Defense Contractors: Additional Actions Needed to Facilitate the Use of DOD's Inventory of Contracted Services
Published: 2014-11-19T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD is the government's largest purchaser of contractor-provided services. In 2008, Congress required DOD to compile and review an annual inventory of its contracted services to include the number of contractors providing services to DOD and the functions these contractors performed, and in 2011, amended this statute to require DOD to plan to use that inventory to inform certain department-wide decision making processes. The National Defense Authorization Act for Fiscal Year 2014 mandated GAO to report on the required reviews and plans to use these inventories.
For this report, GAO assessed the extent to which DOD components (1) reviewed contracts and activities in the fiscal year 2012 inventory of contracted services and (2) developed plans to use the inventory for decision-making. GAO reviewed relevant laws and guidance, reviewed component certification letters from 32 components, and interviewed DOD acquisition, manpower, programming, and budgeting officials.
section_title: What GAO Found
paragraphs: The Department of Defense (DOD) continues to face challenges in assuring that it conducts and reports on the results of its required inventory reviews. As of September 2014, 32 of the 33 components that were required to conduct an inventory review certified that they had done so and generally addressed more of the required reporting elements than in fiscal year 2011. However, GAO found limitations with the inventory review results. For example, the Air Force did not submit a fiscal year 2012 inventory certification letter and the Army's review was incomplete at the time its Secretary signed the certification. Further, components may not have fully identified all instances in which contractors were providing services that are closely associated with inherently governmental functions, a key review objective to help ensure that the DOD is not overly reliant on contractors to support core missions. DOD's March 2014 guidance, which is applicable to the fiscal year 2013 inventory, does not fully address some of the shortcomings GAO identified, including how to identify contracts for review or approaches to ensure that components adequately assess contractor activities. As a result, components may not fully identify instances of contractors providing services that are closely associated with inherently governmental functions.
A key factor hindering the components' inventory reviews is the lack of accurate and reliable data. DOD has not resolved issues with implementing its planned common data system based on the Army's existing system. Further, in September 2014, DOD initiated a new review, due by December 2014, to identify and develop options to collect these data. This review raises a question of whether DOD will continue to implement a common data system modeled after the Army's system or attempt to develop a new system. DOD continues to lack a plan with timeframes and milestones to measure its progress toward implementing a common data system. These factors jeopardize DOD's goal to have all components, by 2016, collect statutory-required contractor manpower data. Further delays in resolving these issues will undermine the inventory's usefulness.
The military departments generally have not developed plans to use the inventory of contracted services to facilitate DOD's strategic workforce planning, workforce mix, and budget decision-making processes, as statutorily required. Numerous offices are responsible for the various decision-making processes at the military departments, and the Secretaries of the military departments have not assigned specific responsibility for coordinating among these offices to do so. The absence of officials who are accountable for integrating the use of the inventory leaves the department at continued risk of not complying with the applicable legislative requirements to use the inventory to support management decisions. Internal control standards state that management should assign responsibility to enable an organization to achieve management objectives and to comply with laws.
section_title: What GAO Recommends
paragraphs: GAO recommends DOD revise inventory guidance to improve the review of contract functions, approve a plan of action with milestones and timeframes to establish a common data system to collect contractor manpower data, and designate a senior management official at the military departments to develop plans to use inventory data to inform management decisions. DOD concurred with GAO's recommendations.

section_title: Letter
paragraphs: The Department of Defense (DOD), the federal government’s largest  purchaser of contractor-provided services, reported that it obligated about  $187 billion—more than half of its total contract obligations—on  contracted services in fiscal year 2012. DOD relies on contractors to  perform functions as varied as professional and management support,  information technology support, medical services, and weapon system  and intelligence support. These contractor personnel constitute a key  component of DOD’s total workforce, which includes DOD active and  reserve forces and DOD civilian employees, and they are vital to helping  DOD meet its mission. While there are benefits to using contractors to  perform services for the government, the government can risk becoming  overly reliant on contractors to support core missions, including providing  services that are closely associated with inherently governmental  functions, or creating circumstances in which contractors inappropriately  perform functions deemed inherently governmental.
In recent years, Congress has enacted legislation to improve DOD’s  ability to manage its acquisition of contracted services; to make more  strategic decisions about the appropriate workforce mix; and to better  align resource needs through the budget process to achieve that mix. As  part of these efforts, Section 2330a of title 10 of the U.S. Code requires  DOD to annually compile, and the military departments and defense  agencies to review, an inventory of services contracted for or on behalf of  DOD during the preceding fiscal year. This inventory is intended, in part,  to help provide better insight into the number of contractor full-time  equivalents (FTEs) providing services to the department and the functions  they are performing, and determine whether any of these functions  warrant conversion to DOD civilian performance. Further, this section  also requires DOD to undertake certain actions using these inventories.  Specifically, subsections (e) and (f), respectively, direct the secretaries of  the military departments or heads of the defense agencies to, among  other things:  review the inventory to ensure that personal services contracts on the  list are performed under applicable statute and regulation and identify  contracted functions that DOD should consider for conversion; and develop a plan, including an enforcement mechanism and approval  process, to use the inventory for strategic workforce planning,  workforce mix, and budgeting decisions.
Section 951(a) of the National Defense Authorization Act for Fiscal Year  2014 mandated GAO to report on DOD’s implementation of title 10  section 2330a subsections (e) and (f). We assessed DOD’s efforts to (1)  implement subsection (e) to review contracts and functions in the  inventory of contracted services for the fiscal year 2012 inventory and (2)  implement subsection (f) to develop plans and processes to use the  inventory for strategic workforce planning, workforce mix, and budget  decisions.
To assess the extent to which DOD components—which include the three  military departments and the defense agencies—complied with the  requirements to review applicable contracts and functions in its inventory  of contracted services pursuant to subsection (e), we focused on DOD’s  fiscal year 2012 inventory and associated review, which was the latest  inventory and review available when we initiated our work. We reviewed  DOD’s fiscal year 2012 inventory review guidance, issued on February 4,  2013, which required the military departments and defense agencies to  certify—through submission of a certification letter to the Office of the  Under Secretary of Defense for Personnel and Readiness (P&R)—that  their review was conducted in accordance with subsection (e). The  guidance required components to report on seven elements, including,  among other elements, the contract selection criteria and methodologies  used to conduct the reviews, the extent to which contractors were found  to be performing inherently governmental functions and those closely  associated with inherently governmental functions, and to the extent  necessary, a plan to realign the work to government performance. We  assessed all unclassified fiscal year 2012 inventory review certification  letters submitted by 32 DOD components as of September 2014 to  determine if components addressed the seven elements specified in  DOD’s February 2013 inventory review guidance. In addition, we  selected the Army, Navy, and Air Force, based on obligations for  contracted services, and three defense agencies based on the number of  contractor FTEs they identified as performing closely associated with  inherently governmental functions—the Defense Logistics Agency (DLA),  the Defense Threat Reduction Agency (DTRA) and the Office of the  Director of Administration and Management (ODA&M)—for more in depth  reviews. We interviewed officials responsible for compiling and reviewing  the inventory and reviewed training documents and selected data from  the inventory review process. In addition, we interviewed officials from  P&R; the Office of the Under Secretary of Defense for Acquisition,  Technology, and Logistics (AT&L); and the Office of the Under Secretary  of Defense (Comptroller).
To assess the extent to which DOD components have developed plans  and processes to use the inventory to inform management decisions  pursuant to subsection (f), we reviewed defense-wide and military  department specific strategic workforce planning, manpower mix, and  budgeting guidance and documentation. This guidance and  documentation included DOD’s Fiscal Year 2013-2018 Strategic  Workforce Plan Report, DOD’s instructions on manpower mix and  insourcing criteria, DOD’s Financial Management Regulations and  supplemental guidance, and available guidance and instructions issued  by the military departments. We also reviewed meeting minutes at the  Navy, where an official stated the Navy had formed a working group to  address the requirements of title 10 U.S.C. § 2330a(f). We interviewed  officials from P&R, AT&L, and the Comptroller’s office, and acquisition,  manpower, and budgeting officials at all three military departments. At the  Army and Air Force we also interviewed programming officials. A detailed  description of our scope and methodology is included in appendix I.
We conducted this performance audit from May 2014 to November 2014  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 audit objectives. We believe that the  evidence obtained provides a reasonable basis for our findings and  conclusions based on audit objectives.
subsections: section_title: Background
subsections: section_title: Inventory Compilation Requirements
paragraphs: In part to improve the information available and management of DOD’s  acquisition of services, in fiscal year 2002 Congress enacted section  2330a of title 10 of the U.S. Code, which required the Secretary of  Defense to establish a data collection system to provide management  information on each purchase of services by a military department or  defense agency. The information DOD is to collect includes, among  other things, the services purchased, the total dollar amount of the  purchase, the form of contracting action used to make the purchase, and  the extent of competition provided in making the purchase. In 2008,  Congress amended section 2330a to add a requirement for the Secretary  of Defense to submit an annual inventory of the activities performed  pursuant to contracts for services 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 contractor employees (expressed as full FTEs) for  direct labor, using direct labor hours and associated cost data  collected from contractors; 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 by section 2330a(a) of title 10  of the U.S. Code.
Within DOD, AT&L, P&R, and the Comptroller have shared responsibility  for issuing guidance for compiling and reviewing the inventory. P&R  compiles the inventories prepared by the components, and AT&L formally  submits a consolidated DOD inventory to Congress no later than June 30  of each fiscal year, though some inventory submissions have been later.  DOD has submitted annual, department-wide inventories for fiscal years  2008 through 2013, the most recent submitted on July 2, 2014 (see table  1).
Since DOD implemented the department-wide inventory of contracted  services, the primary source used by DOD components to compile their  inventories, with the exception of the Army, has been Federal  Procurement Data System-Next Generation (FPDS-NG). As we have  previously reported, the FPDS-NG—the government’s central repository  for contracting data—has several limitations that impact its utility for  purposes of compiling a complete and accurate inventory. For example,  FPDS-NG does not capture the number of contractor FTEs or direct labor  hours used to perform each service, does not capture any services  performed under contracts that are predominately for supplies, and does  not identify more than one type of service purchased for each contract  action. As the inventory is required to identify each activity performed  pursuant to a contract for services, the use of FPDS-NG as the basis for  the data in the DOD components’ inventories does not satisfy the  inventory statute, and limits the usefulness of inventory data in making  management decisions.
As we previously reported, to obtain better visibility of its service  contractor workforce, the Army developed its Contractor Manpower  Reporting Application (CMRA) in 2005 to collect information on labor-hour  expenditures by function, funding source, and mission supported on  contracted efforts, and has used CMRA as the basis for its inventory.  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  performed, and the organizational unit on whose behalf the services are  being performed. In instances where contractors are providing different  services under the same task order, or are providing services at multiple  locations, contractors can enter additional records in CMRA to capture  information associated with each type of service or location. It also allows  for the identification of services provided under contracts for goods.
section_title: Inventory Review and Use Requirements
paragraphs: Within 90 days after an inventory is submitted to Congress, section  2330a(e) of title 10 of the U.S. Code requires the secretaries of the  military departments or heads of the defense agencies to complete a  review of the contracts and functions in the inventory for which they are  responsible. P&R, as supported by the Comptroller, is responsible for,  among other things, developing guidance for the conduct and completion  of this review. As part of this review, the military departments and  defense agencies are to ensure that: any personal services contracts on the inventory were properly  entered into and performed appropriately;  the activities on the list do not include any inherently governmental  functions; and  to the maximum extent practicable, the activities on the inventory do  not include any closely associated with inherently governmental  functions.
Section 2330a(e) also requires under this review that the secretaries of  the military departments and heads of defense agencies identify work that  should be considered for conversion to government performance, or  insourced, pursuant to section 2463 of title 10 of the U.S. Code, or to a  more advantageous acquisition approach. Section 2463 specifically  requires the Secretary of Defense to make use of the inventory to identify  critical functions, acquisition workforce functions, and closely associated  with inherently governmental functions performed by contractors, and that  the Under Secretary of Defense for P&R implement guidelines and  procedures to give special consideration to converting those functions to  DOD civilian performance.
Further, section 808 of the National Defense Authorization Act for Fiscal  Year 2012 requires the Secretary of Defense to issue guidance to the  military departments and the defense agencies to, among other things,  eliminate contractor positions identified as performing inherently  governmental functions and reduce, by 10 percent, funding for contractor  staff performing closely associated with inherently governmental functions  in fiscal years 2012 and 2013. As implemented by DOD, the secretaries  of the military departments and heads of the defense agencies are  instructed to use the fiscal year 2010 inventory, or the fiscal year 2011  inventory if the data are unknown in the 2010 inventory, as the baseline  against which the 10 percent funding reductions will be made. GAO has  ongoing work to assess DOD’s compliance with section 808.
In addition, in December 2011 section 2330a of title 10 of the U.S. Code  was amended to add a new subsection (f) requiring the secretaries of the  military departments and heads of the defense agencies responsible for  contracted services in the inventory to develop a plan, including an  enforcement mechanism and approval process, to use the inventory to  inform management decisions (see figure 1).
Collectively, these statutory requirements mandate the use of the  inventory and the associated review process to enhance the ability of  DOD to identify and track services provided by contractors, achieve  accountability for the contractor sector of DOD’s total workforce, help  identify contracted services for possible conversion from contractor  performance to DOD civilian performance, support DOD’s determination  of the appropriate workforce mix, and project and justify the number of  contractor FTEs included in DOD’s annual budget justification materials.
section_title: Prior GAO Work
paragraphs: We have issued several reports on DOD’s efforts to compile and review  its inventory of contracted services, including initiatives to standardize  contractor manpower data collection across the department. For example,  in January 2011 we recommended that DOD develop a plan of action to  facilitate the department’s stated intent to collect contractor manpower  data and address other limitations in its approach to meeting inventory  requirements, such as using FPDS-NG to compile the required  inventories.
In April 2012, we reported that DOD issued a plan in November 2011 to  develop a common technology solution, leveraging existing data  collection approaches, such as the Army’s CMRA system, that would  allow the department to collectively meet the inventory requirements.  DOD’s November 2011 plan provided for short-term and long-term  actions intended to meet the requirements of 10 U.S.C. § 2330a. DOD  stated that it was committed to assisting components as they implement  their plans, especially those currently without reporting processes or  infrastructure in place, by leveraging the Army’s CMRA system,  processes, best practices, and tools to the maximum extent possible. Part  of the long-term plan was to develop a comprehensive instruction for  components to use on the development, review, and use of the  inventories and for the Office of the Deputy Chief Management Officer,  P&R, and other stakeholders to form a working group to develop and  implement a common data system to collect and house the information  required for the inventory, including contractor manpower data. DOD  noted in its plan that it expected the data system to be operational and  DOD components to be reporting on most of their service contracts by  fiscal year 2016. While we found the plan represented a step in the right  direction, it did not contain timeframes or resources needed, as we had  previously recommended. Further, we found that DOD faced challenges  in developing a common data collection system given the different  requirements of the military departments and the remaining defense  agencies.
In May 2013, we reported that a November 2012 memorandum stated  that DOD would establish a common data collection system based on the  Army’s CMRA system—the Enterprise wide Contractor Manpower  Reporting Application (ECMRA)—for DOD components to begin reporting  data in time for the department’s fiscal year 2013 inventory submission,  but did not expect that components would fully use the system for most of  their contracts for services until fiscal year 2016. We found that the  department had taken steps to implement interim CMRA-based data  collection systems for the Air Force and Navy. At that time, DOD noted  that it expected to field an interim CMRA-based data collection system  that would be shared by the remaining defense agencies, which DOD  subsequently fielded in September 2013. In May 2014, however, we  found that while the department took interim steps, it had not fully  implemented the common data collection system as called for in its  November 2011 plan.
section_title: Components Better Addressed Reporting Requirements in Fiscal Year 2012, but Some Reviews Were Incomplete
paragraphs: We found that DOD components’ 2012 inventory review certifications  better addressed DOD’s required reporting elements than in prior years,  but the department continues to face challenges in assuring that all DOD  components conduct and report on the required reviews. For example, as  of September 2014, 32 of the 33 components certified that they had  reviewed their inventory of contracted services and, overall, more  components addressed more of DOD’s required reporting elements than  in fiscal year 2011. However, the Air Force, which accounts for about 20  percent of DOD’s obligations for contracted services, did not submit a  certification letter, as required. Further, the Army, which represents 30  percent of DOD’s obligations for contracted services, submitted a  certification though its review was incomplete at the time the Secretary of  the Army signed the letter. This occurred, in part, because it did not  include a review of functions in one command or review functions that  were transferred between two commands. DOD also continues to face  challenges in fully implementing the CMRA-based common data system  that is intended to collect the required data for the inventories DOD  components must review, thus jeopardizing its plan to have all  components using this system to collect manpower data reported by  contractors by 2016. DOD recently directed a study to identify and  develop other enterprise solutions to address the inventory data collection  requirements by December 2014. It is uncertain whether DOD will  continue to implement its previous plan for a DOD-wide system based on  the Army’s CMRA system.
subsections: section_title: Fiscal Year 2012 Review Results Demonstrate Improved Reporting, but Challenges Remain
paragraphs: DOD’s February 2013 guidance for the fiscal year 2012 inventory, issued  jointly by AT&L and P&R, included two changes that DOD officials  believed would improve the completeness and granularity of the inventory  review data reported in the certification letters from the prior year.  The  changes included an increase in the percentage of contract functions to  review from the component’s inventories from 50 percent to 80 percent  and one additional data element—the review results table. The guidance  instructed components to include at a minimum seven elements in their  certification letters (see table 2).
Overall, we found DOD components generally addressed more of the  required elements in their fiscal year 2012 certification letters than they  had in fiscal year 2011 (see table 3).
Our analysis found that seven components, representing about 15  percent of the total dollars included in the department’s inventory of  contracted services, addressed all seven elements required, and nearly  80 percent of the components addressed at least five of the seven  elements. We found that about one-third of the components did not  address the required element to identify the appropriate manpower mix  and about half did not address the required element to identify actions  taken to ensure appropriate reallocation of resources based on the  reviews.
While this represents an improvement over the inventory review results  reported in the fiscal year 2011 certification letters, we also found several  significant limitations with the fiscal year 2012 inventory results reported  in the certification letters. For example,
The Air Force, which represented about 20 percent of DOD’s contract  obligations for services in fiscal year 2012, did not submit a  certification letter. Air Force officials stated that they focused on  completing the fiscal year 2013 inventory review rather than  submitting the required fiscal year 2012 certification letter.
The Army, which accounted for about 30 percent of DOD’s contract  obligations reported in DOD’s fiscal year 2012 inventory for contracted  services, certified in its April 2014 letter that it reviewed more than 80  percent of contracted functions from its inventory, which an Army  official told us was based on contract invoice amount. However, the  data supporting the certification letter revealed issues at three Army  commands that comprise more than a quarter—or $23.4 billion—of  the Army’s reported invoiced dollars, indicating that the Army may  have overstated the contract functions reviewed. For example, the  certification letter did not include review data from the Army  Acquisition Support Command because their review was not complete  when the Army submitted its certification letter. This command  represented $10.7 billion, or 14 percent, of the Army’s total invoiced  dollars for contracted services reported in fiscal year 2012. Further,  the Army Installation Management Command, which accounted for 30  percent of Army’s reported contractor FTEs performing closely  associated with inherently governmental functions in fiscal year 2011,  transferred responsibility for some of these functions to the Army  Materiel Command. However, officials at the Army Materiel Command  reported that they did not include these transferred functions in the  fiscal year 2012 review, stating that there were too many new  contracts to review in one year. The officials added that for this and  other reasons, the command’s review data for fiscal year 2012 are not  complete or accurate.
While 21 of the 32 components certified that they reviewed at least 80  percent of contract functions, we found that components interpreted  contract functions differently. DOD’s February 2013 guidance for the  fiscal year 2012 inventory required components to review at least 80  percent of the functions associated with all contracts, task orders,  delivery orders, or interagency acquisition agreements listed in the  inventory. The guidance further states that priority shall be given to  contracts previously not reviewed or those that may present a higher  risk of inappropriate performance. However, the guidance does not  specify how to determine the percent of contract functions nor identify  what types of contracts may be at a higher risk of inappropriate  performance. As such, some components specified that they reviewed  a percentage of product service codes, contract obligations, individual  contracts, or contractor FTEs identified in their inventories. In other  cases the letters did not indicate what the component considered a  contract function.
Certification letters also varied in terms of the information and insights  provided on the methodologies used to review the selected contract  functions in the inventories, and it was not clear from the letters  whether all components considered contractor performance and  contract administration when reviewing selected contracts. DOD’s  February 2013 guidance for the fiscal year 2012 inventory requires  components to consider the nature of contract performance and  administration, but it does not define what processes may be used to  review functions to determine the types of activities performed. For  example, one component’s review compared inventory data to basic  information in the component’s contract writing system and relied on  the component’s acquisition planning process to determine how the  contract was performed. At another component, the review included  coordination with program managers, contracting officers, contracting  officer representatives, and budget officials and consideration of a  range of data and documents to identify and understand whether the  work performed under the contract included inappropriate functions.  One component we interviewed, the Army, provided additional details  in its guidance on which officials should participate in the review and  how to assess contract activities. The Army requires a checklist at  various points in the contract cycle, including contract award and  modification, to identify activities performed under the contract and  help inform the inventory review process. The Army requires the  reviewer to be a person in the requiring activity who is familiar with  how the contract is administered and performed and thoroughly  understands the work being performed.
Some officials we interviewed expressed confusion over the various  functional categories in the review results table and noted that the  distinction between inherently governmental, closely associated with  inherently governmental, and personal services is not always clearly  understood. Officials we interviewed at four of the six components  provided supplemental inventory review guidance including definitions  for some of the functions to help define inappropriate performance or  contract activities that require additional management attention.
section_title: Components May Have Understated Contractors Performing Certain Functions
paragraphs: The lack of specific guidance on how to identify or review contract  functions may have led to components understating the degree to which  contractors were providing services closely associated with inherently  governmental functions. Fifteen of the 32 components identified  contractors performing closely associated with inherently government  functions in the fiscal year 2012 inventory and provided more specific  information on contractor FTEs performing these functions than in fiscal  year 2011. For example, eight components reported that they had  contracts containing these functions in their fiscal year 2011 certification  letters without providing specific information on the number of contractor  FTEs. In their fiscal year 2012 certification letters, however, these eight  components identified the specific number of contractor FTEs and  obligations associated with these functions. Another 15 components  certified they did not have contractors performing closely associated with  inherently governmental functions, while two components’ certification  letters did not address closely associated with inherently governmental  functions. Appendix II provides details on components that identified  contractors performing inherently governmental functions.
In May 2013, we found it was difficult to determine how many contractors  are performing closely associated with inherently governmental functions  based on components’ reported methodologies and inventory review  results. Further, we found that DOD components may not have accurately  identified the extent to which their contractors are performing closely  associated with inherently governmental functions during their reviews.  Based on our latest review of the fiscal year 2012 inventory review  results, it is still not clear whether DOD components fully identified the  extent to which their contractors are performing closely associated with  inherently governmental functions.
Our latest review, similar to our prior work, found that DOD contracts for  significant amounts of professional and administrative and management  support services. A significant portion of contracts for these services were  for services that are likely to be closely associated with inherently  governmental functions. We identified total obligations for categories of  contracted services that often include services closely associated with  inherently governmental functions based on DOD components’ fiscal year  2012 inventory submission data. We compared those totals to the total  obligations certified by DOD components as being for contractors  performing closely associated with inherently governmental functions in  the fiscal year 2012 certification letters. This analysis found significant  gaps between these two categories, suggesting that some of the  inventory review processes or methodologies may not be sufficient to  accurately identify closely associated with inherently governmental  functions. In contrast to the Navy and other defense agencies, even the  Army’s incomplete review identified that nearly half of its total obligations  in these categories were for the performance of closely associated with  inherently governmental functions (see figure 2).
With regard to identifying contractor FTEs that may be performing  inherently governmental functions or unauthorized personal services, only  the Army identified such contractors during their fiscal year 2012  inventory review. The Army reported that it had identified 62 contractor  FTEs performing inherently governmental functions and five contractor  FTEs providing unauthorized personal services, both figures representing  significant declines since fiscal year 2011. As noted previously, however,  we found the Army’s review of its fiscal year 2012 inventory may not have  included the minimum requirement of 80 percent of contract functions.  While the Air Force did not submit a certification letter in fiscal year 2012,  Air Force officials told us that they had incorrectly identified contractors  performing inherently governmental functions and unauthorized personal  services in their 2011 inventory review.
However, neither the Army nor the Air Force provided information as to  how they resolved the prior instances in which they found that contractors  were performing such functions. We previously recommended in May  2013 that the Secretary of Defense instruct components to provide  updated information in certification letters on how they resolved the  instances of contractors performing inherently governmental functions or  unauthorized personal services identified in prior inventory reviews.  DOD partially concurred with this recommendation, stating that DOD  would focus on the fiscal year 2012 reporting requirements and that any  instances of contractors performing inherently governmental functions or  unauthorized personal services that persist from prior inventory reviews  would be included and fully documented in the fiscal year 2012 and future  inventory review processes. Further, DOD said it would verify that the  certification letters contain a complete and accurate description of actions  taken to resolve outstanding issues related to contractors performing  these functions prior to closing the review process.
Federal internal control standards call for managers to measure and  assess performance over time to ensure effectiveness and efficiency of  operations and compliance with applicable laws and regulations.  Without accurate identification of the functions contractors are performing,  DOD cannot be assured that proper oversight is in place or provide data  to ensure that it is meeting statutory requirements to reduce, to the  maximum extent practicable, the number of contractors performing  closely associated with inherently governmental functions or assure that  contractors are not performing inherently governmental functions.
section_title: Fiscal Year 2013 Guidance Does Not Address All Reporting Challenges
paragraphs: DOD issued guidance applicable to the components’ fiscal year 2013  inventories in March 2014. To assist components’ reviews, this guidance  provides definitions for inherently governmental, closely associated with  inherently governmental, personal services, and critical functions,  consistent with the FAR and the Office of Federal Procurement Policy  (OFPP) guidance. DOD’s guidance, however, does not specify the  percent of contract functions to be reviewed nor identify the basis to  determine the percentage of contract functions to be reviewed. P&R  officials indicated that the intent is for components to review all contract  functions; however, some component officials we interviewed said it was  not clear to them. The March 2014 guidance also indicates that  components should review the nature or way the contract is performed  and administered as well as the organizational environment within which  it is operating beyond what can be accessed via a review of the  information listed within the inventory, but does not provide specific  approaches to do so.
section_title: Uncertainties Continue in Implementing a Common Manpower Reporting Data System
paragraphs: A key factor to facilitate the components’ review of the functions that  contractors perform is the availability of accurate and reliable data. As we  reported in May 2014, DOD officials noted that the lack of dedicated  resources has been a key factor hindering implementation of its planned  ECMRA, the common data system based on the Army’s CMRA system.  To address this factor and support the data collection efforts, DOD  provided funding for six civilian FTEs for the Defense Human Resources  Agency, starting in fiscal year 2015. We reported in May 2014 that DOD  officials had anticipated these staff would comprise a new support office  to coordinate DOD’s efforts to define business processes for compiling,  reviewing, and using the inventory. This effort has encountered a number  of challenges, which officials noted may jeopardize the department’s goal  to fully implement ECMRA by fiscal year 2016. For example, the effort  lacks a formal agreement, including roles and responsibilities, between  the Assistant Secretary of Defense for Readiness and Force  Management and the Defense Human Resources Agency, the parties  responsible for implementing ECMRA and related business processes.  As we concluded in our May 2014 report, DOD did not have a  comprehensive plan with timeframes and milestones to measure its  progress toward developing a common contractor manpower data system  and associated business processes.
More recently, a September 17, 2014 memorandum from the Acting  Assistant Secretary of Defense for Readiness and Force Management  appointed a Strategic Review and Planning Officer as the official  responsible for identifying and developing enterprise solutions related to  the inventory data collection requirements prescribed by title 10, U.S.  Code, section 2330a. The official is authorized to identify, develop, and  consider all reasonable options, in both the short and long-terms, and  propose courses of action by December 1, 2014 to P&R. Once a course  of action is approved, the memorandum directs the official to develop a  detailed implementation plan, but does not provide timeframes for  completion. A P&R official told us that, until such time as there has been  a decision whether to pursue a new approach or continue forward with  implementation of ECMRA, DOD will defer using the additional resources  allocated for the Defense Human Resources Agency. This review raises a  question about whether DOD will continue to implement a DOD-wide  inventory data collection system modeled after the Army’s CMRA system  or attempt to develop a new system. Until such time as DOD components  are able to collect the required data for their inventories, the utility of their  inventory reviews for making workforce mix decisions will be hindered.
section_title: The Military Departments Have Not Developed Statutorily Required Plans or Identified Specific Responsibilities to Facilitate the Use of the Inventory
paragraphs: The military departments have not developed plans or enforcement  mechanisms to use the inventory of contracted services to inform  strategic workforce planning, workforce mix, and budget decision-making  processes, as statutorily required. Despite the lack of specific plans, the  military departments have taken some initial steps to use the inventory to  inform management decisions such as insourcing and estimating FTEs  for budgetary purposes. Disparate offices are responsible for the various  decision-making processes at the military departments, and the  secretaries of the military departments have not assigned specific  responsibility for coordinating among these offices to develop plans to  use the inventory to inform such decisions. In part, the absence of  accountable officials to integrate the use of the inventory leaves the  department at continued risk of not complying with the applicable  legislative requirements to use the inventory to support management  decisions.
subsections: section_title: Strategic Workforce Planning, Workforce Mix, and Insourcing Guidance Decisions Generally Do Not Require the Use of the Inventory
paragraphs: P&R has overall responsibility for developing and implementing DOD’s  strategic workforce plan to shape and improve the DOD’s civilian  workforce, including an assessment of the appropriate total force mix.  P&R issued guidance that designated responsibility for the development  of the strategic workforce plan to the Deputy Assistant Secretary of  Defense for Civilian Personnel Policy, but did not require use of the  inventory. This guidance predates the statutory requirement to use the  inventory to inform strategic workforce planning. For example, the Fiscal  Years 2013-2018 Strategic Workforce Plan, the most recent plan  available at the time of our review, states that DOD’s plans for identifying  and assessing workforce mix will leverage the inventory of contracted  services, but does not provide any additional details on using the  inventory.
None of the three military departments has developed a statutorily  required plan or enforcement mechanism to use the inventory of  contracted services and generally they have not developed guidance or  processes for these purposes (see table 4).
DOD has two department-wide policies for determining workforce mix— DOD directive 1100.4 and DOD instruction 1100.22—but neither currently  requires the use of the inventory to inform workforce mix planning. DOD  Directive 1100.4, dated February 2005, provides general guidance  concerning determination of manpower requirements, managing  resources, and manpower affordability. According to P&R officials,  revisions to this directive, which are currently under review, will be revised  to explicitly require use of the inventory to inform budgeting and total  force management decisions. DOD Instruction 1100.22, dated April 2010,  provides manpower mix criteria and guidance for determining how  individual positions should be designated based on the work performed.  This instruction does not direct the military departments to develop a plan  to use the inventory to inform management decisions, as DOD issued it  before the enactment of the requirement for developing such plans.
DOD’s primary insourcing guidance is reflected in April 4, 2008 and May  28, 2009 memoranda. These memoranda reiterate statutory  requirements by calling for DOD components and the military  departments to use the inventory of contracted services to identify  functions for possible insourcing and to develop a plan for converting  these functions within a reasonable amount of time. Among the military  departments, however, only Army has guidance and a process that  requires use of the inventory of contracted services for insourcing.  However, the military departments have not issued guidance for  managing workforce mix that requires the use of the inventory of  contracted services (see table 5).
section_title: Programming and Budget Decisions Generally Do Not Require the Use of the Inventory, Though Data on Estimated Contractor FTEs Are Included in the Budget
paragraphs: DOD’s Financial Management Regulation provides, among other things,  guidance to the military departments on budget formulation and  presentation; however, these regulations do not require the military  departments to use the inventory in formulating and presenting their  budgets. At the military department level, the Air Force has issued  additional instructions in terms of budget formulation and presentation.  However, the Air Force’s guidance does not require the use of the  inventory.
The Comptroller has issued supplemental guidance requiring, among  other things, that the military departments and defense components  provide information on the number of FTEs as required under 10 U.S.C. §  235, but this guidance does not require reporting the amount of funding  requested for contracted services. The Comptroller guidance for budget  submissions from all components has remained similar for the past three  fiscal years, instructing DOD components to ensure that contractor FTEs  reported in the budget exhibit are consistent with those in the DOD’s  inventory of contracted services. Both Navy and Air Force officials  reported that they used the inventory of contracted services to estimate  the number of contractor FTEs for inclusion in their budget request. The  Army budget office does not have a process to use the inventory to inform  budgeting and could not identify how the Army estimated FTEs in the  Army’s budget submission (see table 6).
section_title: Within the Military Departments, Responsibility for Developing a Plan to Use the Inventory for Management Decisions is Not Clearly Assigned
paragraphs: Within the military departments various offices are responsible for  conducting the compilation and review of the inventory of contracted  services, managing workforce mix decisions, and conducting budgeting  (see table 7).
Based on our analysis, however, no single office or individual is  responsible for leading or coordinating efforts between the various  functional areas to develop a plan and enforcement mechanism to use  the inventory to inform these processes. During interviews, officials at  each of the military departments were uncertain who was responsible for  developing a plan and enforcement mechanisms to use the inventory to  inform management decisions. For example, the Assistant Secretary of  the Army for Acquisition, Logistics, and Technology indicated that the  responsibility for developing the Army’s plan fell to the manpower  community, but a manpower official stated his office is not explicitly  tasked with this responsibility. Internal control standards in the federal  government state that management should establish an organizational  structure, delegate authority for key roles, and assign responsibility to  enable an organization to achieve management objectives and to comply  with laws. The absence of clearly defined roles and responsibilities for  integrating the use of the inventory in these processes, as appropriate,  leaves the department at continued risk of not complying with the  applicable legislative requirements to leverage the inventory to support  management decisions.
section_title: Conclusions
paragraphs: In the six years since DOD first submitted its initial department-wide  inventory of contracted services and conducted the associated reviews,  DOD’s progress remains uneven and uncertain. DOD components  addressed more of the reporting elements prescribed by P&R and AT&L  guidance, but it is less clear that the fiscal year 2012 reviews were any  more informative than prior reviews in certain key areas. The Air Force  failed to submit an inventory review certification letter while the Army  submitted incomplete review data for several major commands. In  addition, DOD components may not have fully identified all instances of  contractors performing closely associated with inherently governmental  functions. DOD’s fiscal year 2013 guidance does not fully address some  of the shortcomings our review identified, including how to identify  contracts to review or the methodologies or approaches to use to ensure  the components’ inventory reviews adequately assess contractor  activities. As a result, components may not fully identify instances of  contractors providing services that are closely associated with inherently  governmental functions. Without a thorough review of contractor  activities, DOD risks becoming overly reliant on contractors to support  core missions.
Further, it is up to the department to provide a system that is capable of  providing accurate and reliable data to support these reviews. Continued  delays and uncertainties in implementing its planned ECMRA system  hinder achievement of this objective. We had previously recommended  that DOD develop a plan of action with timeframes and milestones to  measure DOD’s progress in implementing a common data system, but  DOD has yet to do so. DOD identified the lack of dedicated resources as  the primary obstacle to resolving technical issues, including help desk  support and establishing common processes across the department.  DOD allocated fiscal year 2015 funding to support this effort; however,  DOD is delaying committing these resources pending the completion of a  review to identify and develop appropriate enterprise solutions, including  short- and long-term options, no later than December 1, 2014. Continued  delays in developing an implementation plan increases the risk that DOD  will be unable to collect the statutorily required data needed to serve as  the basis for DOD’s inventory review process.
Additionally, the military departments generally do not have plans to use  the inventories for strategic workforce planning, workforce mix and  insourcing decisions, or budget and programming decisions. The same is  generally true for the processes that underlie these decisions, with the  exception of the Army’s efforts to use the inventory and associated review  process to help inform workforce mix and insourcing decisions. One  factor contributing to this condition is the fact that multiple offices are  responsible for performing tasks within their specific area of responsibility,  but there are no offices or individuals that have been specifically tasked to  lead or coordinate efforts to facilitate the use of the inventory within each  of the military departments. Internal control standards state that  management should establish an organizational structure, delegate  authority for key roles, and assign responsibility to enable an organization  to achieve management objectives and to comply with laws. Entrusting  one or more individuals with the responsibility for carrying out these  requirements is likely to produce more positive results quicker than if  DOD continues to engage in piecemeal and ad hoc efforts within each  functional area. The absence of clearly defined roles and responsibilities  for integrating the use of the inventory in these processes, as appropriate,  leaves the department at continued risk of not complying with the  applicable legislative requirements to leverage the inventory to support  management decisions.
section_title: Recommendations for Executive Action
paragraphs: To better implement the requirements for reviewing the inventory of  contracted services, we recommend that the Under Secretary of Defense  for Acquisition, Technology and Logistics and the Under Secretary of  Defense for Personnel and Readiness work jointly to revise annual  inventory review guidance to clearly identify the basis for selecting  contracts to review and to provide approaches the components may use  to conduct inventory reviews that ensure the nature of how the contract is  being performed is adequately considered. If DOD intends for  components to review less than 100 percent of its contracts, then the  guidance should clearly identify the basis for selecting which contracted  functions should be reviewed.
To help facilitate the department’s stated intent to develop a common  data collection system to fully collect statutorily required data, we  recommend that the Under Secretary of Defense for Personnel and  Readiness approve a plan of action, with timeframes and milestones, for  rolling out and supporting a department-wide data collection system as  soon as practicable after December 1, 2014. Should a decision be made  to use or develop a system other than the e-CMRA system currently  being fielded, we recommend that the Under Secretary of Defense for  Personnel and Readiness document the rationale for doing so and ensure  that the new approach will provide data that satisfies the statutory  requirements for the inventory.
To help ensure that the inventory of contracted services is integrated into  key management decisions as statutorily required, we recommend that  the Secretaries of the Army, Navy, and Air Force identify an accountable  official within their departments with responsibility for leading and  coordinating efforts across their manpower, budgeting, and acquisition  functional communities and, as appropriate, revise guidance, develop  plans and enforcement mechanisms, and establish processes.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to DOD for comment. In its written  comments, which are reprinted in appendix III, DOD concurred with our  recommendations and described the actions it plans to take though it did  not provide timeframes for completing such actions. DOD also provided  technical comments, which we incorporated in the report as appropriate.
In response to our recommendation to revise its inventory review  guidance to provide more clarity on which contracted functions should be  reviewed and to provide approaches the components may use to ensure  that the nature of how the contract is being performed is considered, the  department noted it is currently enhancing its guidance for the fiscal year  2014 inventory of contracted services and intends to have components  review and certify 100 percent of the services reported in their respective  inventory. DOD did not address whether DOD’s guidance will provide  approaches components may use to conduct inventory reviews to ensure  contract performance is adequately considered. There may be no singular  approach appropriate for all DOD components; however, DOD could  provide a range of suggested approaches to ensure components  accurately identify functions performed. While we appreciate DOD’s  actions to address the recommendation, the fact that only seven of the  components fully addressed each element contained in AT&L and P&R’s  previous guidance underscores, in our view, the need for more direct  involvement by DOD to ensure compliance.
In response to our recommendation to approve a plan of action with  timeframes and milestones to help facilitate the development of a  common data collection system, DOD noted that all DOD components are  using ECRMA to facilitate compilation of their respective inventory of  contracted services. DOD agreed that if the Department decides to move  away from ECMRA, the decision will be fully documented, ensuring  satisfaction of statutory requirements.
In response to our recommendation to identify an accountable official  within the military departments to help ensure the inventory of contracted  services is integrated into key management decisions and to coordinate  efforts across manpower, budgeting and acquisition communities, DOD  agreed. DOD also indicated that a cognizant accountable official should  be identified at the remaining defense components (e.g. defense  agencies, field activities, and combatant commands). While our work in  this area focused on the military departments, we agree that it is  important for components across DOD to ensure each organization  develops a plan and enforcement mechanisms for using the inventory of  contracted services to inform management decisions.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Defense, the Under Secretary of Defense  for Acquisition, Technology, and Logistics, the Under Secretary of  Defense for Personnel and Readiness, the Secretaries of the Army, Air  Force, and the Navy, and other interested parties. In addition, the report  is available at no charge on the GAO website at http://www.gao.gov.
If you or your staff have any questions about this report, please contact  me at (202) 512-4841 or dinapolit@gao.gov. Contact points for our  Offices of Congressional Relations and Public Affairs may be found on  the last page of this report. GAO staff who made key contributions to this  report are listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Section 951(a) of the National Defense Authorization Act for Fiscal Year  2014 directs GAO to report, for fiscal years 2014, 2015, and 2016, on  DOD’s implementation of title 10 U.S. Code section 2330a subsections  (e) and (f). To satisfy the mandate for 2014, we assessed DOD’s efforts  to (1) implement subsection (e) to review contracts and activities in the  inventory of contracted services for the fiscal year 2012 inventory and (2)  implement subsection (f) to develop plans and processes to inform how  the inventory will be used to facilitate strategic workforce planning,  workforce mix, and budget decisions. We used data from the fiscal year  2012 inventory as it was the most recent inventory at the time of our  review.
To assess the extent to which DOD components—to include the three  military departments and the defense agencies— implemented the  required review of contracts and activities in the inventory of contracted  services pursuant to subsection(e), for the fiscal year 2012 inventory, we  examined the guidance related to the fiscal year 2012 inventory review  process which the Office of the Under Secretary of Defense for  Acquisition, Technology, and Logistics (AT&L) and the Acting Under  Secretary of Defense for Personnel and Readiness (P&R) issued on  February 4, 2013. The February 2013 guidance requires components to  certify completion of the review and report on seven elements including  the contract selection criteria and methodologies used to conduct the  reviews; the extent to which contractors were found to be performing  certain functions, to include inherently governmental and closely  associated with inherently governmental; and to the extent necessary, a  plan to realign performance of such functions to government  performance. We analyzed all unclassified fiscal year 2012 certification  letters submitted by 32 components to P&R as of September 2014 to  determine if components reported on all seven required elements. We did  not analyze any classified certification letters submitted, such as that by  the Defense Intelligence Agency.
We also reviewed the Office of Federal Procurement Policy’s (OFPP)  November 5, 2010 guidance for civilian agencies’ service contract  inventories. This guidance directs agencies to give priority consideration  to reviewing certain categories of contracted services that the guidance  and GAO’s prior work have indicated often include closely associated with  inherently governmental functions. The guidance identifies 15 product  service codes describing these categories of contracted services. We  reviewed the total amount DOD components obligated for closely  associated with inherently governmental functions with the total amount  they reported obligating for the categories of contracted services  identified in the OFPP’s guidance and two additional product service  codes identified in GAO’s prior work to compare the dollars obligated and  contractor full-time equivalents (FTEs) reported for these product services  codes. We did not independently assess the accuracy or reliability of the  underlying data supporting the components’ inventories of contracted  services and associated reviews. Our previous work, however, identified  data limitations with those DOD components using data from FPDS-NG  as the basis for their inventories. We discuss these limitations in the  report, as appropriate.
In performing our work to assess the extent to which DOD implemented  subsection (e) to review contracts and activities in the inventory of  contracted services for the fiscal year 2012 inventory we interviewed  cognizant officials from AT&L; P&R; the Under Secretary of Defense  (Comptroller); the Departments of the Army, Navy, and Air Force; and  three defense components – the Defense Logistics Agency (DLA); the  Defense Threat Reduction Agency (DTRA), and the Office of the Director  of Administration and Management (ODA&M). We selected the Army,  Navy, and Air Force for additional review because they represented about  74 percent of the obligations reported in the inventory and selected DLA  and DTRA, because they reported having the most instances of  contractors performing closely associated with inherently governmental  functions, as expressed in contractor FTEs. We selected ODA&M  because they reported having the fewest contractor FTEs performing  closely associated with inherently governmental functions, despite having  high obligations for professional services and program management  services, two categories of contracted services known to often include  closely associated with inherently governmental functions.
To assess the extent to which DOD components have developed plans  and processes to use the inventory to inform management decisions  pursuant to subsection (f), we reviewed defense-wide and military  department-specific strategic planning, manpower mix, and budgeting  documentation and interviewed officials responsible for developing and  using this guidance. To determine whether DOD guidance informing  strategic planning, manpower mix and budgeting calls for the use of the  inventory of contracted services in planning processes, we reviewed the  DOD’s Fiscal Year 2013-2018 Strategic Workforce Plan Report and  associated guidance for completing the plan, DOD’s instruction on  manpower mix criteria, DOD’s memoranda guiding the conversion of  contracted functions to government functions, and guidance issued by the  Comptroller that informed the fiscal year 2013, 2014, and 2015 budget  submissions. When applicable we reviewed workforce mix instructions  and budgeting regulations. In addition we reviewed memoranda, slides,  and meeting minutes to review processes that the military departments  had underway to determine if these processes addressed the  requirements of title 10 U.S.C. § 2330a(f).
In performing our work to assess the extent to which DOD components  have developed plans and processes to use the inventory to inform  management decisions pursuant to subsection (f) we interviewed  cognizant officials from AT&L, P&R and the Comptroller, and the three  military departments. We discussed identification of a cognizant official for  the plans and processes with acquisition, manpower, programming, and  budgeting officials.
In addition, we evaluated DOD’s progress in implementing a common  data system since our most recent report in May 2014. To do so, we  reviewed existing documentation including memoranda, planning  documents, and guidance for establishing a common data system. We  also interviewed officials from P&R to discuss progress toward the  common system and associated business processes.
We conducted this performance audit from May 2014 to November 2014  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 audit objectives. We believe that the  evidence obtained provides a reasonable basis for our findings and  conclusions based on audit objectives.
section_title: Appendix II: Comparison of Components’ Identification of Contractors Providing Services Closely Associated With Inherently Governmental Functions in their Fiscal Year 2011 and 2012 Certification Letters
paragraphs: Appendix II: Comparison of Components’  Identification of Contractors Providing  Services Closely Associated With Inherently  Governmental Functions in their Fiscal Year  2011 and 2012 Certification Letters The Navy did not identify the number of FTEs,  but noted they have 25 contracts that contained  these functions.
The agency did not identify the number of FTEs  in current contracts, but noted they have  contracts that contained these functions.
The agency did not identify the number of FTEs,  but noted that they had contractors performing  these functions.
The agency did not identify the number of FTEs,  but noted that 4.5 percent of their sample of  more than 50 percent of contract actions  contained these functions.
The agency did not identify the number of FTEs,  but noted that several contracts contained these  functions.
The components did not identify the number of  FTEs, but reported that 24 out of 950 contracts  consolidated from the three components had  contractors performing these functions.
The commands did not identify the number of  FTEs, but noted that “some requirements”  contained these functions.
As of September 2014, the Air Force has yet to provide a certification letter for the fiscal year 2012  inventory identifying contractor FTEs in either category. Further, the fiscal year 2011 data from the Air  Force were based on preliminary estimates, and the Air Force did not provided a final certification  letter for fiscal year 2011.   The Office of the Secretary of Defense, Director of Administration and Management submitted a  consolidated review on behalf of the Office of the Secretary of Defense, Washington Headquarters  Service, and the Pentagon Force Protection Agency, but did not specifically identify which  components reported contractors performing closely associated with inherently governmental  functions. In addition, officials responsible for the consolidated review identified an error in the  certification letter and updated it to reflect 14.7 contractor FTEs performing closely associated with  inherently governmental functions.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above Penny Berrier, Assistant Director;  MacKenzie Cooper; Kate Eberle; Kristine Hassinger; John Krump; Caryn  E. Kuebler; Jean McSween; Oziel Trevino; and Candice Wright made key  contributions to this report.