Civilian Service Contract Inventories: Opportunities Exist to Improve Agency Reporting and Review Efforts
Published: 2012-09-27T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In fiscal year 2011, civilian agencies reported $161 billion in contract obligations, $126 billion (almost 80 percent) of which were for services such as professional management and information technology support. Concerned about agencies' reliance on contractors, Congress included a requirement in the Consolidated Appropriations Act of 2010 for civilian agencies to compile and review an annual inventory of service contracts to examine certain issues, such as contractors performing inherently governmental functions or functions closely associated with inherently governmental functions, which would require enhanced management oversight. It also required OMB to develop guidance to assist agencies in meeting the act's requirements and for GAO to report on agency efforts.
GAO assessed agency efforts to (1) compile their fiscal year 2011 inventories and (2) review and report on their fiscal year 2010 inventories. To meet these objectives, GAO analyzed agencies' fiscal year 2011 service contract inventories and fiscal year 2010 service contract inventory review reports and compared them to legislative requirements, OMB guidance, and federal procurement data.
section_title: What GAO Found
paragraphs: Civilian agencies did not fully comply with statutory requirements for compiling fiscal year 2011 service contract inventories. For example, because the information is not currently readily available, the Office of Management and Budget (OMB) directed the 49 agencies that were required to submit inventories to defer the collection of three statutorily required data elements for each contract--the role the services played in achieving agency objectives, the total dollar amount invoiced for services under the contracts, and the number and work locations of contractor and subcontractor personnel. Progress, however, is being made to collect this information for future inventories. OMB directed agencies to start collecting information on the role services play in achieving agency objectives for new contracts awarded on or after March 1, 2012. A proposed Federal Acquisition Regulation rule was published in April 2011 to start collecting the remaining two data elements directly from contractors. We also found several instances where agencies significantly underreported obligations in their inventories, either because they misinterpreted or did not follow OMB guidance. For example, the General Services Administration underreported obligations by approximately $6.4 billion. Without complete and accurate service contract inventories, OMB and Congress cannot meaningfully compare service contract obligations among agencies, or develop spending trends for agencies, thus limiting the overall utility of the inventories.
Nine of the 49 civilian agencies did not submit a report on their fiscal year 2010 inventory review to OMB, as required. Of the 40 agencies that submitted reports on their inventory reviews, 5 agencies identified 3 contracts where contractors could be performing inherently governmental functions and 104 instances where contractors were performing closely associated with inherently governmental functions. It is unclear, however, based on the 40 agency reports, whether these results were a real indication of the agencies' effective and appropriate use of contractors or due to the different approaches agencies used to conduct the reviews. Agencies did not include important context in their reports, such as the number of contracts or the percentage of their inventories reviewed. Of the 25 agencies that reported the number of contracts they reviewed, most reviewed 50 or fewer contracts. OMB intends to have agencies share lessons learned, including the use of cross-functional teams, to help future review efforts.
section_title: What GAO Recommends
paragraphs: GAO recommends that OMB (1) work with agencies to improve how compliance with the act and with OMB guidance is monitored and (2) clarify guidance to agencies for compiling and reporting on their inventories. OMB generally concurred with our recommendations.

section_title: Letter
paragraphs: Federal agencies rely on a multisector workforce of federal employees  and contractor personnel to perform services needed to carry out their  missions. These services include professional management support,  information technology support, and medical support. In fiscal year 2011,  federal civilian agencies reported $161 billion in total contract obligations,  of which $126 billion, or almost 80 percent, were for services.  Determining whether services should be performed by federal employees,  contractor personnel, or a mixture of each is an important economic and  strategic decision essential to the federal government’s effective and  efficient use of taxpayers’ dollars. Certain functions that government  agencies routinely perform, such as setting federal policy, issuing rules  and regulations, or making best value determinations among contractors  competing to provide needed goods or services are considered to be  “inherently governmental” and must be performed by federal employees.  In some cases, contractors may be performing services that are  considered to be “closely associated with inherently governmental”  functions, such as services to support policy makers or procurement  officials. Agencies must give special management attention to these  activities to guard against their expansion into inherently governmental  functions. Other services, such as facilities maintenance or information  technology support, may be obtained through a private contractor.
In 2009, however, the President issued a memorandum on government  contracting that expressed concerns about whether agencies have  become overly reliant on contractors and if the government has  outsourced services appropriately. In particular, the President noted that  the line between inherently governmental functions—those that must be  performed by federal employees—and other services that may be  contracted for has been blurred. In the memorandum, the President  directed the Office of Management and Budget (OMB) to lead a series of  contracting-related efforts including clarifying when outsourcing for  services is appropriate.
Congress has also expressed concern with agencies’ reliance on  contractors and has directed OMB and other federal agencies to examine  similar workforce issues, which include identifying functions that are not  appropriate for contractors to perform or require increased government  oversight. The Consolidated Appropriations Act of 2010 requires civilian  federal agencies to compile an annual inventory of their service contracts  and review their contracts and information in the inventories to determine,  among other things, whether contracts are being performed in  accordance with laws and regulations. In addition, the act requires that  after reviewing the annual inventory, each agency must report to OMB on  the actions taken to consider and convert functions from contractor to  federal employee performance. Under the act, OMB is required to  develop guidance to assist agencies in meeting the law’s requirements  and to ensure that agencies compile their inventories in a consistent  manner. The act also requires GAO to report to Congress on OMB’s  guidance, and agency implementation of the service contract inventory  requirement for fiscal years 2010 and 2011.
In May 2011, we reported on OMB’s guidance and agency efforts to   For this report, we assessed compile their fiscal year 2010 inventories. civilian agencies’ efforts to (1) compile their fiscal year 2011 inventories  and (2) review and report on their fiscal year 2010 inventories.
To assess agencies’ efforts to compile their fiscal year 2011 inventories,  we reviewed the act, OMB guidance, and the proposed Federal  Acquisition Regulation (FAR) rule on service contract inventories. In  addition, we obtained and reviewed available civilian agency inventories  to determine whether they contained data elements required by OMB  guidance. Further, we compared the obligations reported in their  inventories with the Federal Procurement Data System— Next  Generation (FPDS-NG) data.
While our prior work identified data  reliability issues with FPDS-NG, for the purposes of this report, we found  FPDS-NG data to be sufficiently reliable to determine how agencies  compiled their inventories. To assess agencies’ efforts to review and  report on their fiscal year 2010 inventories, we reviewed civilian agencies’  reports of the fiscal year 2010 inventory reviews to determine the number  of contracts reviewed, the methodologies used, and the workforce issues  identified. In cases where agencies identified contracts that may involve  inherently governmental, or closely associated with inherently  governmental functions, we did not independently assess whether the  functions were in fact inherently governmental or closely associated with  inherently governmental functions. We also selected five civilian  agencies—the Department of Health and Human Services (HHS), the  Department of Homeland Security (DHS), the Department of  Transportation (DOT), the General Services Administration (GSA), and  the National Aeronautics and Space Administration (NASA)—for a more  in-depth review as to how they compiled and reviewed their service  contract inventories. We selected these agencies because they represent  approximately 42 percent of civilian agency service contract obligations  for fiscal year 2011. Appendix I provides a detailed description of our  scope and methodology.
We conducted this performance audit between April 2012 and September  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Consolidated Appropriations Act of 2010 requires the heads of  executive civilian agencies subject to the Federal Activities Inventory  Reform (FAIR) Act of 1998 to annually submit to OMB an inventory of  service contract actions by December 31 of each year, beginning with  fiscal year 2010 contracts. The requirement, according to OMB, applies  to 49 executive agencies. Appendix II lists these agencies. The  inventories are to include 15 data elements for all contracts awarded or  extended in the preceding fiscal year, such as services purchased by the  agency, the role the services played in achieving agency objectives, the  total dollar amount obligated for services, and the number and work  location of contractor and subcontractor personnel compensated under  each contract. Agencies are required to make their inventories publicly  available no later than 30 days after they submit their inventory to OMB.
The act also directs agencies to review their inventories within 180 days  of the December 31 deadline to ensure that: each personal service contract is being performed according to laws  and regulations;the agency is giving special management attention to functions that  are closely associated with inherently governmental functions;  the agency is not using contractor personnel to perform inherently  governmental functions;  the agency has specific safeguards and monitoring systems in place  to ensure that work performed by contractors has not changed or  expanded during performance to become an inherently governmental  function;  the agency is not using contractor personnel to perform critical  functions that could jeopardize the ability of the agency to maintain  control of its mission and operations; and  there are sufficient internal agency resources to effectively manage  and oversee contracts.
Agencies must also identify contracts that (1) have been poorly  performed, either because of excessive costs or inferior quality, and       (2) should be considered for conversion to performance by federal  employees, also known as insourcing, or an alternative acquisition  approach to enable the agency to efficiently utilize its resources and  achieve its public mission. The law requires that each agency include with  its current inventory a report on the actions taken as a result of reviewing  their prior year’s inventory and to make the report publicly available.
To aid agencies in establishing systems to collect the contract inventory  information and to ensure consistency across agencies, the act required  the Director of OMB to develop and disseminate guidance to agencies by  March 1, 2010. OMB issued the guidance in November 2010. We  previously reported on differences between the act and OMB guidance.  For example, although the act did not set a minimum dollar threshold for  the contracts included in the inventories, OMB directed agencies to report  only on contract actions over $25,000. Additionally, OMB directed  agencies to only report the data elements included in FPDS-NG. As a  result, agencies did not report three data elements required by the statute  in their fiscal year 2010 inventories—(1) the role the services played in  achieving agency objectives, (2) the total dollar amount invoiced for  services under the contract, and (3) the number and work location of  contractor and subcontractor personnel. In recent reviews of both DOD  and civilian agencies inventories, we also reported that FPDS-NG does  not allow agencies to:   identify and record more than one type of service purchased for each  contracting action entered into the system;   capture any services performed under contracts that are  predominantly for supplies; and  capture service contracts awarded on behalf of an agency by other  agencies.
OMB also provided guidance to agencies on conducting and reporting  their fiscal year 2010 inventory reviews. The guidance states that the  reviews shall be informed through appropriate techniques, such as  sampling of contract files, interviewing program managers and contracting  officer technical representatives, and using other supplemental  information-gathering methods as needed. Under OMB’s guidance,  agencies should give heightened management consideration to certain  “special interest functions” that require increased management attention  due to heightened risk of workforce imbalance, such as agencies  becoming overreliant on contractor personnel. OMB anticipated that  professional and management services and information technology  support services posed an increased risk of agencies losing control of  their missions and operations. Table 1 provides an illustrative list of the  special interest functions identified by OMB.
The guidance also stated that as part of agencies’ reviews of professional  and management services, agencies should include acquisition support  and an appropriate sampling of policy and program management and  development services, and additional functions where the agency may be  at risk of overreliance on contractors or other challenges, such as  inadequate contract management support.
section_title: The Utility of Service Contract Inventories May Be Diminished by Incomplete Data and Different Reporting Methodologies
paragraphs: In our review of fiscal year 2011 service contract inventories, we found  that 48 of the 49 agencies compiled their inventories. However, agencies  are continuing to defer collection of three required data elements, per  OMB guidance. While most agencies followed OMB’s methodology for  compiling inventories, some agencies used different methodologies. As a  result, OMB and Congress cannot meaningfully use these service  contract inventories to compare service contract obligations among  agencies or develop spending trends, and agencies did not have a  complete universe of service contracts to consider for review.
subsections: section_title: Agencies Are Not Fully Complying with Inventory Reporting Requirements
paragraphs: OMB directed agencies to prepare a fiscal year 2011 service contract  inventory, submit the inventory to OMB, and make it publicly available by  January 30, 2012. During the course of our review we sought to obtain  the inventories from each agency’s website and found that as of July  2012, 14 of the 49 agencies did not make their inventories publicly  available. We followed up with OMB and the agencies and eventually  obtained inventories from 13 of those 14 agencies. For the remaining  agency—the Court Services and Offender Supervision Agency for D.C.— we could not find evidence that it compiled its service contract inventory  for fiscal year 2011, and nor did it do so for fiscal year 2010. OMB staff  indicated that they reminded the agency of its responsibility to prepare  and submit an inventory, but they did not devote resources to compelling  a response when the agency was not responsive. OMB staff explained  that the agency’s total spending is well under 1 percent of civilian agency  spending and attention on this initiative was more effectively devoted to  other agencies and issues. OMB continued to direct agencies to defer  collection of three statutorily required data elements—the role the  services played in achieving agency objectives, total dollar amount  invoiced for services under the contracts, and the number and work  locations of contractor and subcontractor personnel. The lack of this  required information diminished the utility of the inventory because  agencies do not have good visibility as to the number of contractor  personnel or their role in supporting agency activities.
Progress, however, is being made towards collecting this information. For  example, OMB directed agencies to start collecting information on the  role services play in achieving agency objectives for new contracts  awarded on or after March 1, 2012. The guidance states that agencies  are to report, in the “description of requirement” field in FPDS-NG,  whether the services provided under the contract are predominantly for  functions closely associated with inherently governmental ones, critical  functions, or other functions. According to OMB guidance, by identifying  closely associated and critical functions at the time of award, agencies  can prioritize which contracts may require increased management  attention and oversight to ensure that mission creep does not result in  contractor personnel performing inherently governmental functions, and  ensure that the agency does not lose control of its mission and  operations. While this information may be helpful in identifying which  service contracts may require additional oversight or be appropriate  candidates for insourcing, it is not clear that this information will provide a  full description of the role contractors played in achieving agency  objectives. OMB staff indicated that they will review this issue, along with  others, as they consider revisions to the guidance based on initial agency  experience.
Information on the remaining two data elements—total dollar amount  invoiced for services under the contracts and the number and work  locations of contractor and subcontractor personnel—will continue to be  deferred pending the outcome of a proposed FAR rule on service contract  inventories. The proposed rule would create a new FAR subpart to  address responsibilities for collection, management, and reporting of the  inventory information. The rule would also create a new contract clause to  be used in contracts that meet certain dollar thresholds and would require  contractors to submit the following information for covered service  contracts (1) the contract number and, when applicable, order number;  (2) the total dollar amount invoiced for services performed during the  previous fiscal year under the contract; (3) the number of contractor direct  labor hours expended on the services during the previous fiscal year; and  (4) the number of direct-labor hours expended on services performed by  first-tier subcontractors. The proposed FAR rule is being reviewed by  OMB and OMB staff anticipated that the rule would be finalized later this  fall. The proposed rule provides that collection of the information be  phased in over the next 4 years. Information will be collected directly from  contractors through a web portal and housed in the System for Award  Management. No additional hard copy reporting will be required.
section_title: Most Agencies Followed OMB Guidance When Compiling Their Inventories
paragraphs: OMB provided guidance to civilian agencies for compiling their service  contract inventories, including the structure and scope of the inventories.  To standardize the structure of the service contract inventories, OMB  provided a template for agencies to organize contract activities by product  and service code. To establish the scope of the service contract  inventories, OMB directed agencies to include all service contract actions  over $25,000 that were awarded in fiscal year 2011. Agencies were to  include contract actions that they have funded, including contract actions  made on their behalf by other agencies, and exclude contract actions that  they have made on another agency’s behalf with the other agency’s  funding. We found the following based on our review of 48 available  civilian agency inventories:
Forty-five agencies reported on all the data elements in OMB’s  standard template. The other three agencies did not include certain  data elements, such as the extent to which the contract was  competed, the product and service code and description, and the date  signed. OMB staff was unaware that these agencies had not reported  on all data elements.
Forty-three agencies generally followed OMB’s guidance to report on  obligations on all contract actions over $25,000. Five agencies,  however, did not. One agency—DOT—reported information on fiscal  year 2010 obligations for its fiscal year 2011 inventory. DOT officials  were unaware of this error until our review. A DOT official told us DOT  sent a revised inventory with the correct fiscal year 2011 information  to OMB. Three agencies—the National Endowment for the  Humanities, the Selective Service System, and the U.S. Trade and  Development Agency—incorrectly interpreted OMB’s guidance as  limiting the scope of the inventory to just new awards for that fiscal  year. As a result, these agencies underreported their inventories.  OMB staff told us that they intended for civilian agencies to include all  changes in obligations over $25,000 occurring in fiscal year 2011,  regardless of when the contract award occurred. The fifth agency— GSA—did not follow OMB’s guidance to include all contract actions  over $25,000 awarded in fiscal year 2011. Instead, GSA included in  its inventory only the obligations for contract actions related to the  special interest function product and service codes identified by OMB  as priority areas for the inventory review. As a result, GSA excluded  approximately $6.4 billion in service contracts from its inventory. In  response to these findings, GSA officials noted that they are in the  process of creating a new report with the correct information, which  will be submitted to OMB. We used GSA as an example in figure 1 to  illustrate the potential differences in obligations that would be reported  based on the three different methodologies we identified. For  instance, GSA’s obligations would be about $116 million if it only  reported on special interest functions, $4.5 billion if it only reported on  new awards, and $6.5 billion if it reported on all obligations for fiscal  year 2011.
OMB staff were unaware that some agencies used different  methodologies to compile their inventories. OMB staff stated that  differences in agency methodologies were not readily apparent when they  initially reviewed the inventories because data is organized differently  than how it would otherwise appear in FPDS-NG. In the absence of a  consistent methodology, OMB and Congress cannot meaningfully  compare service contract obligations among agencies or develop  spending trends for agencies. Further, agency use of a different  methodology resulted in a smaller population of contracts to sample from  for their review. OMB staff acknowledged that the inconsistency in  reporting methods may limit the utility of the inventories.
section_title: Inventory Review and Reporting Efforts Could Be Improved
paragraphs: Forty of the 49 agencies conducted a review of their fiscal year 2010  inventory and reported the results of their review. The other 9 agencies  did not submit an inventory report to OMB or make their reports publicly  available. Most agencies that conducted a review followed OMB guidance  and reported on the number of product and service codes reviewed and  the obligations for these product and service codes. However, since OMB  did not require agencies to report the number of contracts reviewed or the  percentage of obligations associated with the contracts reviewed, it is  unclear how much of their inventories agencies actually reviewed. Based  on reports submitted to OMB, 5 of the 40 agencies identified workforce  issues such as functions that are not appropriate for contractors to  perform, require increased government oversight, or require agencies to  change the mix of contractor and government personnel performing a  function. Specifically, the 5 agencies identified a total of 3 contracts where  contractors could be performing inherently governmental functions and  104 instances of contractors performing closely associated with inherently  governmental functions. Agency officials identified several practices that  may be effective for future reviews and decision-making efforts.
subsections: section_title: Most Agencies Reviewed Their Fiscal Year 2010 Inventory, but the Extent of Review Is Unclear
paragraphs: OMB directed agencies to conduct a meaningful review of their fiscal year  2010 inventory and identify at a minimum (1) the special interest functions  studied by the agency, including the dollars obligated to those specific  product and service codes in fiscal year 2010; (2) the methodology used  to support their reviews; (3) their findings; and (4) the actions taken or  planned by the agency to address any identified weaknesses or  challenges. Agencies were also directed to submit an inventory review  report to OMB and make the report publicly available.
We collected the required reports for 40 of the 49 agencies, either from  their websites or OMB. OMB staff confirmed that the remaining                 9 agencies, which accounted for less than 1 percent of civilian agency  service contract obligations for fiscal year 2010, did not submit the  required information or made it publicly available. Table 2 lists these  agencies.
We followed up with these agencies to determine why they did not submit  the required information and received one response from the National  Endowment for the Arts as to why it had not conducted an inventory  review. An agency official told us the National Endowment for the Arts did  not conduct a fiscal year 2010 inventory review because it did not have  any service contracts for special interest functions as defined in OMB’s  guidance.
Based on the reports submitted to OMB by 40 agencies, we observed  that
Thirty-four agencies reported on the number of product and service  codes reviewed and the associated obligations for these product and  service codes. The number of product and service codes and  obligations reviewed varied widely. For example, GSA reviewed 4  product and service codes, while HHS reviewed 31 codes. OMB staff  expected variance because agencies were directed to select service  codes that warranted the agency’s increased management attention  or posed an increased risk of workforce imbalances.
Twenty-five agencies reported on the number of contracts they  reviewed; however, OMB did not require agencies to provide this  information. The number of contracts reviewed ranged from one  contract by the Federal Labor Relations Authority to more than     2,000 contracts by the Department of the Interior. As shown in      figure 2, the majority of the agencies reviewed less than 50 contracts.
More than a third of the 25 agencies, however, did not provide enough  context in their reports for us to determine the percentage of contracts  they reviewed, or the percentage of obligations that the selected contracts  represented. This information would provide an indication of the extent to  which agencies reviewed their inventories and context that would be  important for oversight purposes. For example, DOT reported  approximately $1.2 billion in contract obligations for the product and  service codes it reviewed. The agency reviewed 42 contracts, but did not  report how they selected these contracts or the percentage of obligations  the contracts covered. These 42 contracts could represent anywhere from  all of the contracts to a small fraction of the contracts in those product and  service codes. NASA was one of the agencies that reported on the  percentage of obligations covered under the contracts they reviewed.  NASA reported that the eight contracts it chose to review represented  more than 70 percent of the $3.2 billion in obligations for the two product  and service codes on which it focused its review.
section_title: Some Agencies Reported Workforce Issues
paragraphs: The Consolidated Appropriations Act of 2010 required agencies to review  their fiscal year 2010 inventories and report on the findings and actions  taken as a result of the review. Of the 40 reports that were submitted to  OMB, 5 agencies—the Department of Commerce (Commerce), DHS,  GSA, HHS, and the Department of State (State)—identified a total of 3  contracts where contractors could potentially be performing inherently  governmental functions and 104 instances of contractors performing  closely associated with inherently governmental functions.
State identified two of the contracts where contractors could  potentially perform inherently governmental functions, but did not  identify, in its report, how many contractor personnel were involved.  State officials explained that no inherently governmental functions  have been outsourced. In its report, State identified a contract where  contractors could potentially perform inherently governmental  functions. State officials told us that this contract was for private  security contractors that perform security functions. Officials explained  that while this contract was originally thought to potentially include  inherently governmental functions, upon further analysis, they  determined that strategies currently in place—including increased  oversight, pre-mission briefs, video recording of movement, and  recording of radio traffic—mitigated this risk. In its report, State  explained that the departure from government control is only  temporary, and government officials typically provide contingency  direction to contractors in these instances.
DHS identified one contract as containing potentially inherently  governmental functions. This contract was for watch officer support for  the Transportation Security Administration Call Center. DHS officials  stated that this contract included 5.5 full-time equivalent positions,  which the component planned to insource, but has delayed action  pending an organizational review to determine if the agency still  needs the positions.
Each of the five agencies reported instances where contractors were  identified as performing functions closely associated with inherently  governmental functions. HHS was the only agency that reported that it  insourced positions as a result of their findings. The other four  agencies provided mixed responses as to whether their project  managers or contracting officers’ representatives provided sufficient  monitoring of activities and performance for these contracts. For  example, State reported that while one contract received special  management attention, a number of acquisition and program staff  were unclear whether there was sufficient oversight for their contracts.
The act and OMB guidance also directed agencies to ensure that there  are sufficient internal resources to effectively manage and oversee  contracts. To do this, for example, DHS asked its components to report  the number of federal workers providing oversight and management of  service contracts. Similarly, NASA officials told us that they conducted  interviews with contracting officers and contracting officers’  representatives to determine whether contractor personnel had  appropriate oversight.
Three of the five agencies we reviewed—DHS, HHS, and NASA— identified workforce issues and took steps to resolve them. Table 3  summarizes these findings and the actions that these agencies have  taken or planned to take to resolve their workforce issues. While the  resolutions were outlined in the agencies’ reports, we followed up with the  agencies to obtain the status of their resolutions.
As shown in the table, some agencies reported their workforce issues as  functions, while others reported them in terms of contracts. Agencies that  report their issues in terms of contracts present a challenge because a  service contract can include multiple functions. As a result, it is unclear  whether the issue identified is pertinent to the entire contract or a specific  function within a contract.
Officials at two of the five agencies we visited stated more generally that if  workforce issues were to be identified, the agencies may not be able to  take immediate action due to resource limitations. For example, officials  from DHS cited instances where components could not implement  insourcing recommendations because they could not secure the full-time  equivalent positions to do so. While OMB requires that agencies report, at  a minimum, the actions taken or planned by the agency to address any  identified weaknesses or challenges, OMB staff agreed with our  observation that it would be helpful if agencies also reported on the  resolution of any findings identified as part of their inventory review in  future reports. We recently reported that DOD had not resolved workforce  issues identified during its fiscal year 2009 inventory review and in some  instances, contractors continued to perform functions identified as being  inherently governmental a year after they were originally identified.
section_title: Agencies Identified Practices That May Help Future Efforts
paragraphs: According to OMB staff, some agencies struggled with their inventory  review efforts and OMB intends to have agencies share lessons learned  to help facilitate future efforts. Officials at the five agencies we selected  for a more in-depth review identified several practices they found effective  in reviewing their fiscal year 2010 inventories, including using cross- functional teams, leveraging existing related efforts, and obtaining  management support. Two of these agencies also used the inventories  for strategic sourcing purposes.
Using Cross-Functional Teams: Four of the five agencies we  reviewed employed cross-functional teams and some agency officials  noted that the team helped them to resolve workforce issues. For  example, the DHS cross-functional teams included representatives  from acquisition, budget and finance, general counsel, and human  resources at both the department and component levels. DHS officials  stated that the department-level team is equipped to resolve issues  involving costly or high-visibility contracts and has enabled DHS to  determine if workforce balance issues were widespread or only  affected certain components. HHS also used cross-functional teams,  which allowed the agency to identify and expeditiously resolve  workforce imbalance issues. For instance, HHS identified two  functions in the areas of acquisition assistance and human resource  classification specialists that the agency felt were more appropriately  suited for execution by federal employees. HHS took corrective action  by hiring 14 government employees, eliminating unnecessary  contractor support and reassigning work to federal employees as  necessary.
Leveraging Existing Efforts: Two agencies—NASA and DHS— leveraged other ongoing efforts to conduct their reviews, thus  reducing the amount of additional resources dedicated to the effort.  For example, NASA incorporated the findings of an ongoing  information technology program and a workforce pilot into their  service contract inventory review. NASA reported it selected the  workforce pilot because portions of the work being studied were  perceived to be either critical or inherently governmental functions.  Further, leveraging knowledge gained from the information technology  program allowed NASA to include several high visibility information  technology acquisitions in their reviews without having to  independently review all the contracts associated with them.
DHS relied on its existing Balanced Workforce Strategy to conduct the  required inventory reviews and used its standardized Balanced  Workforce Strategy Tool to review 212 service contracts. The tool is  an automated decision support survey that enables components to  categorize work as inherently governmental, personal services,  closely associated with an inherently governmental function, or a  critical function. The tool is also intended to facilitate an assessment  of mission risk, level of contractor oversight needed, mitigation  strategies, and cost analysis. Based on component responses, the  tool is to provide a recommended sourcing decision on whether the  work is appropriate for federal or contractor performance, or both.
Obtaining Management Support: Officials at four of the five  agencies we reviewed had significant and visible management  support and involvement, which helped facilitate inventory review  efforts and department-level decision making. For example, the  Assistant Secretary for Financial Resources at HHS, who also serves  as the agency’s Chief Acquisition Officer, issued a memorandum to  division heads outlining the requirements of the inventory review  process. According to HHS’ senior procurement executive, this helped  ensure participation from all divisions, and the agency was able to  address redundancies and duplications from an enterprisewide  perspective because of management involvement in the review. In  contrast, GSA officials stated that management was kept up to date  on, but did not actively participate in, the effort. Additionally, the GSA  official responsible for overseeing the inventory review said that, to his  knowledge, the inventory had not been used for any department-level  decision making.
Strategic Sourcing: Some agencies reported that they used the  inventories to identify redundancies and duplications, which led to  strategic sourcing decisions. For example, HHS officials stated that  the agency used its inventory to obtain visibility into redundant  contracts across the department. As a result, it consolidated               15 service contracts into 4 contracts, resulting in an estimated savings  of $20 million. DOT reported that it concentrated its analysis efforts on  management support services contracts to identify ways to reduce  spending in these areas by 15 percent by the end of fiscal year 2012.
section_title: Conclusions
paragraphs: The Consolidated Appropriations Act of 2010 required agencies to collect  information and compile an inventory of their service contracts and review  the inventories to help agency officials determine, among other things,  whether they have the right balance of contractor and in-house resources  needed to accomplish their missions. If the service contract inventories  are to be a valuable management tool, it is essential that civilian  agencies’ inventories contain comprehensive, accurate, and actionable  data. OMB plays an important role in ensuring that agencies are meeting  statutory requirements and providing useful information. OMB efforts to  date have been focused on issuing guidance to agencies on how to  compile, review, and report on their service contract inventories.  However, civilian agency efforts are in the early stages and agencies  have not been able to meet all the requirements for compiling and  reviewing the service contract inventories. In some cases this is due to  the fact that some of the statutorily required data elements to be  contained in the inventories are not available. Under the proposed FAR  rule, if finalized, agencies would start collecting unavailable, but required  data elements directly from contractors. In other cases, agencies  misinterpreted or did not follow OMB’s guidance, which caused them to  significantly underestimate the scope of their inventories.
Although most agencies followed OMB guidance for reporting on their  inventory reviews, it is unclear based on the information provided in their  reports whether the results of the reviews were a real indication of the  agencies’ effective and appropriate use of contractors or due to the  different approaches used to conduct the inventory reviews. When  workforce issues were identified, such as contractors performing  potentially inherently governmental functions, agencies did not  consistently report on the number of contractor personnel and functions  involved. Further, three of the five agencies that we reviewed identified  workforce issues and took corrective action. However, the agencies did  not report if the issues had been fully resolved. Agencies were not  required to report on either the number of contracts or the percentage of  their inventories they reviewed. As a result, many of the reports did not  have important context on the scope of the analyses performed. Without  OMB’s continued guidance and agency commitment to improve the  compliance, consistency, and context for the inventory and inventory  reviews, the utility of the inventories for agency decision making and OMB  and congressional oversight will be limited.
section_title: Recommendations for Executive Action
paragraphs: To help improve civilian agency compliance for compiling, reviewing, and  reporting on inventories, we recommend that the Administrator of OMB’s  Office of Federal Procurement Policy work with agencies to improve how  compliance with statutory and OMB requirements is monitored, which  might include agencies designating accountable officials to ensure  appropriate internal management attention and responsiveness.
To help ensure that the service contract inventories contain consistent  and reliable information and that the service contract inventory analysis  reports have sufficient information to provide greater context and value,  we recommend that the Administrator of OMB’s Office of Federal  Procurement Policy clarify guidance to:
Require agencies to fully describe in their inventory review reports the  scope of the inventory reviews, including information such as the  number of contracts and the percentage of contracts reviewed for  each product and service code selected and the total universe of  contracts;
Require agencies to consistently report on the number of contractor  personnel and functions that were involved with the workforce issues  identified during their inventory reviews; and
Require agencies to include, as part of their inventory review reports,  the status of agency efforts to resolve findings identified in previous  reviews until they are resolved.
section_title: Agency Comments and Our Evaluation
paragraphs: We requested comments on a draft of this report from DHS, DOT, HHS,  GSA, NASA, and OMB. HHS and NASA responded that they did not have  comments. DHS, DOT, and GSA provided us with technical comments,  which we incorporated as appropriate. OMB provided comments via e- mail, stating that it generally concurs with our recommendations. More  specifically, OMB stated that it believes a service contract inventory is a  useful management tool for assisting an agency in better understanding  how contracted services are being used to support mission and  operations and where opportunities may exist for improvement.  Moving  forward, OMB commented that the Office of Federal Procurement Policy  (OFPP) intends to work with agencies to strengthen their use of this tool  by sharing lessons learned and best practices derived from the initial  inventories, such as the promising practices highlighted in the report.
OMB also commented on our first recommendation and asked that we  modify it to shift primary responsibility for monitoring inventory compliance  from OMB to the civilian agencies. OMB stated that OFPP is a policy- making organization, not an enforcement agency, and greater progress  can be achieved if OFPP works collaboratively with agencies by  continually refining the guidance to make it a more useful management  tool and ensuring agencies are doing effective self-governance, such as  with the help of an accountable official that can liaison with OFPP to  ensure appropriate management attention is being given to this initiative.  In recognition that conducting and reviewing the service contract  inventory is an agency responsibility, and to ensure that civilian agencies  are held accountable for complying with statutory and OMB requirements,  we agreed to modify the recommendation.
We are sending copies of this report to the Director of the Office of  Management and Budget; Secretaries of the Department of Health and  Human Services, the Department of Homeland Security, and the  Department of Transportation; the Administrators of the General Services  Administration and the National Aeronautics and Space Administration;  and interested congressional committees. In addition, the report is  available at no charge on the GAO website at http://www.gao.gov.
If you have any questions about this report or need additional information,  please contact me at (202) 512-4841 or huttonj@gao.gov. Contact points  for our Office of Congressional Relations and Public Affairs may be found  on the last page of this report. Key contributors to this report are listed in  appendix IV.
section_title: Appendix I: Scope and Methodology
paragraphs: Section 743 of the 2010 Consolidated Appropriations Act directed GAO to  report on the second annual service contract inventory that civilian  agencies were required to submit to the Office of Management and  Budget (OMB) by December 31, 2011. To satisfy the mandate, we  assessed civilian agencies’ efforts to (1) compile their fiscal year 2011  inventories and (2) review and report on their fiscal year 2010 inventories.
To assess civilian agencies’ efforts to compile their fiscal year 2011  inventories, we reviewed the act and OMB guidance to determine what  data elements were required to be included in the service contract  inventories. In addition, we obtained and reviewed available civilian  agency inventories to determine whether they contained data elements  required by OMB guidance. We also reviewed the proposed Federal  Acquisition Regulation (FAR) rule on service contract inventories and  interviewed staff from OMB to determine the status of efforts to collect all  required inventory data elements. In addition, we used OMB guidance  and conducted a logic check for five selected agencies—the Department  of Health and Human Services, the Department of Homeland Security,  the Department of Transportation, the General Services Administration,  and the National Aeronautics and Space Administration—to ensure that  the obligations reported by these agencies were close to our own analysis  of the Federal Procurement Data System—Next Generation (FPDS-NG)  data. These agencies were selected because they represent  approximately 42 percent of total fiscal year 2011 service contract  obligations for civilian agencies. In addition, they are also among the  agencies with the largest obligations for the special interest functions  identified by OMB for heightened management consideration because  they present an increased risk of losing control of mission and operations.
During our logic check, we identified differences between obligations the  agencies reported in their inventories and what we obtained by applying  OMB guidance. To determine if these differences were more widespread,  we expanded our logic check to all available agency inventories. To  determine possible reasons for these differences, we pulled data from  FPDS-NG by funding agency using eight different methodologies for fiscal  year 2011—all obligations for service contract actions; obligations for  service contract actions over $25,000; obligations for new awards;  obligations for new awards over $25,000; all obligations for special  interest product and service code contract actions; obligations for special  interest product and service code contract actions over $25,000;  obligations for new awards on special interest product and service code  contract actions; and all obligations for new awards on special interest  product and service code contract actions over $25,000. After our initial  comparison, we determined that the difference between the obligations in  all categories and those above $25,000 was small. In addition, we  determined that only one agency had reported its inventory using the  special interest function methodology. Therefore, we reported only three  main methodologies—all obligations, new awards, and special interest  functions. While our prior work identified data reliability issues with FPDS- NG, for the purposes of this report, we found FPDS-NG data to be  sufficiently reliable for determining how agencies compiled their  inventories. We also identified agencies with missing elements to  determine what data elements were missing from their inventories.
To assess the result of agencies’ efforts to review and report on their  fiscal year 2010 inventories, we reviewed civilian agencies’ reports on the  fiscal year 2010 inventory review submitted to OMB to determine the  number of contracts that were analyzed, the methodologies used, and the  workforce issues identified. While we reported the workforce issues  identified, we did not independently assess whether the functions the  civilian agencies identified were in fact inherently governmental or closely  associated with inherently governmental functions. In addition, for the five  selected agencies, we interviewed officials to identify the resources used  and methodologies they applied to conduct the reviews, as well as  challenges they encountered, lessons learned, and practices they  identified that can be applied to future reviews. We also met with agency  officials to determine the extent to which agencies have used their  reviews for decision making, including workforce planning and strategic  sourcing efforts, and to determine how agencies identified instances in  which contractors were performing inherently governmental functions or  functions closely associated with inherently governmental functions.
We conducted this performance audit between April 2012 and September  2012 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: Forty-Nine Agencies Required to Report on Service Contract Inventories
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: Key contributors to this report were Cheryl Andrew, Assistant Director;  Richard Burkard; Danielle Greene; Laura Jezewski; Julia Kennon; Bryan  Miller; and Guisseli Reyes-Turnell.
section_title: Related GAO Products
paragraphs: Defense Acquisitions: Further Actions Needed to Improve Accountability  for DOD’s Inventory of Contracted Services. GAO-12-357. Washington,  D.C.: April 6, 2012.
Government Operations: OMB Service Contracts Inventory Guidance and  Implementation. GAO-11-538R. Washington, D.C.: May 27, 2011.
Defense Acquisitions: Further Action Needed to Better Implement  Requirements for Conducting Inventory of Service Contract Activities.  GAO-11-192. Washington, D.C.: January 14, 2011.