officials expressed concerns, however, about AT&L’s  estimating approach, which we found resulted in significant variations for  specific categories of services. DOD officials also expressed concern  about the type of data that can be obtained through the FPDS-NG to meet  the inventory requirements. AT&L’s guidance also authorized the Army to  continue using the approach it has put in place to obtain contractor- reported data on direct labor hours. For its part, the Army acknowledged  that it needs to continue to improve its process for collecting contractor- reported data, including clarifying responsibilities for ensuring the  completeness and accuracy of the data.
AT&L stated that its latest approach was an interim measure for  components that do not currently have the capability to collect actual  contractor manpower data in a manner similar to that of the Army. To  move toward the department’s stated goal of collecting such data, AT&L’s  guidance noted that it intended to work jointly with the Office of the  Under Secretary of Defense for Personnel and Readiness and other  organizations to issue new guidance and plans by August 2010, but it has  not yet done so. Developing a plan of action, including time frames and the  resources needed to implement it, would provide an important tangible  step in meeting the inventory requirements. The real benefit of the  inventory, however, will ultimately be measured by its ability to inform  decision-making. At this point, the absence of a way forward hinders the  achievement of this objective.
section_title: Recommendations for Executive Action
paragraphs: To help implement the requirements for conducting the inventory of  service contract activities, we recommend that the Secretary of Defense  direct the Under Secretary of Defense for Acquisition, Technology and  Logistics, and the Under Secretary of Defense for Personnel and Readiness  to work jointly to take the following two actions:    develop a plan of action, including anticipated time frames and  necessary resources, to facilitate the department’s stated intent of  collecting manpower data and to address other limitations in its  current approach to meeting inventory requirements, including those  specific to FPDS-NG; and  assess ways to improve the department’s approach to estimating  contractor FTEs until the department is able to collect manpower data  from contractors.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided oral comments on a draft of this report. Mr. Shay Assad,  Director, Defense Procurement and Acquisition Policy, stated that DOD  concurred with the recommendations.  DOD also provided technical  comments, which were incorporated as appropriate.
We are sending a copy of this report to the Secretary of Defense and  interested congressional committees. In addition, this document will be  available at no charge on GAO’s Web site at http://www.gao.gov.
If you or your staff have any questions, please contact us at (202) 512-4841  or huttonj@gao.gov or (202) 512-8365 or solisw@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made contributions to this  correspondence are listed in appendix II.
section_title: Appendix I: Scope and Methodology
paragraphs: Section 803 of the National Defense Authorization Act for Fiscal Year 2010  directs GAO to report annually on the inventory of activities performed  pursuant to contracts for services that are to be submitted by the  Secretary of Defense, in 2010, 2011, and 2012 respectively. To respond to  this mandate, we assessed (1) the approaches used to compile the fiscal  year 2009 inventories and how the approaches have changed, and (2) how  the inventories have been reviewed and used to inform workforce  decisions.
As the military departments accounted for 83 percent of the reported  obligations on service contracts and 92 percent of the reported number of  contractor full-time equivalents (FTE) in the fiscal year 2009 inventories,  we focused our efforts on the Army, Navy, and Air Force. To gain  additional insights into the inventory compilation and review processes at  the command level, we selected a nongeneralizable sample of four  commands based on (1) a combination of data from the Federal  Procurement Data System–Next Generation (FPDS-NG) on dollars  obligated under contracts for professional, administrative, and  management support services, (2) military department data on in- sourcing activities planned for fiscal year 2010, and (3) recommendations  from military department officials. Using these criteria, we selected the  Army’s Training and Doctrine Command and the Installation Management  Command; the Naval Air Systems Command; and the Air Force Material  Command. We also selected a nongeneralizable sample of other defense  components that were among those obligating high-dollar amounts under  contracts for services in fiscal year 2009 according to FPDS-NG to gain  their perspectives on the inventory compilation and review processes,  including the TRICARE Management Activity, the Defense Information  Systems Agency, and the U.S. Special Operations Command. While we  used information from these components to further inform our  understanding of the inventory compilation and review processes, we did  not focus on these organizations for purposes of this report.
To assess the approaches used to compile the fiscal year 2009 inventories  and how the approaches have changed, we reviewed the guidance issued  in May 2010 by the Office of the Under Secretary of Defense for  Acquisition, Technology and Logistics (AT&L), as well as additional  guidance and documents from the military departments, and interviewed  officials responsible for compiling the inventories. We compared this  guidance with similar guidance and documents related to the fiscal year  2008 inventories, as well as information from our January 2010 report that  assessed DOD’s approach. We also obtained the inventories submitted by  AT&L for each of the military departments. For the Navy and Air Force,  we replicated the criteria included in the AT&L guidance using data we  extracted from FPDS-NG on service contracts active in fiscal year 2009 to  determine whether their inventories complied with instructions in the  guidance. For example, we verified that the Navy and Air Force inventory  included the contract services specified under AT&L’s guidance and that  the information on the number of and obligations on those contracts were  consistent with the data reflected in FPDS-NG. The Army used the  Contractor Manpower Reporting Application (CMRA) data system, which  captures data reported by contractors at the contract line item level, in  both of its fiscal year 2008 and 2009 inventories. We did not compare the  Army’s fiscal year 2009 inventory with data in FPDS-NG to assess the  completeness due to differences in the data captured between the two  systems. We discussed with Army officials responsible for the inventories  the factors that contributed to changes in the Army’s reported spending on  services and the number of contractor FTEs. We did not independently  assess the accuracy or reliability of the underlying data supporting the  Army, Navy, or Air Force fiscal year 2009 inventories. However, we found  the data to be sufficiently reliable for the purpose of assessing the effect of  changes in the approach from fiscal year 2008 to 2009.
In addition, we analyzed the extent to which the change in approach from  fiscal year 2008 to fiscal year 2009 affected the reported amount of  obligations on services included in their inventories. Similarly, we  analyzed the extent to which the change in approach affected the  estimated number of contractor FTEs reported in the inventories at either  the aggregate level and for specific types of services by (1) applying the  formulas used by the Navy and Air Force to estimate the number of  contractor FTEs in fiscal year 2008 to the contracts included in their fiscal  year 2009 inventories; and (2) comparing that figure with the estimated  number of contractor FTEs using the formula prescribed by AT&L in the  May 2010 guidance. Because AT&L’s approach for estimating contractor  FTEs was based, in part, on the labor rates and the ratios of direct labor to  total expenditures derived from the Army’s CMRA data system, we  assessed the extent to which the AT&L approach would have produced  similar estimates of the number of contractor FTEs as reported by the  Army at the summary level as well as for specific categories of services.  Specifically, we applied the average direct labor rates and the average  ratios of direct labor to total obligations computed by AT&L’s Office of  Defense Procurement and Acquisition Policy (DPAP) to the total invoiced  dollar amount for each contract included the Army’s inventory. We then  compared the number of contractor FTEs estimated by the AT&L formula  to the number of contractor FTEs reported in the Army’s inventory.
To assess how the inventories have been reviewed in accordance with the  requirements contained in 10 U.S.C. § 2330a(e), we reviewed guidance and  interviewed officials from each of the military departments and selected  commands to discuss the review processes and to identify any challenges  encountered in conducting these reviews and any steps taken to address  those challenges. For the Army and the Air Force, we reviewed data on the  results of their respective inventory reviews as of November 2010. In  conducting the inventory reviews, officials made determinations as to  whether contracts included the performance of inherently governmental  functions, closely associated with inherently governmental functions, or  involved the performance of unauthorized personal services by contractor  personnel. We did not independently assess whether such determinations  were consistent with existing regulations and guidance, but focused our  work on the processes used to conduct the reviews. To assess how the  inventories have been used to inform workforce decisions, we focused our  work on the extent to which the inventories have been used to help  identify candidates for in-sourcing work currently performed by  contractor personnel. To do so, we interviewed officials from the Office of  the Under Secretary of Defense for Personnel and Readiness and from  each of the military departments who were responsible for in-sourcing  efforts to determine whether and how information contained in the  inventories was used as the basis for informing decisions related to in- sourcing.
To conduct our work, we interviewed officials from the following offices:    Office of the Secretary of Defense:    Office of the Under Secretary of Defense for Acquisition,  Technology and Logistics (AT&L), Office of Defense Procurement  and Acquisition Policy (DPAP);    Office of the Under Secretary of Defense for Personnel and  Readiness, Requirements and Program and Budget Coordination  Directorate;    Office of Cost Assessment and Program Evaluation;   Department of the Army:    Office of the Assistant Secretary of the Army for Manpower and  Reserve Affairs, Office of Force Management, Manpower and  Resources;    Office of the Assistant Secretary of the Army for Acquisition,  Logistics, and Technology, Deputy Assistant Secretary of the Army  for Procurement;    Office of the Deputy Chief of Staff for Personnel;    Office of the Deputy Chief of Staff for Programs, Program Analysis    Office of the Assistant Secretary of the Army, Financial  Management and Comptroller, Deputy Assistant Secretary of the  Army for Budget, Formulation Division;    Office of the Deputy Chief of Staff for Operations, Army Force  Accounting and Documentation Division;  Installation Management Command, Resource Management  Directorate;    Training and Doctrine Command, Resource Management    Department of the Navy:    Office of the Assistant Secretary of the Navy for Research,  Development, and Acquisition, Deputy Assistant Secretary of the  Navy for Acquisition and Logistics Management;    Office of the Assistant Secretary of the Navy for Manpower and  Reserve Affairs, Office of Civilian Human Resources;    Office of the Assistant Secretary of the Navy, Financial Management  and Comptroller, Office of Budget;    Office of the Chief of Naval Operations, Deputy Chief of Naval  Operations for Manpower, Personnel, Education and Training,  Strategic Resourcing Branch;    Naval Air Systems Command, Analysis and Planning Office, Office  of the Deputy Assistant Commander for Contracts and Office of  Command Strategic Force, Planning and Management;    Department of the Air Force:    Secretary of the Air Force, Office of Acquisition Integration;    Secretary of the Air Force, Program Executive Office for Combat    Directorate of Manpower, Organization and Resources, Strategic    Assistant Secretary of the Air Force for Financial Management and  Comptroller, Deputy Assistant Secretary for Budget, Directorate of  Budget Operations;    Air Force Materiel Command, Strategic Plans and Programs  Business Integration Office, Office of Manpower and Personnel;    Office of Acquisition Policy and Compliance;    Business Operations Directorate, Operations Department;   Defense Information Systems Agency:    Procurement Directorate, Policy, Quality Assurance and Procedures    Manpower, Personnel, and Security Directorate, Manpower and  Personnel Systems Support Division;    U.S. Special Operations Command:    Directorate of Procurement, Procurement Management Division;    Assessment and Manpower Validation Branch.
We conducted this performance audit from May 2010 through November  2010 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: GAO Contacts and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Timothy J. DiNapoli, Assistant  Director; Celina Davidson; Morgan Delaney Ramaker; Kathryn Edelman;  Meriem Hodge; Julia Kennon; John Krump; Jean McSween; Kenneth  Patton; Roxanna Sun; Grant Sutton; Jeff Tessin; and Rebecca Wilson made  key contributions to this report.