Defense Acquisitions: Further Actions Needed to Improve Accountability for DOD's Inventory of Contracted Services
Published: 2012-04-06T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: DOD relies on contractors to perform many functions, which can offer benefits for DOD. GAOs work has shown that reliance on contractors to support core missions, however, can place DOD at risk of contractors performing inherently governmental functions.
(2) the extent to which the military departments addressed instances of contractors performing functions identified as inherently governmental during reviews of their fiscal year 2009 inventories. GAO reviewed DOD guidance, interviewed acquisition and manpower officials, and assessed 12 instances from a nongeneralizable sample in which the Air Force and Army determined that contractors had performed inherently governmental functions
section_title: What GAO Found
paragraphs: The Department of Defense (DOD) made a number of changes to improve the utility of the fiscal year 2010 inventory, such as centrally preparing contract data to provide greater consistency among DOD components and increasing the level of detail on the services provided. DOD, however, continued to rely primarily on the Federal Procurement Data System-Next Generation (FPDS-NG) for the inventory for most defense components other than the Army. As such, DOD acknowledged a number of factors that limited the utility, accuracy, and completeness of the inventory data. For example, FPDS-NG does not identify more than one type of service purchased for each contract action, provide the number of contractor full-time equivalent personnel, or identify the requiring activity. As before, the Army used its Contractor Manpower Reporting Application to compile its fiscal year 2010 inventory. This system collects data reported by contractors on services performed at the contract line item level, including information on labor hours and the function and mission performed. DOD officials noted that the Armys current process complies with legislative requirements. In January 2011, GAO recommended that DOD develop a plan with time frames and the necessary resources to facilitate its efforts to collect contractor manpower data and address other limitations in its approach to meeting inventory requirements. DOD concurred with these recommendations. In November 2011, DOD submitted to Congress a plan to collect contractor manpower data. DOD officials noted that developing a common data system to collect and house these data would be challenging given the different requirements from the military departments and components. Consequently, DOD does not expect to fully collect contractor manpower data until fiscal year 2016. DODs plan, however, does not establish milestones or specify how it will meet the legislative requirement to identify the requiring activity and the function and missions performed by the contractor.
Military departments required reviews of their fiscal year 2009 inventories of contracted services were incomplete. Navy headquarters officials had no assurance that their commands conducted the required reviews, and GAO found no evidence at the commands it contacted that the required reviews were conducted. Army and Air Force inventory reviews identified 1,935 and 91 instances, respectively, in which contractors were performing inherently governmental functions, though this variation may reflect differences in the departments approaches to conducting the reviews. In 8 of the 12 Army and Air Force cases GAO reviewed, contractors continued to perform functions the military departments identified as inherently governmental. The absence of guidance that provided for clear lines of responsibility for conducting, documenting, and addressing the results of the reviews contributed to these outcomes. Further, Army officials cited difficulty in hiring DOD civilians caused by DODs decision to freeze civilian full-time equivalents at fiscal year 2010 levels. DOD issued guidance in December 2011 that will require the military departments and components to certify that they have conducted the required reviews. The guidance, however, does not clearly establish lines of accountability and responsibility within the military departments and defense components for conducting the inventory reviews and addressing instances where contractors are identified as performing inherently governmental functions.
section_title: What GAO Recommends
paragraphs: GAO recommends that the military departments and components develop guidance that provides for clear lines of authority, responsibility, and accountability for conducting an inventory review and that the Army and Air Force resolve known instances of contractors performing inherently governmental functions. DOD largely agreed with GAOs recommendations.

section_title: Letter
paragraphs: The Department of Defense (DOD), the federal government’s largest  purchaser of contractor-provided services, reported $204 billion in  obligations for service contracts in fiscal year 2010. DOD relies on  contractors to perform functions as varied as professional and  management support, information technology support, and weapon  system and intelligence support. While there are benefits to using  contractors to perform services for the government, our work has shown  that reliance on contractors to support core missions can place the  government at risk of becoming overly reliant on contractors to perform  closely associated with inherently governmental functions or creating  circumstances in which contractors perform functions deemed inherently  governmental. Over the past decade, our work has identified the need  for DOD to obtain better data on its contracted services to enable it to  make more strategic workforce decisions and ensure that it maintains  appropriate control of government operations. DOD has put a number of  efforts in place to gain better insights into its acquisition of services, but  its efforts have had mixed success to date.
In recent years, Congress has enacted legislation to improve the  department’s ability to manage its acquisitions of services; to make more  strategic decisions about the right workforce mix of military, civilian, and  contractor personnel; and to align resource needs better through the  budget process to achieve that mix. For example, section 2330a of title 10  of the U.S. Code requires DOD to annually compile and review an  inventory of activities performed pursuant to contracts to help provide  better insights into the number of contractor full-time equivalents (FTE)  providing services to the department and the functions they are  performing. In addition, the inventories are to be used to identify, among  other things, whether contractors were performing inherently  governmental functions and to help inform workforce mix decisions. To  date, DOD has submitted annual inventories to Congress for fiscal years  2007, 2008, 2009, and 2010. The fiscal year 2010 inventory was  submitted on September 8, 2011.
Section 803(c) of the National Defense Authorization Act for Fiscal Year  2010 directs GAO to report for 3 years on the inventory of activities  performed pursuant to contracts for services that are to be submitted by  the Secretary of Defense, in 2010, 2011, and 2012, respectively. Most  recently, in January 2011 we assessed the approaches used to compile  the fiscal year 2009 inventories and recommended that DOD develop a  plan of action to facilitate the department’s stated intent of collecting  contractor manpower data and to address other limitations in its approach  to meeting the statutory inventory requirements. For example, in the  absence of a single department-wide data system that could provide the  data necessary to respond to the legislative reporting requirements, most  DOD components, other than the Army, relied on data from the Federal  Procurement Data System-Next Generation (FPDS-NG). DOD  acknowledged that using FPDS-NG as the main data source for the  inventories has a number of limitations. These limitations include that  FPDS-NG does not provide the number of contractor FTEs performing  each service, identify the requiring activity, or allow for the identification of  all services being procured. In contrast, the Army used its existing  process, which incorporated contractor-reported data, including direct  labor hours, from its Contractor Manpower Reporting Application (CMRA).  Further, we reported that the military departments differed both in their  approaches to reviewing the activities performed by contractors and the  extent to which they used the inventories to inform workforce decisions.
For example, the Army implemented a centralized approach to identify  and assess the functions being performed by contractors and used such  assessments to inform workforce decisions. In contrast, the Air Force and  Navy used decentralized approaches that relied on major commands to  review their contracted activities, but made relatively limited use of the  inventories to inform their workforce decisions.
To satisfy the mandate for 2011, we assessed (1) the progress DOD has  made in addressing limitations when compiling the fiscal year 2010  inventory of contracted services and in developing a strategy to obtain  contractor manpower data and (2) the extent to which the military  departments addressed issues with contractors performing inherently  governmental functions identified during reviews of their fiscal year 2009  inventories.
To assess the progress DOD has made in addressing limitations when  compiling the fiscal year 2010 inventory and in developing a strategy to  obtain contractor manpower data, we reviewed relevant guidance related  to the inventory compilation processes used for fiscal year 2010 and  interviewed officials from the Office of the Under Secretary of Defense for  Acquisition, Technology, and Logistics (AT&L), Office of Defense  Procurement and Acquisition Policy; the Office of the Under Secretary of  Defense for Personnel and Readiness (P&R); and the departments of the  Army, Navy, and Air Force. We also reviewed plans submitted by the  military departments and defense components to obtain contractor  manpower data directly from contractors.
To assess the extent to which the military departments addressed  instances in which contractors were performing inherently governmental  functions, we used data from the fiscal year 2009 inventory reviews,  which was the most current review available at the time we began our  work. To do so, we reviewed a total of 12 instances in which contractors  were identified as performing inherently governmental functions. We  selected two Army commands and one Air Force component based in  part on the number of such instances they had identified. For the Army,  we randomly selected 2 instances at the Training and Doctrine Command  and 1 at the Acquisition Support Center. In addition, we reviewed 6  instances where contractors were performing the duties of Department of  the Army systems coordinators. The Army’s 2010 acquisition review  chartered by the Secretary of the Army determined these positions to be  inherently governmental.2011 that summarized the results of its inventory review process,  including functions being performed by contractors that it identified as  inherently governmental. From these data, we determined that the Air  National Guard had the largest number of inherently governmental  functions being performed by contractors, and we randomly selected 3  instances for review. We reviewed the relevant contract files and  interviewed program and contracting officials responsible for the  performance of these functions to determine what steps the military  departments took once the review process identified the functions as  inherently governmental. We did not independently assess whether the  functions the military departments identified were in fact inherently  governmental. While these cases illustrate the extent to which DOD took  actions to resolve instances in which the military departments identified  that contractors had performed inherently governmental functions, the  results of our analysis are not generalizable to the more than 2,000  instances where contractors were performing inherently governmental  functions, as identified by the military departments.
The Air Force provided data to us in September  At the time we initiated our work, Navy headquarters officials did not have  the results of their fiscal year 2009 inventory review process available and  subsequently acknowledged that they were uncertain whether their  commands conducted the required reviews. Consequently, we  considered DOD’s fiscal year 2010 in-sourcing data that were reported to  Congress in September 2011. From the Navy’s in-sourcing data, we  selected Fleet Forces Command and Space and Naval Warfare Systems  Command for further review based on the number of positions they  reported as in-sourced based on contractor performance of an inherently  governmental function. We did not review individual Navy contracts  because Space and Naval Warfare Systems Command officials told us  that it was not possible to track the positions to specific contracts. Also,  we found that the commands subsequently reported that the functions  were not inherently governmental and were in-sourced for other reasons,  such as to provide Navy personnel career progression opportunities. A  detailed description of our scope and methodology is included in  appendix I.
We conducted this performance audit between July 2011 and April 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: In part to improve the availability of information on and management of  DOD’s acquisition of services, 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 to be collected includes, among other things, the total dollar  amount of 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 for or on behalf   The inventory is to include a  of DOD during the preceding fiscal year.number of specific data elements for each identified activity, including  the function and missions performed by the contractor;  the contracting organization, the component of DOD administering the  contract, and the organization whose requirements are being met  through contractor performance of the function;  the funding source for the contract by appropriation and operating  agency;  the fiscal year the activity first appeared on an inventory;  the number of full-time contractor employees (or its equivalent) paid  for performance of the activity; a determination of whether the contract pursuant to which the activity  is performed is a personal services contract; and a summary of the information required by section 2330a(a) of title 10  of the U.S. Code.
As implemented by DOD, components are to compile annual inventories  of activities performed on their behalf by contractors and submit them to  AT&L, which is to formally submit a consolidated DOD inventory to  Congress no later than July 31. Once compiled, the inventory is to be  made public and within 90 days of the date on which the inventory is  submitted to Congress, the secretary of the military department or head of  the defense agency responsible for activities in the inventory is to review  the contracts and activities for which they are responsible and ensure that  any personal services contracts in the inventory were properly entered  into and are being performed appropriately; that the activities in the  inventory do not include inherently governmental functions; and to the  maximum extent practicable, that activities on the list do not include any  functions closely associated with inherently governmental functions.
In January 2011, Congress amended section 2330a(c) of title 10 of the  U.S. Code to specify that the Under Secretaries of Defense for Personnel  and Readiness; Acquisition, Technology and Logistics; and the Office of  the Comptroller are responsible for issuing guidance for compiling the  inventory.  Section 2330a(c) was also amended to state that DOD is to  use direct labor hours and associated cost data reported by contractors  as the basis for the number of contractor FTEs identified in the inventory,  though it provided that DOD may use estimates where such data are not  available and cannot reasonably be made available in a timely manner.
The Ike Skelton National Defense Authorization Act for Fiscal Year 2011, Pub. L. No.  111-383, § 321. provide for the use of the inventory by the military department or  defense agency to aid in the development of its annual personnel  authorization requests to Congress and in carrying out personnel  policies; ensure that the inventory is used to inform strategic workforce provide for appropriate consideration of the conversion of activities to  planning;  facilitate the use of the inventory for budgetary purposes; and  performance by government employees.
Section 931 of the National Defense Authorization Act for Fiscal Year  2012 also mandated that DOD use the inventories when making  determinations regarding the appropriate workforce mix necessary to  perform its mission.
In addition to the laws and guidance that govern the compilation of the  inventory and the inventory review processes, Congress also added  section 2463 to title 10 of the U.S. Code, which requires P&R to develop  guidelines and procedures to ensure that consideration is given to using  DOD civilian employees to perform functions that are currently performed  by a contractor—a process generally referred to as in-sourcing—and new  functions. In particular, these guidelines and procedures are to provide  special consideration for, among other things, in-sourcing functions  closely associated with inherently governmental functions that contractors  are currently performing, or having DOD civilian employees perform new  requirements that may be closely associated with inherently  governmental functions. Congress required the Secretary of Defense to  make use of the inventories created under section 2330a(c) of title10 of  the U.S. Code for the purpose of identifying functions that should be  considered for performance by DOD civilian employees under this  provision. DOD issued initial in-sourcing guidance in April 2008 and  additional guidance in May 2009 to assist DOD components in  implementing this legislative requirement.
Further, the National Defense Authorization Act for Fiscal Year 2010  provided for a new section 115b in title 10 of the U.S. Code that requires  DOD to annually submit to the defense committees a strategic workforce  plan to shape and improve the civilian workforce. Among other  requirements, the plan is to include an assessment of the appropriate mix  of military, civilian, and contractor personnel capabilities. P&R is  responsible for developing and implementing the strategic plan in  consultation with AT&L. The act also added section 235 to title 10 of the  U.S. Code, which requires the Secretary of Defense to include  information in DOD’s annual budget justification materials regarding the  procurement of contracted services. Specifically, the legislation requires  for each budget account to identify clearly and separately (1) the amount  requested for the procurement of contract services for each DOD  component, installation, or activity and (2) the number of contractor FTEs  projected and justified for each DOD component, installation, or activity  based on the inventory and associated reviews. DOD’s fiscal year 2013  budget guidance to DOD components requires the budget estimates to be  informed by the fiscal year 2010 inventory for contracted services.
Collectively, these statutory requirements mandate the use of the  inventory and the associated review process to help identify functions for  possible conversion from contractor performance to DOD civilian  performance, support the development of DOD’s annual strategic  workforce plan, and specify the number of contractor FTEs included in its  annual budget justification materials. Figure 1 illustrates the relationship  among the related statutory requirements.
section_title: DOD Has Made Limited Progress in Addressing Limitations to Its Inventory Approach
paragraphs: DOD made a number of changes to improve the consistency of the fiscal  year 2010 inventory, but it continued to rely primarily on data collected in  FPDS-NG for the inventory for all defense components other than the  Army and the TRICARE Management Activity. As such, DOD  acknowledged that the factors that limited the utility, accuracy, and  completeness of using FPDS-NG remained. In November 2011, DOD  submitted to Congress a plan that included instructions to the military  departments and DOD components to document contractor FTEs and  begin the collection of contractor manpower data. DOD officials noted that  developing a common data system to collect and house contractor  manpower data would be challenging given the different requirements of  the military departments and components. Consequently, DOD does not  expect to be able to fully collect contractor-reported direct labor  information until fiscal year 2016. Further, DOD has not established  milestones or time frames for the development and implementation of the  data system nor has it specified how it will obtain the remaining required  data, such as identifying the requiring activity and all functions and  missions performed by the contractor, to meet the legislative inventory  requirements.
subsections: section_title: Some Refinements Were Made to the Fiscal Year 2010 Inventory, but Previously Identified Limitations with Using FPDS-NG Remain
paragraphs: DOD’s approach to compiling its fiscal year 2010 inventory was similar to  what DOD used for its fiscal year 2009 inventory. AT&L officials noted,  however, that they had implemented several changes to improve the  fiscal year 2010 inventory’s utility. For example, AT&L did the following:
Centrally prepared and provided each component with a list that  reflected the specific categories of services that were to be included in  the inventory to provide greater consistency among DOD  components. In contrast, DOD components compiled their own  contract lists for the fiscal year 2009 inventories.
Increased the detail available on the services provided by using  product and service codes at the four-digit level rather than at the  broader, one-digit level used in the fiscal year 2009 inventory. For  example, in the fiscal year 2009 inventory, contracts for dentistry  services were reported under the broader category of medical  services, which had an average cost of about $107,000 per FTE. In  fiscal year 2010, dentistry services were reported separately from the  medical services category with an average cost of $89,000 per FTE.
Updated labor rates to account for changes in service costs. These  rates are based on costs, by product and service code, derived using  fiscal year 2010 information from the Army’s CMRA.
In addition, DOD components were allowed to update or revise the  contract lists provided by AT&L as appropriate. For example, Air Force  officials stated that for the fiscal year 2010 inventory they used their  financial system to cross-walk the contractual, financial, and requiring  activity information with the information that was provided by AT&L. The  updated information, according to Air Force officials, allowed them to  include all Air Force-funded service contracts awarded by non-DOD  agencies, provided greater fidelity in the inventory and enabled the Air  Force to use the inventory to inform the development of budget  justification materials.
Further, AT&L in cooperation with DOD components aligned the product  and service code functions to missions by organizing their spending into  six portfolios developed by the Office of Defense Procurement and  Acquisition Policy. AT&L officials stated that this alignment was intended  to provide better organization and visibility into services being acquired  and what missions they support. AT&L also sought to identify the  “requiring activity” down to the major command level by using the “funding  office” as a surrogate measure. AT&L officials, however, acknowledged  that the requiring activity does not always correspond to the funding  office. Collectively, according to AT&L officials, the additional level of  detail will provide more accurate costs associated with the services being  acquired and could potentially aid in better planning and budgeting for  service acquisitions.
In compiling DOD’s 2010 inventory, however, DOD officials continued to  rely primarily on data collected in FPDS-NG for all defense components  other than the Army and the TRICARE Management Activity. As such,  DOD officials acknowledged that the factors that limited the utility,  accuracy, and completeness of using FPDS-NG remained. These  limitations include not being able to identify and record more than one  type of service purchased for each contracting action entered into the  system, not being able to capture any services performed under contracts  that are predominantly for supplies, not capturing service contracts  awarded on behalf of DOD by non-DOD agencies, not being able to  identify the requiring activity specifically, and not being able to determine  the number of contractor FTEs used to perform each service.
As with the fiscal year 2009 inventory, AT&L authorized the Army to  continue to use its CMRA data system. CMRA is intended to capture  data directly reported by contractors on each service performed at the  contract line item level, including information on the direct labor dollars,  direct labor hours, total invoiced dollars, the functions and mission  performed, and the Army unit on whose behalf contractors are performing  the services. In instances where contractors are performing different  services under the same order, or are performing services at multiple  locations, they can enter additional records in CMRA to capture  information associated with each type of service or each location. Under  its approach, unlike the Air Force and the Navy, the Army included all  categories of research and development services in its inventory and  identified the services provided under contracts for goods. To report the  number of contractor FTEs, the Army indicated that it divided the number  of direct labor hours reported by a contractor in CMRA for each service  performed by 2,088, the number of labor hours in a federal employee  work year. For other data elements in its inventory, such as the funding  source and contracting organization, the Army relied on the Army  Contract Business Intelligence System and updates from resource  managers, contracting officer’s representatives, and other officials.
Overall, DOD reported that in fiscal year 2010, 23 components submitted  inventories and estimated that about 623,000 contractor FTEs provided  services to DOD under contracts with obligations totaling about  $121 billion. In comparison, for fiscal year 2009, DOD reported that 22  components submitted inventories and estimated that about 767,000  contractor FTEs provided services to DOD under contracts with  obligations totaling about $155 billion. DOD officials cautioned against  comparing the number of contractor FTEs for fiscal year 2009 and fiscal  year 2010 given the differences in the estimating formula, the changes in  reporting for the research and development category, and other factors.
section_title: DOD Efforts to Collect Contractor Manpower Data
paragraphs: Over the past year, DOD initiated efforts to collect manpower data directly  from contractors. These efforts were, in part, in response to  Congressional direction in section 8108 of the Fiscal Year 2011 Defense  Appropriations Act, which made $2,000,000 available to both the Air  Force and the Navy for leveraging the Army’s CMRA system to document  contractor FTEs and meet all the requirements of section 2330a(e) and  section 235 of title 10 of the U.S. Code. It further required the military  departments and DOD components to submit their plans for reporting  contractor FTEs no later than June 15, 2011. DOD did not meet this  deadline, but it submitted an interim response to Congress in July 2011  detailing a time frame for DOD components to complete and submit their  individual plans.
In August 2011, the Navy and the Air Force submitted their plans to  leverage the Army’s CMRA data system. In their plans, the Navy and the  Air Force indicated that they would begin developing requirements for a  contractor manpower data collection system, but noted that  implementation would not begin until the end of fiscal year 2012 or later.  Navy and Air Force officials said they wanted to ensure that the data  collection system they implemented had the necessary capability to  inform other DOD workforce initiatives, such as in-sourcing, and to meet  the information technology requirements set by their military departments.  Subsequently, in September 2011, DOD components started submitting  their plans for reporting contractor FTEs. Some DOD components noted  that they would begin modifying existing and future contracts to require  the collection of manpower data directly from contractors starting as early  as October 2011 and that it would take about a year to modify all their  existing contracts. Components also indicated that after the contracts  were modified, they would begin collecting the data by conducting manual  data calls, implementing the Army’s CMRA system, or using other internal  processes. The Navy did not include a time frame for modifying contracts,  while the Air Force estimated that it would take approximately 5 years to  modify all its contracts. As of February 2012, 43 of the 44 DOD  components, including the Army, Navy, and Air Force, had submitted their  plans to Congress.
Subsequent to submitting these individual plans, DOD continued to revise  its approach, as both P&R and AT&L officials expressed concerns about  aspects of the timing and approach reflected in the components’ plans.  For example, P&R officials noted that the Navy’s August 2011 plan to  leverage the Army’s system to collect manpower data directly from  contractors “lacks clear and decisive actions and milestones to meet the  requirement.” Further, AT&L officials noted that requiring contractors to  provide contractor manpower data will require approval from the Office of  Management and Budget, as provided for under the Paperwork  Reduction Act.
In November 2011, DOD issued a department-wide plan intended to meet  the legislative inventory requirements, including those for collecting  contractor manpower data and documenting contractor FTEs. DOD plans  to establish a common data system to collect and house contractor  manpower data for the entire department and develop a comprehensive  instruction on the development, review, and use of the contracted  services inventories. To do so, the Office of the Deputy Chief  Management Officer, P&R, and other stakeholders formed a working  group to help develop and implement the data system and ensure that it  leverages existing solutions, such as the Army’s CMRA system. DOD’s  November 2011 plan noted that the Army currently has reporting  processes and an infrastructure in place to comply with section 2330a of  title 10 of the U.S. Code. The plan, however, indicates that DOD will not  have a common data system in place throughout the department until  fiscal year 2016. P&R officials indicated that although discussions among  the working group have begun, obtaining concurrence from military  departments and components on the capability of a common data system  may delay implementation.
As part of these efforts, DOD submitted an emergency processing  request to the Office of Management and Budget on the Paperwork  Reduction Act on December 16, 2011. DOD officials subsequently were  informed that this request would likely not be approved. Consistent with  the requirements of the Paperwork Reduction Act, DOD posted a notice  in the Federal Register on February 7, 2012, seeking public comment on  its plans to begin collecting direct labor information and other data on  DOD contracts. DOD indicated that after it reviews the comments  received by the March 23 deadline, a number of other actions will need to  be taken before DOD can begin collecting such data. DOD officials further  indicated that they will need to assess the impact these events will have  on the actions and timeframes identified in their November 2011 plan.  The Army, which previously received approval from the Office of  Management and Budget to collect certain contract data from contractors  using its CMRA system, received a 3-year extension of this approval on  December 15, 2011.
P&R and AT&L issued guidance on the submission and review of the  fiscal year 2011 inventory on December 29, 2011. This guidance  indicates that for fiscal year 2011, the Office of Defense Procurement and  Acquisition Policy will provide a data set—at the four-digit product and  service code level derived from FPDS-NG—to each DOD component with  acquisition authority. Further, the guidance provides a different formula  for DOD components to use for estimating the number of contractor FTEs  paid for the performance of an activity based on the amount of direct  labor hours provided by a contractor under each product and service  code. Since the Navy, the Air Force, and most DOD components do not  collect direct labor hours directly from contractors, the guidance indicates  that DOD components may use the best available data or a variety of  methodologies, singularly or in combination, to estimate direct labor  hours. These methodologies include  collecting direct labor hour information from contractors,  collecting direct labor hours as reported by the contracting officer’s  representative for the service during fiscal year 2011,  referencing the independent government cost estimate or contractor  technical proposals to extrapolate hours for services provided in fiscal  year 2011,  reporting information collected from contract invoices, or  calculating the number of contractor FTEs by using information  extrapolated from the manpower data collected by the Army from its  contractors.
Under this plan, the Army will continue to use its CMRA system and other  established tools and processes for preparing and submitting its  inventory.
DOD officials noted that DOD intends to develop a comprehensive DOD  instruction for the development, review, and use of the service contract  inventories. This instruction, which DOD officials indicate will be issued to  inform the fiscal year 2013 inventory, is expected to shift primary  responsibility for the inventories from the acquisition community to the  manpower/personnel community at each DOD component. DOD officials  also indicated that the instruction will require that in compiling the  inventory of contracted services, all DOD activities are expected to report  all services provided in support of or to benefit a DOD component,  regardless of the source of the funding or acquisition agent. Additionally,  all DOD activities will include in new contracts, or task and delivery  orders, the requirement to collect manpower information directly from  contractors.
In our January 2011 report, we recommended that DOD develop a plan of  action, including anticipated time frames and necessary resources, to  facilitate the department’s intent of collecting manpower data and to  address other limitations in its current approach to meeting inventory  requirements. DOD concurred with our recommendations. DOD’s  November 2011 plan and December 2011 guidance represent steps in  the right direction to meet the legislative requirements and implement our  recommendation, but neither document contains milestones or time  frames for the development and implementation of a common software  and hardware data system to collect and house contractor manpower  data. Further, while these efforts address the collection of contractor  manpower data, they do not specify how DOD will obtain the remaining  required data, such as identifying the requiring activity and all functions  and missions performed by the contractor, to meet the legislative  inventory requirements.
section_title: Reviews of the Fiscal Year 2009 Inventories Were Incomplete and Did Not Fully Address Issues with Contractors Performing Inherently Governmental Functions
paragraphs: Military departments’ required reviews of their fiscal year 2009 inventories  were incomplete. Navy headquarters officials had no assurance that their  commands conducted the required reviews, and we found no evidence at  the Navy commands we contacted that the required reviews were  conducted. Army and Air Force reviews of their contracted services  identified 2,026 instances in which contractors were performing inherently  governmental functions. We found that contractors continued to perform  functions that were identified as inherently governmental in 8 of the 12  Army and Air Force cases we reviewed. In some of these cases, the  Army took steps in response to the inventory review process, such as  transferring responsibility to military personnel. In contrast, we also found  that some contractors continued to perform inherently governmental  functions. For example, Army officials cited difficulty in hiring DOD  civilians caused by DOD’s decision to freeze civilian FTE levels at the  fiscal year 2010 level as hindering their ability to resolve instances  identified during the inventory review process. Moreover, contracting and  program officials were unaware that the inventory review process had  identified functions under their contracts as inherently governmental. The  absence of guidance that provided for clear lines of responsibility and  accountability for conducting, documenting, and addressing the results of  the reviews contributed to these outcomes.
subsections: section_title: Military Departments’ Reviews of the Fiscal Year 2009 Inventories Were Incomplete
paragraphs: The military departments’ reviews of the fiscal year 2009 inventories were  incomplete as the Navy did not conduct a review. The Army and Air Force  identified 1,935 and 91 instances, respectively, in which contractors were  performing inherently governmental functions. The variation in the  number of cases reported by the Army and the Air Force may reflect  differences in their approaches to conducting the inventory reviews. Table  1 summarizes the number of inherently governmental functions identified  by the military departments through their fiscal year 2009 inventory  reviews.
The Navy issued guidance in September 2010 requiring its commands to  conduct a fiscal year 2009 inventory review. The commands were to  provide a letter within 45 days that certified that they had completed a  review, identified the number of contracts with inherently governmental  functions, and provided a corrective action plan. We found no evidence at  the commands we contacted that the required reviews were conducted.  For example, Fleet Forces Command officials were not aware of a  required inventory review and did not recall guidance being issued.  Similarly, officials from the Navy’s Space and Naval Warfare Systems  Command stated that they did not recall receiving guidance from Navy  headquarters to conduct a review of the fiscal year 2009 inventory. Navy  headquarters officials did not follow up to ensure that the required reviews  were completed and acknowledged that they could not verify whether  Navy commands completed the fiscal year 2009 inventory review.
The Army used a centralized approach that included a headquarters-level  review of all functions performed by contractors. The Army, for its  headquarters-level review, established the Panel for Documentation of  Contractors, which consists of officials from the Office of the Assistant  Secretary of the Army for Manpower and Reserve Affairs along with  headquarters officials from the acquisition and manpower planning  communities. Army guidance directs the commands to provide data to the  panel, including descriptions of the functions being performed by  contractors, the organizational unit for which each function is performed,  and an assessment of whether those functions are inherently  governmental. The panel reviews information provided by the commands  and makes an independent determination to assess whether the functions  are inherently governmental. According to panel officials, function  descriptions do not always provide insight into the day-to-day activities of  contractors, sometimes making it difficult to accurately distinguish  inherently governmental functions from those that are closely associated  with inherently governmental functions. In instances where there was a  difference of opinion on the appropriate assessment of a function,  however, panel and command officials reported that they engaged in  further discussion in order to reach agreement.
Additionally, the Army’s final 2010 acquisition review chartered by the  Secretary of the Army identified the Army’s systems coordinator function  as inherently governmental.include representing program managers at the Pentagon, acting as a  liaison with Congress, preparing principal staff officers for systems  reviews, writing background papers for military staff, and representing   The systems coordinator responsibilities  system program managers on integrated product teams. We found that  the panel reviewed 19 of the 26 instances identified by the Army during  the 2009 inventory review where contractors were performing the  systems coordinator function. An Army manpower official stated that the  panel process did not identify the remaining 7 instances.
In contrast, we found that the Air Force used a decentralized inventory  review approach, which delegated primary responsibility for the review of  its inventory to its major commands and components. In January 2010,  the Secretary of the Air Force issued guidance instructing its major  commands and components to conduct an initial review of its fiscal years  2008 and 2009 inventories of contracted services. According to an Air  Force inventory official, a headquarters review of the initial information  submitted by the commands found that approximately 40 percent of the  fiscal year 2009 contracts included for review did not contain adequate  responses to the required review elements. Because of challenges  experienced during the initial review, the Secretary of the Air Force issued  additional guidance in October 2010 requiring major commands to  complete the review of fiscal year 2009 service contracts that may have  been missed. To do so, the Air Force headquarters-level acquisition office  provided each major command and component with a spreadsheet to  review that contained its portion of the department’s service contracts  from the beginning of fiscal year 2009 through August 2010. This  guidance instructed the organizations to determine, among other things,  whether the activity performed under the contract was an inherently  governmental function. In addition to the inventory review, however, this  effort was to help implement the Secretary of Defense’s direction to  reduce service support contractors, and inform budget justification  initiatives as they pertained to contractor employees.
As a result of this process, the Air Force identified 91 instances of  contractors performing inherently governmental functions, the majority of  those instances for work performed for the Air National Guard and the Air  Force Space Command. Financial management and contracting officials  responsible for conducting the reviews at the Air National Guard and Air  Force Space Command, however, cited concerns with the accuracy and  completeness of the inventory review data. For example, at the Air  National Guard, the inventory review efforts were conducted by  individuals within the financial management office. During the course of  the inventory reviews, however, at least one staff member responsible for  the inventory review had left the organization. When we spoke to an Air  National Guard official in December 2011, she noted that when she  received the spreadsheet from Air Force headquarters, 37 functions on  the list were already identified as inherently governmental. Air Force  officials, however, provided us with documentation to indicate that other  individuals within the Air National Guard had made the determinations in  earlier reviews of the inventory data, but these determinations were not  communicated to the official. Further, officials at both commands stated  that the time Air Force headquarters allowed for the review was not  sufficient to review each contract and make an informed determination.
section_title: Army and Air Force Did Not Ensure That Functions They Identified as Inherently Governmental Were Resolved
paragraphs: By reviewing their inventories of contracted services, the Departments of  the Army and Air Force identified instances in which contractors were  performing inherently governmental functions, but the departments did  not ensure that corrective actions were fully implemented. Several options  are available to DOD when contractors are in fact performing such  functions, including modifying the statement of work to ensure that the  work performed is not inherently governmental, assigning responsibility  for that work to government personnel, or divesting or discontinuing the  work. In 8 of the 12 cases we reviewed at the Army and the Air Force,  however, contractors continued to perform functions that the military  departments had identified as inherently governmental during the fiscal  year 2009 inventory reviews (see table 2).
In 4 cases, contractors are no longer performing the functions that had  been identified as inherently governmental. In 3 of these cases, according  to officials, the Army took steps in response to the inventory review  process, including ensuring that the work was performed by government  personnel. In the fourth case, contracting and program officials were not  aware that this function had been identified as inherently governmental  during the review process, but noted that the function had already been  in-sourced by the time they became aware of the determination.
In 2 instances where contractors were performing the Department of  the Army systems coordinator function under task orders, program  officials reported that the Army transferred responsibilities for these  functions to military personnel. In one of these cases, a contracting  official noted that he had initially limited the period of performance on  the task order to a 1-year base period with 6-month options because  of concern at the time of award that this function was, at the very  least, closely associated with inherently governmental functions and  because he was aware that the Army wanted to convert this function  to a civilian position. A military officer replaced the contractor on  October 31, 2011, when the first 6-month option expired.
In another case involving a $2.1 million warehouse support contract at  Army’s Training and Doctrine Command, a command official clarified  that the function performed by the contractor was not inherently  governmental. She further explained that she believes the  performance of this service was identified as such by the Panel for  Documentation of Contractors because the function description  included the term “warehouse supervisor”. The command official  responsible for tracking resolutions determined that the function in  question involved a contractor supervising his own employees not  other government employees. She reported that it took 2 years  working with panel officials to reach agreement and revise the panel’s  determination.
The remaining case involved a contractor providing analytical support  for planning, programming, and budgeting matters under a $470,000  contract at the Air Force’s Air National Guard. In this case, we  interviewed a program official and a contracting official in November  2011 and December 2011, respectively, to determine if they were  aware that the inventory review process had identified functions under  this contract as inherently governmental. They stated that they were  not aware of this determination, but noted that the contract had  expired in September 2010. The program official further noted that Air  National Guard had in-sourced all functions previously performed  under this contract.
In 8 of the cases we reviewed, however, contractors were still performing  inherently governmental functions, as identified during the inventory  review process, at the time of our review, for a variety of reasons. For  example:  In 4 instances where it had been determined that contractors had  been performing the Department of the Army systems coordinator  function, contractor employees continued to perform these duties.  According to an Acquisition Support Center official, in June 2011 the  command requested authorization to replace the contractor  employees with military personnel. He noted, however, that the  command had not received authorization at the time of our review. He  explained, the alternative is to in-source the function and fill the  positions with civilian personnel. A function, however, may now only  be in-sourced if the Secretary of the Army personally approves it. In  February 2011, the Secretary of the Army suspended all approved in- sourcing actions that had not yet been completed and instituted a new  in-sourcing request and approval process. The command official  reported that preparing the in-sourcing package, which includes a  concept plan, a workload and funding profile analysis, a business  case, and a contractor inventory review, is a lengthy process, but  acknowledged that the command had not submitted this package as  of January 2012.
In 2 other cases—1 at the Army’s Acquisition Support Center and 1 at  the Air Force’s Air National Guard—contracting and program officials  were unaware that the inventory review process had identified  functions under their contracts as inherently governmental. One case  involved a $1.1 million contract at Acquisition Support Center for  engineering support in which the contractor employee provided  technical expertise and coordination with program office staff, other  military departments, Congress, and private companies, among other  duties. The other case involved a $409,000 Air National Guard  contract for financial analytical support. In both cases, program  officials stated that even though the original contracts had expired,  contractors continued to perform the same functions under  subsequent contracts.
In another case at the Air National Guard, the inventory review  process identified a function under a $120,000 task order to provide  advice and advocacy on Air National Guard positions and programs to  the Air Staff and other Air Force major commands as inherently  governmental. In this case, the Director of the Contracting Division,  with responsibility for this task order, stated that she first became  aware that the function was identified as inherently governmental in  October 2010 but disagreed with the determination. She was not  aware of any process in the Air Force or Air National Guard to resolve  the disagreement. When the task order expired in May 2011, she  renewed the function under a separate task order.
In the remaining case, involving a $6.1 million information technology  support contract at Army Training and Doctrine Command’s Defense  Language Institute, a “project manager” function had been identified  as inherently governmental. A command official noted that the  contractor employee was no longer performing the function because  the contract had expired in March 2010. When we reviewed contract  documents, however, we found that the contract had been extended  to March 2011. Further, the Defense Language Institute had entered  into a memorandum of agreement with the Naval Postgraduate  School to provide the same technology support services. According to  a program official, a contractor employee is still performing the same  function under a Navy contract.
In addition to our case studies, Army Manpower and Reserve Affairs  officials acknowledged that they are aware of at least 1 instance, included  in the Panel for Documentation of Contractors review process, in which  contractors continue to perform functions that the Army identified as  inherently governmental. In this case, 47 contractors, including 2  investigators, make up the entirety of a police force at U.S. Army  Kwajalein Atoll in the Marshall Islands. These contractors perform all  duties expected from a police force, including patrolling, issuing citations,  making arrests, and investigating misdemeanors. According to Manpower  and Reserve Affairs officials, command officials disagreed with the  determination, but on February 22, 2010, the Army Deputy General  Counsel for Operations and Personnel issued a legal opinion that  concluded that certain functions performed by the contractors were  inherently governmental and could not be performed by a contractor.  According to Manpower and Reserve Affairs officials, contractors  continue to perform these inherently governmental functions. They also  noted that DOD’s decision to freeze civilian FTEs at fiscal year 2010  levels is an impediment to resolving the performance of these inherently  governmental functions by contractors.
To address compliance issues with the inventory review and provide  additional guidance on the process, the Acting Under Secretaries of  Defense for Acquisition, Technology, and Logistics and Personnel and  Readiness, jointly issued guidance for the fiscal year 2011 inventory  review on December 29, 2011. The guidance specifies that military  departments and defense components must review at a minimum 50  percent of all contracts, task orders, delivery orders, or interagency  acquisition agreements listed in the military departments’ and defense  components’ inventories for a given fiscal year. While conducting the  reviews of contracts, the guidance states that the military departments  and defense components should also review how the contracts are  performed and administered, as well as the organizational environment in  which they are being performed. After a review is complete, the military  departments and defense components will now be required to certify that  they have completed a review and submit a letter to P&R with the  following information: an explanation of the methodology used to conduct the review and  criteria for selection of contracts to review;  the results of the review, including identifying any inherently  governmental functions, closely associated with inherently  governmental functions, or unauthorized personal services contracts; a plan for divesting or realigning functions for contracts that were  identified as inherently governmental; and an explanation of the steps taken to ensure appropriate government  control and oversight for functions that were identified as closely  associated with inherently governmental.
The guidance, however, does not clearly establish lines of accountability  and responsibility within the military departments and defense  components for conducting the inventory reviews and addressing  instances where contractors are identified as performing inherently  governmental functions.
section_title: Conclusions
paragraphs: Congress has mandated that DOD use the inventory of contracted  services and the associated review process to help DOD ensure that  contractors are performing work that is appropriate, to support  development of DOD’s annual strategic workforce plan, and to specify the  number of contractor FTEs included in DOD’s annual budget justification  materials. As such, it is essential that the inventories contain  comprehensive, accurate, and actionable data for each service  performed.
DOD, with the exception of the Army, has much further to go in  addressing the requirements for compiling and reviewing the inventories  of contracted services. DOD made incremental improvements to its  process to address some of the previously identified limitations when it  compiled its fiscal year 2010 inventory, but it has not resolved the  fundamental issue of how to collect the required data to meet the  legislative inventory requirements, including manpower data directly from  contractors. DOD took a significant step in November 2011 to identify  objectives for collecting contractor manpower data from contractors, but  DOD indicates that implementation will not be complete until 2016. Given  the potential value and importance of compiling a complete and accurate  inventory, it would benefit DOD to move more expeditiously. DOD’s plan,  however, does not specify time frames or milestones to measure its  progress toward developing an enterprisewide data system to collect  contractor manpower data, even though it acknowledged that reaching  agreement on that approach would be challenging. We therefore reiterate  our prior recommendation that DOD’s plans include milestones and time  frames to gauge progress in meeting the inventory requirements.
The Army and Air Force conducted inventory reviews, but the wide  variation in the number of instances of contractors performing inherently  governmental functions raises the question as to how much of the  variation is due to the different approaches used to conduct the reviews.  Further, the Navy was unable to provide assurance that it actually  conducted the statutorily required review of its fiscal year 2009 inventory.  This underscores the need for greater accountability and management  attention. The absence of guidance, at all levels, providing clear lines of  responsibility for conducting, documenting, and addressing issues  identified during the fiscal year 2009 inventory review process contributed  to instances in which contractors continued to perform functions identified  as being inherently governmental in 8 of the 12 Army and Air Force cases  we reviewed. Army officials also cited challenges with DOD’s decision to  freeze civilian FTEs at fiscal year 2010 levels and the in-sourcing process  as complicating their efforts to resolve issues identified during their  inventory reviews, including those instances at Kwajalein Atoll. Such  challenges, however, do not justify the continued use of contractors to  perform inherently governmental functions, in several cases more than a  year after the issue was initially identified. DOD’s December 2011  guidance will require the military departments and defense components to  certify that they have conducted the required reviews, but the guidance  does not clearly establish lines of accountability and responsibility within  the military departments and defense components for doing so. DOD’s  experience in conducting the fiscal year 2009 review demonstrates the  importance of guidance that provides for clear lines of authority,  responsibility, and accountability if DOD is to use the inventories to help  identify and mitigate the risks posed by using contractors to perform  certain functions.
section_title: Recommendations for Executive Action
paragraphs: To address these issues we are making the following three  recommendations:  To improve the execution and utility of the inventory review process, we  recommend that the Secretary of Defense ensure that the military  departments and defense components issue guidance to their commands  that provides clear lines of authority, responsibility, and accountability for  conducting an inventory review and resolving instances where functions  being performed by contractors are identified as inherently governmental  functions.
To ensure that the six instances we reviewed in which the Army identified  that contractors were still performing functions it deemed inherently  governmental, as well as those at Kwajalein Atoll, have been properly  resolved, we recommend that the Secretary of the Army review these  functions, determine the status of actions to resolve the issues, and, as  appropriate, take necessary corrective actions.
To ensure that the two instances we reviewed where contractors were still  performing functions the Air Force had previously identified as inherently  governmental are properly resolved, we recommend that the Secretary of  the Air Force review these functions, determine the status of actions to  resolve the issues, and, as appropriate, take necessary corrective  actions.
section_title: Agency Comments and Our Evaluation
paragraphs: DOD provided us with written comments on a draft of this report, stating  that it largely agreed with our recommendations and is committed to  continue to improve its accounting for contracts for services. More  specifically, DOD agreed with two recommendations and partially  concurred with one recommendation. DOD’s written response is reprinted  in appendix II. DOD also provided technical comments, which were  incorporated as appropriate.
DOD concurred with our recommendations to address instances we  reviewed in which the Army and Air Force identified that contractors were  still performing functions deemed inherently governmental. DOD noted  that it will work with the Army and Air Force to ensure corrective actions,  as appropriate and necessary, are taken.
DOD partially concurred with our recommendation that the Secretary of  Defense ensure that the military departments and defense components  issue guidance to their commands that provides for clear lines of  authority, responsibility, and accountability for conducting an inventory  review, and for resolving instances where functions being performed by  contractors are identified as inherently governmental. DOD agreed it was  imperative for the components to do so, but noted that its December 2011  guidance, while not prescribing individual management practices,  requires component heads to certify completion of and results from the  reviews. Further, DOD noted that as defense components vary in size  and mission, the need for individual components to have organization- specific guidance should not be mandated but rather determined by each  component head.
Our recommendation does not intend that DOD prescribe individual  component management practices or mandate organization-specific  guidance. We agree that each component should institute guidance that  fits its mission and needs and that the precise nature of each  component’s guidance may vary in scope and detail. Our work found,  however, that the absence of guidance at the military department-level  that provides for clear lines of authority, responsibility and accountability  contributed to the shortcomings and challenges encountered during the  military departments’ review of their fiscal year 2009 inventories.  Given  these results, we continue to believe that it would be prudent for DOD to  obtain sufficient assurance that the military departments’ and  components’ guidance covers the areas—including those enumerated  above—that provide the foundation for conducting a meaningful review.   DOD’s December 2011 guidance, while a step in the right direction, does  not provide such assurances.
DOD also noted in its comments that the Office of Management and  Budget had indicated via e-mail that it would disapprove DOD’s request  for an emergency waiver to the Paperwork Reduction Act. Consequently,  consistent with the requirements of the Paperwork Reduction Act, DOD  posted a notice in the Federal Register in February 2012 seeking public  comment on its plans to begin collecting direct labor information and other  data on DOD contracts. DOD indicated that after it reviews the comments  received by the March 23 deadline, a number of other actions will need to  be taken before DOD can begin collecting such data. As a result, DOD  officials told us they will need to assess the impact these events will have  on the actions DOD identified in its November 2011 plan and, as such,  will not be able to develop additional milestones until this is done. We  modified the text in the report to reflect this updated information.
We are sending copies of this report to the Secretary of Defense,  Secretary of the Air Force, Secretary of the Army, and interested  congressional committees. 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  us at (202) 512-4841 or huttonj@gao.gov or (404) 679-1808 or  russellc@gao.gov. Contact points for our Offices of Congressional  Relations and Public Affairs may be found on the last page of this report.  GAO staff who made contributions to this report are listed in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: Section 803(c) of the National Defense Authorization Act for Fiscal Year  2010 directs GAO to report for 3 years on the inventory of activities  performed pursuant to contracts for services that are to be submitted by  the Secretary of Defense, in 2010, 2011, and 2012, respectively. To  satisfy the mandate for 2011, we assessed (1) the progress the  Department of Defense (DOD) has made in addressing limitations in its  approach when compiling the fiscal year 2010 inventories on contracted  services and in developing a strategy to obtain manpower data and   (2) the extent to which the military departments addressed issues with  contractors performing inherently governmental functions identified during  reviews of their fiscal year 2009 inventories. As the military departments  accounted for 83 percent of the reported obligations on service contracts  and 92 percent of the reported number of contractor full-time equivalents  (FTE) in the fiscal year 2009 inventories, we focused our efforts on the  Army, Navy, and Air Force.
To assess the progress DOD has made in addressing limitations in its  previous approach when compiling the service contract inventories, we  reviewed relevant guidance related to the inventory compilation  processes and interviewed cognizant officials from the Office of the Under  Secretary of Defense for Acquisition, Technology, and Logistics (AT&L),  Office of Defense Procurement and Acquisition Policy; the Office of the  Under Secretary of Defense for Personnel and Readiness; and the  departments of the Army, Navy, and Air Force. We assessed changes  made at the department level between the approaches for fiscal year  2009 and fiscal year 2010, but we did not assess the extent to which the  change in approach affected the estimated number of contractor FTEs  reported in the inventories. For the fiscal year 2010 inventory, AT&L  continued to rely on data from the Federal Procurement Data System- Next Generation (FPDS-NG) for most defense components other than the  Army and the TRICARE Management Activity. As with the fiscal year  2009 inventory, the Army continued to use its Contractor Manpower  Reporting Application (CMRA) that reports manpower data collected  directly from its contractors. We reviewed Army guidance, interviewed  officials responsible for the inventory compilation, and reviewed our prior  work to describe the Army’s inventory compilation process. We did not  independently assess the accuracy or reliability of the underlying data  supporting the Army’s, Navy’s, or Air Force’s fiscal year 2010 inventory.
Our January 2011 report, however, identified limitations associated with  using FPDS-NG data as the basis for the inventory. As such, we  reviewed our prior work to identify these limitations and discussed with  AT&L officials what steps, if any, they had taken to address these  limitations.
To assess DOD’s progress in developing a strategy to obtain manpower  data, we reviewed DOD’s efforts to respond to congressional direction  reflected in section 8108 of the 2011 Defense Appropriations Act, which  required the Navy and the Air Force to submit plans to leverage the  Army’s CMRA system and the military departments and components to  submit plans to Congress for reporting contractor FTEs no later than   June 15, 2011. We reviewed and assessed the 43 plans submitted by the  military departments and defense components as of February 2012 as  well as DOD’s November 2011 plan, which included instructions to the  military departments and DOD components to document contractor FTEs  and begin the collection of manpower data. We interviewed officials from  AT&L’s Office of Defense Procurement and Acquisition Policy, and the  Office of the Under Secretary of Defense for Personnel and Readiness to  obtain their views on the department’s plans to collect contractor  manpower data.
To assess the extent to which the military departments addressed  instances in which contractors were performing inherently governmental  functions, we used data from the fiscal year 2009 inventory reviews,  which was the most current review available at the time we began our  work. To do so, we reviewed a total of 12 instances in which contractors  were identified as performing inherently governmental functions. We  selected two Army commands and one Air Force component based in  part on the number of such instances they had identified. For the Army,  we randomly selected 3 instances from the Army’s inventory review data  at the Training and Doctrine Command and 3 instances at the Acquisition  Support Center. These data included determinations made by the Army’s  Panel for the Documentation of Contractors, which identified the functions  as being inherently governmental, closely associated with inherently  governmental, or unauthorized personal services, as well as the  commands’ determination of how each function was resolved. For the 6  Army cases we randomly selected, we reviewed the inventory review data  and interviewed officials responsible for the fiscal year 2009 inventory  review process. We subsequently eliminated 3 of the instances we  randomly selected because they were identified as closely associated  with inherently governmental functions or unauthorized personal services.  In addition, we reviewed 6 instances where contractors were performing  the duties of Department of the Army systems coordinators. Army’s 2010  acquisition review chartered by the Secretary of the Army determined that  these positions were inherently governmental. For each of these cases,  we reviewed the contract files and interviewed program and contracting  officials responsible for these contracts to determine the extent to which  DOD took action to resolve instances of contractors performing inherently  governmental functions.
The Air Force provided data to us in September 2011 that summarized  the results of its fiscal year 2009 inventory review process, including  functions being performed by contractors that it identified as inherently  governmental. Pursuant to the Secretary of the Air Force’s October 2010  guidance, the inventory review was to include all contracts from the  beginning of fiscal year 2009 through August 2010. From these data, we  determined that the Air National Guard had the largest number of  instances in which the review process identified contractors as performing  inherently governmental functions, and randomly selected 3 instances the  Air Force had identified as including inherently governmental functions at  the Air National Guard. We also interviewed officials from the Air National  Guard and the Air Force Space Command about their inventory review  process. In November 2011, Air Force officials provided us a revised data  set that excluded contracts awarded from October 2009 through August  2010, including the contracts at the Air National Guard. Since these  contracts were reviewed as part of the Air Force’s fiscal year 2009  inventory review process as directed by the Secretary of the Air Force  and included functions identified as inherently governmental, we included  them in our review.
At the time we initiated our work, Navy headquarters officials did not have  the results of their fiscal year 2009 inventory review process available and  subsequently acknowledged that they were uncertain whether their  commands conducted the required reviews. Consequently, we  considered DOD’s fiscal year 2010 in-sourcing data that were reported to  Congress in September 2011. From the Navy’s in-sourcing data, we  selected Fleet Forces Command and Space and Naval Warfare Systems  Command for further review based on the number of positions they  reported as in-sourced based on contractor performance of an inherently  governmental function. We also contacted Naval Sea Systems  Command, the largest of five Navy systems commands, to discuss  whether the command had conducted an inventory review but were  informed that the command had not done so. We did not review individual  Navy contracts because Space and Naval Warfare Systems command  officials stated that it was not possible to track the positions to specific  contracts. Also, we found that the commands subsequently reported that  the functions were not inherently governmental and were in-sourced for  other reasons, such as to provide Navy personnel career progression  opportunities.
For the 12 cases we included in our review, we compared the information  that the Army and Air Force provided regarding the contracts they  reviewed with information in the contract files and found the data  sufficiently reliable for the purposes of our work. We did not, however,  independently assess whether the functions the military departments  identified were in fact inherently governmental. Further, the results of our  analysis are not generalizable to all instances where contractors were  performing inherently governmental functions identified by the military  departments.
We conducted this performance audit between July 2011 and April 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: Comments from the Department of Defense
section_title: Appendix III: GAO Contacts and Staff Acknowledgments
subsections: section_title: GAO Contacts
section_title: Staff Acknowledgments
paragraphs: In addition to the contacts named above, Timothy DiNapoli, Acting  Director; MacKenzie Cooper; Julia Kennon; John Krump; Angie Nichols- Friedman; and Guisseli Reyes-Turnell made key contributions to this  report.